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Headlines in the legal press over the last month have pointed to a rapidly escalating ‘arms race’ as some of the country’s largest firms have made IT innovation the arena in which to prove their supremacy. One of the most closely fought battles has been the launch of second-generation client extranet services built around the concept of a virtual dealroom.Linklaters’ recent launch of its long-awaited second-generation extranet service clashed with Allen & Overy’s (A&O’s) announcement of a major new addition to its Newchange extranet, which left both firms vying for pole position in the media. Each project was so long in development, however, that the common launch date may have been a coincidence, rather than the declaration of a full-scale PR war. Few would doubt that the move raised the stakes of the IT development process.“The country’s top firms have to seek out ways to differentiate the services they provide,” explains an A&O spokesperson. “We can no longer rely exclusively on the quality of our lawyers.”So intense was the press coverage that City giant Freshfields Bruckhaus Deringer decided to abandon its customary reticence on IT matters to avoid giving the false impression that it was lagging behind in innovation. In fact, the firm has been running virtual dealrooms for about five months, although the system was being piloted on deals as far back as August 1999. The extranets range from standard transactional sites to highly personalised client relationship sites, which, because of the work involved in setting them up, are offered only to the firm’s largest and most established clients.The firm first launched its extranet offerings internally, in a series of private announcements to its clients, rather than launching by them publicly in the legal press. It also decided against the strong branding approach taken by most of its rivals. “Our recently merged firm has such a strong name that we saw no reason to brand these sites separately. But we will no doubt review the position on a product-by-product basis,” claims Liz Thomas, a former solicitor who moved from a senior marketing role in the firm to join the extranet strategy team and who is now one of its leading members.In terms of design philosophy and functionality, Freshfields’ standard extranet has a lot in common with A&O’s Newchange product suite. The firm decided that the key to successful web-based information sharing was to keep the site as simple and as user-friendly as possible. According to Thomas, the only features on the site are those that the firm’s clients and users believe to be useful. She says client demand is the real driver for creating virtual dealrooms and that the firm is not interested in the competitive escalation of web-based services, which, she says, seems to be driving many current development projects in the legal sector.Freshfields has offered users innovations such as live chat facilities and has considered e-mail notification to key users when documents are amended, but the firm found a distinct lack of demand for, and a scepticism about, these services. “It is the same situation you encounter with any new technology,” says Gina Jennings, a barrister and founder member of the firm’s professional support team. “At the beginning, people need some time to get to grips with the basic functions before they start thinking about how the tools can be improved. It is the quality of the content and its relevance to our clients that really makes the difference.”The lack of separate branding and overt advertising may help Freshfields to deliver a more personalised service to its extranet users. But the firm is conscious of treading a fine line between delivering an individual product to each user and creating a rod for its own back with the extra work that this bespoke approach generates for its IT department. Any number of features can be bolted on to the standard extranet platform, but the team has established a strict rule to avoid overloading the system. The firm will consider customising a client’s extranet site, so long as the benefit is proportionate to work needed from the IT developers.This self-imposed limit is generally seen as good practice across the legal sector – competitors such as A&O work to the same standard. Firms do not directly charge clients for setting up and using virtual dealrooms. Extranets provide a great opportunity for streamlined communication and collaborative working, in the same way that a good intranet enables a firm to streamline its internal processes. As with other non-billable work, extranet development might be regarded as a loss leader. However, all things are relative and the largest clients at Freshfields can benefit from a far greater degree of tailoring and innovation when the firm offers them a comprehensive customer relationship site. This approach makes economic sense because the relationship sites are designed to manage all business for a particular client over a long period of time.Where Freshfields’ innovation stands out is in the range of spin-off projects recently launched by the extranet team. The firm is currently marketing two extranet products aimed at the investment banking sector – a framework to help banks structure IPO transactions and an online interactive e-commerce expert system which has great potential as a bolt-on extra for the virtual dealroom. This product enables in-house lawyers working for investment banks and financial institutions to enter data relating to a deal and automatically generate the e-commerce regulatory position in 15 jurisdictions.The firm is also using extranets to communicate with its trainees while they complete their law school studies. The trainees, each of whom is issued with a laptop computer by the firm, access a dedicated extranet site to keep the firm up to date with their progress and to maintain close contact with the departments in which they will be working. It provides news about firm developments, links to sites for legal research, IT information and support and contact details of other trainees, to allow them to network with each other. It allows trainees to keep in contact with each other and the firm, while they attend law school.The simplified, no-nonsense approach to extranet service provision is also a keystone of rival firm A&O’s development philosophy. However, A&O has opted for strong branding and marketing initiatives and its Newchange suite of web-based services have become a household name in the legal sector and a benchmark for other online products.A&O’s approach has been to launch a series of modules, expanding the core virtual dealroom service incrementally. Newchange now comprises three modules – Dealroom, Documents and Caseroom, which was launched on 18 September. A fourth module, dubbed ‘Clientroom’, is expected to launch before the end of the year.Newchange was conceived towards the end of 1999 to replace the firm’s ‘client postbox’ e-mail-based deal information system. The first two modules were written by in-house technical guru Marcus Lambert, who continues to lead the firm’s software development team. “The idea was to cut through the mystique associated with legal transactions,” says Lambert. “I set about designing tools to eliminate the inefficiencies in the processes, with a view to creating a system to run alongside the firm’s traditional processes so that the two could complement each other.”Two of the main internal drivers for the project, he says, were pressure from fee earners, who were frustrated with the amount of mundane, non-billable work they had to do, and the partnership’s desire to develop a document-delivery system more secure than traditional despatch methods. To transmit sensitive documents by fax, it was necessary to contact the addressee’s secretary, who would then have to stand by the fax machine and call the fee earner back to confirm that the information had arrived. The firm was also concerned about the human factor introduced into the delivery system when couriers were used.“Some deals involve up to 600 parties,” says Lambert. “Our lawyers can now generate documents on their desktop using the document-management system, post it to the dealroom instead of having to send them to all the relevant parties and they know when each person reads the document.” The system can be set to automatically notify deal participants by e-mail when new or amended documents are posted. Freshfields also piloted an e-mail notification system, but with different results. Clients ended up swamped with hundreds of e-mail messages. The result was “irritating”, according to Thomas. But A&O claims that the system rarely generates more than a handful of notifications per day, which is well within manageable limits. The two different responses may be a result of the different nature of the deals facilitated by the two firms. It may also be that A&O included the option for users to switch the notification system off.Most large firms are upgrading their security systems to use 128-bit key encryption, which until this year was only available to financial institutions under UK law. But most firms waited at least six months before upping the level of encryption. “The problem is that some people’s browsers could not cope with such a high level of encryption,” explains Darren Martin, a business analyst in A&O’s IT department. Lambert confirms that A&O is also evaluating a new anti-hacking system for virtual dealrooms from leading security provider PKI. But he does not see any merit in combining password-based protection with physical encryption keys such as the flashy Java rings shown off at this summer’s American Bar Association conference. Clearly, there are limits to the security of any electronic system. “When secrecy is paramount we do not use the dealroom,” he says. “The documents are delivered directly into the client’s hands by a junior fee earner and a one-line confirmation that the documents have been received may be posted to the dealroom.”The A&O dealroom features links to detailed deal-relevant information, from key contacts to street maps of all the sites and offices involved in the deal. Both Freshfields and A&O testify that one of the most popular dealroom features is a comprehensive file of contact and background information specific to a deal, which also informs users of the precise role played by each participant.There is no doubt that running client-specific extranets increases the workload of a firm’s support staff. A&O currently assigns two administrators to each client site. But the workload is set to reduce: A&O is progressively automating its procedures and has produced a user-friendly interface so that the lawyers can assign access privileges themselves, without the assistance of IT technicians. This approach is, however, currently backed up by a 24-hour helpdesk. Meanwhile, Freshfields reports that the time it takes to set up a client extranet has fallen from “hours to minutes”.Impressive as these developments may be, for sheer innovation nothing in the legal sector can currently rival the brand-new, second-generation extranet from Linklaters. Currently being piloted by a handful of clients including Barclays Capital and Nike affiliate Spiz.com, Clients@linklaters boasts a degree of sophistication as yet unmatched by its rivals.The firm’s managing partner, Tony Angel, describes it as “the most advanced extranet service yet offered to clients in the legal world”. Paul Greenwood, director of knowledge and information at Clifford Chance, describes the site as “very impressive”.Clients@linklaters is the first extranet to allow clients direct access to original documents stored on the firm’s document-management system. Conventional wisdom dictates it is much easier for a firm to maintain a high level of security if the system delivers copies of the originals to clients over the extranet. This procedure is the keystone of most extranet systems, which base the architecture of their systems on a three-tier model. Most notably used by the iManage content management system, the three-tier model separates the firm’s databases and other knowledge repositories from the servers with an intermediary layer. The intermediary responds to requests from external users by copying the original document and sending the copy to a web server, which in turn posts the copy to the client extranet. This ensures that even if someone manages to hack into the extranet system and read the information posted to authorised users, they will not be able to alter the documents at source.The problem with distributing copies of documents is that it can become more difficult to ensure that all users are working on the most up-to-date version of a document. The Linklaters system enables clients to bypass the intermediary failsafe mechanism – a bold step that has provoked a mixture of admiration and puzzlement across the legal IT profession. Clients and other authorised external users can view the original documents in read-only format and monitor them for changes in real time. They may also be given the facility to annotate the documents, but will not be permitted to manipulate or edit them in any other way.The Linklaters site is also the first to provide an integrated front end for clients whom the firm is advising on more than one matter. It makes it easier for users to cross-reference documents and data relating to different deals or cases. Freshfields claims it has the technology in place to offer this as a bolt-on extra to its largest clients, but says that so far there is no interest in the offer.Another of the site’s innovative add-ons is the provision of real-time online billing. In a bid to increase transparency in its dealings with clients, the firm allows users direct access to the firm’s billing system, where they can monitor bills and recorded hours as they are entered on the system. This represents a significant technical innovation over competitors’ extranets, where billing information is posted to the site automatically on a regular basis. However, it remains to be seen how much clients will use the service. The extranet also enables clients to print copies of bills certified by Linklaters, once the original hard copy has been despatched.Linklaters plans to use its new extranet to market its subscription-based legal information service, Blue Flag, to its clients. The firm plans to use the extranet as a front end through which clients can view Blue Flag modules that may be relevant to the deal. Opinion in the industry is divided – this is either a vital link between two key components of a comprehensive online legal service or an attempt to justify a strategic u-turn by a firm whose focus has shifted from selling web-based legal information to providing free client relationship management facilities online.This flurry of development coincides with a survey of law firms’ investment in IT by global accountancy giant PricewaterhouseCoopers (PwC). The survey alleges that firms are generally spending money blindly on IT, without any consistency or sense of purpose. Firms have reacted angrily to the accusations, accusing PwC of misunderstanding the legal sector’s approach to technology. But more importantly, many major players, such as A&O and Freshfields, which previously admitted to relying on informal client feedback to measure the success of their online services, have announced return-on-investment (ROI) studies to monitor extranet development. No firm has yet made public the figures for ROI, but then no firm has yet been running extranets for long enough, or in sufficient volume, to reach an accurate forecast.Many of the UK’s medium-sized firms may have yet to grasp the utility of extranets, but the technology is being used to good effect by some significantly smaller players than the magic circle giants. Some firms are adapting the corporate dealroom concept to their own needs. For example, Rowe & Maw recently launched the first dedicated virtual dealroom for property transactions.But for the majority of firms, running extranets may only make economic sense with the introduction of more reasonably priced software packages or ASP delivery.A&O’s IT guru, Marcus Lambert, offers the following advice to others working to develop client extranet systems: “When designing a web-based user interface, keep it simple. Interfaces should be based around a document, not a website and processing power is not as important as storage space.”

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