Entering a New Era for the Management of Legal Processes in the German Legal Market: Technically Sophisticated and Based on Division of Labour

[This document is a convenience translation of the original German article: “Die neue Ära für juristische Arbeitsabläufe: arbeitsteilig und technisch versiert“, published by Bucerius Law School in October 2016]

The German legal market has undergone years of soft, gradual evolution.  More recently, increasingly complex market conditions have accelerated the rate of change in the way legal work is organised.  Competition between law firms has intensified and the ability to organise legal processes based on division of labour now forms part of the basic skill set of modern lawyers.  As eDisclosure services in Germany become more mature, the German market in some ways imitates the trajectories of the US and the UK in terms of market development.  However, the sequence in which different eDisclosure services are adopted is unique to Germany.  The resulting seismic shifts in the legal landscape are fascinating to observe.

Background: the nature of competition between German law firms is changing

Not only is the level of competition between German law firms intensifying; they also compete in more technical areas, some of which only gained importance in the last few years.  Never has the German labour market for highly qualified lawyers been more diversified.  Smaller law firms, boutique law firms and the legal departments of corporates all attract top candidates.  Highly qualified lawyers on the client side are sensitive to costs and expect their legal counsel to be innovative.  These cost pressures even affect the core legal work itself as legal departments are perfectly capable of addressing even complex substantive legal issues.  Consequently, external legal counsel may be involved, for instance, where complex subject matter requires a high degree of specialisation on the part of the legal advisor.  But the degree of specialisation required makes it possible for German boutique law firms to compete with large international law firms.  External legal counsel may also be involved, for example, where the volume of data to be analysed exceeds the resources on the client side.  Again, good outsourcing options on the review side mean that law firms of all sizes are on a level playing field in handling even large data volumes.  The fact that data volumes continue to increase aggravates this trend.  As the ability to specialise and the ability to handle high-volume, data-intensive review work is not limited to large law firms alone, German law firms of all sizes increasingly compete in these areas.

Higher reliance on specialisation and outsourcing to make legal processes more efficient

It will remain a truism that the costs associated with instructing outside counsel are considerable.  Larger German corporates are less and less willing to pay for legal services, or parts of legal services, that do not strictly need to be provided by law firms.  Document review work that takes place at the beginning of a legal matter is one of the classic examples of the latter: work which is a necessary part of providing legal advice but which does not require the degree of specialisation that formed the basis on which the law firm was originally instructed.

In regulatory investigations, all types of dispute resolution, due diligence exercises in the context of M&A work, compliance work and in many other areas of law we are confronted with growing data volumes.  Frequently, the sheer scale of the associated document review exercises will even exceed the capacities of larger German law firms.  Typically, the solution will involve some form of Legal Process Outsourcing whereby contract lawyers conduct an initial categorisation of documents while supervising lawyers on the law firm side focus their work on the legal advice itself.  The same segmentation of the workflow is applied analogously by legal departments of large corporates.

Division of labour in practice – the relationship between LPO services and law firm / legal department

The European infrastructure for eDisclosure services is developing rapidly, and while some of that expansion takes place outside Germany (in the last two years two international law firms set up their own review centres in Belfast, for example), the effects of the expansion are felt in Germany as well.  Moreover, there have been several attempts by new market entrants since the start of 2016 to start LPO-style activity in Frankfurt.  eDisclosure experts like Consilio that already cover the entire EDRM lifecycle are continuing to expand their operations.  As a consequence, law firms and legal departments no longer need to coordinate their eDisclosure work with multiple service providers.

Related trend: accelerating legal processes through technical means

A brief word on technology.  It remains safe to treat a growing reliance on technology as axiomatic across all eDisclosure services.  While the German legal market may have been slow to embrace systematic adoption of the various outsourcing options, its adoption of review optimisation strategies occurred at a higher pace.

Cost pressures in the German legal market not only manifest themselves in the question of whether to outsource.  Cost pressures also increase the incentive to use technology to maximum effect.  As recently as a few years ago, German law firms would likely have tackled data volumes of several million documents in a linear fashion, with the substantive analysis of the first document anatomically resembling that of the millionth document.  Today, the ability to apply methodologies such as predictive coding competently no longer confers a competitive advantage; the inability to use those technologies competently constitutes a competitive disadvantage.

Consilio is a Sponsor of 6. Herbsttagung des Bucerius Center on the Legal Profession.

Ben Rusch, Vice President at Consilio

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