The legal industry has a digital gap separating it from business and its customers. This is a high-stakes challenge exacerbated by the legal ecosystem’s widespread failure to recognize, much less address it.
Business is adversely affected by a digitally laggard legal function. That’s why the C-Suite and corporate Boards expect legal to operate like other business units. That means legal must advance the corporate purpose, use data to act proactively in enterprise defense and value creation, and provide services and products that enhance the customer/end-user end-to-end experience.
General Counsel and a handful of tech-enabled, data-backed, multidisciplinary, scaled, and well-capitalized elite enterprise legal service providers are first responders to the C-Suite’s clarion call for a digitally transformed legal function. This diverges from other legacy stakeholders in the legal ecosystem—law schools, firms, new-model legal service providers (a/k/a “ALSP’s”), regulators, and the judiciary—that typically operate in a faux-bespoke, guild-like fashion unsuitable and unsustainable for the digital age.
Recent Studies Reveal The Depth And Breadth Of Law’s Challenges
Law’s digital gap cannot be bridged unless it is recognized, understood, and prioritized. Two recent studies by Ernst & Young (EY) and The Digital Legal Exchange (DLEX) cast a bright light on the digital divide separating law from business and its customers. The surveys provide a wealth of overlapping evidence revealing the breadth and depth of law’s digital challenge. General Counsel are on the front lines of change; however, the entire legal ecosystem will soon be impacted.
The 2021 EY Law Survey was conducted in collaboration with the Harvard Law School Center on the Legal Profession. It interviewed 2,000 business leaders and 1000 senior legal officers representing 17 industries across 22 countries. The Survey data reveals why GC’s are in the vanguard of legal change and must respond swiftly, boldly, and differently to a kaleidoscope of challenges few were trained for. Consider:
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· 75% of GC’s are having difficulty handling current workloads;
· The workload is projected to increase by 25% during the next 3 years;
· 88% of GC’s report plans to reduce their budgets in response to escalating pressure from the C-Suite and Board to do so;
· Among large corporations (>$20B annual revenue), the average C-Suite mandated legal cost takeout has jumped from 11% in 2019 to 18% in 2021.
The pressures on General Counsel are not limited to budgets and expanding workloads. Risk management, technology deficits, contracting challenges, value creation, and sourcing are major concurrent challenges.
The EY Survey reveals widespread lack of confidence among GC’s in their team’s ability to identify, measure, and handle increasingly complex corporate risks. Nearly two-thirds (65%) responded they lack the data and technology to respond to a data breach. More than three-quarters (78%) of GC’s cannot systematically track contractual obligations, and 68% lack access to accurate, real-time information on their legal entities. All this comes at a time when risk assessment/mitigation and data investment are top C-Suite and Board priorities.
Tech and contracting deficits are also common within the legal function. According to the 2021 EY CEO Imperative Survey, 61% of CEO’s expect to make significant investment in technology during the next 3 years. Nearly all GC’s (97%) face challenges securing sufficient IT budgets, and 41% say they lack the data or expertise to make the case for legal IT investment. Contract inefficiencies have slowed revenue recognition according to 57% of business development leaders. Only 17% of law departments report they have the requisite skills to automate processes. Something’s got to give….
GC’s also face a talent crunch that requires a broader view of what legal “talent” means. This applies not only within the corporate legal department but also throughout the supply chain. In the digital age, they must function seamlessly and integrate with business. Digital transformation is a team sport.
As legal departments morph from lawyer-centric captive law firms to multidisciplinary corporate risk defenders and business opportunity collaborators, they must constantly reassess talent needs. Legal talent is far broader and more diverse than pedigreed lawyers.
Talent acquisition is just one part of its life-cycle. Talent management is also critically important—especially in the digital age where the needs of business and its customers change at warp-speed. Up-skilling instilling a learning-for-life mindset, fostering cultural awareness, cross-functional collaboration, and customer-centricity are all critical components of talent management.
Nearly half (47%) of surveyed GC’s say that the increasing volume of low value work has impacted employee morale. This is reflected by a widespread lack of purpose shared by many lawyers —“Is this what I went to law school for?” The GC must insure that lawyers and allied legal professionals operate at the top—not the bottom—of their skills, experience, and capabilities. This is not only important for fostering a sense of purpose, but it is also critical for delivering enterprise value. Only about half (52%) of GC’s say their department is adding value to business.
The EY Survey reveals an increasing willingness among GC’s to use non-traditional legal provider sources (a/k/a “alternative providers”). While 72% used them in 2019, that percentage jumped to 85% by 2021. This is not simply a cost play but also involves finding the required expertise, technological and data sophistication, agile workforces, and fit-for-purpose resources a handful of elite multidisciplinary providers offer. These provider sources are not alternative; they fill a market gap, offering new skillsets, mindsets, and customer-centricity.
The Digital Legal Exchange (the Exchange/DELEX) is a global non-profit forum and community of business and legal leaders from leading multinationals committed to advancing integration of the legal function with the enterprise and its customers. The Exchange launched last year and now counts approximately twenty global-leading companies as “Founding Members.” Each member company participates in the Exchange’s “Digital Alignment Survey,” a mirrored questionnaire that assesses the importance and performance of the legal function against 35 indicators. It reveals areas of alignment and disconnect between legal and other business units, providing valuable data, identifying “pain points,” and tracking improvement. The principal goal of the annual survey is to gauge progress in driving business impact.
The Exchange Alignment Survey results track key findings of the EY/Harvard Survey. Two notable examples of law’s lack of alignment with business involve its proactive role as revenue generator and applying business metrics to measure that value. Most business leaders (74%) regard the legal function’s value creation as extremely important or important. However, only slightly more than half (54%) of the legal function view it that way.
On the application of business metrics issue, approximately 97% of business respondents said this is important— 52% said it is extremely important. In contrast, only 25% of legal leadership responded it is important. This and other points of divergence can only be bridged by aligning the legal function with business. GC’s are the legal emissaries; however, they alone cannot effect change. They must be supported by their leadership, the rank and file, and the entire supply chain. This is perhaps GC’s greatest challenge— to lead the legal function into the digital age.
A Brief Digital Checklist
There is no easy, quick, or universal approach to bridging law’s digital gap. This applies equally to workforce individuals and organizations. Here is a brief digital checklist.
1. Digital transformation is a multidimensional change process designed to improve end-to-end customer value and experience.
2. It is a journey, not a moment.
3. Technology enables digital transformation, but it is not a panacea.
4. The success of the digital journey hinges on human behavior and the collective willingness to effect change that positively impacts organizations, their customers/stakeholders, and society.
5. Digital transformation has no sacred cows. It reverse engineers its structure, model, processes, workforces, supply chain, tools, metrics, data use, and culture from the customer and end-user perspectives.
6. Data fuels digital transformation. Data is premium grade when it flows across multiple enterprise functions to enable faster, holistic, and better informed business decisions that improve customer outcomes and experience.
7. There is no such thing as “business as usual.” Digital business, like life, is dynamic and requires constant adjustment.
8. Individual, team, and enterprise digital success is achieved by leveraging existing skills and applying them cross-functionally to solve business challenges and to realize opportunities.
9. Speed, agility, resilience, emotional intelligence, collaboration, calculated risk, and customer-centricity are important qualities for the digital journey
10.Digital transformation is a team sport, not a zero-sum one. Legal digital transformation is the application of well-established business digital principles to the legal function. The end-game is the same: to enhance customer and end-user experience.
11.Changes in the legal industry are caused by and a (belated) response to the age of the customer.
12.Transformation of the legal function is inevitable. The profession’s role in the new legal delivery paradigm is uncertain.
13.The purpose of the legal function is to serve the needs of those in need of its products and services, not to preserve the legal guild.
14.Technology is an enabler of digital transformation but not a panacea.
16.The technology, data, organizational structures, processes, and human resources exist to bridge law’s digital gap. What’s missing is the recognition and willingness of a legacy industry to change.
17.Those that deny or fail to adapt to law in the digital age do so at their professional peril.
To bridge its digital gap with business, the legal industry must reimagine its purpose, function, and end-to-end delivery from the enterprise and customer perspectives. This is a marked departure from the profession’s “lawyer and ‘non-lawyer’” mindset.
Lawyers no longer dictate the terms of engagement to the “non-lawyer” world. In the digital age, business and its customers—not lawyers— are redefining the role and remit of the legal function. This may be anathema to lawyers imbued with the myth of legal exceptionalism. It is an opportunity for the legal function to restore trust and elevate its standing by providing accessible, affordable, effective, and fit-for-purpose products and services that solve problems and make life better. That’s a bridge worth the construction cost.
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