Maybe the ROI for legal tech comes from happier workers who stay.
Emily Chang: What do startups have to do in order to have a successful exit, whether it is an IPO or just building a great business?
Paul Graham: They have to make something that actually makes people’s lives better. It’s funny how straightforward it is.
“Y Combinator’s Graham Says Startups Must Improve Lives,” YouTube, June 17, 2011.
Here is my prediction: companies are about to spend more on legal technology, but not because they are trying to save money or be more efficient. Law firms and, to a lesser extent legal departments, are beginning to see investment in technology as a solution to unprecedented burnout and talent attrition. The further entrenchment of remote work will only amplify this trend. Smart marketers have figured out that this messaging is resonating. The deluge of messaging connecting tech and talent will shift how companies justify their return on investment. Technology does, in fact, have the potential to improve the day-to-day experience of the people on legal teams, but there is some important nuance. Let’s dive in.
Editor’s note: A quick note on terminology. Going forward on Legal Evolution, the term LegalTech refers to a sector (akin to BigLaw and NewLaw). ln contrast, legal tech refers to products and offerings in the marketplace.
Rising adoption of legal tech
Betting on more tech adoption isn’t exactly a risky prediction. As cited in the above lead graphic, Gartner projects that legal department technology will increase 200% by 2025. See Gartner Press Release, Feb 10, 2021. A multitude of other studies (some admittedly by parties that benefit from more adoption) indicate similar expectations. My two major posts from the summer of 2021 (“How the first half of 2021 signals the maturity of an ecosystem (255)” and “Because Everyone Else Cares: Why legal should be paying attention to contracts (256)“) explain that the 2021 funding explosion for LegalTech is part of a broader adoption of technology in every part of the business, even cost centers like legal. So rising adoption is already in motion.
What has changed is why. But, in order to understand “why,” we need to first understand why LegalTech struggles to gain adoption and then we can understand what is happening now that is changing the calculus.
Legal tech savings can be kind of “Meh”
The dirty little secret of #legaltech is that it’s not always an effective way of saving money or improving the bottom line. See also The Savings Trap – Value Storytelling (#2),” Sept 19, 2021 (Flaherty acknowledging the need to shift his thinking from cost-savings to value). To be sure, there are a growing number of instances in which legal businesses are using artificial intelligence and machine learning to save dramatic amounts of money. And given current market uncertainty, companies will definitely have an incentive to save. There are also examples of legal teams using tech to gain a competitive edge and/or generate new revenue. I will continue to invest in these businesses where possible, and my recent investment in TermScout is a perfect example.
But these remain outliers.
Among large corporate law firms, lawyer leverage (ratio of lawyers to equity partners) is the most important and enduring correlate of profitability. See Post 244 (Evan Parker reviewing 20 years of ALM data and noting that leverage is “Lindy” by virtue of persistent strength and longevity in the profitability model). As a result, partners are not exactly eager to adopt labor-saving tech unless pressured to do so by clients. And to the extent clients care about tech-driven efficiency, they lack the critical mass to apply that pressure intelligently and effectively.
Although some law firms and law firm partners want to be efficient, they don’t need to be efficient. If all parties did want to save, they might have better success offshoring work to low-cost centers. Clients could theoretically contract with legal tech providers directly and bypass reluctant outside counsel (I have seen this happen), but legal departments do not necessarily have their own technology budgets. Plus, legal spend accounts for such a small percentage of a company’s total annual revenues, see See Henderson & Parker, “Your Firm’s Place in the Legal Market,” Am Law (Dec 2015) (reporting an average of 0.3% for Fortune 1000 company, with wide variations by industry), that it can be difficult to get the attention of the C-suite. Finally, low-cost centers will often tell law firms and their clients that they are happy to use technology as part of the solution, but that their service will actually cost more with tech than without.
None of what I am describing makes it impossible to sell legal tech to big companies and law firms, but misaligned incentives plus no cost pressure can make adoption go much slower than one would expect. See also Post 051 (Jae Um making case that legal innovation is an extreme sport).
Data on the Great Resignation
What changed is the Great Resignation. Between April and September 2021, more than 24 million employees left their jobs, an all-time record. See Donald Sull, Charles Sull, & Ben Zwieg, “Toxic Culture is Driving the Great Resignation,” MIT Sloan Mgmt Rev, Jan 11, 2022. How has the labor market responded in 2022? Let’s take a look at the data from the Bureau of Labor Statistics.
The official unemployment rate is known as the U3 rate, and it measures the number of people who are jobless but actively seeking employment. The U6 rate measures the percentage of the U.S. labor force that is unemployed, plus those who are underemployed, marginally attached to the workforce and have given up looking for work. The Job Openings and Labor Turnover Survey (JOLTS) tells us how many job openings there are each month, how many workers were hired, how many quit their job, how many were laid off, and how many experienced other separations (which includes worker deaths).
Here are some simple takeaways:
- Low unemployment rates create a competition for talent and wage pressures.
- Historically high quit rates signal confidence that one can find a better job without fear of finding oneself unemployed.
- Participation rates did take a concerning dive during the covid pandemic, but they seem to be returning to pre-covid levels.
So it’s a tight labor, but all in all, everything is going back to normal, right? Not so fast.
The Great Resignation has caused massive reconsideration of priorities
What these graphs do not capture is a very real change in people’s personal priorities due to the normalization of remote work and serious burnout due to lockdowns and their mental effects. Unprecedented shock to a system has residual effects.
Allow me to share a personal story that demonstrates the reconsideration of values in a way that data will not capture. Last year, I asked Jae Um to be a guest on my webinar series, but the earliest I could record was December 16. Jae told me she was going to be off between December 15-February 1 (we ended up taping in February Predicting Trends That Will Define the Legal Industry in 2022 with Jae Um (on24.com).
Granted, Jae owns her own business, but my first thought was, “Is taking off that much time even allowed?” I told her I was deeply envious.
Jae recommended I read 4000 Weeks: Time Management for Mortals, by Oliver Burkeman (two other people recommended it to me that same week). The book’s premise is that all of the various techniques aimed at increasing personal productivity and efficiency—many of which Burkeman has tried—seem to ignore a stark reality: the average healthy person only lives about four thousand weeks. Capitalism and increased efficiency is great for the economy, but the economy does not die. Humans do. After you die, the economy will still be here.
But Humans, argues Burkeman, have started treating themselves like an economy. We work excessively and invest in the future. “Hustle” has gone from a necessity, e.g. “You’ve got to hustle if you’re going to make it,” to a work ethic and a lifestyle, e.g. “That founder has real hustle.”
But we were not always like this.
Humans did not historically try to optimize their productivity. Peasants in the middle ages, says Burkeman, would work on average for 150 days a year. They spent the rest of their time going to festivals and enjoying themselves (when they weren’t cuddling with farm animals to escape the cold). While the lives of peasants were hardly ideal by modern standards, they had much more time to just live. Burkeman reminds us that people used to get rich so that they did not have to work. Today, admitting as much could be perceived as laziness and a serious character flaw.
This book had such a profound impact on me. After reading 4000 Weeks, I committed, among other things, to take off extended periods during the year (admittedly not six weeks at a time) and told my clients in advance that I would not be checking emails, SMS or anything else work related. I did not overplan what I would do during my first period of time off, but I knew what I would not do. More generally, I realize that even though I am passionate about my career and even though I work much harder today than I did as a law firm associate, work is not the thing that makes me feel alive; nature walks, pianos and deep conversations with friends do.
What Jae didn’t realize when she recommended this book is that I had just come burying my grandmother (I told you this would get personal). But here is the worst part: hours before the funeral, while my entire family gathered for one last time at my grandmother’s apartment, I was sitting on my laptop, finalizing a deck I had prepared for a client and completely missing the gravity of the moment. As soon as the funeral ended, I jumped back onto my laptop (using a hotspot) so that I could respond to comments and make a few fixes. Reading 4000 Weeks made me revisit this experience and made me realize that there was something deeply unhealthy about my priorities.
I am not singularly unique in having this moment of reckoning over the last two years and I am certainly not the only one who has dealt with death, frustration and loss. I’m sure people came to similar epiphanes without reading 4000 Weeks. The numbers from the Bureau of Labor Statistics may show that we are headed back to normal, but they do not capture the lingering effects of the incredible jolt the labor market just experienced.
New priorities mean new employee behavior and demands
These new preferences are challenging legal to its core. Lawyers are leaving at unprecedented rates. According to a recent ABA Journal article, the associate attrition rate in Am Law 100 firms has increased from 16% pre-pandemic to 27% in 2021—”a staggering 61% increase.” William Dougherty, “The winners in law’s ‘Great Resignation’ will be firms that focus on innovation, not compensation,” ABA Journal, Feb 22, 2022 (reporting on data from Leopard Solutions and noting similar trends among large UK firms).
Those who are staying are insisting on remote work and flexibility. According to survey data from Thomson Reuters, 63% of lawyers would prefer to work hours of their choosing as compared to 22% during the pre-coronavirus days. “Has The Pandemic Changed Legal Jobs Forever?,” Artificial Lawyer, Apr 26, 2022 (citing TR Stellar Performance research). While nearly 76% of firms are mandating some in-person work, see, e.g., Ruiqi Chen, “Big Law Agrees: Give Attorneys Flexibility as Offices Reopen,” Bloomberg Law, Nov 10, 2021, a poll in The American Lawyer indicated that lawyers are ready to quit over strictly enforced in-person policies, see Dan Roe, “Want to Thin Your Law Firm’s Head Count? Mandate 3 or More Days of Office Attendance,” Am Law, May 5, 2022.
I am hearing from all levels that adherence to and enforcement of these policies is light to non-existent. Anecdotally, I have had multiple conversations with lawyers who declined offers from employers that insisted they relocate, only to have the employer come back within minutes—yes minutes—and hire them to work remotely. Cf Lyle Moran, “In-house hiring market is incredibly active, particularly for mid-level roles,” Legal Dive, May 4, 2022 (noting an increase in remote work arrangements “that would have been unheard of prior to the COVID-19 pandemic”). The weak pushback suggests to me that remote work isn’t going anywhere, at the very least for lawyers and professional service providers more broadly.
Remote work is not going anywhere and it is a gamechanger
The normalization of remote work, in particular, has given new power to employees. A McKinsey survey from last year showed that among employees who said they were not at all likely to quit, 65% percent reported that a primary reason to stay in their job was that they liked where they lived. See Aaron De Smet, et al., “‘Great Attrition’ or ‘Great Attraction’? The choice is yours,” McKinsey Quarterly, Sept 8, 2021. According to the very same survey, of respondents who accepted roles in other cities during the second half of 2021, only 13% relocated. If we are to believe the McKinsey survey, location—the single most important factor in determining whether an employee stays at their job—is no longer of consequence. We are nearing the point where we will be able to say, “People used to stay at their jobs primarily because of location.”
The chain effect of remote work is that employees have exponentially more options and opportunities available to them. As discussed earlier, saving marginally is not core to the BigLaw business model, but being able to hire and retain elite talent is.
In-house departments are having their own struggle. It is not surprising then that in separate interviews last year, Y Combinator’s Carolynn Levy (speaking about legal departments at high growth tech companies) and Tyson Food’s Tariq Abdullah (talking about big corporates) both told me that the greatest challenge facing legal departments was the ability to attract and retain talent.
The second-order effect of remote work is that without a physical office, the primary medium for employees to engage with their company is not via a fancy office on Park Avenue but through the company’s tech stack. That no longer means simply having a computer with two screens, it means having the best available practice tools. Investment in tech is an investment in people.
Will lawyers see tech as a solution to burnout? Yes, and not just because I say so, but because smart marketers are already pushing this narrative. I mistakenly thought I was onto something novel when I was counseling clients to think about how their service helps organizations hold on to their best people.
But it turns out, I was not alone:
Messaging that ties technology to talent retention is not unique to legal tech but the message is particularly compelling for people businesses.
A cynical view would say that all of this is just “marketing speak” responding to the current in-vogue business pressure. Allow me to present a more optimistic view: I do think tech can play its own role in making lawyers’ lives better. What originally excited me when I started writing about legal technology seven years ago was that I saw how it could have improved my own miserable experience as an attorney, not because I thought it would have increased realization rates for the partners. Savings was only interesting to me if it could help justify the purchase. But, at the time, law firms were not faced with an unprecedented talent crunch, and could not justify tech adoption on savings alone.
To be sure, not all technology makes people’s lives better. In fact, sometimes “overtechnification” can make it worse. Sales managers often like Salesforce more than do the account executives.
Agree. Most current workflow or automation tech treats people like mechanical Turks
“Do more with less” isn’t going away, but in the long run doing more with less people requires that the “less” people left are happier.
— Rob Saccone (@robsaccone) December 15, 2021
What will need to happen for this paradigm shift to take place is for technology procurement decision makers and influencers to think about catering to the people that make up the business, not just the business. In 4000 Weeks terminology, we have to start thinking about the real-life people and not just the lifeless economy, or in this case the enterprise.
Dashboard Legal Founder Mathew Rotenberg got this right when he explained why his company’s message was resonating on LinkedIn.
We’ve built a following among thousands of lawyers, most of whom are not active on LinkedIn. Our message to them over the past year has been this:
Most legaltech is built for law firms. To help them modernize, and make money.
Our legaltech is for LAWYERS. We’re building solutions for your problems; to reduce the tedium of your day-to-day, and help you feel confident and precise in your workflows.
Mathew Rotenberg, LinkedIn Post, March 2022. Certain kinds of products will benefit from this trend more than others. I already mentioned Dashboard Legal, here are three other examples:
- Capacity – Founded by former Dentons attorney William Daugherty, “Capacity maximizes employee autonomy and promotes equal access to work opportunities,” according to their website.
- Paladin – Although their messaging does not target the talent crunch or burnout, Paladin’s mission of making it easier to find meaningful pro bono work should benefit from this trend. Done right, pro bono can give significant meaning to a lawyer’s career which is critical given the change in priorities discussed above.
- 10BE5 – I announced an investment in 10BE5 earlier this week. In my newsletter, I explained that what persuaded me to invest were the reports from associates who had used the product at their previous firm and then insisted that their new firm make the product available. The savings generated are less important to me than the fact that lawyers demanded the product because the lives of the attorneys are made better.
The challenge for founders and builders will be to figure out how to make lawyers’ lives better and then to design the right offerings to make that a reality. The challenge for legal teams will be threefold: make the case internally that legal tech increases talent retention, vet which products actually deliver, and then balance competing interests. From my perch, I am seeing all of this taking shape in real-time.
Editor’s note: Zach is reinforcing a point first made by David Maister. Profitability in professional services (pretty much all of LawLand) requires balancing the talent and client marketplaces. See graphic below, which has appeared in numerous Legal Evolution posts.
In law and elsewhere, lots of mediocre management flows from a misguided client-first mentality. Law firms with a happier culture are, all else equal, more profitable. See Posts 094 & 095.