Systems v talent – clients will have to choose

From the perspective of a GC at a major multinational, which will be the key external adviser over the next ten years, the legal firm that is top decile at attracting, motivating and retaining the best talent throughout its business? Or the institution that excels at building market-leading systems, processes and technology? Put another way: which approach will provide competitive advantage and dominance over the other camp?

This point came up repeatedly at a recent Legal Business debate on global elite law firms attended by the general counsel of Royal Dutch Shell, Lloyds Banking Group and The Royal Bank of Scotland. While you will have to wait for the next issue of IHL for a full report, it struck me that this point will define much of the shape of the legal industry for years to come.

Let us first head off the stock response: law firms will need to be great at both. That is not how the legal industry is structured or in general how most industries work. Culture, office politics, resource allocation bias – call it what you will, institutions tend to break strongly one way or the other. Many top law firms are excellent at focusing on talent and have respectable, middle-of-the-pack systems and tech. But the centre of gravity starkly tilts in one direction.

The legal industry over the last ten years has shown a growing tension between these contrasting approaches as a group of international law firms, primarily driven by US-bred advisers, have focused ever more sharply on star partners and more aggressively on meritocratic winner-takes-all pay models. Elsewhere, a group of firms, more likely to be UK-based firms or some of the stronger alternative legal providers, have experimented with technology, process and new models.

This is largely because clients have been pushing major law firms to go in two directions at once, forcing some painful contortions on their external advisers, particularly those focused on serving heavily-regulated financial services clients.

Looking at the financial performance of top law firms over the last decade, those that excel in talent still have a very clear competitive edge over rivals majoring in process. That was echoed in the debate where clients spoke of the value they still place on the ‘judgement’ of veteran partners in high-stakes matters even as the march of automation takes on more work historically handled by people.

But the signals GCs send their advisers on these points are mixed and often downright contradictory. It is inevitable that substantive areas currently seen as the realm of human judgement will be ceded to algorithm. My unscientific hunch is that this talent-wins dynamic will remain dominant in the legal industry for the next ten years. But ultimately, the commercial prospects for advisers with superb systems will increase as technology marches on.

There is still a lot of denial in top firms about how little reform will be needed of the conventional law firm model, and no small amount of denial among some clients. At a point the legal industry must surely split far more clearly into shrinking purveyors of talent and a growing section providing process and execution. That will have almost as many implications for in-house teams as their advisers.