The COVID-19 pandemic exposed the importance of moving away from traditional law firm set-up to the NewLaw. In this series of four articles we explain what this term means and what are its key features.
What is NewLaw?
Recently, it seems very fashionable that any firm new to the industry is calling itself a ‘NewLaw’ firm. But really, what is NewLaw and what does it really entail? Whilst there is no universal definition of NewLaw, it is a broad concept that can be defined and applied in different ways.
Eric Chin in 2013 defined NewLaw 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).
NewLaw is thus different from the traditional way of providing legal services in mainly three areas namely the manner in which firms get clients, the manner in which the work is done and the manner in which the firm is run. .
Building a clientele.
In a traditional law firm, partners usually rely on old-school way of getting clients that is mainly through networking, individual reputation and personal relationships. This is part of the reason why traditional firms struggle to abandon the billable hour approach as they still pin their value on the time input by individual lawyers.
On the contrary, with NewLaw a client base is stablished like every other industry that is through marketing, business development, and a unique selling point. A client base is established on the brand of the firm, not through individual networks or personal relationships. This approach means a NewLaw firm should find it easy to move away from time-based billing as the client is engaging a service provider for a specific outcome.
The manner in which work is conducted.
In a traditional law firm setup, the partners bring work into the firm and the work is usually done by the senior associates, who then give it to the junior associates and the interns to do. So, essentially it is the junior lawyers that do most of the work, then the senior lawyer checks the work and make any necessary changes. In most instances the senior associate redoes the work, then passes work onto the partner who then re-checks the work and redoes it again.
The problem with this structure is that the client pays according to time taken and under these circumstances the time taken will be long, given that the work would have passed through so many hands. Another major problem with this model is that hourly rates promote inefficiency. Lawyers are essentially be paid more, to take their time. Consequently, the best outcome for the firm is often the worst outcome for the client. The incentive for firm is thus to take longer, protract negotiations, and raise unnecessary procedural points to make mountains of mountains of molehills.
However, NewLaw does things differently. NewLaw moves away from billable hours and 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 final but important difference between the two models is pricing and billing. NewLaw firms tend to focus on alternative billing arrangements that is billing on a project basis or a fixed fee. For example, a fee system whereby clients pay fixed fees for their services, to give clients a predictable cost structure.
The manner in which the firm is run.
A traditional law firm has a partnership structure. This means partners are incentivized to make as much money as possible in a year with no incentive for long term vision. With a partnership structure, usually all the profit is taken out of the firm with no incentive for investment in ongoing improvement. In essence the firm is set up for the partners and not the clients. This 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. With this traditional structure it is difficult to increase profitability. This short-term, narrow-focus approach means the firm is unable to change or adapt. Thus to capitalize on profits, the firm is forced to either bill more hours or increase the hourly rates or pay employees less.
However, NewLaw uses a different structure that 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. With this structure, there is a focus on long-term thinking and, most importantly, a “client first” approach.
NewLaw firms thus shy away from a ‘pyramidal partnership scheme’ because the notions of traditional partnership and pyramid-profit models are incompatible with their efforts to reduce fixed costs. NewLaw firms find other innovative methods to reward lawyers for excellent performance and client satisfaction. NewLaw firms are thus driven primarily by capital investment. The combination of big capital investments and legal tech mean firms are seeking high growth without a concern for margins. This is great for clients and makes it difficult for traditional firms to compete.
We continue with the topic of NewLaw on the second part of this series where we talk about the characteristics of a NewLaw service model.
Continue to Part 2, 3, and 4 of the NewLaw-Guide.
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