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THE FIRST "100 DAYS" OF ALSPs by Javier Fernández-Samaniego and Manuel Esteban Caballero


Alternative Legal Service Providers (ALSP) have jumped into the legal industry just the way Big Law North American law firms did 25 years ago being then an “alternative” to traditional law firms lead by sole practitioners and prominent academics.




​Abstract:

Alternative Legal Service Providers (ALSP) have jumped into the legal industry just the way Big Law North American law firms did 25 years ago being then an “alternative” to traditional law firms lead by sole practitioners and prominent academics. The new economic situation, regulatory framework and, most importantly, the technology boost allows the possibility to offer solutions to legal issues with smarter and more flexible structures where not only human capital (lawyers), but also technology and other professionals play a key role.  The ALSPs will affect not only the “traditional” firms which are already embracing a number of elements of ALSP like investments in legal tech. Other foreseen consequences include:  a raise in the legal services offering by big audit and consulting firms, an increase in the legal portfolio by the big legal media groups , capital investments in ALSP and legal tech, a move of human resources toward the new model and, last but not least, transformation of big in-house corporate departments and their legal services procurement models in which ALSP will win a bigger piece of the cake.
 
Keywords: ALSP (Alternative Legal Service Providers). LPO (“Legal Process Outsourcing”). LIM (“Legal Interim Management”). Legal Tech.

TABLE OF CONTENTS

  1. Introduction
  2. “Nothing is stronger than an idea which time has come”
    1. How do we know that the time has come? A brief analysis of two decades: 1996-2006 and 2006-2016.
    2. The “recent past”: 2016-2019
    3. Our personal vision and understanding of an ALSP
  3. EFFECTS AND FORECAST
    1. Effects on traditional offices
    2. Effects and forecasts for “ALSP”
    3. Effects on clients
  4. Conclusion (and wishful thinking)

1. INTRODUCTION

Three years have passed since a seminar with the appealing title Is it the right time for alternative law firms? took place at the FIDE Foundation at the end of 2016.
 
Moderated by Miguel Angel Pérez de la Manga (founding partner of Pérez + Partners), the speakers Silvia Pérez-Navarro (managing partner of Iterlegis), Marta García Alba (legal counsel of Campofrío Food Group) and the co-author of this article (Javier Fernández-Samaniego) discussed the impact caused by the so-called new “alternative” players, that in the same way as the traditional law firms, began to be an option to companies looking for legal assistance. Even then it was evident that beneath the brand “alternative” there lied different models - from the “managed services” or legal outsourcing ideated by Riverview Law - acquired last year by EY - to the "staffing" or lawyers-for-projects model by Axiom, just to give just a couple of  examples; all these were changing the status quo in the sophisticated market of international business law.
 
That day the lawyer and co-author of this article announced that after more than two decades of legal practice in “traditional” big and international law firms, he took a new career step by launching his own “alternative” firm and, several weeks later, Samaniego Law began to provide its services in Spain and the USA. In this article the authors will share their observations and practical knowledge gained during the three years' existence of their “alternative” firm and will avoid either self-promotion or generalizations supported with no real experience so common in articles written about the "alternative law" phenomenon.
 
However, for those who wish to dive deeper into ALSP, we will recommend what in our view are the most trustworthy recent publications, for instance those of The Center for the Study of the Legal Profession of the University of Georgetown which in 2018 classified “ALSP” in an independent category; in 2019 together with the consulting firm Acritas and the Saïd Business School of the University of Oxford it carried out an exhaustive analysis of this industry, that according to its latest report, generated a turnover of 10.7 billion dollars in 2017.
 
This article will focus on the immediate effects that alternative suppliers will cause in the legal market. Though our views might not be entirely unbiased given our own hands-on experience in the matter, we hope our humble opinion adds value to the current debate and to the desirable changes that should occur in the legal services market for the benefit of our clients who, after all, are the ones whom we owe everything.

2. "Nothing is stronger than an idea which time has come." (Víctor Hugo)

2.1 How do we know that the time has come? A brief analysis of two decades: 1996-2006 and 2006-2016.

We began to practice the legal careers 25 years ago in the "alternative firms" of those times  - i.e. traditional law firms that, inspired in the model of big American firms, established a pyramid structure with a large number of associates at its base and few partners on the top who, in the ambience of ravenous quality control and know-how protection, sold their services at hourly rates.

The recent article by David B. Wilkins and María José Esteban Ferrer on the ALSP[1] whose reading we recommend explains very well how not so long ago the firms that we now call “traditional” became “alternative” by adopting the so-called "Cravath system" or as others ironically name "timesheeting" system in allusion to the timesheets that the lawyers or "fee earners" of those structures had to complete religiously.

In Spain, the decade 1996-2006 was a birth boom of such "big firms" working on an "hourly rate" compared to what had until then been the "traditional" legal advice of law firms run by eminent academics. The merger of Garrigues and Andersen in 1997 was, in our opinion, the most important milestone of those last years of the 90s of the last century when in the heat of unprecedented economic growth in Spain "high street lawyers" were transforming into large business organizations. Smaller law firms also imitated the big ones in their organization and pricing. In those years all major international law firms opened offices in Spain, and despite the gloomy predictions of the nay-sayers, have been growing and obtaining impressive results even since. The launch and subsequent evolution of Linklaters in Spain is just one eloquent example of that phenomenon.

But those were also the years when the first critics of that system raised their voice – they reckoned that it did not reward the results, but the time incurred. Richard Susskind[2] was one of the pioneers and visionaries who defended the possibility and necessity of an alternative system in his first book "The future of law" (Oxford University Press-OUP, 1996) and called out for a change in his subsequent books with provocative and pitiless titles like "The End of Lawyers? Rethinking the Nature of Legal Services" (OUP, 2008) and "Tomorrow’s Lawyers. An introduction to your future" (OUP, 2013). Those pre-technological and pre-Internet revolution years was also the time when law firms such as Axiom (b. 2000) were emerging in the market and - although cautiously - were functioning from different organizational structures. On the clients' side, large corporations also "professionalized" their legal departments that often turned to sophisticated purchasing centers requiring services of big firms.

The next decade (2006-2016), affected by the global economic crisis of 2008, was a turning point. The demand of "more for less" and new strategies to differentiate oneself from the others are escalating, but the "traditional" model is there to stay. The lawyer and co-author of this article can be given credit for this statement since he assumed the challenge of opening the Spanish subsidiary of an international firm and - in spite of the omens and the unfavorable economic context in the country - the law firm achieved an excellent position with its “traditional” organizational structure although adopting a relatively new strategy of differentiation – organizing the work around sectors and industries instead of practice areas, as consulting companies had been doing for years -.

However, compared to the previous period and besides the economic crisis, other important novelties influenced that decade. On one hand, the "laborization" of lawyers (Spanish Royal Decree 1331/2006 on the labor regime of lawyers) which, beyond the increase in costs for firms, implied a certain loss of the liberal nature of the legal profession and a decrease in the appetite of associates to go through step-by-step career to the partnership level typical of a "traditional" law firm – a career that had previously been appealing and justified eternal days at the office. On the other hand, Spanish Law 2/2007, of March 15, on professional societies that allowed inclusion of non-professionals in professional partnerships.

This second regulatory-organizational change is not, in our opinion, a minor one and in the United Kingdom - always ahead in terms of economic freedom – took form, also in 2007, of the Legal Services Act 2007 that contemplates the "ABSs" ("Alternative Business Structures") as legal services firms that may be owned by non-lawyers. Those were the years when, against the challenges of the crisis, there happened large concentrations of law firms giving way to birth of global firms (such as Dentons) and in which the Big Four audit firms with the help of ABS licenses accelerate their offering of legal services that were no longer exclusive for traditional firms, and instead were disassembled and provided more efficiently by other structures.

Lastly, those were the years when “sharing economy” and the “P2P” (Peer-to-Peer) economic models, the platform economy, etc. crop up and although it seems that we have been using Uber or Cabify for a lifetime, Uber was created (then as UberCab) in 2009 and Cabify in 2011 and both have not gained broad acceptance until about five years ago.

In this sense, we find particularly remarkable the note that the "Law Society" of England and Wales - equivalent to the Continent Bar Associations - published in January 2016 "The future of legal services"[3] in which it called for the urgent reinvention of law firm structures to adapt to the new environment and avoid a decline in the legal profession. According to this study, the causes that provoked the need to changes in the legal services market are categorized in (i) the new globalized business situation (ii) the new forms of demand and supply of legal services that clients require - both large corporations and smaller clients and even individuals (iii) the technological revolution and innovation in all processes (iv) the arrival of new service providers and forms of competition (v) the new regulatory vision of the profession and perception with regard to competition and pricing, the possibility of using external financing sources, new litigation financing funds, etc.
 
2.2 The “recent past”: 2016-2019
 
As we stated in that FIDE seminar on ALSP at the end of 2016 at that time, it is when the phenomenon begins to be “labelled”, analyzed and quantified. It is the time when numerous and diverse “LegalTech” showed up (under "legal tech" one could find practically anything– from software solutions for specific legal processes and technological consultants specialized in the legal sector to app developers and endless star-ups of all kinds). In those years "platform economy" ceased to be a myth and the "uberization" of many economic sectors became a reality.
 
The legal directory Chambers & Partners, a clear benchmark of international business law, begins to include a new category in its rankings called "Legal Process Outsourcing" (LPO) in which firms like United Lex, Elevate Services, Pangea 3, Integreon and a long list of their peers enter the scene that previously had been reserved only to elite law firms organized in a "traditional" way.
 
As we said in the introduction, in 2018 the prestigious report on the status of the legal market produced by The Center for the Study of the Legal Profession of the University of Georgetown dissected the “ALSP” to an independent category with a 10.7 billion dollars turnover in 2017. In its new 2019 edition the report categorizes five segments within the ALSPs: (i) the “Big Four” audit firms that jumped into the provision of legal services, (ii) the "LPO" ("Legal Process Outsourcers") closely linked to large legal firms that take on low-cost tasks normally in low-cost geographical locations, (iii) independent "LPO" (i.e. not linked to any firm and to which any firm or legal department can subcontract tasks of low added value), (iv) the providers of “managed services” (i.e. firms that take on all day-to-day legal functions and tasks) and, finally, (v) the companies that offer lawyers for temporary projects or “staffing solutions”.
 
The bewildering development of our North American ally United Lex is an example of the scale and importance of the phenomenon and how many of these providers are able to turn from a simple LPO to a true legal services company to which large corporations outsource all their legal functions and manage to attract large capital investments. The recent entry of CVC Capital Partners to United Lex[4] or Permira in Axiom[5] proves this.
 
2.3 Our personal vision and understanding of an ALSP
 
Without entering into theoretical discussions about what should be understood by an “alternative provider” and its differentiating elements from a “traditional” law firm, our particular approach is based on the recognition, above all, that we live - in Forrester's words - in the "Age of the Customer" with more demanding and informed clients, with increasingly complex and changing markets, where innovation and technological evolution are critical elements for business transformation. The "traditional" law firms no longer have the monopoly of knowledge and solutions to complex legal problems, and when clients come to a lawyer they already know much about the possible solutions to their problem thanks to the easy access to information and sophistication of buyers of legal services.
 
The need to innovate and obtain new results impels a change in mentality. In our case, we trusted in the approach of “thinking outside the box” and opted for what we understood to be the logical response to today's challenges: a hybrid model that combines a business law firm, a strategic and legal consultancy and a technological platform that provides solutions to complex problems.

We believe that two of the fundamental paradigms of traditional law firms consisting in the belief that in order to solve complex legal problems 1) a “closed” model (the firm's own know-how and processes ) and 2) intensive human capital (the firms "own" lawyers) is to be used is not the right solution - or at least not the most efficient one. No matter how selective, elitist and strict the law firm is in the selection and training of its lawyers, it may not have the best person to solve a specific client's problem, and more importantly, the solution may need not a lawyer but another professional or even not a human being at all - but a software solution.
 
If a few years ago for the reasons of economic efficiency (“the best is the enemy of the good”) it was preferable to opt for a “one stop shop” solution since it was hard to find another way to have big volumes of work done quickly, efficiently, and with quality guarantees, today technology, the economy of platforms and a greater transparency of information allow to find more effective solutions.
 
A recent real case that illustrates this approach was the recent response to a request for proposals made by one of the largest Spanish tourism and hospitality sector group of companies to help them implement their policy of anti-harassment and improper behaviors at workplace in Spain and several Latin American jurisdictions. The proposal of a big firm came in a form of discounted rates on file-by-file basis where all work would be done by lawyers. The “alternative” proposal we offered to the client consisted in creating an ad-hoc “to the project”joint venture (UTE in Spanish) of three firms and the implementation of a software package for reporting intolerable behaviors: 1) an audit and accounting firm with a strong labor department, 2) a high quality employment law boutique specializing in the most delicate cases and 3) our firm as coordinator of the solution and the software package (that already existed and need little customizing to this particular case). Moreover, compared to what the "traditional" firm suggested, our proposal meant significant savings to client.
 
We would like to highlight that with this example we by no means wish to criticize the traditional model – from where we come from, which we owe our knowledge and whose future we do not question. We merely believe that it helps to illustrate the changes we are living and anticipate its effects to which we dedicate the next section of the article.
 
Thus, be we one of the Georgetown's ALSP or not, we strongly believe that there are "alternative" was to solve legal problems with a brainy combination of technology - not necessarily our own - with talented professionals - not necessarily our own either - as the optimum solution to resolve clients' legal problems and challenges.

3. EFFECTS AND FORECAST

What are the effects that the emergence of ALSPs will cause - or is already causing - in the legal market? We venture to anticipate these first effects by dividing them into groups of players: "traditional" law firms, "alternative offer" and clients. Likewise, we will also analyze the changes in human, technological and financial capital.
 
3.1 Effects on traditional offices  
  1. Adoption of many of "alternative" elements by "traditional" law firms
 
Checking the websites of some of the international law firms is enough to observe this trend. Many offices create parallel businesses such as "LPO" or low-cost offshore subsidiaries in locations cheaper than London or other capitals to conduct legal process work (captive LPOs in industry jargon); other law firms begin to offer services of lawyers for projects with their own or associated human capital - there are many who reach out to their “alumni” looking for candidates to work for projects; others offer legal online tech solutions, etc.
 
There are law firms that have created consulting divisions offering integrated solutions in areas that require not only lawyers but also technicians (cybersecurity, criminal compliance, data protection, etc.) or software managers of brand portfolios and other industrial property, etc.
 
Likewise, it seems that many law firms begin to create their own platforms and software solutions, acquire "legal tech" start-ups, offer "managed services" (engage lawyers from the client's legal department and take on the legal functions of the outsourced departments) etc.
 
However, the "traditional" model still believes in the "closed" approach (that is, using only its own human resources or developing its own software solutions for its own exclusive use).
 
  1. Conversion of firms of the second and third tier with “traditional” structures
 
As we said, nobody argues the big firms' prosperous future, indeed they do not cease improving their results, but “tier 2 and tier 3” mid-size local and international firms not having important differentiating elements, with weaker financial capacity to retain talent and focusing on services now easily assumed by the new competition will be heavily affected by the emergence of the ALSPs. This segment will suffer major transformation, concentration and even disappearance, as we will explain below.
 
  1. Changes in human capital: transfer of human resources to new models and flexibilization of existing structures in the traditional model
 
In our opinion, the traditional law firms that had been very active in hiring new workforce will need to resize their offices, capture talent "for projects" and, in short, adopt more flexible models given the general drain of human capital towards alternative structures, particularly those led by large consultants and “Big Four”. This tendency will be especially notable for “tier 2 and tier 3” law firms structured under the “traditional” model as mentioned above.
 
  1. Increase in investments in tech
 
Although to date investments into human capital (lawyers basically) took the major share, today law firms begin to understand that it is fundamental to invest in technology, software, blockchain, artificial intelligence, etc. Some law firms are already creating their own predictive models and software solutions.

 
3.2 Effects and forecasts for “ALSP”
 
  1. Big auditing firms and big legal publishing groups will continue their growth in the ALSP market
 
Although influential legal consultants such as Mark Cohen question the inclusion of the "Big Four"[6] (PWC, Deloitte, EY, KPMG) among the ALSPs, we consider that given their rapid evolution and corporate developments in the last years apart of the "Big Four" other global audit companies (Grant Thornton, BDO, Crowe Horwath, RSM, etc.) will continue to expand their legal offering. While traditionally offering employment & tax-related advice, as well as litigation support (forensics), in the recent years they cover all areas of law and demonstrate to provide very qualified solutions in areas such as cybersecurity and privacy where and not only legal, but also good technical preparation is crucial.
 
Their hybrid structures and financial capacity will continue to allow them to invest in the purchase of ALSPs and other LegalTech start-ups (we already featured above the purchase of Riverview Law by EY in 2018), artificial intelligence solutions and, not least, in the attraction of talent from traditional law firms.
 
The same will happen with the three major global legal publishing houses (Wolters Kluwer, Thomson Reuters and RELX). The recent acquisition of CLM Matrix by Wolters Kluwer or that of HighQ by Thomson Reuters speak for themselves.
 
  1. The “Legal Sector” will become the new vertical in the portfolio of large consultancies
 
If we review the websites of the main consultancies, these not yet include the "legal sector" among the "industries" they advise such as banking, public sector, telecommunications, energy, etc. We predict that in the climate of transformation experienced in the big law firms and legal departments of companies, consultancies will vastly offer their services in this new "industry" or “vertical” in a similar way the Big Four do through their ALSPs.
 
  1. Changes in human capital: transfer of human resources to new models and flexibilization of existing structures in the traditional model
 
As a consequence of the effects that we analyzed for the traditional offices, we consider that the ALPS will need to attract more and more lawyers and talent from the traditional offices and that the brain drain will occur at all steps of the pyramid. We will not be surprised to see notable hiring of outstanding professionals coming from big law firms by Big Four and large technological and strategic consultancies.
 
  1. The ALSPs will continue to attract capital
 
If the "traditional" structures, because of their high dependence on their partners and regulatory limitations in most jurisdictions, have never been of any interest to investors, ALSPs on the contrary are targets and do attract capital. The investment of CVC Capital Partners into United Lex mentioned above, and the recent investment of Permira in Axiom illustrates this statement.
 
Likewise, start-ups focused on legal tech, especially those that facilitate Artificial Intelligence solutions are exceptionally attractive for investors.

 
3.3 Effects on clients
  1. Transforming legal panels
 
Until today it was common for large corporations and financial entities to form, as a result of their sophisticated inner purchasing processes, panels of legal service providers generally comprised by representatives of several big law firms. We notice that this tradition is changing and besides big law firms highly specialized boutiques - especially for litigation issues - to which certain ALSPs may be added – now may now form a client's panel.
 
  1. Increase in the demand for lawyers for projects and “LIMers” (legal interim managers)
 
As previously indicated, it will be increasingly common for companies to respond to certain needs (large transactions, business crises, complex litigation, etc.) not by turning to external law firms for legal advice or their secondees (generally, law firm's associates sent exclusively to the particular client to work in-situ), but by hiring “lawyers for projects” or “LIMers” (legal interim managers) - a service in which some ALSPs and legal headhunting companies have specialized.
 
  1. Restructuring and transforming in-house legal departments
 
As a consequence of the process described above, it will be more and more frequent that entire legal departments (with all their lawyers) will be undertaken by the ALSPs specialized in “managed services” or, at least, will become subject to profound reshaping.
 
The operation carried out by United Lex assuming the legal department of DXC Technology after designing a unique managed services solution is a good example of this phenomenon and has already become a case study[7].
 
Within this trend, we detect that important corporations and financial entities are creating "transformational" units within their legal departments that, eventually, will come up with projects to transform these.
 
 
 

4. CONCLUSION (AND WISHFUL THINKING)

After three years since the launch of our ALSP, we can knowingly affirm that there is an "alternative" way to provide solutions to the legal challenges that our clients face, that the clients trust this new model and there is an appetite for change. We cannot disagree that the “traditional” business model continues to be an important engine of our business, that great efforts are needed to implement and receive expected results from technological solutions, that there are not so many lawyers willing to work for projects, that at times artificial intelligence proves to be not so intelligent and a long list of other hurdles.

This said, being part of the ecosystem that leads the change in the legal market makes that all the frustrations and sacrifice so common for a new venture feel worthy undertaking and a rewarding experience.

We are convinced that the Spanish legal market that, without exaggeration, is one of the most sophisticated in the world and whose many leaders are internationally recognized, will not only manage to adapt to the current changes but will lead many of them, and this also is our dream and aspiration for our own ALSP project.




 

Javier Fernández Samaniego

Managing Director of SAMANIEGO Law. His international practice focuses mainly in Commercial/IT disputes (international litigation, arbitration, and ADR) and negotiations and major Tech & Privacy projects (new cloud and big data business models, outsourcing transaction, data protection review programs, etc.). Besides Javier has vast experience assisting European clients in their expansion in Latin America and US clients in their European expansion. Before founding Samaniego Law in 2017, for over a decade Javier was managing partner of the Spanish office of Bird & Bird and headed its Commercial, Dispute Resolution and Information Technology teams. Before that he was head of the IT and Communications at Linklaters, and he had previously been the head of Technology and Data Protection team at Spanish firm Cuatrecasas, and a lawyer at the CDTI (Centre for the Development of Industrial Technology). He is an arbitrator at the information and communication technologies department of the Chamber of Commerce of Madrid. He is also a CEDR accredited mediator and member of CPR Panel of Distinguished Neutrals and its European Advisory Board. Member of Fide´s Academic Council. Senior Fellow at Steven J Green School of International and Public Affairs (FIU). -Florida International University.

Manuel Esteban Caballero

Head of Legal Tech and Artificial Intelligence (AI) solutions in SAMANIEGO Law, and is responsible for the firm's alliance with UnitedLex, a global provider of technology-powered business, legal and cybersecurity solutions. Mathematician and AI expert. Associate lecturer in Spain and abroad at Universities and Business Schools including UCM, UPM, UCARLOSIII, Pompeu i Fabra, Instituto de Empresa, ICEMD and ESIC. In the last three years, Manuel has acted as an independent consultant for multinational companies, advising them on a broad variety of issues related to Business and Digital Transformation. He has also assisted in developing GDPR Compliance and PIAs (Privacy Impact assessments solutions). Prior to this, Manuel worked for twelve years at Experian Marketing Services, where his last position was Managing Director of Experian Decision Analytics and a member of the company’s Executive Committee. Before that, Manuel was Managing Director & Partner at Item Consulting and Mosaic Iberia - two information & marketing solutions consultancies pioneering in the support of legal and compliance teams in the Spanish market. Manuel holds a degree in Mathematics from the Complutense University of Madrid, where he specialized in Computer Science, and a Master's degree in Artificial Intelligence from the Polytechnics University of Madrid.


The article was originally published in October 2019 in Spanish by Wolters Kluwer in the special publication
“Innovation and Tendencies. Legal Sector 2020” 
https://tienda.wolterskluwer.es/p/1-2-3-legal-tech