aka ‘The Orange Rag’ State of the Industry 2017: Financial Results Revenue generated by alternative legal services in all its many guises may still be a drop in the ocean for big City The Bottom Line law firms but in 2016-17, that revenue notably became material for many, in a trend that can be expected to Clifford Chance accelerate. Clifford Chance in July posted double digit increases We spoke about the latest set of financial results in both revenue and profit per equity partners, with to senior management at law firms including Clifford turnover up by 11% to £1.54bn and PEP up by 12% to Chance, Freshfields Bruckhaus Deringer, Herbert Smith an average of £1.38m. Freehills, Pinsent Masons, Macfarlanes and Mishcon de In announcing the results, managing partner Reya, all of which say they are winning business as a Matthew Layton said that the firm’s profit growth result of new delivery models. reflected increases in revenue but also efficiencies in Progress is being made in delivering better value to internal operations. clients, in automating routine legal services, in project Clifford Chance’s innovation strategy has two managing work and in using technology-led solutions distinct strands. The first focusses on best delivery – such as document review tools to create client efficiencies. using the right tools or resources to provide the best Taking that a step further, of the firms we spoke to, all value. Here the magic circle firm is transforming the way but Freshfields now have a deliberate focus on generating it delivers legal services by 1) using technology-based revenue through productising legal services or creating client solutions such as its partnership with Kira Systems adjacent business lines. which it uses for document review; 2) increased use of Allen & Overy started the ball rolling when it automation using Contract Express; and 3) a range of announced its 2016-17 results, commenting: “Our range what is calls ‘best delivery tools’ to make its lawyers of alternative client delivery initiatives, which includes question what the best resource. our Legal Services Centre in Belfast, our consultant lawyer Under this limb falls Clifford Chance’s innovative business Peerpoint, the Project Management Office and tech-based partnership with Thomson Reuters, which assists clients in managing complex projects, our announced in September 2016, under which the pair online services business aosphere and digital derivatives joined forces to help financial institutions tackle – in a compliance system MarginMatrix have added significantly more cost-effective and efficient way – their changing to our bottom line in this set of results.” obligations under changes to regulation governing But behind the scenes many firms are still having uncleared over-counter-derivatives. something of an existential crisis asking questions of Speaking to Legal IT Insider, global head of themselves such as: innovation and business change and Clifford Chance partner, Bas Boris Visser said: How can and should the benefits of alternative legal services be measured? What ‘value-add’ services should be revenue generating and what should be offered as “part of doing a good job for clients”? Under the continuous improvement In particular, is legal project management a service that clients are charged for or should it limb alone we’ve saved almost £15m be an efficiency simply absorbed by the firm? of operational savings by working in We spoke to David Potts, client account lead at a better way last year. Accenture, who specialises in management consulting, technology and outsourcing and who says dipping in to technology is not enough unless law firms have a razor- He adds: “I’m convinced that the value is in the sharp strategy for where and what they want to be in fact you have a number of players all competing for five years’ time. “If you try to hang on to your legacy the best work from our clients and one of the ways to business you will lose – 50% of the Fortune 500 have differentiate ourselves is delivering our service in more disappeared over the last ten years because they failed modern, better way using technology and where we to move on to the new,” he said. work in partnership with others, for example our big And in a further trend that this year has visibly project around margin requirements in the derivatives come to the fore and should make vendors sit up and space where we have a joint proposition with Thomson take note, law firms are rejecting vendor-built, complex Reuters. technology tools in favour or in-house tools that need little to no training. STATE OF THE INDUSTRY 2017 CONTINUES ON P.9 Page 8 (305) July/August 2017 aka ‘The Orange Rag’ State of the Industry 2017: Financial Results STATE OF THE INDUSTRY 2017 CONTINUED FROM P.8 Another revenue generating tool is a product that Clifford Chance has developed with Neota Logic, “Those kinds of initiatives are created because we announced in February 2017, which helps its financial are looking at it from the perspective of ‘how can we institution clients assess and address the extensive impact create most value for the client’? In certain circumstances of MiFID II. Visser says: “Our MiFID II tool is a product a joint proposition may create better value to the client developed with Neota Logic that automates parts of the than doing everything on our own. This way of looking process around the repapering requirements coming out at our client proposition has a positive impact on our in MiFID II. It is clear that our clients are keen to work financial results: we maintain a more competitive with tools where it helps them to manage the risk better position than lawyers who are not looking at tech-based and enables them to cope with the various challenges solutions, outsourcing or working in partnership with that these big regulatory projects bring.” alternative legal service providers. It is about finding the He adds: “When we look at how we are right resources for the right work.” transforming the way we are working with clients, the The second strand focusses on how to generate impact of improving the way we work, and the revenue new income streams for the top 10 global firm, including we are generating with our new products, we are quite building revenue streams around document automation proud of the way we’re working with our clients and that with Clifford Chance Dr@ft, in which lawyers who we are generating substantial income.” are coding experts (still a rare combination) have Clifford Chance is in the process of building and worked with clients on building templates for financial optimising the platform from which new tools can be institutions which are then automated and placed in developed to improve the way it delivers its services and Clifford Chance’s private cloud, with users buying a products which it will develop into new income streams. license to generate their own documents in their own It has had an offshore centre in India for 10 years, which house style. is integral to its digitisation process. Clifford Chance has sold eight or nine different clients over 2000 licenses for Clifford Chance Dr@ft and Herbert Smith Freehills revenue after its first full year in operation has exceeded HSF in 2016-17 like many international firms this year €1m. Visser says: “Clifford Chance Dr@ft really adds enjoyed double digit revenue growth – up by almost value to our clients. Where they now have to work with 11% to £920.5m - while its profit per equity partner senior in-house counsel or external counsel, to ensure dropped by 2.5% to £760,000. satisfactory levels of consistency and quality Clifford In publishing its results, the top 30 global firm Chance Dr@ft allows them to use more junior lawyers mentioned, among other things, the fact that over the or the business whilst actually improving on consistency past year it expanded its trailblazing alternative legal and quality to create the first draft of a document.” services arm (known as ALT) – now recognised as a department of the firm in its own right - with new centres in Johannesburg, Melbourne and Shanghai, building on He adds: “We’ve approached Clifford its existing centres in Belfast, London, Brisbane, Perth Chance Dr@ft like our start-up venture and Sydney. HSF’s alternative legal revenue is generated from and are pleased with how quickly we three notional buckets. The first is ALT, which this year are able to generate the interest of grew by around 7% to in excess of £30m across all our client with this product and we practice areas but with an emphasis on disputes. ALT combines legal expertise, process efficiency can now start scaling it. Revenue of and technology to process high volume or document our new income streams is small in intensive work more efficiently and cost effectively for comparison to our overall revenue clients. Rigotti says: “ALT grew out of Belfast and we’re very but within a relatively short period of proud of it. It’s grown massively from approximately 20 time we’ll be able to grow this type to 400 people in six years and is multi-jurisdictional and of business and when we get right up multi-lingual. The biggest component in terms of revenue is disputes and English law litigation and we have a lot of to scale I’m quite sure it will be an that sort of work.” interesting income stream.” STATE OF THE INDUSTRY 2017 CONTINUES ON P.10 Page 9 (305) July/August 2017 aka ‘The Orange Rag’ State of the Industry 2017: Financial Results STATE OF THE INDUSTRY 2017 CONTINUED FROM P.9 If you’re a client running 15 simultaneous ALT has traditionally always focussed on disputes bits of litigation, you just need work but there are plans to expand that out for the first something which in a quantitative way time and Rigotti adds: “There are no plans to grow ALT helps manage risk and take decisions.