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Mythbusters: Do Law Firm Subsidiaries Drive Legal Innovation?

Sente Advisors Principal and CEO Ryan McClead is frustrated by innovation. Not the innovation itself, but the proliferation of law firms claiming to offer innovative services that may detract from the legal services that clients need. He sat down with ACC Legal Ops Observer Contributing Editor Rachel Zahorsky to talk about these spin-offs and what legal operations professionals can do to ensure they receive value and true innovation from their law firms.

Ryan McCleadTell me what got you thinking about this topic.

McClead: There has been a proliferation of law firms announcing subsidiary innovation programs, and I’m not convinced that any one is really doing it well. What I wonder is whether a law firm that announces they have created an external subsidiary to “do innovation” on their behalf is claiming they cannot possibly improve the way they are currently practicing law? Or are they admitting that they can’t change the way they practice inside their current structure?

I have yet to see any of these programs that are outside of the firm move any of their innovations back inside the firm. I understand the impetus to move innovation outside for expediency, to bypass politics, or to take on additional capital — both intellectual and fiscal — but I am not sure how it changes the practice of law inside the parent law firm.

How can legal operations professionals ensure they are getting value from these subsidiaries?

McClead: If your law firm is touting an external subsidiary, be direct: How does this help me as the client of the law firm? In what way does this affect the legal work you are doing for me? If there’s been a large, splashy announcement, there’s always a quote in there from a managing partner who is touting the great benefits that will be derived from this new entity. Go to that person and have an in-depth conversation on innovation and the changing practice of law and find out how much they really understand about how this new external entity will change the core firm.

I mostly work with internal innovation teams that are trying to improve the practice of law from the inside. I have seen how the energy and money that an external organization spends can suck the wind out of that internal innovation process. If you have an external entity getting the press and buzz, it’s kind of deflating for the inside team. That is a potential downside to law firm clients, because these are often the teams that are actively working to improve your client services.

How can firms approach innovation more efficiently?

McClead: I believe they need a team that is actively working within the firm to improve processes, technology, and create better experiences for their lawyers and clients.

If they want to do this externally, for all the very good reasons I previously mentioned, I believe it would be more effective to set up a subsidiary firm. They could populate this firm with laterals or lawyers from the parent firm who are excited about practicing in new and innovative ways. This would allow the innovation team to improve client services without fighting the substantial barriers to change that exist inside the parent firm. Clients who are looking for a different kind of engagement could migrate some of their work to the new subsidiary, while still maintaining their long-term relationships with the parent. Over time, as client demand for new ways of working increases, the subsidiary could replace or merge with the parent.

Some firms are beginning to cater to clients willing to do things differently, like setting up alternative fee structures and collaborating with their clients to build new processes and solutions to make their experiences better. But that only gains traction if a firm that’s practicing law is using these new approaches.

What do you see as the future of innovation in the practice of law? What is next, and who is leading the way?

McClead: You are seeing it happen with a handful of large corporations that know they have the clout. For instance, the “Innovation Days” that Microsoft hosted last year. They brought their panel firms in and said, “Okay, show us what you’ve got that’s innovative.” Now they are actively working with their firms to develop custom solutions based on those original ideas. More clients could and should be doing that kind of thing.

And the thing is, you don’t have to be Microsoft to do something like that. We talk to a lot of firms with innovative ideas. Often, those ideas are inspired or directly requested by their clients. Even relatively small companies have enough clout with law firms to say, “We want to do X differently and want to work with you on that.”

Clients need to work directly with their law firms to solve their problems together. Don’t wait for the firms to bring you "innovation." Don’t expect a firm to become innovative because they’ve announced an innovation subsidiary. Offer to collaborate with your firms to create a better work experience for you and for them. If they’re not interested, then find another law firm.

Ryan McClead, Sente Advisors principal and CEO, has been an evangelist, advocate, consultant, and creative thinker in legal technology for more than 15 years. Most recently, McClead was SVP at Neota Logic, an expert system platform focused on the legal industry. Prior to that, he led global innovation initiatives at Norton Rose Fulbright. McClead is a 2015 FastCase 50 recipient, a Fellow in the College of Law Practice Management, and one of the "geeks" at 3 Geeks and a Law Blog. In past lives, McClead has been a knowledge manager, a systems analyst, a fashion merchandiser, and a theater composer.

About the Author

Rachel ZahorskyRachel M. Zahorsky, Esq. is director, client solutions at Novus Law LLC. She is responsible for developing marketing and business development strategies, overseeing internal and external communication, and preparing media content for the firm. She is a former legal affairs journalist for the ABA Journal where she co-authored the award-winning Paradigm Shift series, which discusses how the current economic and technology climate is changing the future of the legal profession. She is also a contributing editor of the ACC Legal Ops Observer newsletter. Zahorsky earned her JD from the Illinois Institute of Technology Chicago-Kent College of Law and a Master of Science degree from the Medill School of Journalism at Northwestern University. You can reach her via email at [email protected] and on LinkedIn.

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