Law firms lean into the business of prediction

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When research was under way for the very first FT Innovative Lawyers report two decades ago, few law firms could be described as game changers. Even when the North America report started in 2010 and clients were being disrupted, few firms could imagine being a disrupter. And even fewer thought it desirable.

Until now. A striking feature of the research for the 2024 FT North America report is the number of law firm leaders who say they are embracing existential challenges.

“We are leaning into disruption,” says Ira Coleman, global chair of McDermott Will & Emery. For instance, he explains, the firm is making significant investments in its push to explore how generative AI is affecting how the law is practised.

It has invested $20mn so far in The LegalTech Fund, a venture capital firm that invests in legal technology start-ups, says Coleman — making it the largest commitment from a single law firm.

The firm’s innovation team is also at the forefront of this new era. Its recent presentation to the firm’s management committee featuring an avatar both alarmed and thrilled. “We asked her some tricky questions and her answers freaked out a lot of people. The game is changing,” Coleman says.

McDermott Will & Emery has a long record of doing things differently. It was one of the first US law firms to organise itself to align with industry sectors rather than around legal practice areas. The result was its current dominant position in healthcare. With revenues just shy of $2bn in 2023, according to The American Lawyer, McDermott is one of the fastest growing law firms in the US. Its compound annual revenue growth rate over three years to 2023 is 12 per cent.

“Practice-area focus makes you very inward looking,” explains Coleman. “The industry-sector [approach] makes us more external looking and part of our clients’ businesses.”

Other law firms in the FT index (below) of innovative North America law firms for 2024 share Coleman’s appetite for disruption.

See the full list North America Innovative Lawyers Awards 2024 winners here

Frank Ryan, global co-chair and co-chief executive at DLA Piper, says: “We come at AI saying: ‘Why don’t we be at the epicentre of this technology?’ For more conventional law firms, this approach could be destabilising.” 

The firm has also significantly invested in AI, data experts and technologists. One such hire was Danny Tobey, a medical doctor turned lawyer who was already writing white papers on the future of AI when he was recruited by the firm. “There is a lot of brain power in the world outside legal,” observes Ryan. “If you function in the traditional ways that law firms do business, it is easy to miss them.”

Tobey heads the firm’s data analytics practice where he is spearheading a trend that will see lawyers move away from advising clients based on precedents towards making more predictions about what may happen.

It is part of DLA Piper’s experiment with what it calls “proactive compliance as a service”. The idea, here, is to use clients’ data, human lawyers and AI to spot trends and patterns that can alert the client to a potential breach of their own policies or of industry regulations. 

Predictive analytics is already used in the legal sector. Indeed, some corporate legal departments — at global brewer Anheuser-Busch InBev, for example — have been using data to spot likely incidents of corruption and fraud for nearly a decade.

If this is starting to sound a bit like The Minority Report movie, in which “precogs” who can see into the future help forecast crimes before they happen, Tobey acknowledges the echo but differentiates the two ideas, too.

“We are not looking to predict things that have not happened yet and punish people. But we’re looking to educate and fill the gaps in compliance,” he says. The aim is to stop bad behaviour “when it’s embers [and not yet ] a forest fire”.

The DLA Piper service is one of the first to offer year-round monitoring rather than the single “big event” advice model favoured by leading law firms. It also allows the firm to study their clients’ unstructured data in real time — and thereby adds new and different meaning to knowing its clients, a top strategic aim.

It also requires a different fee model and delivery approach, but Tobey predicts this will become the norm. Law firms may become automated subscription product businesses that also offer human advice at a premium.

The number of data-based initiatives now being offered by other law firms that have a dominant market position suggests he is right. Latham & Watkins, which was one of the first US law firms to be truly disruptive over the past couple of decades, has created a database of deals terms to institutionalise the firm’s knowledge and to ensure clients are better prepared when entering into negotiations. The approach is different from DLA Piper’s, but the aim is the same: it is trying to work with clients on what will happen in the future, rather than just offering knowledge about precedents. 

Similarly, McDermott Will & Emery used its healthcare expertise to create a database of details from earlier, heavily negotiated deals to help clients in the sector when finalising purchase agreements with counterparties. 

What these firms agree on is that the move to more advice that involves predictions will require close co-operation between the lawyers and software developers.

Tobey puts the creation of DLA Piper’s AI practice, which has built up eight-figure revenues in less than two years, down to this integration: “Our law is tech informed and our tech is law informed,” he says.