Why would a law firm, whose core business is give legal advice, spend large sums of money providing on-line services for its clients? Ask Allen & Overy LLP…

Riding high on the dot.com boom of 2000, a small number of major UK law firms started investing in on-line services. Allen & Overy LLP (A&O), for example, believing that most complex transactions would ultimately be managed on-line, developed and launched newchange dealroom, one of the first on-line deal rooms. A few firms also invested significant amounts in on-line knowledge systems to provide access to key regulatory developments. After the dot.com meltdown, however, law firms became more cautious and some of the innovators, including A&O, began to reassess and realign their on-line strategies. Specifically, they explored the opportunities for on-line services that were more closely aligned with their core legal business and processes.

But now on-line services are back in the spotlight. As the legal market has developed, so we at A&O have observed a number of trends that have had a direct impact on how the firm provides on-line services to clients.

Recent trends

Greater acceptance of the on-line medium by lawyers

Until only a few years ago, the extent of on-line legal services was mainly confined to converting printed publications and documents to an electronic format (typically Adobe PDF) and loading them onto a firm’s corporate website, extranet or CD. This approach rarely optimises materials for on-line viewing, since documents produced for print tend to be difficult to read on a monitor. Such an approach is neither efficient for the law firm, nor user-friendly for the client.

Practices are changing, though, and law firms and lawyers have begun to embrace the standard conventions of electronic publishing. Just to give one example of our own, for years A&O has written and produced in hard copy two publications, Euro-Commercial Paper and Medium Term Notes, both covering debt capital markets. These are updated, printed and sent out in their thousands every year at great expense. This expense was felt to be worth it because clients liked the publications in this format. Two years ago, on-line versions of the two publications were developed, which offered clients the same content but with additional features (such as search). The on-line versions are growing in popularity – they are now used by over 150 clients, and are easier, quicker and cheaper to update. It is quite possible that the hard-copy versions may be phased out altogether, though the decision of whether to go completely on-line is still being evaluated.

Commoditisation of legal publications

Most large UK law firms produce publications for their clients, typically to provide updates on, and analysis of, new legal issues. It is now common for clients to receive multiple publications covering the same subjects from different law firms (and sometimes from the same law firm). Yet the annual publishing costs of these newsletters, taking into account billing time and print costs, can run into hundreds of thousands, if not millions, of pounds.

An increasing reliance on the electronic medium, through services such as e-mail alerts, is compounding this content overlap. At the same time, legal publishers have also improved the coverage they provide to in-house legal teams and to law firms. PLC, for example, has launched a service covering EU and UK financial services developments.

This may become quite an issue for law firms. The scope for them to differentiate themselves from their competitors, by means of sending out such publications, is now more and more limited. Combine that with the costs of production and despatch and it is no wonder that law firms are reviewing the return on their investments.

A&O has responded to this issue by making greater use of dedicated websites. For instance, it has created a site related specifically to the EU’s Prospectus Directive (PD). This site sets out key concepts found in the PD, its impact on prospectus contents for the main types of securities, and important information on its implementation in EU member states. The website is a single, consolidated resource that also enables clients to compare the implementation requirements and status of the PD across EU member states. In the first six months after its launch, the website was updated some 150 times. Clients tell us that this resource is a unique offering from a law firm, as all their PD-related questions are dealt with in a single place. The site has also proved popular with A&O’s lawyers – about a third of usage is internal.

Greater need for standards

The popularity of on-line services is often threatened by the need for clients to use multiple websites, each with its own password and different user interface. Clients face a further challenge to find a manageable way of bringing together all the on-line services they receive from multiple sources, eg law firms and legal publishers.

These challenges have not gone unaddressed and the banking sector provides a good illustration of how financial institutions and their law firms are working together. Last year, the Banking Legal Technology portal was launched when nine major banks (ABN Amro, Barclays Capital, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs International, HSBC, JPMorgan, Morgan Stanley and UBS Investment Bank) asked five international law firms (A&O as well as Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters and Simmons & Simmons) to work together to aggregate and organise their respective client know-how publications onto a single website. The portal is becoming increasingly popular and is setting a new standard in the financial sector. More financial institutions have signed up in recent months and it is expected that other law firms will join this initiative and start contributing their own content in the future.

Level playing field in technology

Over the past few years, vendors in the legal marketplace have developed a range of new technologies, software and hosted services that provide standard solutions to many law firms’ requirements. It no longer makes any sense – as it might have done in the past – for law firms to develop proprietary technology. Intralinks and Merrill Corporation, for example, can be used to meet the growing demand for on-line data rooms for due diligence or deal rooms for complex cross-border or syndicated transactions.

There is still room, though, for law firms to differentiate themselves by adapting off-the-shelf tools to complement existing technology or to introduce innovative new working practices. A&O’s litigation practice, for example, scans, indexes and cross-references all case papers into the firm’s caseroom service, which is built on Ringtail LegalTM web-based litigation support technology. This has reduced the searching and sifting time spent on a case, and so keeps costs down. Just as importantly, it allows lawyers more thinking time, rather than tying them up on non-productive tasks. In appropriate situations, the firm provides clients, experts and barristers with access to a case on the system.

Emergence of legal risk management systems

In the light of growing regulatory and compliance costs and complexities, clients are increasingly looking for innovative solutions that can help them manage their legal risks in a cost-efficient manner. From the law firms’ perspective, this demand can provide opportunities to generate new revenues using alternative business models, such as subscription charges or transaction ‘volume-based’ pricing instead of hourly rates. A&O’s legal risk management systems have tapped into this opportunity – they have more than repaid their investment costs and form a viable business that sits alongside the firm’s more conventional services.

With over US$200 trillion in outstanding trades, managing legal risk in the derivatives markets is paramount for the trading financial institutions. In association with the International Swaps and Derivatives Association, Inc (ISDA) an affiliate of A&O has launched two on-line legal risk management products, netalytics and CSAnalytics, to assist participants in these markets to minimise losses in an insolvency situation. These services are now used by half of all leading brokers and banks; by having access to unprecedented consistency in the analysis of legal information, they manage their risks better and save time and money.

A similar approach was adopted recently when clients asked A&O to come up with a cost-effective solution to enable them to track the status of the implementation of two key European Directives (the Waste Electrical and Electronic Equipment (WEEE) Directive and the Restriction of Hazardous Substances (RoHS) Directive) that have had, and continue to have, a significant impact on the hi-tech industry. Today, more than 60 global hi-tech companies access the information available on EU Environmental Law Compliance at a fraction of the cost they would otherwise spend on regular, individual billing rates.

Automation of standard documentation processes

Document automation is often viewed as the Holy Grail of legal services – a way of managing the drafting of repetitive documentation. However, automation has not yet fulfilled its potential. This is largely because of the difficulties of conveying legal knowledge to IT experts (to express this as kindly as one can).

Thanks to improved technologies and more sophisticated processes, document automation does seem to be finally emerging as a sustainable proposition. For more than five years A&O has used document automation to produce first drafts of a wide range of items through its newchange documents service. First drafts of some of the most popular documents (such as the firm’s credit agreement) are now automated in their thousands every year. Another, more recent, example is A&O and its affiliates’ commoditisation of the creation of term sheets for global loans clients. In a few minutes, a client can produce or amend complex term sheets by answering a series of approximately 50 questions.

Apart from reducing the drafting time and improving the quality and consistency of the final documents, such initiatives help a law firm to address a key difficulty: how to price certain services at a level that is competitive and acceptable to clients, yet high enough to be viable for that law firm.

The future

So what are the implications of these trends? We are almost certain to see greater activity in on-line services over the next few years as lawyers become more aware of, and comfortable with, the opportunities they present. Specifically, we would expect to see more use of technology in the day-to-day management of transactions and cases. The increasing reliance on on-line services will lead to further standardisation of the underlying processes and methodology used for managing complex matters. This is likely to have a profound effect on the way law firms work and interact with their clients. For instance, the emergence of systems for managing due diligence on-line will lead to a more structured approach to document review, naming conventions, issue management and reporting. Similarly, in the financial sector the development of negotiation systems used to produce high-volume documentation looks extremely likely.

As demonstrated by the Banking Legal Technology portal, we can also expect a greater need for standards to help solve the challenge of integrating multiple technologies. As clients make greater demands on their legal adviser panels, it is likely that they will request greater collaboration between panel firms to address their internal know-how needs, to streamline the management and administration of matters, and to help solve some of their document management issues. Further collaboration between publishers, technology providers and law firms also seems likely, as does more widespread use of third-party on-line services as standard business tools. Through this evolution, the boundaries between internal and external content provision will inevitably narrow.

To deal with increasingly complex legal and compliance frameworks, we can expect to see the launch of fewer but more sophisticated on-line services. For example, to achieve greater cost efficiencies, clients will increasingly rely on syndicated advice and databases to manage critical but recurring legal issues affecting their day-to-day operations. In order for such services to achieve broad market adoption, the content will need be closely aligned to market practices and the presentation of the information will have to provide immediate answers to key questions in a consistent manner.

To achieve efficiencies and reduce operational risk, these systems will need to follow the working practices adopted by the client or, in some cases, an entire market sector. The wider adoption of workflow systems is starting to pave the way for such developments. In capital markets and for trades that are commoditised to a fairly high degree, we might envisage scenarios where a trader or back office inputs data to generate a term sheet automatically, which is then routed to the relevant team to produce the underlying documentation. These systems will need to integrate closely with the IT environment of the client. In some cases, they may need to be routed directly to contract management, risk management or trading systems. This will lead to the development of Extensible Markup Language (XML) applications, like netalytics and CSAnalytics, so that the underlying data can be reused for a variety of different purposes.

Law firms will certainly continue to play an important role in the evolution of on-line legal services. In doing so, they will face considerable challenges. They will need to continuously adapt their working practices, develop new skills, improve their marketing and sales capabilities, and be more open to partnerships with suitable content and technology providers. Some services will also challenge existing business models and will force law firms to take a greater commercial risk. 

Marc-Henri Chamay is the executive director of e-business and Jules Widdowson the senior e-business manager at Allen & Overy LLP.