Nina Barakzai, General Counsel for Data Protection and Group Data Protection Officer, Unilever

GC: What are the main themes running through Unilever’s use of technology?

Nina Barakzai (NB): Firstly, that tools should help us work more efficiently; secondly, implementation is a journey and we must see benefit; and thirdly, technology is disruptive but helps us build our professional competence as an in-house legal team supporting the business.

GC: Can you give any examples of technology initiatives used at Unilever?

NB: At Unilever, there are numerous technology initiatives spread across different business functions. We aim to be at the top of the list when it comes to talking about tools to help us work more efficiently. Some parts of our business use blockchain for certain types of activities; others have introduced a chatbot with machine learning to continuously improve the systems they use. Legal is building knowledge management tools to get to a single source of truth – a lot of the technology we’re using, because we’re operating at scale, supports us when we need to have information held reasonably accessible so that everybody can rely on them.

Implementation of this new capability is an ongoing journey to embed benefits and continue to develop and improve our processes and contract management. For example, Procurement implemented a contract lifecycle management tool. During that implementation phase, we found that the learning process was as much about adjusting to the realities of the software, as it was about doing what we needed to do. We have general terms and conditions and smarter contracting to tailor the generic terms, where appropriate. Internally, this shrinks contract life cycles, to deliver a consistent, end-to-end, contract automation process.

GC: What are some of the challenges of rolling out new technology?

NB: There is an enormous appetite for doing things efficiently. It’s obviously challenging if we’re in 190 countries and generate 190 country contract processes along the way. We have about 80 preferred partners worldwide who are working alongside us, who design things with us. That creative engagement is absolutely vital, because we design processes with our partners and us in mind. Together, we make space for collaboration.

Some of the billing that we get with our preferred external law firms has been adjusted so that we both can work within those formatted structures, and we use platforms that are well established in the market. Our focus is to help ourselves and our partners manage how we work together, so that we know when they are getting certain information, and we know how to keep everything running smoothly. We’re working, adjusting, enhancing, improving and making it more efficient.

There is an enormous appetite for doing things in a way that will run efficiently.

For some, anything new is a challenge to understand, learn and embrace. Others ask what will make life easier and want it immediately. There’ll be others who like to experiment and gradually incorporate new tools into their activities. We may not always have the luxury to deep-think every activity because sometimes we have to deliver advice and work with the business to execute specific outcomes. I think everybody goes through this type of experience at some stage. But I haven’t found anybody who doesn’t use any technology yet. I’ve found many people who are using lots of different technologies in lots of different ways, which I think is thrilling.

From my perspective, I like working with technology that is disruptive. It means I get to experience exciting developments as part of my work, with the added benefit of making my life easier. I think everyone who is in a fast-paced environment works to stay relevant and up to date, or risks disempowering themselves or being less effective. I’m conscious that not everyone thinks of these things in the same way or with the same enthusiasm. Working with technology needs to be made accessible. It’s easy to switch people off by making them feel they are somehow less capable because they cannot work a particular system, application or device. That doesn’t mean they’re bad lawyers, it just means they may need to have the information presented in a way that they understand.

GC: What does new technology mean for you?

NB: I’m tuned into how I can make better use of technology because that’s my work: I want to be able to handle data responsibly all the time, every day, every minute. I will always look for tools that keep me up to date and enable me to deliver privacy advice smoothly. Staying up to date means doing constant professional development. Practice makes perfect, but add in CPD and it reinforces the professional drive to stay up to date to do the best job for your clients. I want and enjoy doing a better job for my clients, so I work hard to understand the environment in which my clients are operating. Clients are doing more with more data, and that brings scale and complexity. I need to understand that.

One of my tasks is to help design control solutions in a privacy context. If there is a quick, easy way of determining whether, say, control 623 is more relevant than control 17, when working with, say, hundreds of controls, that will help me. People are more likely to make errors when operating in teams, running at speed to deliver cybersecurity and privacy controls. If internal advisers are on the move in factories or out in the field looking at tea crops, raw materials and other front-line activities, how do we make sure that they can see privacy advice and have information in bite-sized chunks, at their fingertips? So, just as in our everyday lives we look at platforms like YouTube to see how to work the cooker or to understand instructions for flat-packed furniture, we are making more video blogs and developing alternative ways for the business to access information on legal, privacy and cybersecurity topics. I’m looking at how to make things available via mobile, on devices. A key requirement is to make sure these alternatives work across multiple jurisdictions, making it easier for people to learn from the materials and leverage their own skills.

GC: Is there any technology you would like to have in future?

NB: Looking forward, I would like an AI bot for developing what I nickname a ‘privacy university’. People may think up creative ideas for dealing with privacy needs in their business areas; others may feel anxious that, although they are experts in one or more areas of law, they don’t have a good grasp of privacy laws. My hope is that, through the use of technology, my colleagues can ask a simple question all the way through to a more complex query. A privacy bot that can give a quick answer, in a tailored business context, could help a colleague along an entire spectrum of knowledge, simply by being a starting point for additional resources. Colleagues can work with confidence, knowing where to look and who to ask. My task in privacy is to help change their inner thought of ‘I don’t know what the question means’ to a feeling that they know where to get guidance, get help in understanding the question or, better still, find an answer that can be tailored and made relevant for the issue on which they are working.

Data Analysis: Part 3 Trickle-down innovation: redefining the firm-GC relationship

The pressure on general counsel to innovate could be having a trickle-down effect on the external legal advisers they instruct.

The overwhelming majority – 91% – of in-house counsel surveyed for this report felt that it was important that their external advisers kept abreast of new technologies.

‘It is absolutely essential,’ says Gábor Kukovecz, head of legal and operations at Diageo. ‘The baseline is that we must be able to communicate very effectively with our external law firms. This requires that they use state-of-the-art communication and cloud-based collaboration software. In the near future, we will implement a collaboration software in which we work together with our external law firms that they must also fully implement.’

How important is it that your external law firms keep abreast of new technologies?

Despite there being a common recognition that it is an important factor, nearly as many in-house counsel reported that they didn’t know if their external providers were implementing technology to deliver their legal solutions (36%) as those that answered that they were (40%). Just 37% felt satisfied with the use of technology by external firms; 25% were not satisfied, and 38% were unsure.

As the conversation around alternative fee structures and the traditional firm-client relationship continues, many in-house counsel made the point that there is no reason that their efforts to reduce costs and increase efficiency via technology shouldn’t be replicated by their external counterparts. After all, in a number of ways, the GC is to the law firm as the business is to the GC – which is to say, the GC is the client and it should be incumbent on the firm to provide the best value for money.

‘Clients are no longer willing to pay for high numbers of billable hours when they are aware that many tasks can be done faster and cheaper,’ opined Tobiasz Adam Kowalczyk, head of legal at Volkswagen Poznan.

Are you satisfied with the use of technology by your external law firms?

‘Paralegals and associates who once devoted hours for document review can be now easily replaced by e-discovery processes. In a constant pursuit for efficiency and optimisation, clients expect more for less, which has made the legal market even more competitive. Fresh players have entered the market, providing clients with automated and cost-cutting solutions. I see automation as the way forward, making projects smarter and more efficient. Legal automation won’t be un-invented, and – eagerly or not – more and more firms will need to adopt it out of necessity.’

There are also rewards to be reaped in terms of collaboration. The initiatives taken by external firms can serve as a useful model for in-house teams trying to create efficiencies of their own.

‘External firms must have technological systems updated in order to provide us with the most modern solution and to share it with our internal legal team,’ said Ana Soriano, head legal counsel at Inveravante.

Not everyone is as bullish on technology, however. To some, the use of technology is mostly smoke compared to other, softer competencies.

‘The improvement I actually want from law firms is not based in technology,’ said Ruth Pearson, general counsel of LendInvest. ‘I’d be far more inclined to instruct a firm that could demonstrate an investment in understanding their clients – for example, by hiring non-lawyers to improve their commercial acumen and understanding of what drives their clients, moving away from billable hours to a client-focused incentive structure, understanding risk appetite and being able to advise within those parameters, than a firm that thinks it can demonstrate technological innovation.’

‘I prefer a good lawyer not using tech to a bad lawyer using tech,’ stated the general counsel of one large French manufacturing company.

When asked if the question of technology arises when undertaking a panel review of external advisers, just 35% said that it was a factor, while the majority (41%) said it wasn’t a factor at all. With panels becoming narrower and more deliberate all the time, the points on which firms differentiate themselves will take on an increasing importance. Given GC’s evident interest in the use of technology by external firms, this factor may grow in significance in the near future.

‘Depending on the jurisdiction and the business activity being undertaken, it is of moderate importance,’ said the group counsel of one global engineering company. ‘However, in the selection of lead counsel for C-suite-led matters, it has moved to the forefront of selection criteria.’

Prof Christophe Roquilly, Dean for Faculty and Research, EDHEC Business School

The use of technology by in-house teams is evolving – particularly compared to what existed a few years ago, two years ago, or even one year ago. Yet still, for legal departments, change is much less quick than in law firms.

Big legal departments are investigating the possibilities and opportunities offered by new technology. There was a survey done in 2017 targeting French in-house counsel, which showed that many needed more software and applications for legal tasks. But at the same time it was more commonly expressed – by more than 50% – that this was not a need at present.

I wouldn’t say there is a kind of collective trend: I think it really depends on the culture of every individual, every lawyer, the culture of the legal department, and the culture of the company itself. But if I look at a period of five years, there is an increasing trend towards a willingness to understand what is happening, what works and what does not work in terms of technology, what the best practices to benchmark for in-house lawyers are – and also to think in terms of investment and return on investment.

I remember speaking to the GC of a very big French company. He said, ‘You know, I’m convinced that some of this technology is going to be very useful for the legal department – but there is a cost, and I need to convince the executive committee, or even the board, that the cost is justified: that we expect a return on investment, so it means cost reduction for the legal department, how we are going to be able to increase the performance of the legal department in terms of service delivery, satisfaction of the clients and also improvement of our own KPIs.’

(Virtual) reality check

Areas in which some in-house teams in France are using technology include legal research and information, case matter management, contracts management and contracts automation, legal knowledge management, and project management. And, of course, e-billing, selection of legal service providers, benchmarking, sharing of the best practices within the legal team – and this is especially the case in big legal departments. Some of them are using predictive justice tools – although it’s very few, it’s just the beginning – and I would say it’s more used by law firms than legal departments.

As far as machine learning and real artificial intelligence go, I think we are still a little bit far away from that. For blockchain, especially for smart contracts, there is a start: for instance, for intellectual property rights management. Some are thinking about the possibility of using blockchain technology to manage the participation of shareholders during general assembly. There is also the smart contract approach of using blockchain technology for contracts between shareholders, for instance to organise the control of the company, or to have agreement provision in the case of share selling. As far as I know, legal departments do not directly use big data analytics, but they can work with some law firms that do.

I think that the particular areas right now where the technology is the most useful are document review, case review administration and case analytics, legal research, document drafting, knowledge sharing and communication. But when you think in terms of legal writing and advising clients, I think that – right now – the effect or impact of the new technology and data analytics and so on is very low.

Some are thinking about the possibility of using blockchain technology to manage the participation of shareholders during general assembly.

When you look at the current legal technology and new legal technology and what they propose in terms of services, it’s moving really fast. But the next steps – more deep learning, machine learning and real artificial intelligence – frankly speaking, will not come within ten years. The creator of DeepMind, which was acquired by Google, said something which was really interesting: when you hear people saying that tomorrow everyone will be replaced by robots, and we will be able to have a full, sophisticated conversation with an artificial agent, he said no: that’s not serious. What is serious is the ability to replace standard analysis and decisions with robots. Analysis further than that, when there is more room for subjectivity and when the exchange between different persons is key in the situation, the Turin stage of artificial intelligence, machine learning, deep learning, deep thinking and so on is not at the right level. We are not there yet.

Redefining value add

One important point when considering the value of technology – something which is happening in some law firms already – is change in the value chain of the legal department.

Typically, you have information entered into the ‘system’ of the in-house team and, at the end, you need to provide a service – advice or a solution. All the segments of the chain, like information gathering, information analysis and treatment, document drafting, due diligence, are going to be more and more digitalised, and done increasingly less by human beings. This means that the skills required for lawyers are going to change, and the quality of the relationship between the client and the legal adviser is going to become more important. Right now, I don’t see any robots directly advising clients because they are not sufficiently sophisticated. But for the lawyer to give good advice, fully understanding the needs of the client and having sufficient time to discuss their analysis with the client – what are the facts, what is the law, what is the content of the regulation, what is the state of the jurisprudence or case law – all of this is going to be done faster, which will leave more time to deliver very high quality advice and service.

The freed-up time can then be used on other important areas. Lobbying is one of them because, surprisingly, in France, the lobbying role of lawyers is not always taken into account by legal departments. Giving the possibility to legal teams to think more about the future of the law in their domain regarding their businesses or the businesses of the company is very important, but you need time to do that. It’s not directly productive, but it can have a huge impact over time. It will also allow departments to take time to train non-lawyers and to increase the global level of the legal education in the company – to reduce the common questions. The other side of that is that there’s also the potential to increasingly automate processes – improving efficiency and quality of services across the board.

Training lawyers of the future

What we need to be doing in the here and now is, when we train future junior lawyers, they need to know how to use data analytics, how to use the new tools which are available on the market, and maybe we also need to train them to understand how algorithms work, even if we are not going to create hordes of lawyers who can code. To understand what it means when you code, and what are the consequences in terms of legal mechanisms, legal analysis, or legal documents, to have fundamental tools to understand what coding means, is going to be very important for them.

The second important point, I think, is to reinforce their soft skills, because the relationship with the core business will be more and more about the quality of the relationship. For instance, what about empathy? Being able to take time to listen to the client, to take their point into account. Knowing that the time you spend for legal research, information retrieving and analysis is going to be reduced and reduced and reduced, if you want to maintain the same revenue for a law firm or the same level of service for a legal department, you need to perform better elsewhere.

As educators, we need to be doing these things. If we do not, we hear from young students who are going to intern for six months or a year, coming back from legal departments or law firms saying, ‘Well you know, we had to work with this tool or that tool, or there was discussion about using a new tool to improve the relationship with the external suppliers, e-billing, and so on, and we didn’t have any clue about what they were talking about.’ Even if you are not convinced, you need to better train your students on these kinds of tasks because they ask for it. There is a demand for it.

Practitioners know better than academics what are the most up-to-date tools they are using in the industry. But I think it’s the role of academics to prepare students to be able to be flexible, reactive and to be able to switch from one tool to another one and to have a global vision, a global understanding of what is happening. And to make them aware that there is a certain level of uncertainty in practice. Usually, when you study law, you do not like that: you like certainty, and the more it is fuzzy or blurry, the less you feel comfortable. We need to prepare them for that.

Technological Darwinism

Now, the question is: is technology going to kill some jobs? I would say, yes of course. Will it promote the creation of new jobs? I think so. Will it change the type of skills required for lawyers? I think it will. I think that the development of these new tools is more an opportunity than a threat if they provoke a change in the business models and the way lawyers deliver their services in the interests of the client. But if some so-called artificial intelligence can lead to weak services and fragile legal advice, then they will be stopped or simply not used. So I think the market will decide and will make a distinction between good stuff and bad stuff.

It seems strange, because sometimes lawyers are perceived as being very conservative, but I can tell you that in France, the legal domain is just after finance in terms of being active in start-ups. I mean, legal tech versus fintech versus other kinds of activity – legal tech is very, very active. Recently, I was surprised to find that that the legal tech that we observed two or three years ago is still alive. Maybe, at the end of the day, you have a Darwinian system where the most adapted survive. You cannot have, for instance, tonnes of companies in France proposing predictive justice because the market is not so big. But I would say that the legal domain is very well placed in France, and could rank well in terms of intensity and innovation; it’s very active. Which is surprising, because lawyers are perceived as being the most conservative compared to some other professionals.

An important objective or challenge is to make in-house counsel more comfortable with the technology, doing demos, sharing success stories, sharing best practices and, to a certain extent, kill the myth that technology is too complicated: that it’s not for you guys because you are lawyers.

Keeping your friends close

Unease with the anticipated digital and disaggregated future is real in many dusty corners of the legal profession, and with around 1,400 legal tech companies fighting for a share of the global legal services market, the prevailing story has been the threat these offerings pose to traditional law firm models. However, this narrative hides a subtler shift in how some law firms are approaching this impending disruption: they are working with the innovators, not against them.

Getting into bed with the enemy

In the past two years, law firms have started to create technology incubator programmes within their own walls. Much like the ecosystem of incubators and accelerators famous in Silicon Valley and tech hubs around the world, the idea is to take a business concept in the early stages of development and provide any combination of support, mentorship, facilities and even investment.

This shift might seem counterintuitive to some: why would the old hands team up with the young upstarts whose end goal, in many cases, is to capture the law firm’s own clientele of general counsel who are under continued pressure from the board to minimise their contribution to the $600bn dollar global industry that is big law?

For some firms, engagement with start-ups is the result of a process of introspection, one that began in an attempt to root out the pain points of its lawyers’ working lives.

This growing cohort of law firms is convinced that that there is much to be gained from a willingness to demonstrate a pragmatic grasp of today’s legal marketplace.

Typically, the rewards for the law firm are financial: should they hit on a unicorn, the monetary returns can be huge, as well as the reputational boost given by being associated with a true disruptor in the legal market.

But while the money and fame are both good, oftentimes, the best rewards are less tangible.

‘It’s true; it’s difficult to show to the business real and tangible KPIs. They are more intangible ones,’ says Francesc Muñoz, chief information officer at Cuatrecasas, one of the many law firms around the world who have entered this space. Cuatrecasas is a Spanish firm that has teamed up with innovation platform Telefónica Open Future to create Cuatrecasas Acelera, an accelerator now on its third call after launching three years ago. Cuatrecasas Acelera supports companies at the pre-series A1 phase with mentorship in marketing, finance and business models, as well as 20 hours of free legal advice from 40 participating Cuatrecasas lawyers.

For Cuatrecasas, working with a multinational blue chip like Telefónica has amplified the reach and impact of its Acelera programme. But Telefónica itself also reports the benefits of collaboration in extending influence in the innovation space.

‘On one hand, our network of partners extends our reach and provides us with shop windows to new industries and ecosystems. This allows us to learn from them and eventually enter new markets, hand in hand with market leaders. On the other hand, our partners help us improve our value proposition to entrepreneurs by putting more resources, investment and business development opportunities on the table,’ explains Agustín Moro, global head of partnerships at Telefónica Open Innovation.

‘But some of the start-ups that we are helping become small clients and we hope that they become, in the future, big clients. So you are putting some seeds into the business sector to see if start-ups grow in the future,’ Muñoz adds.

Edmond Boulle, co-founder, Orbital Witness

‘The team comes from the space industry and, when we set up, we were looking at how we could use satellite imagery to solve problems in real estate transactions and litigation. But the real pain points were around other datasets – so accessing all of the information that is required for searches, making that information easier to digest, easier to report back and then communicate to clients. Our system is learning what features to look for from the data, which trains our system to recognise the types of, for example, restrictive covenants, easements, restrictions on the Land Register, and other data sets outside of Land Registry data, that may be indicative of a particular risk in a given type of property transaction. We were one of the first start-ups chosen for the joint PropTech accelerator programme, Geovation, run by HM Land Registry and Ordnance Survey, which means we have their help to innovate with their data.

We came to MDR LAB with very much a fledgling concept, being the earliest stage company they had taken on in the first cohort. The lab was helpful in a number of ways: in terms of access to great advisers, in understanding the wider real estate industry – not just the legal side. By far and away the most important thing was being able to sit down with over 40 of their real estate lawyers, day-in day-out, and just go through how they work in an almost forensic way. This allowed us to identify which bits don’t add value to their practice and were time consuming and repetitive, which we could then meaningfully make an inroad into, in terms of helping them with speeding up or automating.

A good solution is one which works at both ends, so they made introductions to their clients – in fact we’re piloting with a few of them as well. It will be between the law firm and the client to decide how best to allocate the use of our platform, so maybe the client can do some of the work in-house, and then the law firms can maybe do the deeper dive on the due diligence themselves a little later on, and still get the benefit of using us to work more quickly and more effectively.

Lawyers are still typically very risk averse – even among the firms who are pushing innovation, fundamentally, some individual lawyers are more risk averse. I think there’s a sense in which you can be welcomed in initially, and then it can soon feel that you’re having to battle more traditional attitudes. But then, I don’t even put that on the law firms. They are responding to the risk that their clients are willing to take. So if their clients express a desire to take a little bit more risk, the reward from it will be a faster and lower cost service. Quite often, they want to reduce fees as well, but they still want that quality service.

Very recently, at an insurtech conference, someone made a really nice point that when lawyers talk about innovation, they often use the image of a robot. And when they talk about machines replacing lawyers and a) how concerned they are by that, or b) how ridiculous they think that is, they also use the image of a robot. So even in the industry, they’re not quite sure what to make of this.

We’re starting to make some great headway; we’re working with a number of early adopter law firms who are highly respected in the field, and a leading title insurance company and we are going to continue along that path, at least until the end of the year. There’s a point at which you can’t call the next client an early adopter any more!

We’re working very closely with our first customers because their feedback really helps accelerate product development. And Mishcon de Reya was our first customer. We’re also piloting and testing our products with small teams and GCs at the clients of the law firms that we work with. The issues around that are quite interesting because if you’re working with a big law firm with upwards of 50 lawyers, you have one pricing model, which has to scale appropriately and allow for disbursable cost elements. But then you come to an in-house team with three or five people, so you have to think, “How do I make my pricing model work for them?” It’s a different game. How do you go from being a product that’s serving large departments, to serving a client with a smaller number of lawyers in-house if, for example, you are offering a subscription service?’

Those seeds could include investment, although that is not the point, says Muñoz. At Cuatrecasas Acelera, the firm doesn’t take a stake in the businesses that pass through the programme. But the agreement includes an option that, at the next investment round, Cuatrecasas could invest under the same conditions as the lead investor, up to a percentage.

‘It’s really quite a minor percentage of the start-up. It’s completely an option, but other acceleration programmes take a stake in advance of 2%, 3% or 5%,’ says Muñoz.

Culture change

But there is a broader cultural benefit to be enjoyed much sooner, according to Muñoz. ‘You are putting the most innovative people that you can find in your sector in contact with your lawyers, with your teams. It creates a really beautiful circle and a lot of passion within the people that are interacting with them and giving advice,’ he explains.

The head of another law firm-founded incubator agrees: ‘I’ve seen how the legal sector is quite traditional, but also how the firm’s people – the partners, the associates – have actually become a lot more innovative in their thinking just by spending time working on a day-to-day basis with those start-ups based in their building. And actually, with the companies from last year, the majority have continued to work with the firm and have integrated inside, so the firm is now using these new technologies, making them a whole lot better, and they’ve changed their own mindsets, too.’

However, opening up to innovation often means letting go of a mindset focused on success, ingrained by the often adversarial nature of both litigation and corporate law. The reality of start-up life is the ever-present whiff of failure, and that is something that law firm lawyers, accustomed to being the experts, must adjust to. For many, that’s a case of learning how to ‘fail better’ and move on. Being the expert in one vertical might simply not be enough in today’s marketplace, where openness to innovation might be less of a soft skill and more of a business imperative.

‘As a former lawyer for stock markets, I always keep an eye on the new trends in the legal tech niche. The transformation speed in this traditional vertical is so fast that I could not think of a law firm that aspires to be market leader without working with start-ups and using their technologies. All the leading firms that I am aware of have programmes or initiatives to capture and benefit from innovation,’ says Moro.

Making a mark

In a profession often noted for its resistance to change, there can be kudos for those bold enough to be a first mover. According to Edmond Boulle, co-founder of Orbital Witness, a start-up real estate intelligence platform that employs satellite imagery and property data analysis to flag legal risk in real estate transactions, there is a clear advantage for those who get in on the ground at an early stage in technological development.

‘They have a meaningful say in product development. We are listening to that and we are designing our products around the things that they are telling us are painful. They are seeing iterations of the product and feeding back on that, so if you’re an early adopter, you’re bespoking it a little bit to your style of working. As soon as you’ve got a critical mass of customers, it ceases to scale from the start-up’s perspective to adapt your product to individual needs and preferences, and from the customer’s perspective, it’s more of a fixed offering,’ he says.

But, perhaps the bottom line speaks loudest. A spokesperson at one law firm accelerator claims that a growing willingness to embrace technology has meant that not only is there no better time to be a lawyer – but that the efficiency savings of legal tech could even grow market share.

‘Let’s be fair, some parts of a lawyer’s job are not very fun. You don’t want to stay up reading the same lease a thousand times, you don’t want to chase signatures at midnight or hang out at the printer. You want to do the legal work and so the technology enables that by taking away a lot of the drudgery. The smart lawyers understand that they can pull that off, they can get more work, win more competitive panels, they’ll grow their share of clients and have a more fulfilling legal practice.’

A helping hand from Goliath

For the legal tech start-ups themselves, the benefits are much more tangible. For Orbital Witness, coming into the MDR LAB, run by UK law firm Mishcon de Reya, was an opportunity to adapt a fledgling space tech concept – it was the earliest stage company the lab had taken on in its first cohort – into a viable legal tech one, by gaining an inside view of the workings of a law firm.

‘The genesis of the Orbital Witness platform, frankly, was seeing lawyers’ desks covered in papers – from the local authorities, from specialist search providers, from the Land Registry – and every time they were trying to find a piece of information talking about a property, instead of being able to jump to what they wanted, they were either searching through document management systems on their computer or rooting through the desk strewn with papers. It just struck me as very laborious,’ recalls Boulle.

But on top of the opportunity to forensically analyse the working methods of 40 lawyers in the firm, Orbital Witness was able to learn about the real estate industry beyond the legal side and, crucially, meet some clients.

‘We’re piloting with a few of them now. And we’re actually going a little bit further than that as well: we’re building collaborative tools. We saw that a lot of time goes into emails and phone calls between a lawyer and a client. Now, obviously, that’s part of the personal relationship with the lawyer and client, and that’s not going anywhere. But if you’ve got five emails back and forth trying to describe what part of the land the lawyer is talking about, that’s just inefficiency. So by bringing both the lawyer and the client onto a collaborative workspace on the platform, you can cut out a lot of that needless, repetitive back and forth,’ explains Boulle.

For some firms, engagement with start-ups is the result of a process of introspection.

Other benefits for start-ups that join such innovation spaces might include the opportunity to adapt an existing product to a new legal and regulatory environment, or to get that first customer. Those in the latter position face a slow, and sometimes demoralising sales cycle into big law of 18-24 months.

‘We started as a DMS (document management software) six years ago with a focus on law firms. After some years, we realised that law firms are slow to decide and that they don’t have the big budgets large corporations have for growing their organisations. Therefore, we changed our strategy and began offering our product and service to large corporations,’ explains José Manuel Jiménez, CEO of Webdox, a Chilean start-up and beneficiary of Telefónica’s Wayra Chile programme.

Beneficiaries of law firm accelerators benefit from compressing that cycle by piloting their technology to an audience with an intellectual, if not financial (yet) stake.

If a law firm doesn’t ultimately take the bait, the legal tech model, often comprised of Software as a Service companies charging per user even while their founders sleep (as opposed to billing hours), seems to be increasingly appealing for institutional investors – which bring professional management expectations and software company economics into the legal tech ecosystem.

Don’t fear the new legal ecosystem

The result of all this is a new ecosystem within the legal community. Firms are no longer at odds with legal innovators, and lawyers shouldn’t let a fear of ushering in their replacements stop them from securing benefits of their own out of this new norm.

But is any residual fear within the legal services industry justified? At Cuatrecasas, Muñoz thinks not: ‘We don’t see lawyers disappearing from here; we see keeping probably the same amount of lawyers – doing different things, sure, and in a different way, sure – with more support of technology, probably working much more with engineers in order to set up a full legal service, not only legal advice.’

Boulle agrees that the sector will change, but not necessarily to the detriment of lawyers. ‘Certainly the product that we have now is just about starting to make their lives easier and better, and it works in symbiosis with them – we can’t work without lawyers,’ he says.

‘I think there is room in certain parts of the industry to remove particular tasks from lawyers altogether. I don’t think of ours as a “putting lawyers out of a job” tool, it’s just simply saying there are some things where, if the volume and cost of the work means it’s not feasible to have a professionally qualified individual doing a detailed analysis, it makes more sense to balance the risk and the cost and have a machine to assist in the process.’

The realist of start-up life is the ever-present whiff of failure.

In-house legal departments, driving this market with their continued disaggregation of external support, also stand to benefit from a diversified job market for their own skills, as the legal tech sector expands, offering hybrid legal-entrepreneurial roles.

Of course, this is likely to be some way off. Legal tech companies with true brand recognition remain few and far between, with much of the investment cultivating companies applying state-of-the-art technology to commonplace tasks like contract review – hardly the stuff of dreams. And as companies progress beyond the start-up stage, growth will be a challenge, as multiple small operations compete for the bandwidth of law firms.

If the law firms incubating and accelerating legal tech are to believed, private practice has more to gain than lose from embracing technology. An easier life, greater professional satisfaction, and an enlarged – and happier – circle of clients who remain loyal because they share in the efficiency dividend all beckon for those with open minds.

But for those who think that is too good to be true, perhaps becoming a stakeholder in the digital future is at least a way to avoid ending up at its sharp end – sharing the gains of technology rather than counting among its casualties.

Emerging technology: Blockchain

The proliferation of blockchain technology has forced nearly every sector to re-examine traditional ways of doing business. Nowhere is the potential more apparent, or the sector more traditional, than in the negotiation, creation and execution of contracts. If the blockchain evangelists are to be believed, the manner in which parties’ contract will be changing drastically in the not-too-distant future. But while a number of high-profile success stories illustrate the transformation potential of the technology, it’s clear that there is still a way to go.

Blockchain understood

To understand blockchain technology and the potential value that it brings to business, think of how an ordinary business transaction works: there is an agreement and exchange of goods or services between parties. Each party keeps their own ledger, which records the transaction. But because the ledgers are held independently, there is scope for discrepancy between them – be it through error, disagreement or fraud. Traditionally, this was mitigated by introducing a third party to the transaction – usually a bank. But reliance on a third party introduces cost and inefficiencies that need not be there if there was a way to create and maintain a singular, shared ledger – one that is equal parts transparent and secure.

Enter blockchain

A blockchain is a series of mathematical structures, inside which individual transactions are recorded. The record of each transaction – each ‘block’ – is mathematically contingent on the block that came before it. The transaction becomes a permanent part of the history of the blockchain and, in that way, it cannot be tampered with: once it is added to the blockchain, all subsequent transactions are recorded in relation to that block and all of the blocks that came before it. Following each transaction, the updated blockchain is distributed to each participant. In this way, blockchain becomes a decentralised ledger that is impossible to tamper with effectively: any attempt to change a record in the blockchain will put it at odds with the version held by every other participant in the blockchain, as well as all of the subsequent transactions that have been recorded.

Put simply, blockchain technology allows for a distributed, decentralised and secure ledger that eliminates the need for third parties, while providing a level of validity to participants that would otherwise have been impossible. It is this technology that has made cryptocurrency like Bitcoin a viable endeavour. But the applications of blockchain are far more varied.

Smart contracts

Smart contracts are one such innovation made possible by blockchain technology – though as a concept, smart contracts have existed since the early 90s. The idea is that instead of a paper contract – one that amounts to the words on a page and the interpretation that third parties give them – one could record a contract in the form of computer code. The code not only provides for the terms of the agreement, but the execution of it as well. When the obligations of one party are satisfied, the platform behind the contract will automatically release the benefit owed by the other party.

The key to smart contracts is decentralisation – there are no banks or other third parties involved in the execution of the agreement. The idea is to allow the creation and execution of a contract between two people to be as simple and direct as possible.

The obvious question follows: where is the smart contract actually stored and how can it be possibly be trusted?

Blockchain technology is the solution. The decentralised, theoretically uncompromisable central ledger makes for a perfect arbiter for the integrity of these agreements. Once coded, the smart contract is added to the blockchain ledger, with its integrity provided for in the same way as anything else on the blockchain. If the transaction calls for it, the money at stake can be paid by each party into the smart contract using cryptocurrency, at which point the contract will hold the money in escrow until the necessary conditions are satisfied.

In theory, removing the element of trust between parties to a contract should make for more reliability.

‘What we have realised is that smart contracts are rapidly becoming an alternative way to transact, with more than $10bn raised through smart contracts in the last 18 months,’ says Olga V. Mack, vice president of strategy at Quantstamp, a company working to build security infrastructure for blockchain-based smart contracts.

‘What we have also noticed is the rapid proliferation of this technology. The widely cited figure is that, globally, there were more than 500,000 smart contracts that existed one year ago. That number has grown to about five million that exist today. The use of smart contracts has been growing exponentially and is showing no sign of slowing down.’

Smart and secure

The trepidation surrounding blockchain and smart contracts is by no means limited to those that don’t understand it. Plenty of ardent advocates for the widespread adoption of this technology acknowledge that, like most innovations, users should exercise caution against overreliance.

The execution of the agreement is where the real value of smart contracts is realised, but the process of negotiating, agreeing and coding the contracts themselves necessarily requires a human element. As such, it is subject to the same kinds of vulnerabilities as virtually anything else. There have been a number of high-profile breaches and hacks brought about by improperly coded smart contracts that have resulted in the losses of millions of dollars. Because the process is decentralised, and the money is wrapped up in the contract itself, the normal process of testing, reporting on and fixing erroneous lines of code will not suffice. Smart contracts need to be airtight from day one.

The DAO is a smart contract protocol. By June 2016, over $250m worth of cryptocurrency had been invested in the DAO by nearly 20,000 individuals. On 17 June, a vulnerability in the core code of the protocol was exploited and used to drain over $50m in virtual currency.

blockchain technology allows for a distributed, decentralised and secure ledger.

Vulnerabilities in code are nothing new – even the most diligent traditional financial institutions commissioning software intended to govern staggering numbers of monetary transactions will not expect their code to be free of bugs or vulnerabilities. The potential for catastrophe should these vulnerabilities be exploited is limited: as soon as they are identified, they can be corrected and updated. But because smart contracts rely on the ever-present and immutable blockchain ledger, once a smart contract is let loose into the world, changing it becomes difficult, if not impossible.

This question has led to a burgeoning economy of auditors whose speciality is to review smart contract protocols in order to expose vulnerabilities. This isn’t perfect for the same reasons that any piece of code isn’t completely unexploitable, but the extra step of third-party verification may go a long way in making sure that would-be investors or end-users are confident.

Taking Blockchain In-House

Before taking on her new role as vice president of strategy at Quantstamp, Mack spent nearly a decade working as an in-house counsel, putting her in the unique position of being able to consider the impact of blockchain technology for corporate legal departments.

‘I think at a high level, the opportunity is not all that dissimilar from electronic signatures. I think it will free GCs to be more creative and more impactful on the business side. Smart contracts will be another tool at the disposal of the modern GC, but we’re probably not quite there yet – the infrastructure and platforms are being built as we speak,’ she says.

‘Once we figure out the platform protocol and infrastructure challenges, I would expect at that point the proliferation of applications to take place. It’s good for lawyers to get into this now, both to understand and frankly to help build it – so they are part of building applications as opposed to suffering the results of misinformed others building it.’

‘It’s certainly a revolution. But so far the most impressive applications I have seen are outside the legal world,’ adds Vincent Martinaud, counsel and legal manager at IBM. ‘The most advanced are in trade finance (we.trade consortium), global logistics (the cooperation with Maersk) and in the food ecosystem (Carrefour being the last eminent player joining Walmart, Nestlé and Unilever amongst others), and all these initiatives are underpinned by blockchain technology.’

The Maersk example that Martinaud refers to is TradeLens, the blockchain platform born out of a partnership between global shipping company Maersk and IBM. The aim is to bring the global supply chain into the future by using blockchain and smart contracts to enable smarter collaboration between importers, exporters, customs agencies and other governmental bodies to make international shipping a smoother process without compromising on auditability and security.

‘In the legal field, I don’t think there is anything comparable yet. I’m not saying smart contracts aren’t used or going to be used, but at this moment in time the technology is not as pervasive as in other, more mature sectors.’

It is not hard to imagine the potential uses of blockchain within the legal sphere: anything which relies on record-keeping between multiple parties could find value in the technology. Land registries, particularly in developing countries where record-keeping is beleaguered by inaccuracy and corruption, could be revolutionised, as could intellectual property registers around the world.

That blockchain technology hasn’t become a staple of the in-house toolkit makes sense: the broader business world is still working to realise its potential. It’s also a highly technical and often misunderstood area: while lawyers are used to quickly digesting and using foreign pieces of information, this is a different beast entirely.

As these innovations become increasingly common within business, lawyers will not only have to begin thinking about how they can be leveraged for use on their own in-house teams, but how they can put themselves in a position to give legal advice in a post-blockchain world.

This may not be a perfect fit for a profession that has long been accused of technological aversion.

Blockchain is a field where the two worlds of software development and legal expertise meet. As the applications of blockchain and smart contracts move towards the legal realm, the pressure is on for lawyers to grow their understanding of a field typically left to the CIO.

Gloria Sánchez Soriano, group vice president and head of transformation, legal at Santander, has considered how disruption of this kind might impact the kinds of lawyers that can thrive in in-house teams.

‘Lawyers, and the people we will be hiring in the future must be able to provide legal advice to innovative projects. If you don’t understand blockchain, it will be very difficult for you to provide advice on this. And we are also considering all this in our training programmes at the Santander Legal Academy,’ she says.

Blockchain is a field where the two worlds of software development and legal expertise meet.

‘Santander has a department which is in charge of the legal advice of our innovation areas, but there are also many other areas – for example, corporate investment banking – which have just done a blockchain project with a very technological base, so the lawyers who were traditionally advising these businesses now need to be able to advise about technological issues.’

There is an appreciation among lawyers interviewed and surveyed for this report that while this technology will be important going forward, lawyers are currently not equipped to deal with the change. Just 14% of those surveyed felt that current lawyers were adequately equipped to deal with technological changes within their profession. 61% felt that they were not.

Ready or not, change is coming, but these changes don’t spell doom for the legal profession: they simply mean that there will need to be an adaptation.

‘I do think that it will transform the expectation of competency for lawyers. In doing so, I also ultimately think it will make our jobs more exciting so that we don’t have to do all those administrative things that can be minimised and we can really drive volume- and quality- generating for our businesses,’ says Mack.

‘I think the next 10-20 years will be an exciting time to practice law. We will have an impact, we will be true partners to other business units. There is an increasing trend for legal to be a partner, to be volume and quality generating and to measure all of that. I think this is a technology that will help us to get there sooner and will help legal to become embedded and solidify the support of any business.’

Trepidation and regulation

While businesses marvel at the potential of blockchain, governments around the world are fighting their own battles with the technology. With the potential of blockchain to have a major impact on many highly regulated areas of business, it is inevitable that a regulatory response is coming.

The philosophy at the foundation of blockchain already sits uneasily alongside current regulatory and governmental structures: for instance, the EU’s General Data Protection Regulation (GDPR) dictates that individuals be able to request for their personal information to be deleted by those that hold it, yet the biggest draw of blockchain is the permanence of its record.

The anonymity that blockchain provides for cryptocurrencies also lends itself to use in more illegitimate endeavours. Tax evasion is a concern. Because cryptocurrency transactions are not easily attributable to individuals (if at all, depending on the currency being used) it makes it difficult for tax authorities to detect the lost tax revenue and punish those involved.

Then there’s the hard kind of criminality – money laundering, terrorist financing and drug dealing. For these, the EU has already taken steps to include cryptocurrency in the existing regulatory framework. The latest iteration of the EU’s Anti-Money Laundering Directive (AMLD5) brought cryptocurrency exchanges and certain e-wallet providers within the scope of the regulation. It would put these entities in the same position as traditional firms when it comes to their obligations to implement preventative measures and report suspicious activity relating to money laundering. The new directive entered into force in July 2018, meaning that EU member states will be required to comply by 10 January 2020.

The AMLD5 is not comprehensive, and certain corners of the cryptocurrency world are not covered, including certain wallet providers and independent trading platforms. Also, being an EU creation, it is only applicable to EU member states. As adoption of this technology grows, the need for global collaboration will increase, given its borderless nature.

Other jurisdictions have taken a more suspicious view of the technology. China banned cryptocurrency entirely in 2017. In the same year, South Korea banned initial coin offerings and interested parties are now eagerly waiting to see how the government proceeds from here. Japan was one of the first countries to recognise Bitcoin as a currency, though regulators have been silent on other blockchain-backed innovations.

The tension at the heart of proposed cryptocurrency regulation is an old one. With convenience and efficiency at the core of the blockchain and smart contract value proposition, the inevitable attempt by world tax authorities to take their cut of these transactions may hinder the core draw of the technology. On the other side of the coin, is there really any need for complete anonymity when it comes to financial transactions? This tension will inevitably shape the approaches to regulation of blockchain technology and, ultimately, play a major role in uptake – both for in-house purposes and beyond.

Dr Alexander Steinbrecher, Head of group corporate, M&A and legal affairs, Bombardier Transportation

I would say that at Bombardier Transportation Group, we’re not using technology in the way we could be and should be using it – I would self-critically say that we’re in the bottom third if I look around – but we have taken the decision, as the leadership team in the legal community, to tackle it.

Global application

I see two challenges of employing technology in an in-house legal context. One is budget and the second is that we need software applications that work around the globe. It doesn’t help us if we find the perfect solution for the legal team in Germany – we need to find the global application that the legal team can use in the UK, in France, in Sweden, in Thailand, in the US, in Australia, in South Africa, in India – you name it. It needs to be a software that is so generic that it can be universally used, possibly also in different language settings, because despite being a global firm where English is the company’s language, we still do have local languages used in contracts.

Be brave: think long term

Budget, of course, is always an issue because you need to have a convincing business case. You need to go to the CFO and say, ‘I need the budget of X, I will invest in legal tech applications, and the return on the investment is Z, and Z is higher than X.’ But how do you make that case? I would not like a conversation, which I’m concerned some of my colleagues have had, where the CFO says, ‘Sure, I will give you the budget of X, but then please sign here that you will, in return, reduce the head count in your legal team by 20 or 30%.’ It doesn’t work like that.

I think the return on the investment in legal tech and software application is mid term and long term, it’s not short term. It’s not: you buy this software or this contract generator, or this chat bot and then Peter and Paul can take a hike. It’s not that simple, and if that’s the equation, then the equation will fail and in-house legal teams will not be successful in convincing their CFOs, because they will be shooting themselves in the foot. In the long run, they may have a lower need to hire new in-house lawyers. Even in the mid term I would say that’s doable, but not in the short term. You need to be brave to make the investment, because it’s difficult to predict the yield of return from the investment for the legal team.

Window-shopping for tools… and best practice

I see the benefits of legal tech software and legal tech applications not as a means to cut down on headcounts in in-house legal teams, but as a means for in-house lawyers to be relieved of wasting their time on administrative, repetitive, non-value-add work, so they have more time to spend on brain work where, luckily, software is not yet better than the human brain or the legal mind. I really see it as an enabler to focus more on value-added legal work to support bringing the business forward, so I think we are doing our own in-house lawyer profession good if we find ways to manage our time and our energy better. I’m coming from the perspective of increasing the efficiency, effectiveness and impact of in-house lawyers, rather than just looking for a cost-cutting measure.

Recently, a German law firm showed me a smart contract generator tool. The software asks you questions, asks you to provide information and data and then after 50 questions, you have a fully fledged procurement contract. It’s such an easy approach because a company that develops tech software for lay people came up with this idea and they just transferred this approach, a way of guiding a lay person through legally relevant stuff to create the output, which then is a contract. I see various applications for that, for simple contracts that are really standardised, like non-disclosure agreements, a simple lease agreement, a simple purchase agreement, or a simple labour contract. It can be used for any contract that a company uses on a repetitive basis. So it could be for one company’s licensing agreement, it could be for another company purchasing raw materials, it could be for another company purchasing professional services. Whatever the contract, on a repetitive basis, from Monday through Friday, it can be easily standardised and then created by clicking the mouse, rather than typing letters and numbers for hours, creating and drafting a contract.

85% of the jobs that people will have in 2030 don’t exist today – which is quite frightening.

Another area is copying what service providers have created for end users. For example, one telecommunications company in Germany created an application that you can use if you’re suffering from problems in your WiFi at home. Rather than calling a service line and waiting for 30 minutes hearing lousy music, the app connects to your WiFi router and does some things in the background and tests the connection without you seeing it. If the app (that you can use on your smartphone) detects a problem, it guides you through solving the problem. You don’t have to waste your time on a service line, you’re not wasting money on that call, and you get a quick solution. Something like that could also be used for standard legal questions in a big company that the business asks again and again and again. You just feed the software with information that only a lawyer can give, the software works by itself, the business is supported and they don’t have to phone up the lawyer.

The magic pill that I would like to find, and then eat and swallow, is a software application that we feed with the terms and conditions of our contracts. Based on our project execution experience, the software tells me which are the hot clauses and the cold clauses and, on the hot clauses, what different clauses we have used and how we can improve those hot clauses by learning from our own contracts around the globe. I think we can greatly improve knowledge management when it comes to our own contract execution around the globe.

2030 vision

I was reading the other day that, according to one global consulting firm, 85% of the jobs that people will have in 2030 don’t exist today – which is quite frightening, because it means that only 15% of today’s jobs will survive to 2030. But I would not say that 85% of what I’m doing with my legal team will no longer be done by us in 2030; I see different angles.

There’s one angle where I have the private citizen in mind, and yes I think there will be a huge disruption of how people like you and I, in our private lives, use legal services. I think if you look at the available tools already now, there will be less and less need to engage a lawyer to help you resolve your legal questions and legal disputes.

For companies, by 2030, if they are smart, they will have smaller legal teams but still continue to insource legal services, so they will use less and less external legal advice. I would say that smart in-house legal teams will have managed to develop in-house legal expertise and knowledge in areas where they are no longer dependent on external lawyers, and they can only do that because they are no longer wasting their time and energy on low-skilled, legal administration work. I think it will help the smart in-house legal teams to improve legal quality in areas where they are currently dependent on external experts, so I think it will be tight for external lawyers rather than for in-house lawyers, because there will simply be a decrease in engaging external lawyers.

But not for the real global law firms who make a fortune from global transactions where you need so much more brains and hands than a mid-size law firm can possibly get together. For mid-size law firms, it will be tough moving forward into the future, and you see it already – there’s a big trend of consolidation in mid-sized law firms. I would say that the landscape of law firms will look very different in 2030.

It was acceptable in the 80s

We are quite a conservative profession, at least in Germany, and we are under immense pressure to stop conserving the way we work rather than opening ourselves up to new ways of working. The days where a partner or an associate in a law firm can shift all technical stuff – word processing, Excel, PowerPoint – to an administrator are over with and, sooner or later, there will not be a person who does all that for you and you charge it to your client. I think we all need to step up our technical skills and internet skills and software skills, because our way of working as lawyers, and in-house lawyers, is pretty much the same as in the 1980s –and I don’t think that that’s sustainable.

Giulio Romanelli, Associate Partner, McKinsey & Company and John Pyall, Head of MGA Cockpit, Munich Re UK

GC: In the legal sector, many people describe the emergence of legal tech start-ups as ‘fintech’s little brother’. Could you tell me about the emergence of fintech, Giulio, and how it has impacted the banking sector?

Giulio Romanelli (GR): Banking has historically been one of the business sectors most resilient to disruption by technology. However, in the last ten years, fintechs have moved quickly, forcing incumbents to rethink their core business models and embrace digital innovations. In the last five years, we’ve seen a significant journey as fintechs have become more and more mature.

Today, banks remain uniquely and systemically important to the economy; they are the major repository for deposits, which customers largely identify with their primary financial relationship; they continue to be the gateways to the world’s largest payment systems; and they still attract the bulk of requests for credit.

Some things have changed, however. Firstly, the financial crisis had a negative impact on trust in the banking system. Secondly, customers are more open to relationships that focus on origination and sales. Thirdly, mobile devices have undercut the advantages of physical distribution. Plus there has been a massive increase in the availability of data alongside a significant decrease in the cost of computing power.

GC: To what extent would you term it a disruption?

GR: We can call this a disruption in the sense that fintechs have a unique opportunity for customer disintermediation, by leveraging advantaged modes of customer acquisition, a step-function reduction in the cost to serve, innovative use of data and advanced analytics, and segment/niche-specific propositions.

GC: When insurtechs started popping up in the insurance space, what was the reaction like in the industry, John?

John Pyall (JP): At the beginning, to a certain degree, insurtechs were looked upon with interest, but as: ‘It’s a bit gimmicky, it’s interesting but it’s not for us.’ And then, over time, they were looked at with more and more interest. From our point of view, we made a clear play in that direction. But I think there still is a little bit of ‘watch and see’ about the insurance market as a whole.

GC: Have insurtechs disrupted the insurance space?

JP: I think people look at disruption as being a negative idea. I think insurtech start-ups have, to a certain degree, enhanced the insurance area because they have actually allowed insurers to touch into areas that we previously may not have been able to. For example, digital partners have allowed us to reach out to new customers that we may not previously have ever gotten close to, simply because of the mediums they use to connect to their services. We have insurtechs that purely use social media to market to their customers and their clients and, to a certain degree, their distribution models are so different from what we were traditionally used to it has meant we have got avenues to customers we would never have considered five years ago.

That may be younger people, it may be people who are more engaged in social media. It may be people who are looking to insure single item contents, which insurers wouldn’t have looked at before. We would have had difficulty insuring people employed in the gig economy, doing three jobs in a day, but these new models enhance our ability to do so.

GC: Has this involved an element of culture change?

JP: When you have companies coming in that are younger, more flexible and they are able to drive through changes very quickly within their own organisations, you look at that and say: ‘We need to show that we have that ability as well. If we want to be in this market we have to be able to deal with that.’ So therefore it does actually allow people to think positively about how can we adapt, to differentiate ourselves within these markets.

GC: Looking again to the banking sector, how have established banking organisations responded to fintech disruption? Has it has a knock-on transformative effect in terms of the way these organisations use technology?

GR: As successful fintechs have rapidly matured from start-ups to mature technology disruptors, banks have started the long journey to transform their core digital capabilities, with several areas of focus. These include: a digital-native customer experience; big data and advanced analytics; moving towards a scalable technology landscape through cloud and automation; adoption of APIs (Application Programmable Interface).

Firstly, banks have been creating an integrated customer experience inspired by digital attackers, versus using a one-size-fits-all distribution. So rather than using the branch as the main point of interaction with customers, all the banks have mobile apps and they are very proud of the features that they use to differentiate themselves.

Innovating the customer experience by integrating with fintechs can provide advantages. For example, take the typical onboarding time for corporate lending. A fintech such as Kabbage proposes to reduce the onboarding time for down from something close to days, to something which is close to minutes.

Secondly, using data-driven insights and analytics holistically across the banks. While focus is generally on ‘customer-facing’ use cases, it’s very interesting to see advanced analytics applied internally to drive operational efficiency. For instance, advanced analytics to improve quality and efficiency of KYC [Know Your Customer] and anti-money-laundering.

Thirdly, banks have been mitigating the potential cost advantage of attacks through radical simplification and refining of technology infrastructure, both on process and existing technologies. For example, leveraging and deploying new technologies such as Cloud enables banks to move towards a more scalable and cheaper technology footprint.

Finally, there are several cases in which banks want to be able to offer not only their own solutions, but to also be able to link to third-party solutions. Some financial players want to offer third-party APIs directly to their own customers. And this is happening right now in terms of payments.

GC: How has technology transformation been received in the banking sector – has it required a lot of culture change?

GR: All of the above have required a significant shift in terms of culture and capabilities of incumbents, which are nowadays focusing more and more to attract digital/tech talent.

Moreover, the pace of innovation in banking is accelerating rapidly, requiring banks to increase their speed to keep up, adopting Agile software development techniques, which imply a radically different way to think about the organisation.

GC: John, in the insurance space, can you tell me a little bit about your role in Munich Re, and how the company is working with insurtechs?

JP: I head the MGA Cockpit, which assists our digital partner unit in onboarding new digital partner business into the Munich Re. A digital partner is a partner – an insurtech start-up normally – which is interested in using digital means like an app, social media, or the internet, in order to secure insurance business. The Cockpit was created 18 months ago through the Munich Re think tank to help the due diligence process of the start-up.

We have a digital partner unit that finds new ideas and new business to be brought in as a product, and we assist them in making that a viable insurance product. Basically somebody comes to our digital partners unit with an idea, and we help them develop that into a formalised product and assist them to bring that into operation.

GC: How do you do that?

JP: We may look at whether they want to write that as a single risk, as a group policy, do they need to write it with an MGA? We look at what’s needed in the wording in order to make it effective. We then see what they need to do: how they are going to handle the claims, do they need to outsource that, we might provide them with someone to manage the claims on their behalf.

GC: Are incumbent insurance organisations under threat from insurtechs or is it going to be a process of greater partnering, do you think?

JP: There’s always going to be one or two insurtechs that may seem to be a potential threat. But I would say that generally the growth will be by partnering – that’s where people are really looking. There are very few that are coming in to disrupt the entire chain; I think most are looking to assist within the distribution chain itself. That helps both the existing business and the new start-up, so there are advantages to both sides if you get it right.

GC: How are banks working with fintech companies? To what extent are partnerships occurring? What are the benefits of partnering? And what are the challenges?

GR: Whereas market and media commentary has emphasised the threat to established business models, the opportunities for incumbents to develop new partnerships aimed at better cost control, capital allocation and customer acquisition are growing.

The vast majority of fintechs focus on retail banking, lending and payments. In many of these areas, start-ups have sought to target the end customer directly, bypassing traditional banks. In some cases, this is further accelerated by regulatory changes such as PSD2 [the second Payment Services Directive, a 2015 EU Directive] in Europe, accelerating the shift towards open banking ecosystems.

However, most recent analyses suggest that the structure of the fintech industry is changing and that a new spirit of cooperation between fintechs and incumbents is developing. For example, ING partnered with the lending start-up Kabbage back in 2015 to deliver instant capital to SMEs. Another example is the fact that blockchain development in recent years has been mainly pushed by consortia, bringing together banks and fintechs.

This offers significant benefit for both parties, as it allows fintechs to rapidly access and offer their services to large pools of customers, while incumbents can rapidly deploy customer-centric digital-native services, and strengthen their own digital capabilities and talent pool. Looking ahead is whether such a ‘coopetition’ model is really sustainable in the long term – ie whether one side of this equation becomes more relevant.

GC: From an insurance incumbent point of view, John, what might be the blockers to partnering with insurtechs?

JP: I think culture does have something to do with it – can you build new technology into your existing systems?

Regulation is also one. We are a very regulated industry, so we have to be careful about how we take steps. It cannot be revolution, it has to be evolution. New technology makes people nervous – they understand their business and they understand how it works. If you then drop outside of that, can you write the business in a different model? How does that work?

Another thought is whether you are actually going to end up competing against yourself. That is a clear worry that people have – am I actually just offering the same thing but getting less value out of it?

GC: In your opinion, Giulio, what are the most exciting technological developments in the banking sector?

GR: Looking forward, the most exciting technology developments are related to the next evolution of current tech must-haves, from advanced analytics and machine learning, to intelligent automation, to blockchain, to internet of things.

GC: And how about the insurance sector?

JP: In terms of new tools, there are home and emergency products, for example alarm systems which allow you to instantly know if you’ve got water leakage or a fire or something like that when you’re away from your home.

A lot of it is around trying to change how product service is given, so we’ve got flight cancellation tools looking at how you can get on a new flight.

There are ways insurers are using data to be more proactive and customer-centric in managing loss better, so if there’s a flood, we can identify which potential customers are affected instead of waiting for them to contact us.

I think the way customers approach insurers is going to change quite dramatically as well. They can manage their whole claim themselves, so they know where the claim is at any stage.

GC: In terms of the technology that’s underpinning these new insurance facilities, what are the trends there?

JP: The technology itself is very AI-dominated. It is very much about how much can we automate so that we can respond quicker to customer needs, and keep them informed.

The balance is between automation and empathy – you don’t want a chat bot to respond to a customer in a very automated way when you’re dealing with something which has an emotional requirement.

GC: Do you get a lot of pushback from customers on that?

JP: If you have bought through a digital platform, to a certain degree you assume you are going to go through a digital journey and there’s a certain acceptance to that. However, there are times where people want to drop out of that digital journey, and you have to be prepared to respond to those touch points.

The key is to be flexible, to look at where it can actually genuinely assist, but to make sure you put your customer first. Whereas AI can actually help you reduce cost and make that customer journey more effective, what you don’t want to do is lose that empathetic relationship with the client so they become a customer that touches base with you once and looks purely at price.

Cristina Álvarez Fernández, Head of legal Europe, Cintra

We are exploring how to benefit from tools based on artificial intelligence within our legal department. We still haven’t found the right tool or technology for implementation – but I don’t think we’re far away either. It’s about following a process and making sure – especially the first time – that we do this the right way.

A Fresh Start

This has been a new process for us and we’ve been very deliberate about the steps involved. The first thing we did was to really thoroughly research and find out just what’s in the market. We used a range of sources, from specialist legal magazines, through to talking with our peers – both legal and otherwise.

I have encouraged an internal analysis of the current developments of artificial intelligence in the legal field. We have identified a few tools that could ease the work of the legal department. If we can implement these tools successfully, this will result in economic savings for the company and will help to allocate the resources of the department more efficiently.

At present, we’re currently at the stage where we’re testing tools that we’ve identified that are currently in the market. I think that the first tool we implement will be for contract review. We’ve invested a significant amount into this system already and are hoping that we can have it ready to go by the end of 2018.

First Things First

Contract management and review was a logical first step for us, particularly around NDAs. People always find the same dangers in that kind of contract, so it’s routine work. It can be done by a very junior lawyer – once you explain to that lawyer what the issues are, normally it’s something that can be done really quickly. The line of thinking we took was to take this one step further and try to give it to technology. This is the starting point from which we can hopefully expand.

I don’t think this will replace entirely, at least so far, a person in our team. We’re certainly not planning to get rid of someone just because we believe that work will be done by a machine – not at all. I think this is going to help us to better allocate the resources that we have. We’re not a large department, so where I really see the benefit is being able to focus on things that really need our minds and judgement – which is where technology is probably the least useful at the moment.

Inside Out

I do think that, in time, technology will help us reduce our external legal spend. If we can develop systems within our department that can take on some of this load – particularly where there are significant amounts of data – then we should be able to bring more of this work in-house.

I think that, in time, we will see the relationship between in-house departments and external firms change as a result of technology – mostly where fees are concerned. I suspect that the fees of law firms can be reduced, or at least controlled, depending on the market and matters at hand. But I don’t think the interplay will shift, where we’ll suddenly be dealing with machines rather than a person. At least I can’t anticipate that now – but who knows, maybe in the future, that will be the way!

I have genuinely been surprised and impressed at how the legal sector is dealing with innovations. It’s amazing how the law firms have seen the importance of new technology and they are really getting involved in these matters. Certainly, the sector is always very traditional and conservative, so when we first undertook the research process of finding out what was in the market, it came as a pleasant surprise to see that law firms are leading innovation in the legal sector and how many are doing things like working with start-ups in developing new technology.

I do think that the main driver motivating law firms is profitability. The way in which firms assess and charge their fees, it was getting to a point where it was going to be very difficult to sustain. Clients in particular are trying to change the way that they invoice, looking at alternate fee arrangements or, in some cases, bringing more work in-house. As a result, I think they have been forced to find ways to reduce cost and maintain their profitability. But at the same time, they will have no doubt seen other industries disrupted by technology and seen that this is the way forward.

A Group Effort

Ferrovial’s IT department has been an asset – they’re a really big part of the Ferrovial Group and have been essential throughout this process. They are genuinely curious about the technologies available and their potential impact on both our department and the wider group. They seemed enthused that we were taking an interest in this and were actively helping us along in this process.

One factor which may be more unique to Ferrovial, is that our IT department work with a lot of innovative start-ups. The group is actively working with, even financing some start-up businesses, and the IT department have been looking at some of these to see whether there are tools that could be adapted to legal, or developed specifically for us and our needs.

This isn’t something that’s unique to legal, it’s been happening in other departments already. In general, our company and group are very interested in innovation and new technology. It’s crucial for a business like Cintra and will become even more important in the future. We work closely with roads, in particular toll roads – so innovations like driverless cars have the potential to be transformational for the business. But as with any shift, there are a host of legal issues that will go along with that. So, it’s about bringing all of those factors together and becoming more innovative, thinking more innovatively, collaborating and using technology.

Foreword: Francesco Gianni

As corporate leaders, in-house counsel are faced with the challenge of determining which new technologies can bring the biggest impact to their operations. As we hear from in-house lawyers and others who have contributed to this survey, AI and other forms of technology can enhance in-house legal departments in many ways: due diligence review, first-draft contract preparation, contract management, legal operation analysis, litigation analysis, legal research and much more. AI can create efficiencies in previously labour-intensive legal processes, and therefore provide counsel with the luxury of time for problem solving and applying legal judgement and analysis.

But the pace with which technologies are developed necessitates a complicated analysis of return on investment, and whatever path is chosen is always done so with risk.

These new processes will certainly influence change within in-house departments and law firms alike. Focusing on where time is best spent and developing a strong base objective is only the tip of the iceberg as these developments continue. Going forward, the legal leaders in organisations will be constantly tasked with seeking technologies that best fit their unique business needs and objectives.

The key for decision makers will be to strategically choose and implement systems and processes that unlock the true potential of their teams, and point the way to the future of their organisations. It will require a change of mindset.

As a strategic business partner to in-house counsel and our members, WSG makes technology and innovation a cornerstone of its core service objectives. With immediate access to distinguished professionals and the real-time sharing of leading-edge information, we support firms and clients in their ability to capitalise on business objectives.

As customers, professionals in and around the legal profession – such as those leaders featured in these pages – will be arbiters of the success, or otherwise, of new tools, applications and services. Professionals such as these are at the helm of this potentially unbounded – yet risky – integration as machines and humans share everyday challenges.

WSG congratulates those who participated in this report, and thanks them for their keen analysis of new technologies – and the future of the industry.

Francesco Gianni

Founding Partner Gianni, Origoni, Grippo, Cappelli & Partners Chairman

World Services Group

The State of Play

Between the reams of paper (literal and virtual) spent discussing the question of how technology will affect the legal profession, as well as the thousands of legal tech companies springing up around the world, technology is on the minds of in-house teams of all sizes and from all sectors.

But, often, what isn’t communicated is exactly how in-house counsel feel about the technological revolution hitting their profession and how their teams and businesses have responded – if at all.

To that end, GC magazine in partnership with World Services Group went out to a selection of elite general counsel from across Europe with a comprehensive survey covering all things related to the use of legal tech at in-house teams.

The responses came from a vast selection of in-house counsel in a diverse range of industries. From finance and insurance, to healthcare and IT, the opinions collected and presented in this report paint a fascinating picture of the contemporary state of technology within the in-house legal community in Europe.

These responses, explored in detail in this report, provide a valuable framing of the wider discussion about technology and its various applications, both from the perspective of an in-house remit, as well as a broader look at its impact on the profession. From the pressures on external advisers to get ahead of the technological curve, to the so-called revelation of blockchain and its predicted effect on how legal work is conducted, the topic is vast.

It’s evident that technology is already making an impact on the profession. Of those surveyed, 84% of in-house respondents reported that they use some form of specialised legal technology within their legal department, with 82% revealing that their department’s use of technology had increased in the past five years. For a profession that’s often accused of being filled with technological laggards, that’s a significant change, and one which only stands to become more pronounced when you consider that every single survey respondent acknowledged that technology can enhance outcomes for in-house departments.

there is clearly an appetite for the kinds of solutions being offered in the legal tech marketplace.

At a base level, there is clearly an appetite for the kinds of solutions being offered in the legal tech marketplace. Why this need has arisen, what form it should take, and what effect this is likely to have on the profession in the long term are more nuanced questions, requiring a holistic view of not just the survey responses, but the opinions and activities of the various players in the legal tech market.

Why bother?

With over 1,400 legal tech companies around the world, the world of innovation has exploded into the lives of lawyers – in-house and private practice alike – with some interesting (and, at times, conflicting) results, not least given the notoriety of the legal profession as an outpost of conservatism.

But there is a clear need, and to predict where legal tech is going, it is crucial to understand what is driving that need for in-house counsel.

For the 84% of survey respondents who indicated that they were utilising specialist legal technology within their departments, increased efficiency was the most frequently cited factor that general counsel were considering when implementing new technology, at 84%. That was followed by ease of use at 50%, customisability at 32% and ability to integrate with existing systems at 31%.

If the pressure driving the push to adopt legal tech is the need to provide the business with better efficiencies and more value for money, then the cost of entry for many of these legal tech solutions is a barrier that needs to be overcome in order to gain the support of the wider business. A clear-sighted approach to tech only intensifies the imperative for a cost-benefit analysis, and, seldom a profit-centre, in-house departments know more than most about the need to do more with less.

How is technology changing relationships in the legal industry?

The headlines are fraught with impending doom and gloom for lawyers today. The reality is that there are only a handful of law firms racing to implement the latest innovations that technology has to offer. Law firms are slow-adopting, service-based partnerships driven by providing the best value to their clients. It is the relationships that hold the most significance for both in-house counsel and law firms alike. Therein lies the reason why, ultimately, the true drivers of change within firms are their clients.

In-house counsel can better identify reasons to pressure firms to evaluate their processes, and firms are doing just that to find opportunity. However, it is the re-evaluation of simple processes and the use of current technology within the firm that can bring enormous gains in creating better efficiencies without ever adopting anything new.

For the leading firms who are a part of World Services Group (WSG), being able to leverage innovative technology with firm relationships globally is just one resource that has enhanced the speed with which firms can react to in-house needs. Though technology will continue to play an incremental role in the firm’s evolution, it is the ‘people’ that will continue to be the key to success in the legal industry.

Like the motivation for WSG, which is to create a powerful relationship-based network among the premier firms in each location of the world, it is not the technology, but the access to important technology, that will be paramount. There will be no ‘robolawyer’ to take away the personal relationship required between in-house counsel and their advisers to achieve true results. It is the proven, results-focused relationships that are becoming the true innovation.

Firms are not losing business because of their lack of cutting-edge tech, but they should take time to analyse processes, investigate new technologies and invest in access to long-term solutions for their clients. That is what will retain ongoing, long-lasting client relationships in the face of an increasingly tech-heavy world.

‘To remain competitive, we need to increase productivity while enhancing the quality of legal processes against an ever decreasing cost base. In order to achieve this there is no other solution than to embrace technology,’ explains Johan Huizing, associate general counsel EMEA at Itron.

It was common refrain to hear a willingness from general counsel to adopt legal tech solutions throughout their department – but getting buy-in from the business and the necessary budget to execute was a clear hurdle for many. While 70% of the in-house counsel surveyed for this report felt that their company was supportive of implementing new technologies, only 56% had seen this translate to a bigger budget allocation on their balance sheets.

‘If you consider that it’s a strategic issue for you, probably it’s better to internalise, or to invest into some legal tech and then to see the results. I mean invest in terms of putting money into external projects, not only buying a product or a service,’ advises Professor Christophe Roquilly, dean for faculty and research at EDHEC Business School.

But for teams with a smaller head count in particular, taking that first step was often the hardest. Teams with smaller headcounts had the worst rate of uptake of technology, with 42% of departments with less than ten people saying that they didn’t use any legal technology at all. They were also less likely to have received an increase in budget for technology over the past five years, with only 47% reporting an increase in budget for technology (compared with 57% overall). Yet, in many cases, it was smaller teams who thought they stood to benefit the most from tools that can deliver better bang for the buck.

‘There is still the need for smaller teams to provide increased efficiencies, but the budget doesn’t allow for it. It’s then left to us to find ways to use technology to provide efficiency, but essentially for free. That’s not to say it can’t be done, it’s just more difficult,’ said one general counsel from the consumer goods sector.

Some corporates we spoke to were lucky – or large – enough to have internal resources for tackling bespoke software development projects, or budgets for cultivating start-up arrangements – though the latter is much less common for in-house teams than for law firms. But whatever the infrastructure or budget available, investment in tech requires bravery, given the unpredictable return on investment and, in many cases, the long-term nature of that return.

But while budget proved to be one of the biggest predictors of tech use and implementation within in-house legal departments, communication and demonstrating the value – particularly for larger companies which required a higher degree of coordination across existing systems – was also proving a challenge.

the predictive power of technology is encroaching on the legal system itself.

‘Money is nice, but implementing a new bit of technology will require the cooperation of the whole business – from the board down to the IT department. So money is something, but it’s not the only thing,’ explains one general counsel from the utilities sector.

Types of tech

The legal applications of technology are vast, ranging from the rudimentary to the complicated. Generating by far the most interest among those surveyed were the basics: for example, the most commonly cited use of technology was for contract management, from 55% of respondents.

But technology can provide legal departments with solutions far beyond a contract management system (often little more than a repository of documents) or a standard contract template.

Software for law firm relationship management, including e-billing and increasing transparency around legal spend, is often seen as a boon, and such tools can be make or break for a frictionless relationship. At present, 20% of respondents cited that their use of technology included tools for law firm relationship management, but based on the interviews complementing the quantitative research, this is an area that appears to be prime for expansion in the short term.

‘We demand use of our billing platform and insist that our rules for invoice submitting are followed. This has increased our understanding of the drivers for outside legal spend and budgeting and resulted in a better control of such spend,’ explains Huizing.

‘We move away from firms that are low performers when it comes to the use of our billing solution or that execute poorly on following our instructions for entering reports or invoices.’

At the least, technology can assist external firms to be more cost-efficient, so that those savings can then be passed on to their in-house clients. But there are more benefits to be reaped from an internal-external relationship that leverages technological solutions. Through this, the firm and the in-house department can cut through the noise that comes from two independent, far-away entities trying to collaborate with one another.

‘We’re building collaborative tools. We saw that a lot of time goes into emails and phone calls between a lawyer and a client. Now obviously that’s part of the personal relationship with the lawyer and client, and that’s not going anywhere. But if you’ve got five emails back and forth trying to describe what part of the land the lawyer is talking about, that’s just inefficiency. So by bringing both the lawyer and the client onto a collaborative workspace on [our] platform, you can cut out a lot of that needless, repetitive back and forth,’ says Ed Boulle, co-founder of legal tech company Orbital Witness.

‘The baseline is that we must be able to communicate very effectively with our external law firms. This requires that they use state-of-the-art communication and cloud-based collaboration software,’ adds Gábor Kukovecz, head of legal and operations at Diageo.

‘In the near future, we will implement a collaboration software, in which we work together with our external law firms, that they must fully implement.’

Far from being limited to external relationships though, tools and platforms which assist legal in becoming more accessible to the wider business also proved popular.

‘Legal is building knowledge management tools to get to a single source of truth – a lot of the technology we’re using, because we’re operating at scale, supports us when we need to have information held reasonably accessible, so that everybody can rely on them,’ explains Nina Barakzai, general counsel for data protection at Unilever.

IBM also has a shared knowledge platform called the Legal Community, which is used to integrate items such as contractual provisions, presentations and internal processor memos on regulations.

‘It’s a collaborative community space, and that’s very useful. You have owners, who can replace or change things on a particular subject, and it is shared with all the rest of us who are members,’ says Vincent Martinaud, counsel and legal manager at IBM.

Teams with smaller headcounts had the worst rate of uptake of technology.

Legal case management is another popular focus and 40% of in-house counsel surveyed cited case management as one of their uses for technology. This can include the basic paperwork-inducing case management tasks, but can also extend to case review administration and analytics.

Increasingly underpinning many tools is artificial intelligence (AI), as machine-learning tools are designed to quickly parse and categorise vast amounts of information, presenting it back for lawyer review in a fraction of the time taken for junior associates or paralegals to do the same.

‘I really think that our job will change, especially the analysis of documents, because of the way AI now is able to read and understand natural language – including your notes and the ability to decipher a picture, for instance,’ says Martinaud.

At the outer reaches of technology applications in the sector are predictive justice tools, employed to forecast case outcomes, including judges’ decisions – although these are by no means widespread or particularly popular among those who contributed to this report. But, as algorithms creep into our everyday lives, often unseen, the predictive power of technology is encroaching on the legal system itself, for example, in the criminal justice system.

‘[In Spain] work is being done on “algorithmic justice” – for petty thefts and things that are repetitive, the possibility of being able to come up with a first verdict, of course allowing the two parties to appeal if they don’t agree with the verdict, but releasing many human hours that could add value in more complex cases,’ says Enrique Dans, professor of information technologies and systems at IE Business School.

‘All the things related to an insurance claim, traffic problems when there’s no victims for example, these could be very well examined right now, with the current state of technology, by algorithms. You could ask one insurance company to negotiate with the algorithm of the other and get into an agreement, only bringing the human lawyers in if they are really required. That could take away a significant part of the burden for lawyers right now.’

Measuring the impact

When asked whether technology had the potential to disrupt the legal profession over the next five years, 84% said they believed that technology will be disruptive. The real trouble comes when trying to drill down on what form this disruption might take.

Just 6% of those who believed technology will be disruptive in the next five years thought that the disruption would be negative. 66% felt that it would be somewhat positive, and 29% thought that the disruption would be entirely positive.

Short of profession-changing disruption, technological tools like collaborative platforms, AI document review and smart contracts, and the increased automation that they facilitate could adjust the day-to-day lives of lawyers in subtler ways, by disrupting routine, everyday processes. However, introducing more technology often means more constraints on flexibility.

‘It does start to mean a little less flexibility and a bit more rigidity around the terms you’re putting in place and the structure of the relationships – because it has to have been thought out in advance, especially if you have multiple parties involved in supply chains,’ says Chris Wray, CLO of blockchain start-up Mattereum. ‘It’s kind of legal design – mapping out who are the parties here, what are the contractual relationships and what are the key provisions and then, given all that, once that’s clearly in mind, what is it we’re trying to automate, and have we mapped out different kinds of disputes that may arise and provided appropriate procedures for the resolution of those disputes?’