Diversity and LegalTech: how are the two linked?

There is no shortage of empirical evidence highlighting how a diverse workforce has an outsized, positive impact on a team, company and/or industry. There is likewise a similar body of research drawing a causal nexus between successful technology adoption and a company or industry’s performance. We set out to see if there was a positive feedback loop between both diversity and technology adoption in the legal industry and whether it could drive a 'sum is greater than its parts' impact for law firms.

An increasing number of firms are implementing legal tech and diversity is slowly improving across the profession. But, it is up to the lawyers working within law firms to understand if and how they are linked and why these are both important factors for the future success of the industry.

The crux of the matter is that the creation of a stronger law firm relies, partly, on the hiring of a diverse workforce. It just so happens that one of the easiest ways to enable this is through the use of legal tech. 

The adoption rate of LegalTech is growing

The rise of legal tech has been frequently and clearly documented over the past few years. Since the height of the pandemic, it has greatly increased the number of ways a client can access a law firm. Not only do we see the adoption of legal tech growing, but the budgets available for those already implementing it have too.

For example, Gartner predicted that by 2025, legal tech spending will have increased to around 12% of in-house budgets, based on the increase from 2.6% in 2017 to 3.9% in 2020. Data from Statista also shows that the worldwide legal tech market is set to generate $35.6 billion in revenue in 2027, up from $27.6 billion in 2021.

Diverse teams are needed for future success

Diversity in law has seen slow improvements over the past few years. They are there, but they aren’t happening at a rate comparable to the wider workforce. This obviously needs to change, not only because law should be representative of the communities and environment in which they operate but also because studies have shown how a diverse team tends to make better decisions, but also because some clients are now choosing law firms based on how diverse they are. 

The evidence is irrefutable - businesses perform better with a more diverse workforce. Pre-pandemic, Mckinsey reported that companies in the top quartile of their ranking for successful gender diversity within their executive teams had a 21% likelihood of outperforming those in the fourth quartile. 

“Gender diversity is correlated with both profitability and value creation,” stated McKinsey. It is seen again in relation to ethnic and cultural diversity, with teams that hire more culturally and ethnically diverse candidates showing a 33% likelihood of outperforming their peers.  

This results from diverse teams being better able to challenge the status quo and in doing so question traditional ideas. A report for Scientific America by Katherine W. Phillips argued that “diversity can improve the bottom line of companies and lead to unfettered discoveries and breakthrough innovations.” This is because “people who are different from one another in race, gender and other dimensions bring unique information and experiences to bear on the task at hand.”

Phillips pointed to a study by business professors Cristian Dezsö of the University of Maryland and David Gaddis Ross of the University of Florida. Using data compiled from the top firms in Standard & Poor’s Composite 1500 list, they found that “female representation in top management leads to an increase of $42 million in firm value.”

The implementation of legal tech and a push for a diverse workforce can help law firms gain clients and make better decisions, thereby increasing their revenue. 

LegalTech can unlock the data that drives diversity 

Diversity data refers to information on an individual’s ethnicity, gender, age, sexuality, disability, education, and other related dimensions. This data can be unearthed with legal tech and then used to help law firms understand the best ways to implement a diversity strategy. This means diversity audits can be done in-house - there is no need for outside counsel to look into your firm when the tech can provide this data itself. 

That data has always been there. It was simply hidden behind countless unrelated diversity audits, requested by clients. These audits created multitudes of excel spreadsheets and paper copies spread across multiple departments, which rarely communicated, making these findings difficult to understand and implement. 

Legal tech, such as machine learning and ​​predictive analysis tools, can help bring a firm’s diversity data together and allow for better data management and process automation.

These technologies are already being used in a similar way by the financial side of law firms. The Financial Reporting Council found that legal tech, like advanced AI, could “enhance the quality” and “reduce the detection risk” of audits in several ways, including where “automated tools and techniques are used to sample populations in a more representative way”. 

Once a law firm has compiled all its diversity data using AI technology, it’ll know exactly where its diversity strategy is coming up short. 

There is an important incentive to master this technology as legal tech can also be used by companies that do not traditionally offer legal services. We see this with the rise of alternative legal service providers (ALSPs), which can operate at lower costs than traditional law firms and have placed a greater emphasis on providing digital solutions. These providers can use technology to provide document reviews, legal research, contract management, and more. 

For example, as reported in Lawyer Monthly, Ernst & Young, one of the Big Four accounting firms, was able to complete a “due diligence review of over 6,000 documents 50 times faster” owing to the use of AI technology. 

Using remote working technology to improve diversity in legal teams

One good thing about the pandemic is that it created a massive drive in the adoption of technologies required for remote working. With that need came an increased budget. 

The ability to work remotely provided another avenue into law for candidates from diverse backgrounds and opened up the hiring pool significantly. 

No longer are law firms restricted to hiring people from the same city (or even the same country) they operate in. With the cost of living on the rise and city living quickly becoming unaffordable or unattractive for many, those who previously, due to circumstances out of their control, would have been precluded or dissuaded from applying to such firms are now in a better position to do so.

For our customers, Definely has been a cornerstone technology driving their hybrid and remote working agenda. Historically, reviewing, drafting and editing legal documents necessitated access to a printer or second monitor. Now, lawyers can use this software to draft and review their documents anywhere, unrestricted by the facilities their office can provide. More importantly, it only requires one screen, which means complex drafting and editing can be done on a laptop, at any time. 

With the adoption of remote working technologies, firms can also consider more candidates with primary family care responsibilities. Remote working makes it easier to balance career and family responsibilities. 

Understanding how your firm may be behind the curve with its diversity strategy is one thing. Implementing change is another. However, there are plenty of good reasons to do it. 

Clients welcome diversity and inclusion, law firms should too

Changing the entire culture of a firm is an arduous process. But, firms that do not understand the importance of diversity - and, by extension, the technologies that can help them achieve it - will find themselves left behind. 

Simply hiring from a more diverse pool is not enough. Firms must identify how they can create an environment of equal opportunity. Legal tech can help identify where the gaps exist and assist with the implementation of a diversity agenda but, ultimately, lawyers need to be the bastions of that culture.

It is especially important because people want to see that they are represented by those who represent them. And, clients want their inclusive values to align with the law firms they retain. It is not only the right thing to do, it is also pragmatic. Clients will choose firms that align with their ideals and leave behind the ones that do not. 

Allen & Overy have been vocal about how their clients have not only started asking about their diversity and inclusion strategies but have also begun to set targets for them to meet. They have invested in research to discover how their culture has used gendered language and introduced regular roundtable discussions to ensure diversity strategies are being implemented successfully.

Any firm taking these steps will find that they are more appealing to clients. Of course, there is a long way to go, and legal tech, we believe, is only a part of the solution, but it can assist in ensuring we continue to move in the right direction. 

Achieve success by intertwining diversity and LegalTech 

There must be a drive to improve the adoption rate of legal tech in traditional law firms. This will greatly improve their ability to implement diversity and inclusion strategies, and in doing so, help these firms retain and find new clients. Diversity and legal tech are intrinsically linked and vital for success.

However, there is a long way to go in creating a diverse legal landscape. Legal tech can be used to identify where law firms are lacking and improve the diversity of the hiring pool they have available. The pressure is on for firms to make this change because clients will be watching, and taking their business to those that do. 

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