Continued progress towards digitalization is to be welcomed, but are General Counsel offices moving quickly enough to implement necessary change?
The EY General Counsel Barometer 2020 shows that more companies are embracing the digitalization of legal work, such as the automatic creation of documents and the use of artificial intelligence (AI) for document analysis.
In-house legal professionals are increasingly aware of how new technologies can enable efficient, real-time reporting and demonstrate more clearly the impact they are making on the bottom line. However, our survey shows that while many General Counsel offices accept the benefits of digitalization, they are not always quick to act. There is also a marked reluctance to embrace more disruptive innovation that could deliver even greater efficiency.
The move toward digitalization is the most important factor for General Counsel offices to consider and respond to. More than three-quarters of respondents (76%) believe digital solutions will be very (or somewhat) relevant to the work of legal departments in the future.
Furthermore, the majority of participants in the survey – 51% – say their departments already use digital solutions or have evaluated and plan to use them over the next 12 months. This is a 13% increase on 2017.
The shift to digitalization that is taking place in General Counsel offices is something external legal service providers will need to take on board. Almost a quarter of respondents said usage of digital solutions among external legal service providers was extremely important, while a further third (33%) said this would be a welcome addition when considering which external provider to work with.
In general, there is positive momentum in incorporating digitalization within the business model. The vast majority (91%) of those who use digital solutions are either satisfied or very satisfied. Clearly, the digital solutions available are fit for purpose but that is not the issue – it is the number (49%) who have still not made any firm commitment.
General Counsel offices are far behind the curve on this when you compare them with other back-office functions in large companies, such as HR and the CFO office.
Why are they behind the curve? One argument is that they are not a profit center; they’re a cost center, so it’s difficult for them to make the case for investing in new technologies.
There is also an inherent view that legal departments are idiosyncratic in the way they work – that somehow, they can move and change at a different pace to other departments. However, General Counsel offices are coming under increasing pressure from the boardroom to explain their contribution to company value.
If this means changes are forced, there will inevitably be a learning curve and legal professionals will need to educate themselves about the why, what and how of digitalization. Collaboration and third-party expertise could also help here, with external providers providing essential insight and support.
While the pace at which digital solutions are adopted might be a concern, there is at least an appreciation of the potential benefits. The same cannot be said for technologies at the more innovative end of the spectrum, such as blockchain.
Despite promises that blockchain offers speedier and more secure payment transactions or contract processing, General Counsel offices remain to be convinced. Just 21% of respondents said blockchain was very or somewhat relevant to the work of legal departments, while 42% insisted it was not relevant at all.
What is intriguing though is that when respondents were asked to take a longer-term view, blockchain was far more prominent in their thinking. Of those surveyed, 40% said blockchain would become very or somewhat relevant in the next five years.
The inference here is that offices will not be able to put blockchain on the back burner for long. Even if in some quarters it is an unwelcome disrupter, blockchain has the potential to radically change the way transactions are negotiated, completed and recorded. First movers might find themselves at a competitive advantage – time will tell.
“General Counsel offices continue to underestimate the relevance of innovative technologies such as AI and blockchain. They risk falling behind other functions within their organizations that are more open to using these technologies, which can deliver greater efficiencies and visibility.”Dr. Christian Bosse, EY Law GSA Leader and Global Law Technology Leader
As with all new technology, the driving factor for implementation is greater efficiency and cost reduction. The same benefits apply to AI and robots. In 2017, 60% of respondents said robots/AI had no influence on the working conditions of employees. The figure now stands at 42%. It seems General Counsel offices are becoming more aware of how automation can transform the work of in-house legal departments.
In terms of cost efficiency, robotics and AI can be highly effective, but their increased role will require dealing with the legal implications, particularly in the area of employment law and with regards to liability issues.
External legal service providers
In addition to technological innovation, outsourcing is another way to increase efficiency and potentially control costs. The issue here is the suitability of the selection process. General Counsel offices still show a strong preference (62%) for working with traditional law firms, selected based on their own experiences.
A more organized selection procedure could allow access to a wider range of external service providers, including non-traditional multidisciplinary firms. These firms could deliver a broader and more coordinated range of services, resulting in greater efficiencies.
As cost pressure on the in-house legal function increases, relationships with external providers combining legal and other services at a highly competitive price will come into sharper focus.
An increased emphasis on efficiency and costs – with technology adoption identified as the key facilitator – inevitably brings human resources into the picture.
Our survey shows that General Counsel professionals who think that jobs are under threat from digitalization are still in the minority, but their number is steadily increasing. Some 40% of respondents say it is very or somewhat likely that software solutions will replace people to a substantial extent in legal services in the next few years.
None of us have access to a crystal ball, but there is every likelihood that the impact of new technologies on the legal workforce is still substantially underestimated.
While it might be harsh to say that many in the legal profession are in denial, the sector has been singularly untouched by disruptive developments in the past, so it is a bold awakening to contend with. If legal professionals accept that radical changes are on the horizon and actively engage rather than reluctantly respond, they will enjoy a sounder footing. It is always better to drive the change than to be changed.
Regulation and challenges ahead
In May 2018, the new EU General Data Protection Regulation (GDPR) came into force.
Since then, the majority of General Counsel offices (61%) have implemented the necessary measures to comply with GDPR. However, a third of respondents (34%) are still in the process of doing so. This is a concern, given the severity of fines that could be imposed on companies that are found to be non-compliant in the event of a data breach (the maximum fine is €20m or up to 4% of their total global turnover, whichever is higher).
The introduction of GDPR brings enormous challenges. Process changes have to be implemented across companies, large numbers of existing contracts have to be amended and a new approach toward the handling of data has to be adopted.
Companies inevitably look to the General Counsel office for guidance on how to adapt to the changing regulatory landscape. Once again, digitalization, automation and AI should provide essential support to deal with these challenges.
Now is no time for a bunker mentality; it is a time to exchange ideas and knowledge. Lawyers need to stay abreast of new technology developments and, where possible, implement sooner rather than later. Accepting that the industry can be disrupted is a starting point. The next step is to be progressive, to be a pacesetter rather than playing catch-up, with all the disadvantages that entails.
In conclusion, as Oliver Blum, Partner and Head of Legal Services for EY in Zürich and Dr. Christian Bosse, GSA Law Leader, EY, say:
“General Counsel offices are going to have to do something very difficult. They are going to have to take a break from the daily grind to inform themselves about the solutions that are available, because we’re not talking about upgrading from Windows 8 to Windows 10. We’re talking about really throwing out the old stuff and getting used to a completely new way of working. We’re talking about disruption – this is not just a buzz word, but the new reality, and the legal profession will not be spared from it.”
“General counsel offices need to be bolder and faster in the way that they implement change if they are to remain relevant.”Oliver Blum, Head of Legal Services, EY Switzerland