Law firms face disruption from more directions

This is “a once in a generation moment”, says Alan Mason, global managing partner of international law firm Freshfields Bruckhaus Deringer. And it is a moment that is having an impact on the standings of the top commercial law firms, globally.

Disconcerted by revenues surpassing $5bn at US-based Latham & Watkins and Kirkland & Ellis in 2022, and by the expansion of US firms in London, the Europeans have been scrambling to respond to the drive for scale. Freshfields, one of the UK’s “magic circle” of top law firms, is among them.

The challenges facing law firm leaders have also been exacerbated by the threat that generative artificial intelligence poses to an industry whose main outputs are language-based.

But, while AI may be having an impact, particularly on law firms’ data strategies — and Mason admits he is obsessed with his own — it is merely one of a number of challenges that are creating profound competitive turbulence in the market, he argues.

“Every law firm is . . . looking at its portfolio of clients and saying how do we ‘shape-shift’ our business to match existing and emerging demands,” he observes.

Traditionally, law firms’ strategy has been to build and maintain relationships with clients that are both lasting and broad. That is no longer appropriate, he says. “Now, you need to have ‘destination practices’ that are rated one, two or three — either by geography or legal practice area. If you don’t, the risk is that clients will go elsewhere.”

How these practices should go about combining human expertise and technology to provide legal advice, remains to be decided — as well as identifying the types of people who should work in them.

This ongoing reshaping of the legal profession is evident in the firms and individuals that top the rankings in the 2024 Financial Times Innovative Lawyers report for Europe.

For example, the winning innovation for legal expertise in private capital was put forward by Boston-originated law firm Ropes & Gray, for its work helping private fund clients manage regulatory risks and obligations across their investment portfolios. Private funds work is one of the firm’s core offerings and underlies its international expansion to become the kind of “destination” for clients envisaged by Mason.

One of the key elements of the firm’s innovation is that it involves comprehensive data analytics, is multidisciplinary — including use of behavioural science — and focuses on prevention rather than cure. It is a prime example of how legal advice is changing through the convergence of technology, data and expertise in other disciplines.

But it is those same trends that will enable the legal arms of the Big Four accounting firms to fulfil their potential to play a leading role in offering important legal services. 

In the FT index’s overall ranking (see below), the highest-scoring firm that is headquartered in Europe but based outside the UK is Spain’s KPMG Abogados, in sixth place. Its software product, Katalyst, which improves the efficiency of corporate in-house teams, was developed by the legal arm. It is currently available to clients for a subscription, and has been used in more than 90 jurisdictions.

While Katalyst does not technically constitute legal advice, the lawyers at the mid-sized firm are also respected for their legal expertise in the local market.

When it comes to traditional legal practitioners, the move to augment legal advice with other disciplines is inexorable. Marion Palmer, winner of the award for innovative practitioners, is neither a lawyer nor a partner at her law firm, Hogan Lovells.

She is a scientist, and her role has been to enable her lawyer colleagues to give specialist legal advice and build compelling arguments in litigation cases.

Experts such as Palmer are critical to firms seeking to develop and maintain destination practices, and it is in part thanks to Palmer that Hogan Lovells has won a strong reputation for life sciences work. 

The overall winner in the Europe ranking of law firms is A&O Shearman, which has been undergoing a transformation of its own. As the product of a transatlantic merger, it marks a milestone in how the Big Law end of the profession is changing.

Its top place in the FT index is largely down to its forward-looking approach to generative AI and the products and services it has developed that use the technology.

However, the new firm will face substantial challenges in integrating US and British partnership cultures and ensuring that it is more than the sum of its parts.

Hervé Ekué, managing partner and member of the executive committee and board, argues that A&O Shearman’s size and its geographical spread mean it can win new work that neither pre-merger firm, on its own, could have envisaged. “We have a client going through an energy transition in 50 countries, and 43 of our offices could assist ,” he explains.

Whether the firm can become the “destination choice” for enough multinational clients will ultimately be the measure of Ekué’s success. A&O Shearman’s strategy is to go broader than simply building legal practice areas: expect renewed efforts on understanding clients’ individual sectors, and overhauls of legal processes and organisational culture.

“We have to go from being reactive [as most law firms have been historically] to being proactive,” he says.