On the international stage, Mexico is known for many things – stunning mountain ranges, distinctive folk art, white sand beaches, and well-exported tradition. Now, another distinction is emerging from the Latin American country: one of entrepreneurship and innovation. According to a survey conducted by the Association for Private Capital Investment in Latin America (LAVCA) in 2019, Mexico accounts for the second-highest proportion of Latin America’s start-ups, second only to Brazil.

With this renown comes investment; money poured from around the world into companies of Mexican origin – so much so that, in 2015, Mexico actually overtook Brazil, becoming the most popular destination for private equity vehicles in Latin America, reaching USD$2.1bn in raised capital, according to the Emerging Market Private Equity Association (EMPEA).

In a funding round this year, card payment start-up Clip raised USD$100m, including a USD$20m investment from Japanese giant SoftBank Group. In 2018, Mexican scooter start-up, Grin, raised a Latin American-record breaking USD$20m in a seed round just months after its founding.

But among the positivity to be found on the ground are worrying signs that Mexico’s hard-fought status as an innovation hub is fading: the government in Mexico has softened its commitment to supporting the country’s start-up scene, and hasn’t been able to make a dent in global innovation rankings, in which it ranks near the bottom of the table out of fellow industrialised countries.

Nevertheless, the demographic case is a strong one (a median age of 27 and 86% mobile phone penetration, according to a 2019 report by the Center for Strategic & International Studies (CSIS) Americas Program), and there are highly motivated parties throughout Mexico that are forging ahead, excited to play a role in helping Mexico achieve its massive potential as a nexus of innovation and entrepreneurship in Latin America.

Innovation Actors

Mexico has gradually positioned itself as an innovation hub and global investment destination, but it wasn’t wholly organic. Rather, it has been the result of a push on many fronts: from the federal government, to Mexico’s educational institutions, to the general counsel of industry companies on the ground.

On the government’s part, the Secretariat of Economy established the National Institute of the Entrepreneur (INADEM in Spanish) in 2013, in order to support entrepreneurs and SMEs throughout Mexico, both financially and otherwise. It was the subject of criticism for alleged corruption and inefficiency – and was dissolved in 2019 – but provided direct support to budding entrepreneurs and was initially well funded, with a budget of USD$664m in 2014. The dissolution of INADEM has left a void, and it’s unclear how the new administration plans to enable innovation moving forward. But the economic benefits of realising Mexico’s entrepreneurial potential should be an easy sell for governments.

‘In the beginning, there was a trend, with the government implementing INADEM, in having federal resources used on national investments. At the time, at least 50% of the money invested was put up by INADEM,’ explains Mariana Romero, general counsel at LIV Capital, a leading Mexican private equity fund.

‘You had to compete to get the funding, and fit certain criteria in order to be eligible for the funds. Although it has been terminated now, they are trying other programmes, but they haven’t been so effective. But, the non-financial resources INADEM provided are still being used.’

Azael Capetillo is the director of the INNOVaction GYM – a centre for innovation and entrepreneurship at Mexican university Tecnológico de Monterrey. The centre is located within the university’s school of engineering and, among other things, is focused on accelerating disruption. While the centre caters mainly for students, it is open to enthusiasts and entrepreneurs from the wider community. From that position, Capetillo has seen how the government, both locally and federally, have interacted with the entrepreneurial community in Mexico.

‘The economic office of Monterrey, one of their roles is to increase economic development. They can see through these kinds of actions that their own goals are starting to be accomplished as well. It gets to a point in which this becomes strategic for them, because it progresses their own goals,’ he explains.

‘Sometimes, one of the things the government doesn’t understand is the pains of the industry or entrepreneurs. By working with these kinds of initiatives, they get a close understanding of the problems suffered by the industry and entrepreneurs. Once they understand the problems, they take actions to fix those problems. Most of the time, it’s not that the government doesn’t want to help, it’s that they don’t understand exactly what the problem is.’

This can be of particular concern for start-ups whose business needs have advanced beyond the regulations already in place. For instance, Mexico City-based fintech start-up Credijusto provides asset-backed loans to SMEs in-country.

‘Even though we do structure our loans in a way that you would call traditional lending, the means that we do it from are pointed toward the technological,’ says Ariel A. Lupa Mendlovic, chief legal officer at Credijusto.

‘For example, we are trying to do non-present lending, and that’s where there is a lack of regulation. The regulators are not ready for a company like us approving loans without being in the same room as a client. So, we’re pushing for e-signatures for mortgages, and we are pushing for non-present signatures for IOUs or promissory notes. This is an area of opportunity.’

Mexican Economy

The way that Mexico is governed, together with the economic success that smart regulation and legislation bring, are co-dependent with the well-being of the innovation scene. A healthy Mexican economy will attract more capital, as will inviting regulation – but it is the success of innovative companies in Mexico that feed back into the economy. The result is that every player in the ecosystem plays a significant role in the overall success of the Mexican economy.

‘There are tonnes of opportunities here in Mexico. Mexico is not always seen as that opportunity, because there are worldwide investors that look at other places,’ says Romero.

‘But when you see that there are a lot of good examples in Mexico that we can bring to the world, and put us on the map for investors to see – that’s when you start attracting money to come here.’

Credijusto is a good example of this interconnectedness – in this case, in the fintech sector. Credijusto was born out of the need of SMEs to be able to secure loans at a time when the large, incumbent financial institutions were unwilling to adequately cater to them.

‘Here in Mexico, for instance, there has been a real gap to fill in terms of financial inclusion,’ explains Mendlovic.

‘Banks have been historically fairly conservative in their lending practices – young companies that are creative need a certain amount of financing, but banks would only authorise small amounts, so they were getting left out. But, at a macro level, SMEs are the ones that drive the economy.’

And yet, federal regulations happened to be such that a start-up like Credijusto would be a viable proposition.

‘The gap was easy to fill for Credijusto and similar companies, because regulation in Mexico has been fairly convenient for non-bank lenders.’

This is also the case for Carlos Sánchez Almada, director of legal, compliance and public policy at Kuesk, another fintech start-up in Mexico offering small loans made available via mobile, facilitated by advances in AI and machine learning, which allow funding decisions to be made in minutes.

‘We are very grateful to the Mexican government because they have given us the opportunity to develop as a new business model, not only by supporting our new concept, but also by allowing us to share our good practices in order to receive their recommendations and apply them to our projects,’ Sánchez explains.

‘Presenting the company and the business model to the authorities is one of my activities, and it is maybe the one I enjoy the most because Kueski has become a high-impact company in Mexico. This is due to the high need for credit accessibility in our country’s population.’

Monterrey, the site of Capetillo’s INNOVaction GYM, is a renowned hub for innovation in Mexico. The reason behind that is another illustration of the interface between business and government, and the roles each play in developing the economy. Initiatives such as Nuevo León 4.0 (Nuevo León being the state in which Monterrey sits) was introduced to modernise the state, long known for its traditional manufacturing and production industries.

‘Monterrey has been an industrial place for many years – over 100. It was a strategy of the government in those times, and now you can see that industry here is very well known for product manufacturing and efficiency. A few years ago, the Secretary of Economy at the time was a businessman, and he realised that the industry here needed to adopt new technology, and he pushed for the creation of this programme – Nuevo León 4.0,’ explains Capetillo.

‘There has been a strategy behind this – that if we don’t change the industry from being a production industry to a knowledge industry, we are sooner or later going to be displaced by someone else. So there is this strategy of moving into a knowledge industry, creating an industry which is leveraged by the previously established companies who create a demand for these new applications. So it’s not only by chance – there has been a lot of planning in the community.’

Romero, having been in the private equity industry for more than a decade, has had a front row seat to the government’s efforts in this area and has taken note of what has specifically contributed to the growth of investment into Mexico. Of particular importance was the recent decision to allow Mexican pension fund managers to begin spending into a broader set of investments than was originally allowed (since the creation of the Mexican retirement fund regime in the 1990s, these pension funds were limited to investments in public debt and foreign currencies). Now, as the Mexican economy has become increasingly sophisticated, regulations have delimited these funds accordingly.

‘Ten years ago, that was unmentionable,’ she explains. ‘Mexican funds had a lot of money and it was just sitting there, and would only be invested in places where there wasn’t much risk, but also not much in the way of returns.’

Education

The aforementioned demographic advantage held by Mexico also means its educational institutions are a critical cog in the machine. According to a 2018 white paper by Mexican industry advocate Entrada Group, Mexico graduates more engineering and technology students on an annual basis than the United States.

‘What the universities have done is to push for knowledge in these areas. Now, it’s a common topic to have blockchain, artificial intelligence, data analysts, cybersecurity and additive manufacturing,’ explains Capetillo.

‘In Monterrey, we have four main universities, which are in the top ten universities in Mexico. Two of our projects, Nuevo León 4.0 and MIT REAP, have joined the universities in pushing for this knowledge and these skills. You have students come in for workshops in Monterrey and then another in other universities and so on. Universities have tried to democratise knowledge and skills in these new technologies.’

Nuevo León 4.0 is a collective effort between the state’s universities, business community and government to maximise output from the longstanding manufacturing centre. MIT REAP – short for Regional Entrepreneurship Acceleration Program – is an innovation accelerator initiated by the eponymous United States university, which isolates regions with great potential for innovation and establishes partnerships with their local communities – particularly their educational institutions – in order to share knowledge across borders. It admits up to eight regions into the programme annually – Monterrey joining in 2018 with Tecnológico de Monterrey as a key stakeholder.

Investing With Mentorship

An indispensable part of the global innovation economy are private equity venture capital funds. Aspiring innovators, with ideas they believe have commercial value, have few options when looking for funding given the chasm between early-stage business propositions and the thresholds and preparation required to embark upon an IPO. Private equity and venture capital firms serve as a facilitator, connecting innovators with sources of cash.

Romero is undoubtedly a reflection of the bullish attitude those GC spoke with towards the role Mexico has to play in the global investment economy, and her enthusiasm for Mexico’s potential and LIV Capital’s ability to realise it is palpable. She joined the company in 2013 as its first in-house legal counsel, at a time when few other funds were considering establishing their own legal team.

‘At the beginning, many firms saw inside counsel as just a cost, and they’d rather hire outside counsel to look after their fund. But I thought that was a mistake: you need a lawyer, and you never know what’s going to happen and you want to save costs by not hiring someone in-house and outsourcing everything to your external lawyer, but he or she does not know the whole story. They don’t know the history of the fund or the portfolio companies. How can an external person be familiarised with the whole structure of the fund?’ she says.

‘Now, I see many fund managers have their own in-house counsel and legal team. You’ll always need support – in-house counsel can’t be all hands-on with everything that happens in the fund; for instance, you might have labour claims or criminal claims – but you need someone to have the ability to collaborate and create a structure in the fund where everything works.’

Starting up the legal function

If the proliferation of in-house counsel within equity funds has been slow to become commonplace, then it’s been even rarer for the high-growth companies they count amongst their portfolio – especially those on the start-up end of the spectrum.

Credijusto, for example, hired Mendlovic as a dedicated legal director at a relatively early stage – and he can see problems arising from a time where there was no legal department within the company. So Credijusto is certainly better off for it, he contends.

‘Our contracts were a mess, and no one in the company could collect on their contracts because they weren’t feasible to litigate. So I came in on a clean slate, and convinced the CEOs that at the core of what we’re doing is selling contracts so it’s very important to have a strong legal team,’ says Mendlovic.

‘We were also wanting to secure VC funding and investments from banks so, on that side, we get all of our advice externally and we were advised well. But, on the other side of the business, that was abandoned to third parties, and external lawyers generally don’t have a deep knowledge of the company, which will always lead to some messes needing to be cleaned.’

And here again, there is an illustration of how the many ingredients of Mexico’s start-up world connect.

‘You are starting to see a trend – which I’ve been pushing from my side – to have our portfolio companies have their own legal counsel, at the company level,’ says Romero. ‘But it’s often thought that the lawyers of the funds would also be posing as the lawyers of the companies they’ve invested in. Imagine that. How many portfolio companies do you think we have? If I was acting as internal counsel for each of those companies, I wouldn’t have time for anything,’ she says.

‘So, what I have started doing in the past four years is, of the companies we invest in, I make sure they bring in someone. It doesn’t have to be someone that is experienced, because I would be mentoring her or him, and I can be in constant communication with them. We try to differentiate from many other private equity funds. For us, it’s not just money. It’s intelligent money. We’re bringing in the money to grow the business, but we are also helping them – from the business side – to make sure their business is running well on the legal as well as the financial side, so that when an investor eventually comes over, the company has everything they need.’

While ‘fast growth’ might not inspire thoughts of management overly concerned with legal, Mendlovic has found that being the in-house adviser for a start-up has been an experience like no other.

‘Being in a fairly small company – we’re still 260 employees – the environment is actually pretty horizontal. Members of the management team, the CEOs and the founders and the investors walk around through the office and there’s always an element of “Hey, Ariel – we need X. Can we do Y to get it?” And I get interesting questions. I like to think of myself as a problem-solving lawyer, and I need to think outside of the box. It’s pretty interesting to get different members of our team join the compliance perspective with the more aggressive sale perspective to find the perfect solution.’

This aligns with Sánchez’s experience at Kueski.

‘One of the benefits of advising a younger company is the opportunity of establishing the legal foundations from the very beginning,’ he says.

‘As a young, growing company, Kueski faces challenges every day but we do not consider them as problems, but opportunities to learn and become stronger in our determination to be an honourable leading enterprise which can set the example to other start-ups in Mexico.’

Most in-house counsel interviewed agreed that technology was a partner in the process – an increasingly unavoidable one – but not a rival. Yet support for technology in corporations, particularly legal departments, nevertheless butts up against frequent barriers.

Leadership

Unsurprisingly, support from corporate leadership is a prerequisite when it comes to weaving technology into the fabric of internal teams. Those at companies already well versed in technology often gravitate more quickly towards technological solutions.

There was a sense among some interviewees that timescales for innovation in more tech-based industry sectors could be truncated compared to more traditional sectors, or those with less of a technological provenance. Tech companies, for example, often enjoy a head start in the mindset of management, and a supportive attitude among the general workforce to tech or innovation-based change. These elements can help teams enjoy quicker productivity and efficiency gains than more traditional companies, who might be less open to technology culturally.

And, of course, expressions of support from leadership much be accompanied by practical encouragement – namely, financial support. Of those who participated in our report, 60% said their department had received an increase in budget for technology over the past five years. Those who had received an increase in budget were much more likely to cite technology as a strength of their legal team, at 71% (compared with 30% of those who hadn’t received an increase in budget), and to think that their company was well positioned with their use of technology, at 76% (versus 40%). Of course, the leadership of the legal team must be live to the necessity of obtaining budget specifically for technology – and, according to some, it’s a matter of outlook.

‘If the person that is leading the legal area doesn’t take the fact that they will need money for innovation or applying systems or technology into account when they are developing that budget, well, that’s a failure. It’s just because they haven’t thought about it,’ says Pablo Enrique Urrego Hernández, head of legal at Diageo Colombia.

‘What normally happens is, in the middle of the project, you ask the CEO to give you money for something you haven’t taken into account. Probably you can ask for some more money, but you must have already had the idea of developing that technology. You have to be smart. That’s why I say everything is part of the culture. If you have that in mind and it’s part of your DNA as a lawyer, you will be able to get the resources.’

For this, Urrego Hernández believes it is important for the GCs themselves to lead any example and model a progressive attitude towards embracing technology.

‘We need to develop leaders on these issues, and my challenge is to become a leader. I probably won’t be the one that will develop the systems, but I could be the one who can push everyone to understand that adopting these kind of systems is a good thing.’

Practical makes perfect

In a region as diverse as Latin America, practical constraints can be a common source of frustration among leaders eager to implement technology in multinational corporations.

‘We do have countries and projects where internet connectivity is an issue. In those cases, having world-class technological tools available to us can actually be time consuming and frustrating,’ explains Selim Guvener, general counsel for the International Potato Center.

‘We’ve been looking at how much can we do by teleconferencing rather than travelling, allowing us to have as much face-to-face interaction as possible – without having to travel across the world and contribute to global warming. On one hand, technology is developing significantly, but on the other, there are still parts of the continent that are lagging behind.’

Even when accessibility is not an issue, there might be competing systems in play. In rolling out a global contract life cycle management system, Bayer found it had to abandon systems in certain jurisdictions, for example.

‘In the past, each region had developed their own IT tool for contracts. Now that we are migrating to the new tool – which is the single tool which will be used by everyone – it creates an additional challenge for areas or regions that need to leave the tools that were already developed, and migrate to this too,’ says Alejandra Costa, head of law, patents and compliance for Central America, Caribbean and Andean region.

‘If you’re a big, global company, you also need to prove that this technology is in accordance with the entire IT project globally. Not just in terms of local security – because what you are doing on a local level can interfere in security – but you need to understand that everybody has to approve,’ adds Patricia Ulian, general counsel for Archer Daniels Midland Brazil.

Interface issues might also become apparent when engaging with external parties.

‘When you are outsourcing your services to a large number of outside counsels, it is natural that each and every law firm uses their own system and has their own routine. It is difficult to make sure that the external company is using your system or actually providing the information that your company requires,’ says Rafael Dantas, general counsel/director for legal and compliance Latin America at General Mills.

[Data] Private: Keep Out

Thinking globally has not only practical implications, but also regulatory ones, meaning that companies must stay compliant across the board – preparing themselves to be fit for purpose in the most rigorous regulatory regimes, even if this means appearing heavy-handed in jurisdictions with a less prescribed approach. Nowhere is this more evident than in the context of data protection, as Catalina Morales, data privacy manager for Central America and Caribbean at Bayer, discovered when implementing a global system to ensure compliance with the EU’s General Data Protection Regulation.

‘Obviously there were, at the beginning, rejections: why do I have to apply GDPR, locally it’s not applicable, I don’t process EU data. But, even though you don’t process EU data, you may be doing a clinical trial locally, and in that clinical trial the data is being sent to our headquarters in Germany – so there you should be complying with GDPR,’ she explains.

‘We had to explain every simple situation where GDPR could be involved to make them see that actually it was important for us to apply it, even though locally you don’t have an obligation.’

In Bayer’s case, the system in question acts as a repository for data processing activities, enabling swift and detailed mapping of what data is accessed and when. But, in other contexts, technology could muddy the data security waters in terms of risk and accountability.

‘The more digital we become in our work, the more difficult it is to establish network safety and security. So, at the same time, we need to educate the people who are using and accessing our network in order to protect it. This will require training and capacity building for our workforce,’ says Guvener.

A clear understanding of accountability in data processes must also be ensured, to avoid ‘the machine’ being blamed for data leaks, when the issue might be one of process or authority.

Winning hearts and mindsets

Across the board, a major challenge for those implementing changes in systems and processes is gaining the buy-in and support of team members. Those on the frontline of using new technology might raise myriad concerns, ranging from reluctance to adjust to a new way of working, doubts in the quality of the system itself, through to a more existential fear of being rendered redundant.

Those who participated in our research thought that, as a whole, the profession was not adequately prepared to adapt to technological changes. Only 22% of participants believed that today’s lawyers were properly prepared and equipped to embrace technology, despite 97% saying that their team members were receptive to its use.

‘I believe the first step is constructing a culture of digitalisation, automation and using technology so that people understand that these are tools that can make life easier and better. They are not competition, they will not replace a lawyer – in my team, every person is important. What I want to be able to do is to free capabilities – give my lawyers freedom to work on other issues,’ says Urrego Hernández.

‘If you have a lawyer spending time doing contracts, that’s not right! You need to liberate, create time for them to do all those things and be able to develop other skills. What technology can do is become a partner in that development – it’s their best ally for that. If people start to understand that technology is a partner and not an enemy, or a possible substitute for their job, that will change the progress of what we have been doing.’

For Urrego Hernández, such a culture change means not only approaching new technological systems and processes with an open mind, but with a willingness to share company information with external legal tech developers, in order to develop bespoke solutions.

‘You might not be able to find what you want because it’s not yet developed, but you can find someone able to develop it. But in order to find that ally, you have to be really open minded,’ he says.

‘They need information that might be confidential, or to understand problems that normally you would not talk about outside the company. But once you understand they are an ally and give them trust, everything goes more easily.’

It’s an oft-repeated thought that lawyers are conservative and slow to adapt to change when compared to those in other professional sectors. But some believe that it’s sometimes unfair to stigmatise lawyers in this way. Rather than comparing apples and oranges, it’s important to compare apples and apples, this thinking says: areas that involve much human interaction can’t simply replace entire thinking or decision-making processes, and perhaps those areas of the profession not seeing drastic technology-induced changes are those that require a large amount of additional insight on top of what technology can provide.

Not everyone agrees on the uniqueness – and, hence, immunity – of the law when it comes to technological innovation, however.

‘I think that lawyers believe they are not comparable. This is why we have sometimes not implemented technology. But I do think that our services are totally comparable to other areas that have already implemented these tools, like in accounting and finance teams. We are able and we can implement those tools – and there is no need to be afraid of that,’ says Costa.

‘I remember when we implemented digital signatures for several legal procedures, there was a lot of resistance from lawyers in the region, but now we use it on a regular basis and digital signatures are part of what we implement in contracts and data procedures. I think there are a lot of things that we can do and I think that legal departments are more than prepared to undertake this.’

The chicken and the egg

Across the board, across continents even, there is a sense, even among many in the legal profession, that use of technology lags behind in the law. If there is a reluctance for legal professionals to adopt technology when compared to other professions, there was some discussion about why.

Some of those who provided input for this report speculated that, perhaps due to its difficulty as a subject, many were avoiding law, choosing instead to train in other business areas such as marketing, business administration, and other areas that are useful in a globalised business world, and currently popular career choices. Perhaps law struggles with its (perhaps unfair) reputation as a stopper, rather than an enabler, and this is a disadvantage it in the innovation stakes.

If it is true that law is at times seen as a less attractive choice for potential candidates, is it the very lack of technology and innovation in the law that is deterring minds from a traditional legal career, and attracting them to a newer breed of company? Bruno Feigelson, lawyer, entrepreneur and president of the Brazilian Association of Lawtechs and Legaltechs, thinks this might be the case:

‘They asked associates in big law firms in Brazil if they dream to be partner one day. They don’t want to be partners, they are not happy with the way things happen, so these new structures, these new law firms, these new ways, are attracting the best talent,’ he says.

‘The big challenge for the big law firms in Brazil is how to attract the better brains to the law firms. They want people that understand how to use software, how to use design, how to understand the legal system in another way, they start to search for new opportunities. We have a lot of special persons doing law tech, trying with new law firms, so we have a new evolution with these new young people and also the youngest people from the legal departments, they are searching for another way.’

Regardless, it seems obvious that the various arms of the evolving ecosystem for legal solutions – in Latin America and globally – could benefit (and are doing so, in many cases) from cross-pollination. Especially in the world of tech, recognition is growing about the importance of having people from different areas share ideas and explore how synergies can be created. Engineers, lawyers, people from different disciplines, can share experiences, generating improvements and new ideas in the process, which can then be applied to solutions.

Winning the innovation battle

But, as those in-house will be quick to attest, the legal profession is very much a profession of two halves – and it is often in-house teams, in close partnership with other business functions, who lead the game when it comes to tech adoption.

Interestingly, when it comes to using technology, looking to external law firms for guidance remained a rarity. Only 35% of our respondents said that they were satisfied with the use of technology by their external firms, despite 86% saying it was somewhat or very important to them that their law firms keep abreast of new technologies. Only 26% said that they looked to their external firms for guidance when it comes to new technology, with even fewer – 18% – saying that their firms had offered to share or help with the implementation of tech systems.

‘In Latin America, and in Colombia specifically…there are just the typical law firms that have a hierarchical structure of partner, associate, staff and so on,’ says Urrego Hernández.

‘They have the old-fashioned way of working and trying to change that is like trying to break a bargain. They do not care much about innovation and, I have to say, it’s frustrating, because in-house legal teams are far ahead of the legal firms in terms of using technology and using these kinds of tools.’

It’s not true to say that law firms are trying to hold back the tides across the board, however, and some noted some flexibility and adaptability among external providers.

Feigelson is seeing the shoots of technological growth starting to show in the legal system in Brazil – evidenced by some law schools beginning to teach coding, and an increase in management approaches such as agile, conceived in the software development sector and often assisted by technology tools.

‘It’s very common in Brazil for the boards of the big companies to invite the CEO to go to Silicon Valley to understand how disruption is happening, in order to change the way of the future. So, the CEO goes there and they get completely brainwashed. They come back to Brazil, they hire a chief of innovation and they start to do things in another way,’ he says.

‘The legal department starts to be completely alone in the company, because the legal department knows how to work in the last century; they have some trouble connecting with and understanding these new ways within the big companies. So what we are living now in this moment is that the legal department is trying to be new. It’s very common for legal counsel to be trying to understand innovation, going to legal class about innovation, reading books about innovation.’

‘But I think the legal department is more advanced than the law firms – they are inside the companies, they are living this change, and they need to reconnect with this new world. So the reconnection of the legal world with this new reality of the fourth industrial revolution – it’s easier for legal departments than the law firms,’ he says.

The future

Recent years have seen an expansion of the role of the in-house lawyer in a number of different directions. Legal qualifications now sit at the centre of a wheel with an ever-increasing number of spokes, of which technology is one – in Latin America and across the globe – and to be equipped for future success (and relevance) legal professionals must keep their toolkit well maintained.

As Urrego Hernández aptly puts it: ‘You don’t have to spend your whole time being a lawyer, you have to spend your whole time being a lawyer that can fix problems, not just by using law, but by using other tools, other skills and other people to help you.’

Here at World Services Group, it is our pleasure to introduce you to the second in our series of GC special reports examining the present state of technology use by in-house legal departments around the globe.

Based on the stories and experiences shared as part of this report, there appears to be no denying that the use of technology in the legal sector is flourishing across Latin America. From blockchain-backed smart contracts to law firm relationship management software and everything in between, evolution is evident in all aspects of legal life – much of which is being driven by in-house legal departments. With positivity emanating and uptake rapidly increasing, the point of maturation for legal technology is not just on the horizon, but rapidly approaching.

As private practice lawyers, this means that we must also be at the vanguard of technological development. With the range of novel applications being implemented by forward-thinking counsel and their businesses, it is crucial that we understand the disruptive potential of technology in order to ensure that we remain relevant as trusted advisers in an ever-changing corporate environment. General counsel have made technology a business priority, which means that we must make it a business imperative.

Getting buy-in and leadership from all corners of the profession will be an essential component for long-term success. New solutions will require new thinking and, as the report reveals, implementing technology into legal functions is not always a straightforward matter. Considerations around the ethics of different innovations and the impact they can have on businesses and their legal departments is just one prominent example shared of the new challenges being faced by counsel of all walks. Oftentimes, these will have no clear and obvious precedent to follow, which speaks to the importance of engaging with members across the legal fraternity.

At World Services Group, we do not want to be passengers as our profession changes around us; we strive to be agents of change that help to facilitate progress. Partnering on projects like this provides us an opportunity to directly engage with thought leaders from across the legal world and glean insights into what the future of the legal profession may look like, as we collectively chart a renewed path for the practice of law and enable our member firms to add value for their clients.

Finally, I would like to extend my thanks on behalf of everyone at World Services Group to all of those who took the time to contribute their views and opinions as part of this project. The insights you’ve shared will undoubtedly ignite discussions and establish a dialogue about the impact technology stands to have on the legal sector – both in Latin America and further afield – but more importantly, help us all to consider how we can harness its potential for the betterment of everyone in our profession.

J. Michael Bernard

Chairman,
World Services Group

Equity Member,
Dykema

When GC surveyed and interviewed a host of general counsel at some of the biggest corporate players in Latin America, what emerged was a variety of approaches to the question of how best to incorporate technology into the daily life of the in-house legal department. But whether the response was a wholehearted embrace, a cautious side glance, or something in between, what many agreed on was the fact that technology has made a significant advance into legal teams over the last five years – and that advance is set to continue.

‘In my three years at Bayer, I’ve seen the introduction of many systems. For example, a new tool was just introduced this year for contracts and Prime for data privacy was introduced last year. Comcat (a compliance tool) was in diapers three years ago, but it has gained significant importance around how we report on compliance cases. In my three-year period, it has moved very much towards a technology-based or technology-oriented profession,’ says Catalina Morales, data privacy manager for Central America and Caribbean at Bayer in Costa Rica, currently in an assignment based in St. Louis, US.

Bayer has taken a global approach, with the Central America region assimilating accordingly. But general counsel at Archer Daniels Midland Brazil, Patricia Ulian, has added personal momentum to the tech wave.

‘I myself am a person that really thinks that technology is important, because you really can replace operational work that I think is not a priority for senior lawyers – I try to prioritise the strategic issues and benchmarking, in order to check the other companies and really understand what we have in the market. I try to improve and, if this is the case, we invest externally,’ she says.

‘Five years ago, information control was totally dependent on human action. In-house lawyers were much more operational and less strategic, as they had to dedicate their time to fill in Excel sheets and other reports. The margin of error was high, the time of responses was longer – and those aspects directly influenced the quality of the decision-making process of the company.’

A race to technology?

In this spirit of striving to minimise administrative tasks, the GCs we interviewed for this report have much in common with their counterparts around the world, who have bid farewell to the paper-based days of yore. But some feel that parts of Latin America have further to go to catch up with peers in certain jurisdictions. Selim Erdil Guvener, general counsel at the International Potato Center in Peru, is one such person, having moved to Latin America six years ago after a career that has taken him to London, Istanbul, Nairobi and Benin.

‘I think the legal profession in Peru is behind the US and Western Europe in terms of adopting new technology. Here, I can still only see technology use at the word processing and some systems levels. But lawyers will need to adapt quickly, as digital transformation is picking up speed, especially in the government,’ he says.

Of course, in a region the size of Latin America – including 20 countries for the purposes of our research – and with the unique character of each country, it is impossible to draw conclusions that are too general.

‘Latin America consists of many nations,’ says Ulian. ‘For example, you’ve got both Mexico and Bolivia – these are two totally different countries with different levels of development. When you think of Mexico, there are many differences in culture, and you must also consider the dependency on the US. You also have Brazil, which speaks Portuguese, whilst all other Latin American nations speak Spanish. You have many differences, but Brazil is a pioneer in this area compared to other Latin American countries.’

Vastly differing economical, commercial, societal, and geographical landscapes across the numerous countries making up the Latin American region have resulted in similarly different priorities for the governments governing those countries. Regulatory differences therefore exist across the region and, in some cases, technology regulation might not be the most pressing or significant issue for the relevant country regulators and the legislature.

Despite the inherent differences between the various countries that comprise the Latin America region the counsel who participated in the quantitative aspect of our research were near unanimous in their agreement that technology had become an essential component of any in-house lawyer’s role. Indeed, 96% of respondents reported using specialised legal tech within their departments, with only 11% saying that the use of technology within their legal department hadn’t changed in the last five years.

Says Ulian: ‘I believe legal technology is already helping us to work smarter and can make in-house teams more efficient, improve knowledge retention, accelerate professional development and reduce potential burnout.’

Making connections

Some general counsel stressed the importance of technology in bringing closeness among parties, be they internal, external, or even customers.

‘I think the future is about AI and connection, because as much as we can be connected now, we cannot connect things and people – AI helps with this. When you can make out as many links as you can between people and information – for example, you can now make a complete profile on and of anyone… This is powerful because I can have a conversation with them and convince them of something, because essentially, I know them now,’ Ulian explains.

‘We can see this when purchasing items on Amazon: when you buy a product, Amazon offers you other related products. This is embryonic and I think the future will be more like that. The more connected we are with information, the more connected we are with people.’

But on a more prosaic level, the existence of technology can foster a greater understanding between legal department and business partner.

‘We are now a lot closer to our clients, thanks to technology. Not only from a telecommunications and technology point of view, but also because we’re able to follow their work and provide support almost instantly. Now that we have significant information technology support, we can understand what the client’s business actually is,’ says Guvener.

‘Let me give you an example: we have a monitoring and evaluation platform where we gather all the information – this is not necessarily legal information. But, we do have the key performance indicators in there. We can look at it and identify the key challenges colleagues are facing. We can see if there is anything related to legal challenges. Therefore, we can pre-empt project implementation challenges before they become real bottlenecks for projects. The ability to work on legal documents in real time is a real big change.’

The human touch

Much discussion on the topic of technology centres on the issue of how much professionals have to fear from technological advancement. But many of the general counsel we spoke to were relaxed about any potential ‘threat’ posed by machines.

‘Technology is not here to replace a lawyer’s work, but rather to enhance it. There is a human factor that lawyers provide – interpretations, judgement, decisions, solutions and knowledge of legal systems and a particular business situation – that need to be part of the entire law system, that is why technology and human knowledge are complementary. On the other hand, if a lawyer keeps up with the different technological changes and embraces new technologies, the exercise of the legal profession will be improved. In fact, I believe you will become a better professional,’ says Juan Pablo Ovalle Arana, country counsel at IBM Colombia.

Rather than replacing lawyers, those we surveyed for this report were strongly in agreement that technology was a tool to be used to enhance the outcomes provided by lawyers, not replace them. 66% said that technology could enhance outcomes for in-house departments to a great extent, with a further 31% agreeing but to a moderate degree. Only 3% of respondents had a divergent opinion.

There was a sense among general counsel in the region that the increasing use of technology tools was unlikely to remove lawyers from a role as ultimate architect of legal solutions, primarily because of the importance of the human element in contributing to productive outcomes.

That humanity was defined as communicating through body language, reading through the lines, and responding to the emotional component of client representation, identifying the exceptions that prove the rule, and the quirks of life and law that build the richest understanding of any situation.

Applying emotional intelligence – be it with opposite parties negotiation or litigation, or in internal client interactions – is far from an exact science, yet the lawyer’s role relies heavily on these essential interpersonal skills alongside technical expertise. As in the healthcare profession, while a machine might contribute pinpoint accurate analysis and speed to a diagnosis or treatment, there is currently no automated substitute for bedside manner. For this reason, some of the general counsel we spoke to pointed out the limitations on true disruption to the legal profession, and the potential for hyperbole when applying buzzwords and jargon terms perhaps more suited to analysis of tech trends to the nuances of practising law. Rather than a discussion of disruption, those general counsel felt, a more accurate description of technology’s impact would be in terms of incremental time-savings rather than replacement of core duties.

‘There is an element of “frustration” that is recurrent for the legal professionals, and it is a client saying “My lawyer doesn’t understand me”. I have been in situations where I have to go through a call center bot and they give me a number of options, but I am not always sure that my question will fit any option. So, the interaction with the machine is not always perfect, and “the human touch” is still needed,’ says Ovalle Arana.

‘I think we, as lawyers, would need to learn to interact with new technologies such as Artificial Intelligence, Machine Learning and others. The work between man and technology has never been so important and efficient and it is up to us to take advantage of it to make our profession evolve.’

But, for some, even outside of AI and any mythology about the robotisation of the profession, the cold touch of technology can already be felt – ironically aided by the very tools developed to improve communication.

‘Today, you can negotiate and close a big deal without meeting the other party in person. That’s a dramatic change, because it allows you to work remotely, even in complex fields. The challenge is that by losing the personal touch, it will hurt the lawyers in their capacity to develop negotiation tactics and so forth,’ says Alberto Vergara, head of litigation for Scotiabank Chile.

‘You save cost in matters like travel and meetings but, on the other hand, you will lose some useful tools that only the experience of personal relationships provides to lawyers. Right now, you have general lawyers that don’t have external meetings – they work exclusively by their computers, so they don’t have any real relationship with their counterparties. I would say that is problematic.’

In-house legal teams come in all shapes and sizes: some companies will have small teams, preferring instead to outsource the bulk of their work to external firms, while others have internal legal departments that would outnumber many major law firms. For the purposes of the research that underpinned this report, a small legal team is classified as one with ten or fewer members, while a large legal team is one with more than ten members.

Of the 140 people who participated in our research, 65% of those were from small legal teams, with the remaining 35% coming from larger teams. The attitudes, ability and budgets of these two different groups had a number of notable differences – and not always in the way one might typically expect.

While our research showed that the overwhelming majority of all legal teams in Latin America used specialised legal technology in some form within their department at 96%, the few that didn’t all came from respondents from small legal teams. How that technology was used was relatively similar between the two different groups in most areas – use for factors like contract management, human resources and law firm relationship management was nearly identical. Where large teams did differ was with case management and dispute resolution, where large legal teams were nearly twice as likely to use specialised case management and dispute resolution technology.

The vast majority of our respondents held a positive outlook on the extent that they believed technology could enhance outcomes for in-house departments, with 66% of all respondents believing it can enhance to a great extent and 31% to a moderate extent. Those from larger teams, however, retained an even more upbeat stance than their smaller counterparts: 85% of those from larger legal teams believed that technology could enhance outcomes to a great extent, compared to 56% of those from smaller teams.

Larger teams were also more likely to have a positive outlook on how their department fared compared to their peers. While the majority of small legal teams retained a positive outlook, at 55%, that number was dwarfed by large legal teams, where 70% said they thought that their department’s use of technology compared favourably with other companies.

Interestingly, while small legal teams were much less likely to have received an increase in their technology budget over the last five years compared with their larger counterparts, that didn’t necessarily translate to feeling unsupported by their company when implementing new technology. While only 52% of small legal teams had received a boost to their budget, 90% of those we surveyed from small legal teams felt that their company was supportive. Compare that to larger legal teams, where 74% had received an increase in their tech budget, but only 78% felt that their company was supportive.

Based on the interviews that complemented the quantitative component of the research, the reasons for in-house legal teams feeling supported by their companies were more nuanced than simply being given the green light to purchase new services. Getting buy-in from the wider company was important to a number of those who we spoke with, with a range of factors noted, including assistance with integrating legal systems across the wider business.

While artificial intelligence remained a rarity in legal departments across Latin America, it was currently being used almost exclusively in large legal teams. Those we spoke to who utilised AI tended to have legal teams that were at the top end of large – with upwards of 50 members on their team – and were primarily utilising it in order to either reduce the more menial tasks their businesses required from legal, or to assist in departments that had large amounts of litigation and disputes work.

That attitude broadly aligned with the reason behind technology implementation. Between the two groups, what was most important when considering legal tech was one area where there was a difference. While smaller teams were mostly concerned with using technology to improve the quality of their work, at 69%, those from larger legal teams were less likely to value improvement of quality, at 57%, and put a higher priority on using technology to reduce costs.