Innovative approach to taking on the old guard

Article in Business Law & Tax Review Supplement of Business Day

What is happening in the legal service world? Law firms with names like Bell, Dewar and Hall, John & Kernick and Findlay and Tait used to be everywhere. Now they don’t even exist. Instead we hear names like Caveat Legal, Cognia Law and even Whipping the Cat. Those in the know talk about LPO, ABS, Non-traditional lawyers and NewLaw.

So what has changed and what changes are there likely to be in the legal service industry in 2014 and beyond? Let’s start at the top with the big players, the legal giants of the world and of South Africa. In the last few years Deneys Reitz merged with global firm Norton Rose (which merged again to create Norton Rose Fulbright), Webber Wentzel formed an alliance with powerhouse, Linklaters, Baker McKenzie picked up the team from Dewey Leboeuf and launched in Johannesburg, Routlege-Modise first merged with Eversheds and more recently with Hogan Lovells. Eversheds then tied up with Mahons Attorneys. Perhaps it’s all a bit confusing, but the big picture is clear – the global legal firms have arrived in South Africa in a big way. This trend is set to continue in 2014 with more international law firms either setting up their own offices in South Africa or merging with local firms. The result is massive consolidation at the top end of the legal services market with some even predicting the emergence of a global “Big 4” law firms, similar to the accounting profession.

But the real emerging trend in the legal service industry is NewLaw. NewLaw is a term coined by Dr. George Beaton, an ex-South African associate professor at the University of Melbourne who has written at length about disruption of the legal service industry. Basically, his argument is that law firms operate as a hierarchical partnership pyramid where lawyers churn the hours and fees in the hope of making partner and one day sharing in the partnership profits. It is a model that has not changed much in a century and arguably pits the interest of the firm against that of the client. The global economic downturn has worked against these old style law firms, placing pressure on their fees. It has also given impetus to the growing number of alternatives to the traditional law firms. These firms are different to traditional law firms in almost every respect other than the use of legally qualified and skilled professionals. They focus on process and efficiency (not hours billed), have flexible working arrangements, deploy disruptive technology and charge client’s fixed fees. There are an ever increasing number of these service providers in the UK, USA, Canada and Australia with some of these countries enacting legislation to encourage their development.

The last three years have been typified by international arrivals and consolidation at the top end of the South African legal service market. This looks set to continue. But this is not new. The new international trend is NewLaw. So, in the next few years keep your eye out for tech savvy companies with catchy names, innovative business models and attractive fee arrangements that are looking to mop up a large portion of the legal service market by appealing to all but those who need specialised skills and are willing to pay high hourly rates to secure them.