21 January 2020
It’s a concept that’s been around for years, but with a rush of new firms claiming to be “NewLaw”, the legal industry today is struggling to answer one simple question:
Recently, it seems that any firm new to the industry can call itself ‘NewLaw’.
But really, what is NewLaw?
Peel back the branding and the reality is that most of these NewLaw firms are not doing anything different.
Sure, maybe they’re charging lower margins or working from home. But are they fundamentally changing the way legal services are delivered? For example, by deploying their own legal tech, servicing clients differently than traditional law firms, or moving away from hourly fees. Or are they just doing the same old things under a new moniker?
Many clients are struggling to understand the true value of NewLaw. The term has become diluted NewLaw providers are not yet proving to be serious competition to well-established BigLaw firms.
So, what does NewLaw actually mean? How does it actually differ from traditional practices? And what should you look for in a NewLaw firm?
A term first coined in 2013 by consultant Eric Chin, “NewLaw” is defined as:
“Any model, process, or tool that represents a significantly different approach to the creation or provision of legal services than what the legal profession traditionally has employed.” (Source: ALPMA)
Sounds great in theory. But what does NewLaw mean in practice?
There are three variables to NewLaw:
Let’s break it down:
In a traditional law firm, partners rely on old-school networking to get business. While they do use some marketing, the emphasis is on individual reputation and personal relationships. The client is engaging an individual that just happens to be at that firm, the name on the letterhead really doesn’t matter.
Perhaps because of this, traditional firms struggle to leave the billable hour behind. They still pin their value on the time input by individual lawyers.
NewLaw firms win work like every other industry: marketing, business development, and a unique selling point (USP). They create a client offering based around the brand of the firm, not the individual.
This approach means a true NewLaw firm should find it easy to move away from time-based billing. The client is engaging a service provider for a specific outcome, an outcome that that service provider has delivered many times and so understands well how it should be priced. True NewLaw firms view their output as a product, not an art.
In a traditional law firm, partners cascade the work down to senior associates, who give it to lawyers, who delegate to paralegals.
So, paralegals do the work, then the lawyer checks and redoes it. The senior associate checks and redoes it, then the partner checks and redoes it. The client pays for the according to time taken, so why not get as many hands in there as possible?
Another major problem with this model is that hourly rates promote inefficiency. Why work faster or use technology when you are being paid more to take your time?
This means the best outcome for the firm is often the worst outcome for the client. The incentive is to take longer, protract negotiations and make mountains of molehills.
NewLaw does things differently. Moving away from billable hours does more than just make pricing transparent – it realigns incentives. A true NewLaw firm creates incentives to drive efficiency in order to make a margin – a faster, better outcome for the client means more money for the firm.
It’s this change in incentive that drives investment in technology, process improvement and new ways of working that drives sustainable value.
A traditional law firm has a partnership structure. The firm is incentivised to make as much money as possible in a year with no incentive for long term vision. All profit is taken out of the firm with no incentive for investment in ongoing improvement. In short, it is set up for the partners, not the clients.
This whole model creates competition amongst the lawyers to motivate them to become equity partners through building their own practice, often at the exclusion of the rest of the firm. The result is a firm run by lawyers who are not necessarily business managers, and in it only for themselves.
So, how do you increase profitability under a traditional law model? This short-term, narrow-focus approach means the firm is unable to change or adapt. To make the most money you must either bill more hours or increase your hourly rates or pay your people less. No wonder junior lawyers become disillusioned.
True NewLaw uses a different structure. Perhaps it is an incorporated legal practice (ILP), or it’s run by non-lawyers. The key is in structuring with an incentive toward reinvestment in the company and how it runs. There is a focus on long-term thinking and, most importantly, a “client first” approach.
Changing things up even more is the emergence NewLaw firms driven primarily by capital investment. Big capital investments into legal tech and NewLaw start-ups mean firms are seeking high growth without a concern for margins. This is great for clients and makes it tough for traditional firms to compete.
It comes down to truly changing how legal work is delivered. The reality is that charging less for the same work is not enough. It’s not good news for the industry or the client in the long term, as they won’t see real value.
Clients seeking true long-term value need to look at how the underlying work is done. That’s where NewLaw comes in.
Here are four things to look for:
Look at how you are engaging your law firms. Is the incentive with you to carefully watch their bills and keep prices in line? Or is the incentive where it should be – with the firm – to ensure they work efficiently to make a margin on your project?
NewLaw firms make clients the centre of what they do. This means focusing on understanding client needs and delivering an exceptional client service.
Changing billing practices and incentivising client outcomes lead to a big improvement in value from traditional providers, but real efficiency only comes through technology enablement.
NewLaw firms should be using technology to manage mundane legal work, provide an exceptional client experience and drive efficiency. Any solution that does not incorporate a tech layer should be considered as short term only, it will soon be superseded by one that does.
There are many boutique NewLaw firms offering real value to individual clients. But what we will see in the next five years is the emergence of economy of scale in this market as NewLaw firms grow.
That’s where things get disruptive. It’s the combination of NewLaw practices with scale of capital, technology and human resources that will transform the dynamic in the industry.
Look for a firm that has moved away from the traditional billable hours and towards value-based or output-based billing. This should be non-negotiable, the incentive must be with the service provider to deliver efficiency and value – not with you as the client.
It’s time to look beyond the moniker "NewLaw". For a law firm to actually provide value, it must truly work differently, have an incentive for efficiency, embrace technology and have access to scale. Whether or not they call themselves “NewLaw” is irrelevant if they can tick the right boxes.
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