Risk aware legal innovation

The legal industry doesn’t stand out for embracing ground-breaking change when compared to other professional services organisations.

However, the coronavirus (COVID-19) pandemic has shown that the sector is capable of rapid transformation. In the first half of 2020, the industry experienced, and adapted to, more change than it has ever seen in such a short period of time. Firms quickly implemented widespread remote-work arrangements and will likely make flexible work permanent – or at least provide the option for employees. They have also fast-tracked the adoption of policies and technology that minimise the use of paper, maximise team collaboration and automate more tasks. Some firms have even used new technology as part of their COVID-19 response, by deploying global travel navigators and other online resources to provide guidance to clients. These changes have been pivotal for the industry – we’re unlikely to return to old ways of working, even after the pandemic is behind us, but as we acclimatise to new ways of working, how can firms best balance revolution and risk aversion?

Specifically, how can firms avoid suppressing their momentum when it comes to industry critical innovation, while still capably managing risk in a heavily regulated environment?

Setting the stage

First, innovation needs the right environment – and a firm-wide commitment – to help it thrive. Amol Bargaje, global director of IT practice & client solutions at Mayer Brown, says: “An innovation strategy requires championship and support from top leaders within a firm, inclusion and alignment of legal and business professionals at all levels, and a culture of continuous improvement and calculated risk-taking.”

Further, it should be the product of listening to critical input, both from key clients and from a diverse cross-section of employees within the firm. Still, even firms with a stated commitment to innovation and a decentralised model for encouraging and sharing ideas may struggle with their implementation – and specifically the risk-taking required to get there. For this, firms need to create a safe space for experimentation and failure, though perhaps not a public one. Bargaje advises involving stakeholders early when evaluating emerging technology for the firm – and tapping internal talent, if possible, to develop expertise in operating and managing it. That can help the firm more quickly rule out products that are unsuitable, set more realistic expectations about the viability of other products, and give stakeholders a greater sense of ownership in a project.

Managing risks and regulations

When it comes to managing risk and regulations, a mindset shift may be needed within both law firms and regulatory bodies. In a recent podcast about regulation and its role in fostering innovation, Crispin Passmore spoke about how law firms can coexist with regulators. Passmore, who founded a consultancy that provides legal and regulatory business services, formerly led the regulatory reform programme at the Solicitors Regulation Authority, and also helped to set up the Legal Services Board.

Passmore discussed the assumption in the legal sphere that, if it’s not explicitly stated by regulators that something can be done, firms won’t do it. “When I watch regulators around the world, so many of them are trying to do a top-down approach to innovation where they give permission for particular technologies and particular new ways of delivering services or particular educational models,” he said. “It just doesn’t work because regulators are always behind innovators in the market. You have to get out the way as a regulator.”

For its part, the Legal Services Board published a report earlier this year in which it stresses this point – and the desire of regulators to partner with law firms on innovation. “We are keen to make sure that regulation is not one of the barriers getting in the way of the sort of legal technology that could benefit the public,” it said. If your firm has room to improve when it comes to innovation, there are examples from others in the market already demonstrating how it can look. They are taking steps to embrace their digital transformation with employees and clients, reform firm culture and change the definition of the word “lawyer” itself.

The Financial Times’ recently published FT Top 30, a list of the most innovative law firms in Europe, details the diverse ways in which law firms are defining innovation. This year, Pinsent Masons tops the list. Paul Smith, Senior Risk Management Consultant at Travelers Europe says: “Innovation is happening in the legal sector, driven by a mix of market pressure, demands from the legal workforce, regulators and - most recently – the impact of the pandemic. Innovation involves uncertainty, so it has an intrinsic link with risk – the impact of uncertainty on objectives – and both need to be managed together. Ultimately, sound risk management means more freedom to innovate and with that, potentially, a greater willingness to do so. And that may be crucial in a competitive market.

In the words of John F. Kennedy, “There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction.”