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This is a tale of two cities — London and New York — and the ways that their big firms deploy technology. Lawyers, it is often said, are motivated in equal measure by fear and greed. But when it comes to technology, that explanation may only be half right. And, depending on whether you are in London or New York, it’s a different half. In London, where the largest firms are doing cool long-range projects with computers, they are afraid of how their competitors might be using technology to improve efficiency and client service. So they spend lots of money on technology. In New York, lawyers aren’t afraid of being left behind in the technology revolution. But they are focused on short-term profits and less inclined to invest heavily in long-term technology projects. Who’s right? The fearful London lawyers or their (pardon us) greedy counterparts in New York? Put differently, how much longer can New York firms insist that their work cannot be automated when it’s happening just a puddle’s jump away? For the past several years, London firms have been preparing for a brave new world in which computers can think like lawyers. The largest firms like Allen & Overy, Clifford Chance, Linklaters, and Freshfields Bruckhaus Deringer have spent untold millions building systems designed to make their practice more efficient — to automate some of the routine work that occupies the days, nights, and weekends of young lawyers. New York firms, meanwhile, have been ratcheting up associate salaries in an endless bid to achieve pay parity. These London firms are part of London’s Magic Circle, the clubby coterie of the city’s top five firms. Their clients are every bit as elite as those of the top New York firms. Although they are all within walking distance from St. Paul’s Cathedral, the 18th-century backdrop is deceiving. The Magic Circle attitude toward technology is strictly 21st century. They are drawing up online question-and-answer forms that instruct investment bankers on securities law. They are compiling databases that tell German banks what rules apply in Hong Kong. And they are writing computer programs that assemble contracts, memos, and other documents on the fly. “The U.K. is a revolution compared to what’s happening in fat and happy New York firms,” says Gretta Rusanow, a consultant at New York- and Sydney-based Curve Consulting Inc. In the world outside of law firms, businesses must reinvent themselves or die. Intel Corporation invests heavily in new microchips, knowing that they will drive down the prices of highly profitable chips already on the market. Pfizer Inc. searches for new drugs even when old ones work just fine. London firms are starting to get with this program. But many lawyers just keep practicing law the same way they have for decades. Especially in New York, where lawyers dispute that law is a commodity that can be packaged up and sold. Says Edward Kleinbard, the chair of New York’s Cleary, Gottlieb, Steen & Hamilton’s IT committee, “We particularly shine on issues where a blueprint is not obvious.” Jonathan Brayne, 45, has spent the last couple years drawing blueprints for lawyers. His creation is called newchange documents, and it’s an online document assembly service. His firm, 1,575-lawyer Allen & Overy, spent about �10 million — or $15 million — over two years to develop tools, including newchange documents, online deal rooms, and extranets, to automate the law. Newchange works like a lawyer, except it doesn’t stare out the window, daydream, or talk to headhunters. It just drafts documents. In the old days, an Allen & Overy associate would spend hours flipping through files and cutting up sections from previous agreements to craft, say, a routine credit agreement. Figuring that there must be a better way, six full-time Allen & Overy lawyers spent about 18 months designing newchange. They figured out what clauses appeared most frequently in a standard credit agreement. They chose the best ones from old documents. They perfected them. They asked the questions lawyers ask when drafting. They answered them. Now an Allen & Overy lawyer who wants to put together a credit agreement can go online and answer some simple questions. Is it a syndicated agreement? Check yes. Does it involve revolving credit? Check no. In what currency is it denominated? Check dollars. And so on. Eventually, the computer generates a customized credit agreement. A commercial bank is piloting newchange documents. Brayne says it is ready to roll it out to banking and real estate lawyers on behalf of their clients. Brayne won’t discuss the fee arrangement but says that it’s significantly less than what the client would pay by the hour. Brayne believes newchange will eventually make money. But even if it doesn’t, he’s confident that his colleagues will be more productive and his firm better off with newchange than without it. Could a large New York firm make this sort of investment? And if it could, would it? Let’s say Sullivan & Cromwell invested $15 million back in 1999 on pie-in-the-sky technology projects like newchange. That year, the firm’s average profits per partner were $1.8 million, according to The Am Law 100. The investment would have depressed per-partner profits by $130,000, but left the partners better off than their peers at New York’s Skadden, Arps, Slate, Meagher & Flom. William Dallas Jr., the partner in charge of technology at Sullivan & Cromwell, says the firm wouldn’t spend $150,000, let alone $15 million, if the projects didn’t enhance Sullivan’s high-end, customized work. Rubbish, responds Paul Nelson, a securities partner at 1,600-lawyer Linklaters. “Even M&A work can be commoditized,” Nelson says. What explains the difference between New York and London? Partly it’s how the firms pay their partners. Magic Circle firms are lockstep partnerships. Everyone from the same class gets roughly the same salary. Partners can be pulled off client work to develop new projects without suffering a financial penalty. (It is probably not a coincidence that New York’s technology leader, Davis Polk & Wardwell, is a lockstep firm.) At most New York firms, compensation is tied to hours billed and business generated. There’s not much incentive to invest in the future or become more efficient. The billable hour, says John Hokkanen, the knowledge manager at Los Angeles’ Latham & Watkins, “has adversely affected their interest in putting forth a capital investment.” The explanation also lies in the marketplace. London firms also tend to offer advice across more countries — especially within the European Community. Many firms turned to computers originally out of necessity. And before long the necessity turned out to be a business opportunity. Their clients, meanwhile, have a reputation for being less loyal. Not many clients have the long-standing links with firms that once defined the New York scene — and to a degree still do. There are fewer relationships like the Goldman Sachs/Sullivan & Cromwell bond. “Clients are, as you like it, more promiscuous here,” says Allen & Overy’s Brayne. This creates an incentive to cut rates and become more efficient. Competing with computers is just part of the game. Fear also brings change. London firms think that Armageddon is around the corner. That’s partly thanks to legal tech guru Richard Susskind. This British professor-lawyer-consultant-writer argues in his recent book “Transforming the Law” that commoditized legal services are inevitable for all but high-end work. There is no one of comparable stature in the United States delivering that doomsday message. American firms don’t face the accountants much, either. Although the accounting firms have taken tax work and tax lawyers from U.S. firms, they have far greater freedom in Britain to practice law. The accountants have been early adopters of automated services, legal and otherwise. The threat they pose is not immediate, since accounting firms tend to gobble up work from midtier firms. But their entry into the legal scene has caused Magic Circle firms to think strategically about technology. “They’re coming from the mind-set that there will be a shakeout in the legal profession that is completely distinct from the mind-set in the U.S.,” says Aussie consultant Rusanow. No wonder the British firms’ marketing tactics are more like splashy soft drink wars. Linklaters, for example, hired Saatchi & Saatchi to design marketing material for Blue Flag, its online service, and threw lavish launch parties. Brayne spent months mulling over the newchange name. (It’s the London street where the firm is based.) Clifford Chance has hired a sales manager to aggressively market NextLaw, that firm’s Web presence. Having the clients use the service is just a first step. What the firms really want is to cross-sell the services of live lawyers on larger engagements. A lawyer at a large financial institution in London that uses Blue Flag says he is more likely to use Linklaters lawyers for follow-up. “It’s a good way for them to advertise their services,” he says. Blue Flag is probably the most ambitious and successful of the London projects. It was designed by Paul Nelson, a 44-year-old partner and Cambridge grad who is proof that a nerd is not just an American phenomenon. Blue Flag answers questions that are posed to lawyers all the time. Blue Flag Regulatory, for example, first launched in 1996, gives compliance advice for financial clients doing specific cross-border transactions, such as syndicated loans, in Europe, Asia, and South America. It has about 15,000 pages of legal advice. It costs the equivalent of $240,000 for a subscription, plus $60,000 in yearly maintenance for an unlimited number of users. Blue Flag also creates documents. It helps assemble a derivative transaction and gives advice on areas such as shareholding disclosures, pensions, and mutual funds. Nelson says that at least 20 global investment banks use Blue Flag services. London’s HSBC Holdings, for example, is a client. Richard Bennett, group general manager-legal and compliance, says that Blue Flag is a good way to keep up-to-date on regulatory laws. He’s willing to try other expert systems. Other clients also aren’t shy about identifying themselves. Both the Investment Company Institute and The Investment Funds Institute of Canada, trade associations for the major U.S. and Canadian mutual fund companies, say they provide Blue Flag Funds as a member service. The funds can check on the status of trade restrictions in a faraway place where they might do business. (Although users in North America can access the service, it does not focus on U.S. law.) Clifford Chance’s expert system is NextLaw. It has less depth than Blue Flag but offers a broader array of advice. It is geared for businesses that want to set up e-commerce ventures. Users can choose from five topics — digital signature, data protection, bank secrecy, encryption, and online contracts — for 36 jurisdictions. If clients want to know if they can, say, trade bonds online from Belgium to Bratislava, they can check relevant bank secrecy rules on NextLaw. They can print out a plain-English report. They don’t have to talk to a lawyer. They do have to pay: NextLaw costs about $3,000 per topic per jurisdiction per year for unlimited users. NextLaw is the brainchild of Christopher Millard, a 41-year-old partner. He received a master’s in computer law in 1983 and joined one of the predecessors of Clifford Chance. He was the firm’s first lawyer to ask for a personal computer and an early practitioner of computer law. About five years ago, Millard got tired of the file boxes and three-ring binders that stored his work about privacy and data issues in Europe. He couldn’t keep his clients’ questions or his answers straight. So he decided to put together a Microsoft Access database with comparative reports about data protection standards in the European Community. A client pitched in with startup costs. So began NextLaw. NextLaw’s advice comes with an asterisk. Its contract has disclaimers that remind clients that they are not using real lawyers and shouldn’t assume that the advice is identical to what they would get in a conventional encounter. (Clients of Linklaters’ Blue Flag, however, sign off on an agreement that says the advice is the same as from a live lawyer.) Only one Magic Circle firm, Slaughter and May, does not offer anything as advanced as its counterparts. At 450 lawyers, Slaughter and May is by far the smallest firm in London’s Magic Circle. It is also the most profitable, explaining the comparison to New York’s Cravath, Swaine & Moore or Wachtell, Lipton, Rosen & Katz. Profits per partner were $1.44 million in 1999, according to The American Lawyer‘s Global 50. Nigel Boardman, head of the firm’s corporate department, says that Slaughter and May piloted two online projects with clients, but has decided for now not to get into that line of business. New York firms are more like Slaughter and May than Allen & Overy. Only a few are doing anything out of the ordinary. Davis Polk has tested an expert system. Weil, Gotshal & Manges has a subscription Web site that gives compliance advice for clients doing business over the Web. Weil originally put the site together for client General Electric Company. Now the firm licenses it to others. Simpson Thacher & Bartlett is toying with document assembly projects. If these firms decide to compete with the London firms on technology, they will be entering a game of catch-up. “The spoils often go to the first entrants,” says Kingsley Martin, chief knowledge officer at Chicago’s Kirkland & Ellis, himself a Brit. Even so, the Brits are looking over their shoulder. Brayne spent three years in Allen & Overy’s New York office. He lost his place in line often enough to know that New Yorkers can be pushy and move quickly — but only if they feel threatened. Maybe the New York firms will start acting like New Yorkers, but it hasn’t happened yet.

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