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AI and a host of other technologies are set to upend the legal industry— which isn’t exactly known for its rapid embrace of innovation. Is it time for firms to try an adapt-or-die mindset?

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LUCA D'URBINO/The Globe and Mail

When Susan Wortzman was a law student at the University of Manitoba, nobody taught her about hauling boxes. And yet this would turn out to be a key legal skill. Wortzman recalls her early days as an associate at Lerners LLP in Toronto. “I was carrying carts full of boxes up to the courthouse in the snow,” she says. “I kept thinking, There’s got to be a better way of doing things.”

The legal industry was addicted to paper. In the late ‘90s and early 2000s, Wortzman worked on a major product-liability case. As with any lawsuit, the first step was discovery: the process of retaining and sifting through millions of documents—emails, memos, internal communications—in search of evidence. The materials were delivered by the truckload and deposited at the Lerners offices, which came to resemble the bathroom at Mar-a-Lago. “We had 150 people sorting through paperwork,” Wortzman recalls. The project took years, and may well have added hundreds of thousands of hours to the client’s bill.

Wortzman left Lerners in 2007 to start her own firm. There, she hired a small team to devise a faster discovery protocol, without paper and with various software programs—leased from external suppliers—to move the process along. Machines ran keyword searches, organized material by subject or type, and grouped near-duplicates (like emails from the same chain) into clusters, transforming a messy trove into a manageable cache. “The work doesn’t sound very technologically advanced today,” says Wortzman, “but it was better than printing emails and putting sticky notes on them, which is what lawyers were doing.”

In 2010, she started seeking other law firms to license out her e-discovery process, but initial uptake was slow. “People told me I was crazy to push e-discovery,” she recalls. “They said it wasn’t going anywhere.” In a world of digital technology and information overload, she wondered, could lawyers really continue reviewing documents by hand? For some, it seemed the answer was yes. “If a case had 5,000 boxes of documents, they’d read through the 5,000 boxes,” she says. “‘How can you know you haven’t missed anything,’ they’d say, ‘unless you’ve had eyes on every file?’”

This response was both mystifying and predictable. The profession is often instinctively resistant to change. Sure, individual lawyers recognize the importance of innovation, but the industry as a whole remains reticent. A 2020 report by the information-services company Wolters Kluwer reveals that, although 76% of U.S. lawyers believe that investments in cutting-edge technology will keep their businesses competitive, only 28% expect their firms to actually make such purchases. And while 79% believe that clients today desire greater productivity at better pricing, only 28% think that such changes are in the offing. Even when lawyers know what they must do, they remain, collectively, unwilling to do it.

This bias isn’t merely cultural; it’s built into the structures of the industry, which seems like it was designed to protect incumbency. Even leaders who push for change can face massive institutional obstacles. Law firms, particularly the big ones, aren’t military helicopters; they’re ocean liners. “In law,” says Wortzman, “old habits die hard.”

Perhaps this has always been the case. Norman Bacal—a legal-industry analyst, mentor and former managing partner at the now-defunct Montreal firm Heenan Blaikie LLP—remembers in the ‘90s when many lawyers refused to have computers at their desks. “Nobody saw the value,” he recalls. “People would say, ‘I don’t know how to type, and I don’t want to learn.’” Some would speak their notes into Dictaphones and have their secretaries transcribe the recordings. When Bacal banned Dictaphones, his staff was furious.

His story is hardly anomalous. When, in 1996, Richard Susskind, the famous legal-industry futurist, predicted that email would eventually become the dominant mode of communication among lawyers, the Law Society of England and Wales accused him, in his words, of “bringing the legal profession into disrepute.” Lawyers were similarly hesitant to switch out their BlackBerrys for iPhones or to adopt videoconferencing, until the pandemic made it necessary.

Now, seemingly every lawyer is talking about generative AI, which can draft documents or conduct preliminary research. But an AI revolution may not be coming any time soon. In law, chatter doesn’t automatically translate into action.

It’s not only technological change that lawyers eschew; it’s cultural change, too. Law firms are still dominated by powerful men, despite the growing consensus that an ethical business is also a diverse one. They still have a clannish boys’ club vibe: Partners meet with prospective clients at steakhouses, where they chat about golf and hockey. They still bill by the hour, even though this practice disincentivizes productivity and is roundly despised by clients. And they still operate according to a hierarchical model: Partners get rich by compelling their subordinates to work punishingly long hours.

This aversion to change has many antecedents. The profession likely selects for cautious people. The norms of the industry reinforce such risk aversion. The practice is precedent-based: A good legal argument is one that looks backward to pre-existing case law. And so lawyers are trained to make present decisions based on past standards—a healthy impulse, but one that can discourage experimentation.

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LUCA D'URBINO/The Globe and Mail

There’s also the issue of reputation. In the tech industry, CEOs often brag about the risks they’ve taken and failures they’ve endured. For lawyers, such stories are a liability. Clients seek an advocate with a steady hand, not a maverick with a history of swings and misses. “Lawyers aren’t just failure-averse, they’re embarrassment-averse,” says Jordan Furlong, a legal-sector analyst and founder of the consultancy Law21. “Whenever I suggest some kind of innovation to a law firm, they say to me, ‘Where’s the proof? Show me a place where this has worked before.’”

For all the problems the industry faces—gruelling hours, low staff morale—there’s one it doesn’t contend with: lack of money. Law firms bring in piles of cash. But this, too, can be a barrier to change. Almost without exception, the key decision makers at large and even midsize firms are incredibly affluent. Why would they seek to reform a system that works so well for them? “It’s hard to tell a room full of millionaires,” says Furlong, paraphrasing Susskind, “that their business model is wrong.”

But while plenty of money comes in, not much of it stays behind. Law firms aren’t corporations; they’re partnerships. They don’t normally have CEOs, boards of directors or retained earnings. All the profits they make in a given year get distributed among the partners, most of whom, says Furlong, are perfectly comfortable with this arrangement.

But without retained earnings, there’s little money for big-ticket innovations. There aren’t many good ways to raise money, either. Law firms can’t have public shareholders or investors. Only lawyers are legally allowed to own equity in a firm, which means there’s no way to spread risk to outside parties. Innovation happens in industries that are scrappy, entrepreneurial and eager to make compelling pitches to venture capitalists. Lawyers are often careful, reputation-conscious, and comfortably well off. Beyond taking out a bank loan or dipping into profits, they have few means of financing large capital projects. Is it any wonder the industry remains hidebound?

When Louis Frapporti became managing partner for the Hamilton office of Gowling WLG in 2016, he decided to push back against that mentality. The changes he sought were more cultural than technological: He wanted to reimagine the way advocates engage with clients. “As lawyers, we tend to be task-based,” he says. “We sit in an office. We wait for a call. Eventually, hours are billed, and the task is done.” He believed there was a better way. “The more highly valued, differentiated advisory work,” he adds, “the work that consulting firms like Deloitte and KPMG and McKinsey do, centres on providing proactive rather than reactive advice.” Instead of waiting for opportunities, lawyers could create them.

But to do that, they’d have to know their target clients well, which is difficult, given that lawyers are often sequestered in downtown offices far removed from their clients’ places of business. Since the early 2000s, Gowlings had occupied a 1928 bank building at one of Hamilton’s busiest intersections. But the lease was due to expire in 2022, and Frapporti had an unconventional idea for where the firm might go: the McMaster Innovation Park, a 60-acre campus associated with the city’s largest university, where entrepreneurs and researchers create market-ready products. (Residents include Canmet Materials, a federal operation dedicated to materials discovery, and the McMaster Automotive Resource Centre, a leading developer of electric-vehicle technology.)

Frapporti figured that Gowlings, with its expertise in intellectual property and corporate law, could be an asset to Innovation Park tenants. He imagined a future in which the firm’s lawyers would share meals or after-work drinks with their neighbours, dispensing off-the-cuff advice on marketization (to sell or lease a product, one first needs to incorporate) or differentiation (to patent a technology, one must demonstrate that it’s unique). These conversations might be openings to a more trusting, durable and mutually beneficial relationship than the typical lawyer-client interaction. “Progress is made,” says Frapporti, “when people working in related fields can collide with one another.”

Not everyone was as keen on this notion. “A lot of my colleagues loved the old offices,” Frapporti says. “They would say, ‘My practice is great, Lou. I’d like to stay here.’” As a policy, Gowlings didn’t invest in fixed assets like buildings. Would partners have their annual draws diluted to finance the build? Why would they agree to such a proposal? And what if the complex got sold decades later? Who’d get the equity?

To make his case, Frapporti got creative. He found a developer who was willing to put up the building specifically for Gowlings and then step in as a landlord. To his colleagues, Frapporti talked up the advantages of the Innovation Park locale— safety, security, ample parking.

In late 2018, he presided over a merger between Gowlings Hamilton and the local firm ESB Lawyers, which had deep connections to the entrepreneurial and academic communities. The increase in staff made staying at the bank building untenable. “We were forced to confront the issue of new space,” says Frapporti.

Eventually, Gowlings signed a tentative agreement to relocate to the Innovation Park. Enthusiasm was still mixed, but the move appeared to be underway. When Frapporti thinks back to the late 2010s and the various strategies he used to win over skeptics, he realizes he sometimes dodged the most salient arguments, focusing on prosaic benefits instead of fully making the case for innovation. “I just wanted the move to happen,” he says. It didn’t occur to him that future events might scuttle the plan entirely.

There’s no way around it: In law today, old ideas have a built-in advantage, and the person making the case for change will always have a tougher argument than the one who defends stability. But for some changemakers, the industry’s precedential bias can be an asset. If, as an innovator, you can demonstrate that your way of doing things really is better—so much so that it’s worthy of being a new industry norm—you can reap substantial rewards. The same cultural forces that favour tradition will eventually favour you.

Benjamin Alarie is a professor at the University of Toronto Faculty of Law and co-founder of the tech startup Blue J, which uses AI and predictive software to analyze tax-law matters and anticipate likely case outcomes. In his academic and entrepreneurial roles, Alarie has observed the cycles of industry change up close.

He agrees that lawyers often approach new ideas with wariness, but he adds that, when they finally come around, they do so decisively. “Lawyers always take a close second look at things before they adopt,” he says. “But then the adoption can be extremely rapid. I’ve had conversations with other founders of legal-tech companies, and they’ve said, ‘If you get five of the top 100 firms on your side, you will have 80 or 90 of them in a couple of years.’ It’s not easy to get the first five, though. You have to make your case satisfactorily.” (To date, Blue J has raised over $30 million in investments and has added more than 300 subscribers in Canada, the United States and the United Kingdom.)

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For Jack Newton, founder and CEO of the legal-tech company Clio, “making the case” required extreme forbearance. He had to repeatedly defend ideas that to him were self-evident. Clio’s software package enables law firms to input and store a range of data, from client intake and contact management, to hour tracking and billing. When the product first came out in 2008, it had what Newton thought was an obvious edge on its clunky competitors: It was elegant and user-friendly. It was also the first such program to store data in the cloud, a benefit that, initially, seemed more like a liability.

Simply put, cloud storage freaked lawyers out. Where did the data go? Was it secure? How could anybody really know? Law societies and bar associations released strongly worded guidelines, warning practitioners of the risks and counselling them to conduct ample due diligence. “These organizations can create a lot of fear, uncertainty, and doubt,” Newton says.

The associations weren’t urging the same degree of caution when it came to on-premises computing, the standard way of doing things, which, in Newton’s opinion, was wildly inferior. “The cloud-computing providers are renting capacity from the likes of Amazon and Google,” he says. “The servers are in remote, bomb-proof bunkers that are secured with biometrics. In the early days of Clio, we’d talk to solo and small firms that were concerned about storing data in the cloud. But their servers were in broom closets accessible to office staff and cleaners.”

The situation rankled. A new system was getting heavily scrutinized simply because it was new; an old system was getting shielded from scrutiny simply because it was old. Newton realized that he had to defend his business plan as fulsomely as possible. “We jumped into action and started educating people,” he says. “We developed an industry group called the Legal Cloud Computing Association. I got on the speaking circuit and gave as many talks as I could. I made what was then an audacious-sounding claim: that the cloud is more secure than almost any on-premises system.”

Over time, opinions changed. “In specific geographies, we saw things explode,” Newton recalls. In 2009, Clio got its first customer in the State of Oregon. By 2011, it had 200 clients in the state. That number doubled the next year and the year after that. Soon, Clio had a critical mass in the Pacific Northwest. Things moved slowly, then dizzyingly fast.

Word-of-mouth was Clio’s biggest asset. “There’s a narrative about how lawyers are averse to technology,” says Newton. “But once you’ve built that initial momentum, they will shout from the rooftops and recommend you to all their colleagues.” When Clio debuted its product, the status-quo bias made selling it incredibly difficult. By the 2020s, they had become the new status quo, which meant the benefits of incumbency were theirs to enjoy. “Clio is the most-used piece of cloud-based legal technology in North America,” says Newton. “It took us 15 years to get here.”

Clearly, legal innovation requires persistence and time. It’s not impossible, but neither is it easy. If the industry is to become more nimble, it won’t only need a change in culture. The business model needs an upgrade, too.

The national Canadian firm McCarthy Tétrault LLP offers an example of what such an upgrade might look like. McCarthy is a partnership, but it resembles a corporation. “Most of our partners are focused on the practice of law, not the business of law,” says Matthew Peters, the firm’s national innovation leader. Business decisions are made instead by the leadership team, which includes the usual C-suite positions, and is comprised not only of lawyer-partners but also of HR professionals, project managers and accountants.

Partners hold equity in the firm, but leaders run the shop. At McCarthy, these groups overlap somewhat, but they aren’t interchangeable. Because the firm has separated leadership from ownership, it’s able to move more rapidly than many of its competitors. “Our CEO and board are empowered to make fast decisions,” says Peters. “When we need to pick a new carpet for the office, we don’t poll our 200 partners about their favourite colours.” (Other law firms have managerial committees, but these are typically made up entirely of partners. They don’t have the independence that McCarthy’s leadership team enjoys.)

Of course, prospective innovations are still hotly debated. But they’re debated on the merits, and they’re less likely to be sabotaged by equity-holders who are seeking, primarily, to safeguard their annual draws. When a decision makes obvious sense, it gets waved through briskly. During Peters’s tenure, the firm started measuring net promoter scores: Clients are asked to rate, on a one-to-10 scale, their likelihood of recommending McCarthy to others. The firm also began storing client data via Salesforce, the Silicon Valley company that specializes in customer-relations-management software. These innovations may seem commonplace, but in law they stand out. “We’re hardly the first organization in the world to use Salesforce,” says Peters, “but we’re the first law firm in North America to use it company-wide.”

In 2016, Dave Leonard, the CEO of McCarthy, was having lunch with Susan Wortzman when she mentioned she was in talks with a major accounting firm that wanted to acquire her company. Leonard saw an opportunity, and within weeks he’d come back to Wortzman with a better offer. Her firm, renamed MT3, is now a division of McCarthy, and its e-discovery protocol is vastly more sophisticated than it was a decade ago. When conducting discovery, lawyers on Wortzman’s team read through a small sample of the existing documents; then they train AI to distinguish between relevant and irrelevant materials. Today, McCarthy provides MT3 services to its competitors. “It’s been a fantastic differentiator for us,” says Peters.

Will other firms seek to differentiate themselves in a similar manner? There’s no shortage of opportunities. Law firms could use automated documentation technology to reduce the cost of basic legal services, like generating a will or filing for divorce. They could abandon the billable hour once and for all; using machine learning, they could predict the cost of a given case and then charge clients a flat fee. They could also invest in predictive software to estimate the likely course of a given matter: How many motions will be filed? How long will the process take? What are the odds of success?

In the past few years, numerous startups have adapted generative AI to the needs of the industry. Spellbook, from St. John’s, uses predictive text to speed up writing documents. Alexi, from Toronto, uses large language models to draft legal memos, which lawyers can then review for accuracy and relevance. Alarie’s company, Blue J, has introduced a chatbot that answers tax-law questions with surprising accuracy and concision. Each organization is seeing promising levels of early adoption, but does the provisional success of a few startups portend a larger technological revolution in law?

Furlong isn’t optimistic. “The current business model is very familiar and very profitable,” he says. “Partners like to get all their money. Once that’s hooked into their veins, it’s hard to let go. Plus, the risk and hassle of innovation doesn’t come close to outweighing the potential rewards. Is the legal industry great? No. But it’s fine. And those who make money off of it make a ton. This situation will continue until some truly significant force acts upon the market.”

It’s not clear what such a force might be: perhaps a recession that makes efficiency gains necessary or a change in legal-industry work culture as Gen Z comes of age. Even the pandemic wasn’t disruptive enough to effect major change. Sure, it normalized videoconferencing and remote work, but these were lifestyle and workflow innovations; they weren’t a radical new approach to the practice of law. And COVID-19, in other ways, perhaps made the industry more innovation-averse, by reducing the number of in-person interactions—the kind that nurture creativity.

For Frapporti, COVID was the proximate—if not the only—reason the planned move to the Innovation Park fell through. Supply-chain disruptions made the proposed build vastly more expensive. Construction delays ensured the offices wouldn’t be completed by the 2022 move-in date. And the advent of remote work meant that, despite its growth, Gowlings didn’t need to relocate to bigger premises after all.

Frapporti still works in unconventional ways. Drawing on the firm’s international roster of clients, he does what he can to foster synergy: He connects philanthropic organizations to corporations with money to give, and he brings business owners from around the world to Hamilton to learn about local investment opportunities. These activities are pro bono, but they strengthen the Gowlings brand over time. Frapporti, in short, is seeking to model the proactive approach to law he’d hoped to foster at the Innovation Park. That specific dream, however, is over.

He’s grateful to the partners who supported the plan, but he now realizes not everybody came around to his vision. “To build consensus,” he says, “you have to invest more time than I did.” In the end, Gowlings renewed its lease at the bank building. The team still works there, beneath ceiling girders that are nearly a century old.

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