We spoke to several experts working in the ESG arena within the legal industry across the world to see what developing issues they see as critical ones to watch. These are what they considered the five most important themes for the year ahead:

1. Supply chain transparency

Supply chain diversity and transparency of material issues around ESG will mature because of upcoming deadlines on reporting by regulators in the United States, United Kingdom, and the European Union.

“As law firms realize that they are actually just a vendor in somebody else’s supply chain, they must recognize the need to start making efforts to comply with regulations,” says Aragon St-Charles, Global ESG Officer at Dentons, adding that these regulations are increasingly being driven by new reporting rule-making by U.S regulators and implementation of existing E.U. Corporate Sustainability Reporting Directive regulatory mandates in reporting that are coming in effect in 2024.

Omar Sweiss, CEO of JusticeBid, a technology platform that helps corporate law departments expand efficiency in outside counsel selection and gain increased transparency on ESG topics for Tier 1 and Tier 2 suppliers, agrees. “A burgeoning area of focus coming in 2023 is that every vendor in the legal space, not just law firms, is really going to have to start thinking about their own supplier diversity programs,” Sweiss explains. “Up until now, the majority of these players in legal have been immune to supplier diversity efforts. I believe this is going to change dramatically in the next 12 months.”

2. The growth of ESG benchmarks, scorecards & frameworks

With an expanded collective understanding of ESG material issues for the legal industry, custom frameworks for the industry too will evolve. The beginning of this trend started in the last 24 months, as numerous outside parties began offering up metrics in the ESG space.

For example, impactvise provides a comprehensive measurement of law firms internal ESG strategy; and the Law Students for Climate Accountability focuses on law firms’ client work around climate in litigation, lobbying, and transactions. While Diversity Lab’s Mansfield Rule provides a measurement for diversity, equity & inclusion as part of the social part of ESG.

3. Increased legal risk for law firms

Clients are starting to make ESG demands about corporate values and positions that present a potential risk for multinational law firms, observes St-Charles. There are important implications for this growing trend regarding the rule of law and the right to representation for multinational law firms. To illustrate how the risk shows up, imagine a client working with a partner at the U.K.-based office of a law firm who asks the firm to agree to terms that contractually prohibit it from working with fracking companies, even in other countries. If that law firm is working with such clients in other jurisdictions, then agreeing to this could contractually open up the firm to legal risk.

4. Biodiversity as an emerging dimension of the “E”

The critical need to retain abundant biodiversity is an issue requiring closer attention of the legal sector, notes Adam Woodhall, chief executive for Lawyers for Net Zero, a non-profit initiative launched in mid-2021 that supports general counsel and their teams to drive action on climate and ESG within their organizations. Indeed, governments from around the world — as part of the United Nations — gathered in December 2022 to agree on a new set of goals to guide global action through 2030 in order to halt and reverse nature loss; and the Taskforce on Nature-Related Financial Disclosures, a financial services industry advisory group whose members represent more than $20 trillion in assets, is expected to release its final risk disclosure framework in Fall 2023.

5. Increased pressure to speak out on controversial events

Law firm leaders are increasingly caught in the middle between activism coming from employees, clients, and politicians on one side of a hot-topic issue and another group of clients who may be on the opposing side. For example, we’ve recently seen corporate clients that are leaning into ESG actions, such as enacting net zero commitments, while expecting their supply chain partners to do the same; yet, on the other side, a small group of members of the U.S. Congress warned law firms in a recent series of letters about the “collusive effort” to restrict fossil fuels.

To successfully navigate these events, law firms should “think through the process of if, when, and how to respond and address it from the law firm’s values,” says Gayatri Joshi, former Executive Director of the Law Firm Sustainability Network and a Partner at Vorgate Legal ESG Impact. Indeed, many law firms already have been doing this during the Ukraine/Russia conflict, either by making public statements or internal statements to their employees or clients describing the impact of the this event on the firm and its stakeholders.

Although the ESG issues that stakeholders care about differ across the legal industry, the fact remains that ESG will only increase in prominence for legal organizations in 2023 because of the many external factors — regulations, clients’ ESG strategies, politics, and activism among stakeholders — that influence the industry.

That means, law firms should proceed with introspection and caution.

“Law firms need to get their own house in order if they do not want to run the risk of losing and not attracting new clients,” says Adrian Peyer, Co-Founder & CEO of impactvise. “Until now, the ESG performance of a law firm has been ‘a nice to have’, but 2023 and beyond will move it to ‘a need to have’.”

Woodhall, of Lawyers for Net Zero, agrees, highlighting the unique role of general counsel. “The foundation of our society is a livable planet, so savvy GCs and their teams are supporting their business to be part of the climate and biodiversity solutions, as well as providing the social and governance advice which helps nurture flourishing businesses and society.”

Indeed, as global economies moved away from the worst of the pandemic, it seemed early on that 2022 could provide a sense of normalcy, if not a return to traditional business practices. However, the rocky shoals of the war and global economic turmoil soon put an end to that sunny thinking. Yet many professional service firms and their corporate counterparts in the US and around the world found ways to remain profitable, resilient, and forward-thinking enough to allow some positive direction as we all head into 2023.

The Thomson Reuters Institute, through its blog posts, podcasts, market reports, and in-depth analysis, has chronicled many of the changes that swept through the last year, offering insights into how many organizations are adapting and what solutions are being successfully utilized.

If there were trends to discern in this very busy year, it was that twin issues of talent and technology implementation were impacting corporate departments and professional service firms to a greater degree as the year went on. And some of the most-read pieces on the blog site reflected that. For example, one piece that was very widely received described the different power skills that allow employees to flourish in new hybrid work environments; also, the changing regulatory stance toward the practice of law, especially around whether non-lawyers can own law firms, was of keen interest to our readers.

Further, many law firms, government agencies, tax & accounting firms, and corporate departments were beginning to grasp that the technology needed to meet the growing demands of the digital economy was of paramount importance. Indeed, as we moved toward the end of 2022, it was clear that technology adoption and maximizing its use simultaneously was among the biggest challenges and most promising opportunities that organizations are facing going forward.

Key market reports & in-depth podcasts

Throughout the year, it was the goal of the Thomson Reuters Institute to bring together people from across the legal, corporate, tax & accounting, and government communities and ignite conversation and debate in order to shed some insight on the newest industry developments and the most critical opportunities and challenges market participants are experiencing.

You can explore our top trending Thomson Reuters Institute insights that shaped 2022, or you can relive some of our highlights from this year here. And for further coverage of the legal, tax & accounting, corporate, and government sectors, visit the Thomson Reuters Institute.

We did this in part by providing coverage of these topics on the Thomson Reuters Institute blog site — such as podcasts, videos, and key market reports — and by hosting world-class events, which kicked off in Amelia Island at our 29th Annual Marketing Partner Forum, which brought together global law firm leaders and the best strategic thinkers from around the world to discuss the steep challenges facing firms in the legal market; and continued in New York City with our 21st Annual Law Firm COO & CFO Forum, along with many more in-person and virtual events throughout 2022.

As our reach expanded over the year — the Thomson Reuters Institute blog site reached more than 1 million annual page views this year for the first time in its history — our coverage expanded as well. We created two new resource centers on the site, to accompany those dedicated to covering the legal, tax & accounting, corporate, and government areas. Our new resource centers — Environmental, Social & Governance (ESG) and Technology & Innovation — allow us to offer readers dedicated content and insight into those areas.

Throughout the year, the blog site offered a steady stream of analysis and market insight reports that shed light on what participants in the legal, tax & accounting, and corporate fields were experiencing in their respective marketplaces in today’s economy. For example, in the 2022 Report on the State of the Legal Market, we saw that the legal market has remained resilient, even though numerous key challenges remain for many law firms, including a hot market for legal talent that has driven up costs. Even so, the report showed that many law firms have managed the difficult market with a good level of success last year.

On the other side of the table, our reports on corporate law departments and corporate tax departments shed further light on the immense pressure these departments were under from their corporations to transform the way they operate, with special emphasis on working more efficiently and cost-effectively. Indeed, coming out of the pandemic, it appears the dramatic changes undertaken by corporations during that time — especially around talent management and adopting new technology — may only be the beginning.

Also, our series of twice-monthly Insights podcasts offered in-depth discussions throughout the year on topics ranging from the viability of the new cryptocurrency economy to the most common misconceptions in the legal industry around artificial intelligence, and from how financial institutions were managing Russian sanctions to how organizations can benefit from client feedback programs.

Now, as we move into 2023, the Thomson Reuters Institute will continue offering insight into the latest events and trends, bringing leaders together, and mapping out the opportunities and challenges facing corporations and professional service firms going forward.

To that end, the Thomson Reuters Institute, along with key market partners, have published a series of in-depth State of the Markets reports over the last year that examine several different aspects of these markets and offer insights into how many organizations are adapting and what solutions are being successfully utilized. The idea behind these State of the Markets reports was to provide readers with an understanding of how their peers in law firms and corporations are implementing transformational change within their own organizations, suggesting ways that other firms and department leaders could innovate in order to best prepare for the future.

Legal

In the legal market, our flagship Report on the State of the Legal Market, published each January in partnership with the Center on Ethics and the Legal Profession at Georgetown University Law Center reviews the performance of U.S. law firms, breaks down the factors that drive firms to take a longer-range, more strategic view of their market positions. In the 2022 Report on the State of the Legal Market, we saw that the legal market has remained resilient, even though numerous key challenges remain for many law firms, such as a hot market for legal talent that has driven up costs.

Yet, the report showed that many law firms have managed the difficult market with a good level of success last year. For example, demand for legal services soared in 2021, and even exceeded pre-pandemic demand levels in some practice areas. Law firms also sought to boost profitability by raising their billing rates aggressively, which helped to secure another year of strong profits for many law firms.

When we break the legal market down, either by size or region, we can offer readers even more valuable insights into how many law firms are managing their challenges.

Our 2022 Report on the State of the Midsize Legal Market, for example, detailed how the midsize law firm segment, while not immune to the volatility experienced broadly in the overall legal market over the past several years, seemed to have staked a position going into the latter half of 2022 that finds them better positioned relative to the rest of the market, including their larger competitors.

One way they’ve been able to fare better — especially in terms of talent retention — was by leveraging their firms as being a desirable place for attorneys to work, even if the pay scale is less than at larger firms. The strategy paid off, and attorney attrition in midsize firms was less than in other sectors, demonstrating that, at least for some lawyers, a good working environment is about more than just money.

You can explore our top trending Thomson Reuters Institute insights that shaped 2022, or you can relive some of our highlights from this year here. And for further coverage of the legal, tax & accounting, corporate, and government sectors, visit the Thomson Reuters Institute.

Similarly, in the small law firm and solo practitioner segment, leaders voiced a general sense of optimism and expectations of future growth, despite an uneasy economic picture, according to the 2022 Report on the State of US Small Law Firms, published this month.

Interestingly, when we looked at other legal markets around the globe, we saw many of the same trends and challenges as in the U.S. market, but with a different emphasis. For example, the State of the UK Legal Market 2022, published in April, detailed how strong client-driven pressure was forcing law firms there to address issues ranging from demonstrating their value to offering tech-savvy solutions. And in the Australian legal market, the 2022 Australia: State of the Legal Market Report illustrated that some of the same downward pressure on legal demand experienced there was now being felt in the U.S. market in the latter part of this year.

Corporates

The Thomson Reuters Institute State of the Markets reports also look at the other side of the table, examining what corporations are doing to better manage their internal law and tax departments.

We found both departments facing immense pressure from their parent company to transform the way they operate, with special emphasis on working more efficiently and cost-effectively. Indeed, coming out of the COVID-19 pandemic, it appears the dramatic shifts in workflow processes that corporations undertook during that time – especially in working environments – may only be the beginning.

For instance, in the 2022 State of Corporate Law Departments Report we looked at how the dramatic shifts that law departments endured during the pandemic could kick off a larger transformation. The corporate response to the COVID-19 pandemic of embracing to a large degree what they saw as unavoidable change has left companies with a desire to capitalize on those changes and make them a permanent part of their daily business.

In the report, corporate law department leaders surveyed looked to be getting the message, ranking conducting operations efficiently and delivering legal work more effectively among their top priorities going forward. The report showed that the most successful law departments will be those that leverage the momentum of the change forced on them over the past two years, both in how they integrate and operate within their organization.

Similarly, the 2022 State of the Corporate Tax Department Report showed how the twin trends of technology and the war for talent are impacting how corporate tax departments are operating. Specifically, the report examined the strong tension between corporate tax departments seeking greater effectiveness and efficiency through technology, and tax professionals in those departments who are constantly being asked to do more, while working faster and with fewer resources.

Corporate tax departments were far from alone in facing this challenge. Many law firms and corporate law departments began to grasp that the technology needed to meet the growing demands of the digital economy is pulling them in several directions at once, making technology adoption and its use simultaneously one of the biggest challenges and most promising opportunities organizations are facing.

Our recent research into the UK’s competitive legal landscape compared UK clients’ usage and perceptions of Magic and Silver Circle law firms with their perceptions of those US-based firms that have built out a strong presence in the country. We also look at how US-based firms are demonstrating strategies of scalability and differentiation in order to carve out a strong position in the UK legal market.

A sector focus

Entering a market is never as simple as putting boots on the ground and waiting for clients to call. US-based law firms have come from strong vantage points in their home territory and have been able to leverage that to get their feet in the door in the UK. One tactic that appears to be emerging is US firms being able to identify with which clients a successful relationships could be built.

The chart below shows a sector breakdown of the UK clients that think of Magic and Silver Circle firms in a top-of-mind manner, compared to those that think of US-based firms in that way. The disparities are clear: UK clients in more traditional, well-established sectors — such as banking, manufacturing, and energy — drive a bigger proportion of awareness for Magic and Silver Circle firms. Meanwhile, UK clients in heavily evolving sectors such as pharmaceuticals and investment represent a much larger share of US firms’ UK awareness. These sectors typically have interests in both the UK and the US and make up similar proportions of client awareness in both jurisdictions. As a result, it makes sense for firms with experience in these practice areas and industries to strategically target such clients when developing their client base.

Scaling up

Further, the ability of US firms to attract UK lawyers has caused some concern among UK-based firms. The most practical — and effective — way to increase top-of-mind awareness in a legal market is through lawyer outreach; therefore, the bigger the firm’s headcount, the more likely these firms are to be sitting top of mind for UK clients.

For example, Latham & Watkins has successfully employed this strategy to make strong headway into the market and has driven a high rate of growth in both its awareness and favorability in the UK over the past 10 years.

Indeed, a look into the strategies used by Latham & Watkins and Kirkland & Ellis show how the investments these firms have made in UK lawyer headcount have helped them carve out an increasing rate of top-of-mind awareness among UK legal market clients.

Differentiating in a globalized market

Yet, size is only one strategy law firms can use to grab a larger share of the market. Specialization around a particular segment of the market is another effective approach, whether it’s being known as the best in a particular sector, region, or work type. It’s also this strategy that has driven Kirkland & Ellis’ position in the minds of UK-based clients.

Kirkland & Ellis may not be the law firm that UK-based clients think of first in a general setting; however, that changes when you ask these same clients which firm they would consider for their top-level or cross-border deals. Kirkland & Ellis is the only firm that UK clients name more frequently for deal consideration than for general awareness. (Note: Only firms with five or more counts for top-of-mind awareness were considered in this measure.)

The fact that Kirkland converts awareness into consideration for M&A work more than other firms in the UK market is indicative of the threat they pose to incumbent Magic and Silver Circle firms. In the case of Kirkland & Ellis, size isn’t driving their market share growth, rather it is client consideration that’s coming from the firm’s reputation for success in M&A work which is hard to challenge. Latham & Watkins has followed a similar strategy, focusing on building its brand position with high-priority banking & finance work, demonstrating a strong go-to-market strategy around these practices within the UK market.

Favorability

We have discussed the what, in terms of work types, that US firms are using to build their brand position within the UK market. To understand the why, however, we need to look further into what clients say is driving their favorability for a particular law firm. For example, UK clients that favor Magic Circle firms are much more likely to favor them for their specialization and breadth of service — in fact, approximately one-in-six clients say they appreciate the firms for their range of service offerings.

However, building a firm’s reputation as an expert takes time and resources — both of which Magic Circle firms have been able to put in place over many years. By growing to understand the needs of the market, these legal powerhouses have been able to build out the breadth of their services and become specialists in particular areas, which is reflected in what clients say they favor about these firms.

However, US-based firms are favored by UK clients for an entirely different skill set, indicating these firms are filling a unique hole that was existing within this market.

US firms see larger proportions of their favorability being driven by their client focus, accessibility, and approachability. Clients are being made to feel like they are being listened to by these firms, and that these firms are demonstrating their ability to be agile in their responsiveness. This is a great way to leverage better interactions with clients and gather information for business-generating conversations. Keeping their ear to the floor and listening to clients’ demands is key for an effective growth strategy.

Indeed, in the past 12 months through June 2022, 50% of UK clients said that they had adjusted their law firm rosters in the past 12 months, a sign of how quickly neglected client relationships can be lost.

Conclusion

As US firms scale up the size of their UK operations, focusing on offering high-value services to clients operating in growing sectors, building reputations as trusted advisors through client-centric relationships, and moving further into the thoughts of UK clients, Magic and Silver Circle firms shouldn’t panic… yet.

They still possess the lion’s share of consideration for work types and measures of awareness and favorability in the UK; however, they must be aware of the strategies being utilized by US firms that could result in Magic and Silver Circle firms eventually losing out on business.

You can learn more about transforming the quality of your strategic decisions with financial performance metrics and global market research insights, here.

Inflation, the continued war for talent, return-to-office strategy implementation, as well as the declining demand for corporate and mergers & acquisitions (M&A) legal services, led to a second consecutive quarter of profit decline. Reduction in profit margin also comes while billing rates continue to climb industry wide. While firms had enjoyed nearly two years of continued quarterly profit increases, the declining trend identified in the first half of 2022 serves as an ominous warning of future liquidity issues if margins continue to decline.

The Thomson Reuters Institute reported that, in the second quarter of 2022, overall average industry demand fell by 0.5% in comparison to the second quarter of 2021. Corporate demand fell by 0.7% and M&A fell by 4.9% over the same period, although it should be stated the 2021 figures correlate to a period of unmatched demand after firms and clients adjusted to the pandemic-related legal atmosphere.

While demand has receded through the first half of 2022, billing rates have increased approximately 5.8%. This may appear to be a sizable increase but is less than those in prior years of 5.9% in 2020 and 6.7% in 2021

The war for talent continues to drive compensation expense upwards, as it increased 12.4% in the second quarter, year over year, according to the Thomson Reuters Institute. Lawyer head counts increased 4.5% during the first half of 2022, which correlates to the increase in hiring made in 2021. Operating expenses also increased by 13.5% year over year, fueled mostly by increases in technology spending, rising costs due to inflation and costs related to returning a workforce to the office, as many legal professionals were still operating mostly in a work-from-home environment in the first half of 2021. It should also be noted that many of these operating expenses were initially implemented in the second half of 2021, and as a result, one expects to see a more gradual increase in operating expenses in the second half of 2022.

Revenue growth of 5% during the first half of 2022 is more in line with historical first-half figures, and 2021’s first-half growth of 14.6% is now seen as an outlier that’s tied to the industry’s resurgence after a period of pandemic-related dormancy. Another variable that appears to have curbed revenue growth in the first half of 2022 is a 4.2% lengthening of the collection cycle. Firms are servicing clients who are taking longer to pay their bills. Receivables continue to age, and the legal industry has seen an almost 10% increase in receivables outstanding since the beginning of 2022.

Inflation as a factor

US inflation roared to a four-decade high at the end of June, as the consumer price index rose approximately 9% from a year earlier. If inflation remains at current levels, law firm billing rates won’t be able to keep pace. While demand has receded through the first half of 2022, billing rates have increased approximately 5.8%. This may appear to be a sizable increase but is less than those in prior years of 5.9% in 2020 and 6.7% in 2021. Firm leaders may have wanted to implement additional fee raises midyear, but many opted against adjusting fees in light of decreasing legal demand industry wide. Also, billing rates have historically been about two points higher than inflation for the past decade.

Firms that opted against midyear billing increases may be facing quite the uphill climb as they attempt to make up for their eroded gross profit margins during the first half of 2022. It is not guaranteed that inflation will continue its current torrid pace; in fact, multiple projections suggest inflation will decrease in the next 12 months. Either way, the industry can expect to deal with inflation-related fallout for the immediate future.

As the industry enters the third quarter, market conditions remain challenging. However, rising accounts receivable balances at the end of the first half should aid in increased revenue if firms can efficiently prioritize collections prior to year-end. It is also expected that expense growth should diminish in the second half of 2022 as the lawyer head-count boom spurred on by the rush of post-pandemic-related demand finds its market-driven equilibrium.

While technology expenses have increased drastically in 2022 (approximately 10.5%), this is one area where firms should be hesitant to reduce costs. Such expenses should instead be viewed as infrastructure investments, as new technology allowed firms to pivot to the remote-work environment during the pandemic, while also driving firm efficiency improvements through cybersecurity and cloud computing, among other processes. Firms that properly invested in new technology can expect to see improved realization efficiencies through the continued implementation of data analytics. Such investments will also give firms the ability to reach a new client base and explore emerging practice areas through streamlined data intake and initial analysis.

As firms continue to compete for new business in an increasingly competitive marketplace, technology will be at the center of improving the client-driven experience by increasing the perceived value of the clients’ legal services. As more routine procedures are automated, professionals can spend more hands-on time with clients, working through more high-value processes.

For many firms, it is likely that 2022 profits will be lower than 2021. However, a reduction to the continued growth of expenses, and the potential for increased revenues if a concerted effort is made to increase collections on outstanding balances should result in the second half of 2022 being more profitable than the first half.

These are among the key findings of the newly published 2022 Report on the State of US Small Law Firms from the Thomson Reuters Institute.

Even as the overall economy has turned sour for many, smaller law firms have maintained a bullish outlook on their future prospects, and likely with good reason. Evidence across the legal marketplace indicates that corporate clients are looking for ways to push work down to lower-cost legal service providers, creating new opportunities for smaller law firms to capitalize on their pricing advantages.

At the same time, however, those small law firms that serve primarily individual clients continue to face pressure from alternative providers like do-it-yourself (DIY) legal sites. Yet, small law firms report that they are not facing an increasing degree of pressure from those competitors, with whom they have learned to cope over many years of market maneuvering.

This most recent edition of the Report on the State of US Small Law Firms once again explores the current state of the legal market through the eyes of leaders of small legal practices, offering several insightful glimpses into their thinking. While leaders of small law firm continue to characterize their practices as generally successful, for example, some cracks potentially may be emerging. Increasing costs pressures for some small law firms and a heavier administrative burden continue to place ever greater pressure on firm leaders. Moreover, broader economic challenges could put further pressures on this group of firms.

Still, for those small law firm leaders who take a mindful and strategic approach to the problems many of them foresee in the future, as well as those they admit they’re already dealing with, the current upheaval in the broader economy and the legal market specifically could provide fertile ground to turn difficulties into opportunities.

Among the report’s key findings:

• • • The outlook for small law firms is increasingly positive;
    • Small firms by-and-large consider themselves to be successful;
    • The competitive landscape is shifting, and this provides both new opportunities and rising threats; and
    • Small firms are demonstrating the ability and wherewithal to make changes and potentially take advantage of those opportunities.

The report also highlights the positive outcomes that can result from a determined focus on addressing a key challenge, offering the example of how small law firms dealt with one recent problem. In 2020, getting paid by clients was one of the top concerns among small law firms with nearly two-thirds (64%) of firms reporting it as a significant or moderate challenge. However, more than 40% of small firms reported that they have a plan to address the problem and they had already implemented changes to address the issue through such strategies as increasing retainers, improving payment collections, and accepting electronic payments such as ACH payments and debit or credit cards. Fast forward two years and the percentage of firms that view getting paid by clients as a significant or moderate challenge has fallen to 54%. And those firms that rated it as a significant challenge has been cut by more than half to just 9% compared to 19% in 2020.

Small law firms that follow this example as they look to address the challenges reported in this year’s edition of the Report on the State of US Small Law Firms are certainly not guaranteed a similar result, but the evidence suggests that they are far more likely to enjoy a positive outcome and capitalize on their bullish vision for the future.

You can download a copy of the “2022 Report on the State of US Small Law Firms” by completing the form below:

As international efforts to slow down the effects of harmful greenhouse gases have been insufficient, the frequency and intensity of climate-related disasters have led to a call to action in both the public and private sectors. In the United States, new federal legislation funding broad initiatives to reduce greenhouse gas emissions has become law. At the state and local level, some governments have adopted climate action plans and net zero emissions targets.

Yet there remains much to do. Incorporating language into contracts and regulations governing procurement, project management, and land uses can dramatically improve a municipality’s environmental impact.

City attorneys as climate-change fighters

There is no one-size-fits-all approach for local governments to address climate change. Municipalities should identify both short- and long-term measures that will improve their ability to withstand adverse climate events. These measures will depend on geographic location and many other factors, but may include:

• • • improving public transportation and making communities more bike- and pedestrian-friendly;
    • using electric vehicles throughout the city’s fleet and installing charging infrastructure at convenient locations for motorists who live and work in the city;
    • building seawalls and upgrading drainage systems; and
    • creating tax abatements that encourage private sector businesses and property owners to take measures of their own.

Efforts to counteract the impacts of climate change should be an element of the local government’s comprehensive plan, zoning ordinances, and capital budget. Many cities also have a climate action plan (CAP) to guide their strategy for local mitigation efforts. Even without a CAP, developing contracts and regulations that address climate issues is a powerful first step in the local effort to fight climate change.

Incorporating climate goals into contracts and regulations

The municipal attorney should be mindful of the local government’s climate-related goals when drafting and reviewing proposed contracts and regulations. Integrating climate clauses into legal documents and laws can be a critical part of implementing a city’s climate action plan. However, even if the municipality has not yet adopted a CAP, contract terms and regulatory provisions that focus on environmental impacts can pave the way to a healthier future. City attorneys can incorporate a net zero mindset in contracts and regulations, with provisions specifically aimed at furthering progress toward net zero targets.

Establishing climate goals in construction contracts — In 2020, approximately 38% of global carbon dioxide emissions came from the construction and operations of buildings. However, the traditional standards of care found in construction contracts do not explicitly require contractors to incorporate climate change mitigation or adaptation measures. As a result, government entities and their contractors often build facilities without climate-related risks or decarbonization in mind.

Local governments should engage with the project team early on to determine how the project design, specifications, contract terms, and budget can address the government’s climate-related expectations. Examples of clauses municipalities can include in contracts for construction of public projects include:

• • • requiring the contractor to meet defined net zero objectives, including reaching net zero benchmarks at various stages of the project;
    • rewarding the contractor for meeting net zero objectives, instead of penalizing the contractor for failing to meet them; and
    • prescribing practices for management of construction waste associated with the project.

Climate goals in procurement contracts — To ensure that purchases made by local governments are environmentally responsible, municipalities should consider procuring equipment, supplies, and materials from sources that require less transportation, use materials or components that are recycled or responsibly sourced, and reflect the supplier’s or manufacturer’s commitment to sustainability.

Other local government contracts — Local governments sometimes operate facilities with high-energy usage or environmental impact, such as landfills, schools, jails, or convention centers. Attorneys may be involved in drafting stand-alone contracts or clauses that are part of broader contracts to address matters such as: retrofitting facilities with energy-efficient appliances, systems, and lighting; reducing single-use plastics by vendors in cafeterias and other dining facilities; and establishing landfill management practices that reduce harmful greenhouse gas emissions and other adverse climate impacts.

Climate goals in planning, zoning, and building codes

Many cities already include climate-friendly features in their planning and zoning, without necessarily having a coordinated approach to climate change mitigation. For example, municipal plans and zoning regulations often provide for: preserving open spaces and setting aside land for parks; planting new trees and protecting existing trees; and incorporating bike lanes, sidewalks, and other pedestrian-oriented features into street infrastructure.

Beyond these measures, some cities anticipate and encourage higher usage of electric vehicles with incentives such as: free parking on streets and in public garages; and designated parking spaces with charging stations at privately owned parking facilities.

To assure that buildings within the municipality are resilient and energy-efficient, the city attorney can assist in efforts like: ensuring that new building and property maintenance codes emphasize energy-saving construction and operational practices; crafting ordinances that set requirements for recycling of construction and demolition waste; and establishing landscaping standards that rely on trees and other plantings that, once established, will provide shade but will not require extensive irrigation.

With serious threats presented by rapid climate change, most cities will need to step up their efforts and be more intentional in using planning and zoning to focus on climate issues. Cities that have adopted climate action plans can use them as support for overhauling comprehensive plans and zoning ordinances. Municipal attorneys will need to assist in drafting and reviewing new zoning language to confirm that it is within the city’s authority, is enforceable, and carries out the city’s intentions.

Selling local government climate policies

Climate policies at any level of government can be a hot-button issue. Local government attorneys and officials can get around the political controversy that sometimes accompanies climate-related measures by de-emphasizing terms and references that trigger negative reactions while stressing that climate-related actions will result in long-term economic benefits to property owners, residents, and the community as a whole.

Municipalities and their city attorneys should continue to communicate that these steps are a clear pathway toward a healthier and safer living environment that preserves the community’s natural resources and scenic beauty for future generations.

Over the past few years, however, there has been a growing feeling that the digital economy is over-heated. Thanks to a boom in tech investments, too many companies with too much cash chased too few customers’ attention. That has led to price increases; and, with that, unsustainable customer acquisition costs. In addition to that, digital ads have become less effective due to adblockers and privacy regulations. People are less generous with their consent as they’ve grown tired of the overload of digital ads. Some even argue that microtargeting never really worked.

This dynamic has led to the rise of the partnership model and what is sometimes called the Age of the Ecosystem. In this situation, organizations end up pairing with others to accomplish solutions that neither may be able to tackle on their own. For instance, modern companies can’t rely solely on inbound or outbound marketing to secure leads and maintain a sustainable growth rate. Instead, they’ve directed their attention to what is usually referred to as near-bound marketing.

The idea then is to leverage these partnership teams to build, nurture, and expand an ecosystem around the company.

Partnerships for law firms

Of course, law firms don’t have a problem with the digital ad economy. They never relied on it in the first place, and in many countries, firms must comply with strict marketing regulations.

Nevertheless, my recent experience building a partnership team has taught me how even law firms can benefit from the Age of the Ecosystem to better generate new business, cut costs, and offer better client service.

The Big Four audit & accounting firms have shown how powerful this model can be with their popular one-stop shops that now mix legal advice with compliance and accounting services that offer clients a more holistic service at a lower cost. Firms don’t have to offer all these services in-house as a PWC does; rather, they can cultivate an ecosystem around them, via outside partnerships, that includes many of these capabilities.

Many law firms already have cross-border partnerships in place by which they refer clients to each other. A German law firm probably doesn’t have legal expertise in Australian jurisdiction and vice versa, so these international partnerships and collaborations have already proven to be beneficial for firms and clients alike. It’s just not streamlined, professionalized, and leveraged to its full potential — yet.

Every day, we can see situations in which partnership models among law firms and legal tech companies might flourish. In the past few years, law firms have spent too many resources trying to develop their own tech solutions. And while it may have been good for marketing or public relations, few firms succeeded because developing user-friendly technologies is not within a law firm’s expertise. This thinking also is based on a misunderstood assumption that legal tech is made for lawyers. As a result, many law firms have spent too many resources implementing legal tech solutions instead of using legal tech to improve their client service in the first place.

By teaming up in these partnership models, law firms and legal tech companies can work together to provide excellent legal services: Legal can offer the content; and tech offers the process.

Three different partnership models

Inspired by the near-bound movement, I see three potential partnership models that could be interesting for law firms to pursue.

First is the referral partnership, which is suited for smaller law firms. In its essence, this is a simple commercial partnership in which the law firm acts as a reseller of a tech solution or just advices clients to use a specific solution. This partnership becomes more powerful if the firm can leverage it to add value to their clients, either by being in charge of implementation or by using process tools to offer their expertise through legal content, negotiations, oversight, etc. Nevertheless, this is an easy way to get started because there is a low barrier to entry.

The second model is the integration partnership, which works best for medium-sized law firms. This model is an expansion of the referral partnership that now has the law firm integrating multiple tools with their core digital platform or simply with each other. In this model, law firms build tech stacks of interconnected tools for their clients, covering such areas as contract management, data protection and compliance tools, board room solutions, and more. While it may be a more expensive solution and requires more technical expertise, the value is also higher.

Finally, the third model is the strategic partnership which is mostly for larger law firms. Under this model, law firms and tech companies would partner up to co-develop, co-launch, and co-market new solutions for the clients. Think of it like the Alexa and Spotify partnership. By co-launching, the two separate entities created a synergy that made both products so much better. I see great potential for law firms and tech companies to explore similar models.

The possibilities are endless, of course, as there are multiple variations to all these partnership models. I’ve worked with variations of all of them and seen great benefits for all parties.

Wisely, law firms and their tech-savvy partners should get together and embrace the Age of the Ecosystem.

Mari Sako: Just as in other countries, the COVID-19 pandemic was a catalyst for a shift to digital transformation in Japan. The need for digital transformation became imperative in all aspects of Japanese society in a way it had not been in a relatively wealthy and stable society. In the first half of 2020, the government swiftly set up its digital transformation policy by promoting digitalization, away from the submission of paper documents using traditional seals (hanko or inkan) and toward electronic signatures. September 2021 saw the establishment of the Digital Agency that centralized the government’s IT budget and policy initiatives on digital transformation. The government is even promoting a certification program for digital transformation-ready companies.

Additionally, there are signs of digital transformation from within the corporate sector, centered around using digital technologies to improve operational processes. A recent 2022 survey conducted by the Japan Industrial Location Center on domestic manufacturing and logistics industries shows 34.5% of respondents expect to increase investment in digital transformation, with greater focus on business operations, and less on developing new products, services and business models. For the latter to happen, it is often said partnerships between incumbent firms and start-ups would be necessary, and Japan has a relative dearth of tech ventures.

There have been some references in Japan to the “cliff of 2025” but this requires context. That “cliff” refers to the inertial cumulative aging of mission-critical IT systems and that IT talent shortage could lead to a loss of up to 12 trillion yen (2% of GDP) per year after 2025. The “digital cliff” – whether the cliff pointed downward to an abyss or upward to that which is too steep to climb – was a justifiable call to arms. While a handful of leading corporations and IT providers have responded, the litmus test is whether it will lead to digital transformation in all corners of Japanese society and economy.

Forum: Where are these efforts succeeding or falling short?

Mari Sako: We should focus our attention on why the Japanese corporate leadership in electronic hardware did not transcend to software, which is central to digital transformation. A bit of history might help to shed light here. Japan’s industrial might was built on manufacturing – monozukuri – with a hardware mentality among workers and senior executives. Trailblazing industrial companies such as Toyota created a model for process improvement; this inspired many global corporations that wished to learn not only the principles of lean production and supply, but also how to implement them. Digital transformation is partly about creating new value via applying digital technologies to process improvement. Many Japanese firms should have a head start in this respect, although applying a firm’s process improvement capability to the manufacturing shop floor is no guarantee it can be translated into legal operations, for example.

The hardware mentality, however, led Japanese corporations to regard software as secondary and introduced certain biases. First, corporations rely heavily on customized software provided by third-party vendors; and this lack of standardization is bad news in the growing world of Software as a Service (SaaS). Second, IT systems are deployed for a long time – 17 years, on average – reflecting an emphasis on incremental innovation (kaizen) and the need to defray high maintenance costs made worse by the use of legacy systems. Third, the relative absence of Chief Information Officers in large Japanese organizations and a lack of understanding about information and communications technology among senior executives are said to have caused an underinvestment in enterprise software and communications technology more generally. [Between 1995 and 2017, communications technology investments remained flat in Japan while they tripled in the US and France, according to the Organisation for Economic Co-operation and Development.]

Of course, there are general obstacles to digital transformation faced by corporations of all nationalities, such as lack of strategic focus, dealing with legacy systems and the lack of talent. All of these apply to Japan in varying degrees. However, it’s fair to say over and above these common issues, Japanese corporations’ digital transformation strategies have suffered from corporate structures that reward and reinforce the aforementioned hardware mentality.

Forum: Corporations in Japan are required to maintain compliance across a range of areas, including financial regulations, data privacy and supply chain regulations. Promoting the importance of ESG issues such as sustainability, climate change, modern slavery, diversity & inclusion, and corporate governance are also rising in prominence. How is this impacting Japanese business sectors? And how should Japanese corporations handle these complex risks and prepare for the future?

Mari Sako: The Japanese government is good at setting the tone by promoting a vision of what they call Society 5.0. This vision of Japan leverages digital transformation (including artificial intelligence, the Internet of Things and robotics) to create a super-smart society, not only to realize economic growth but also to address social problems including aging and sustainability. With this backdrop, ESG has certainly become an important issue for corporate governance and reporting in Japan.

The current phase of ESG investment in Japan is very much led by the Government Pension Investment Fund, which is actually the world’s largest single pension fund, accounting for US$1.6 trillion in assets. The diffusion of ESG ratings in Japan is attributed mainly to the Fund.

Forum: Over the past decade or so, law firms around the world have found ways to innovate and leverage legal technologies. What is the approach in the Japanese legal market regarding client service delivery and interaction with technology?

Mari Sako: Lawyers in Japan are scarce. The majority work takes place either in the court system or in law firms. Law firms have the pick of the crop among university graduates, who must pass a very tough bar exam. The Japanese legal market is marked by law firms that are relatively small in size by US or UK standards. These firms also interact with corporate clients’ in-house legal departments, which are traditionally staffed by employees who may have a bachelor’s degree in law but are not licensed to practice law.

I don’t think the small size of law firms or the presence of nonlegal talent in corporate legal departments in themselves affect the adoption (or non-adoption) of legal technology. Instead, a significant barrier to the digitization of contracts and other legal documents has been the broader paper-based culture for official documentation, reinforced by the pervasive use of personal seals (hanko), as I’ve mentioned. This affects government affairs and the judiciary as well as business transactions.

In spite of these barriers, legal innovation is happening in Japan as elsewhere. It takes the form of law firms partnering with, and investing in, legal tech start-ups. In late 2019, for example, Nagashima Ohno & Tsunematsu, one of the four largest Japanese law firms, formed an alliance with MNTSQ Ltd., a Tokyo-based legal tech start-up and an affiliate of Tokyo-listed machine-learning technology company PKSHA Technology Inc., worth some US$7 million. MNTSQ will help the firm conduct due diligence using its natural language processing technology to flag contract clauses that pose risks.

In November 2020, Nishimura & Asahi became the first Asian law firm to invest in Reynen Court, a UK-based app store-like platform to host legal technology applications, with investment from the likes of Clifford Chance; Latham & Watkins; and Orrick, Herrington & Sutcliffe. This, in effect, paves a way for the internationalization of the Japanese legal tech market, over and above the internalization of the legal services market.

Still, the legal tech sector in Japan is at a nascent stage with no more than 30 or so ventures. However, founders have a mission to use digital technology to solve a key problem, namely inefficient and cumbersome practices that drive up the cost of legal service delivery.

They also can level the playing field by engaging in the right activities that get them in the arena; and they can build a reputation that attracts the next level of clients with whom they want to work.

Know what you want to do

Before we start, however, we must make some assumptions. If the type of matters you, as a small law firm lawyer, seek needs armies of lawyers that you don’t have, then you’re fighting a losing battle. If you have little or no knowledge or talent in a specific area, you first need to upskill before expecting to land work. However, if you’re choosing matters you can handle from a staffing and skills perspective, here are some things you can do individually to help make your case:

Your bio — This is your first audition for the job, and most lawyers fail miserably. Most bios are cold, sterile, laundry lists of services that do little to inspire, intrigue, connect, or convince. Open with an interesting statement that sets a tone, focus on the type of work you want to attract, add some (properly edited) success stories, add a pinch of personality, and highlight some characteristics that make you different from other lawyers.

Identify your targets — After you determine the type of work you want, clearly define your audience. With what type of companies do you want to work? In what geographies? What are the names of those companies, and who are the decision makers you need to meet? Where do they congregate, what do they read, and what do they listen to? These are your future business friends, the people who need to know you. Few lawyers put in the time to gather this information, but it’s a crucial step toward making a name for yourself in the right crowds.

Become famous — Once you’ve identified your audience, find ways to get on their radar to build your reputation and establish important relationships. Be ubiquitous and saturate the market with your name. As they say in the Broadway smash Hamilton: “Be in the room where it happens.” Go where they meet, speak where they listen, and write where they read. There are several ways to accomplish these goals:

• • • Speaking: If you have the personality for it, get on the speaking circuit. Get some coaching and study videos. This is another opportunity to audition, where people extrapolate your skills based on how well you present yourself. If necessary, start small and build yourself up. Use one talk as a reference for the next. Get in some practice so when you get on those bigger stages, you’ll have honed your craft. Also, while your firm may not be a household name, the bigger stages allow you to borrow their authority to enhance your personal reputation. Fortunately for you, many lawyers are poor presenters, so if you put in the time, not only can it become a major differentiator for you, but it also amplifies your presence in front of large, targeted audiences.
    • Writing: Similarly, you can borrow the authority of news publications, trade journals, blogs, or social media channels. Without too much strenuous work, you can create short pieces that provide insights, add a bit of style, and find topics not everyone else is talking about. Again, start small if needed. When I began my career in legal marketing, I was living in Boulder, Colo., and I reached out to the local Boulder Bar Association to ask if they wanted an article. That was an easy yes, and after I was published, I used it as social proof to get an article in the Colorado Bar Association. I repeated the process and got published in American Bar Association publications — it took off from there, and I now have written 14 books and more than 60 articles to date.
    • Establishing personal connections: I won’t kid you into thinking speaking and writing are the Holy Grail for magically attracting top clients. It’s good for reputation-building, but you need to get down in the trenches and go one-on-one to build personal relationships with the right people. You can do that by using your speaking and writing as reasons to reach out to your target audience. Interview some, ask a few to co-author or co-present, and request feedback from others.
    • Leapfrog: In the game of leapfrog, you use someone as leverage to go from where you are to somewhere else. Similarly, you can ask people you know to introduce you to high-value people that they know. For example, if you interview someone for an article, at the end you can say something like “Thank you so much, I really appreciate your insights. By the way, do you know any others who might be interested in sharing their thoughts for this article?”
    • Take leadership positions: I’ve heard it said it’s better to be the star in an off-off-Broadway show then to be buried in the chorus of a big production where no one sees you. Get people used to seeing you a leader. Even if you start small, it gets you visibility, you gain social status through the reputation of the organization, it provides access to others, it gives you reasons to reach out to targeted people, and it provides a launching pad for leadership positions in higher level organizations.

None of these approaches require staffing, gobs of money, or a pre-existing brand name. It does take planning, grit, and consistency. If you follow these steps, you’ll start finding yourself on the short list for the type of work you most desire. “Be in the room where it happens.”