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Changing the Conversation: Cost Recovery as Risk Mitigation

Daniel Pelc

When someone comes to your door selling home security systems, what is their pitch? If you decide to hear them out, what are you focused on? Odds are, securing your place of residence, detecting threats, fast response times, and ease of use come to mind quickly.

Now imagine you have a home security sales person at the door who answers every question with “it will cost you less.” They provide no details on threat prevention, reporting times, or effective coverage. You think to yourself: “That’s great—but will cost savings get me what I really care about? I care about keeping the threat outside and neutralized.”

Mindful risk mitigation may not be the cheapest option, but will often be the best option.

After talking to several law firm CIOs and CISOs over the recent past, one message has become abundantly clear: Law firms are in business to represent their clients’ interests. There is no appetite amongst law firms to become world-class data centers. The technology and supporting departments are there to uphold the law firm’s purpose: effective client representation.

Another message that has become clear is that we need to reframe the discussion on cost recovery to focus on what it really is: risk mitigation for the law firm and for the client. In several recent blog posts, we have examined how cost recovery works for law firms and reasons why cost recovery plans fail.

Now, let’s talk in greater detail about the why behind cost recovery—because it isn’t just about the cash flow. Instead, it’s designed to mitigate risk.

Delivering on Client Needs

In speaking with corporate counsel as to what they’re looking for in law firms, three messages rise to the top across industries subject to frequent litigation.

First, in order to be considered as a viable partner, corporations expect that their law firms are using technology to increase accuracy as well as efficiency, and enable their teams to pivot quickly in response to their clients’ needs.

Second, corporations expect that their law firms are effectively innovating, specifically as it relates to innovation designed to reduce costs and risk to the end client.

Third, law firms must provide a secure data environment in every aspect. A recent CNA report states that 80 percent of the largest 100 law firms have already experienced a major security breach.  As a result of the known risk, 30.7 percent of all law firms and 62.8 percent of law firms with more than 500 attorneys report undergoing security examinations as requested by their clients. During the RFP process, firms are being asked to prove that their environments are secure enough to safeguard some of the client’s most critical documents.

Without each one of these factors in place, the long-term relationship between firm and client is at risk.

Risk Mitigation in Security

That’s easier said than done. For one thing, the threat landscape changes daily. There are several high-profile examples of law firms that have been hacked for the purposes of ransom or insider trading. One such breach uncovered the so-called Panama Papers, causing the resignation of the Prime Minister of Iceland.

These headlines have raised the level of consciousness around law firm cyber security. Anecdotal reports from our customers are detailing the extensive requirements that corporations are placing on law firms regarding their security protocols. The cost of data security measures is an investment in retaining clients and keeping the firm’s name out of the headlines.

It’s worth noting that the threat to law firms has prompted the FBI to issue a law firm specific warning. Although that warning is three years old, there is no reason to believe that the threat has diminished.  Knowing the value of the information retained by law firms on behalf of their clients, threat actors will continue to target firms. The security involved in protecting these assets require constant vigilance and investment to keep threat actors out.

Competitive Obsolescence

Meanwhile, today’s legal departments also understand that, as technology evolves, accuracy and efficiency improve—often exponentially. Corporate law departments have become early adopters of new technologies due to the promise of time and cost savings and expect that their firms are doing the same.

Based on my conversations with corporations, these clients are continuing to narrow down the number of firms representing them to focus only on firms that are delivering the most value through innovation, accuracy, and proactive representation. This reduction can cause up to 90 percent of the firms representing a corporate client to find revenue elsewhere.

The pace of change in technology, especially as it relates to e-discovery technology, has grown significantly as the technology has moved into the cloud. Free from on-premises upgrade complexity, cloud-based e-discovery software is continuously upgraded and improved. Landmark new features are added regularly, and many are designed to provide considerable efficiencies and improved accuracy to attorneys and case teams. With corporations using innovation and technical adoption as meter sticks to measure a firm’s accretive value, the features and innovation provided by cloud adoption will be a bellwether of a law firm’s successful representation. The costs involved in maintaining the cloud presence will be returned through successful results.

Peaks and Valleys

“The more times that data changes hands, the higher the likelihood of errors.”

This common saying among e-discovery practitioners covers both technical errors as well as the old-fashioned game of “telephone,” in which instructions are relayed repeatedly and, as a result, become misconstrued. In order to prevent errors and risk, many firms have sought to plan for the 500-year flood instead of creating a virtualized environment designed to ebb and flow, based on the peaks and valleys of litigation.

Other firms have filled the gap by outsourcing work outside the firm. The more often a matter diverges from the original plan due to resource constraints, the higher the likelihood of errors, and potentially a negative result on behalf of a corporate client.

Are You Prepared to Face New Risks?

The litigation technology landscape is changing constantly, whether due to the threat landscape, rapidly upgrading feature sets, or the prevention of errors. Adapting to it requires developing new expertise, taking on new costs, and pushing hard to be more forward-thinking than the firm next door—but positive results abound in more effective, more lasting, and more fruitful relationships with clients.

As today’s firm embarks on this transformation, moving to the cloud and considering a cost recovery approach help mitigate the risks and prevent overburdening your team while providing a return your investment with greater security and optimized results.

Returning to the home security example, it takes investment and vigilance to keep your home and family safe. It is no less true for your clients’ data.

Turning a Profile for Your Law Firm's e-Discovery Practice

Daniel Pelc was a senior manager of industry marketing at Relativity. He is now director of client solutions and integration at NightOwl.