Managing Legal
The Point
Factor is a prominent “alternative legal services provider”, or “law company”. That means it offers technology and workflow process professionals to support delivery of legal services; but, unlike a law firm, it has no attorneys who offer legal advice directly to clients. In June Factor announced a “Legal Transaction Optimization” service to automate routine transaction tasks for law firms that do complex corporate deal work:
“By unbundling transactional tasks from legal advice, law firm juniors billing at high rates are replaced with tech-enabled teams specialized in producing better output.”
This Matters
1. Factor’s service costs a lot less than what law firms have been charging for these transactional tasks (50% less in a recent reported deal).
2. Factor’s technology-enabled, automated process is likely to be more accurate than junior lawyers’ manual efforts at due diligence, document assembly, and other repetitive, error-prone tasks (for instance, see here).
Because …
Here’s the feasibility hurdle to Factor’s new offering: because of its cost efficiencies — and despite its greater accuracy — will law firms reject it as cannibalizing the hundreds-per-hour they charge for their junior lawyers’ work on routine deal tasks?
I found no legal press commentary on Factor’s new offering that questioned its functional effectiveness (see here, here, here, here, and here).
Instead, law firms’ pursuit of “associate leverage” (explained here) presents the main challenge to adoption. Are law firms willing to give up the revenue they earn from junior lawyers’ hourly charges for the routine work that Factor’s offering automates?
Steve Embry, former partner with a prominent national law firm, who now evaluates technology’s application to law practice, puts the question this way:
” … Legal Transaction Optimization is designed to provide law firms tech-enabled transaction management, due diligence, and documentation support to deal teams. In other words, Factor is asking law firms to buy services that would replace work that is being done by support staff and junior associates ….
“Sounds good in theory. But in practice, I’m not sure it will work … Here is the trap many law firms find themselves in. They pay starting associates astronomical sums of money. Yet law schools haven’t done much to train these young associates how to practice law. To do legal tasks. Since they can’t do much in the way of practice, law firms and partners all too often give them work that a paralegal or in some cases an admin could do. Otherwise, the young lawyers would not generate the revenue from billable work needed to even come close to offset their cost to the firm.”
In legal spending on complex corporate deals, the “muscle” consists of authoritative, strategic advice from the best — and therefore more expensive — specialists available. Hourly charges for junior lawyers doing routine work that can be done at lower cost and greater accuracy by tech-enabled workflow process professionals amount to “fat”. Under the legal profession’s prevailing business model, lawyers in-house and in law firms embrace not only the muscle but also the fat in legal spending.
In most companies, sound cost management in the corporate law function will require that CFOs or other business executives intervene.