The global COVID-19 pandemic, conflict in the Ukraine, rising inflation and interest rates, debt levels, and volatile food and fuel prices, among other things, are creating acute macroeconomic headwinds.
So it’s perhaps no surprise that corporate desire for greater agility and flexibility in response to geopolitical instability is the No. 1 factor considered to have the greatest potential impact on investment and adoption of legal tech solutions today.
This is according to proprietary research we at Hence Technologies, in collaboration with research agency Coleman Parkes, conducted this year with more than 150 general counsel, chief legal officers, and heads of legal operations.
Notably, in this study, almost two-thirds of respondents (64%) identified their company’s need to more easily adapt and respond to today’s volatile and uncertain economic and political environment as one of the top five drivers for procuring legal tech solutions. That this factor ranked the highest overall — above using data for decision-making (57%) and cost savings (55%) — is particularly interesting. Since this study was conducted earlier this year, the world has arguably become more uncertain, and the need for agility has become even more acute.
Geopolitical Challenges Set To Endure
Corporates, governments, and other institutions struggling to respond to today’s persistent headwinds should get used to these conditions. While it may seem like the acute factors — for instance, Russia/Ukraine — could abate, in fact the tensions causing such disputes are structural.
In a recent report titled “How Global Companies Can Manage Geopolitical Risk,” McKinsey forecast that these challenges “will get worse” and that “in the next two decades, competition for global influence is likely to reach its highest level since the Cold War,” citing the U.S. National Intelligence Council’s report “Global Trends 2040: A More Contested World.”
As the U.S. has retreated from the global leadership role it held since the end of World War II, other countries are filling in the gap. The rise of China creates fault lines across geographies and issues that companies once viewed as settled for the time being — for instance, the status of Hong Kong and Taiwan. In January 2022, the Financial Times observed that “China’s rise to superpower status” was intensifying “the urge in Washington to decouple from its ‘strategic competitor’” and that “in 2022, the increasingly bipolar world that results from this basic dynamic is set to cause a host of geopolitical headaches for smaller powers and multinational corporations.” While there appears to have been a shift toward rhetoric of coexistence and compromise when China’s leader Xi Jinping and President Joe Biden met on the sidelines of the Group of 20 summit in Bali, Indonesia, the structural factors remain unchanged.
It is against this backdrop that spoilers like Russia attempt to make themselves relevant by striking out and forcing their agenda to the top of the news pages, not that dissimilar from North Korea testing nuclear weapons within 90 days of every U.S. election. These headaches, which knock on to supply chain issues and sanctions, are exactly the type of shocks to corporate five-year plans that companies must navigate and ultimately avoid.
Nurturing Greater Supply Chain Resilience — An Imperative For Corporates Today
A key part of the corporate effort to withstand today’s constantly changing political contours is investing in nurturing greater supply chain resilience. The logistics “bullwhip effect,” which distorts upstream supply chain planning due to shifts in demand, was starkly evident during the global COVID-19 pandemic. Now corporations across many, if not all, industries have faced similar supply chain challenges in the longer-term wake of Brexit, protectionist policy-making, sustained saber-rattling between the U.S. and China on trade, and turbulence from the Russia-Ukraine war.
Resilience Of Enterprises’ Legal Services Supply Chains Mission Critical Today
Key to embedding such supply chain resilience is how a corporation harnesses inputs from knowledge providers such as accountants, public relations companies, recruiters, and, perhaps especially, lawyers. The large global law firms in particular play a pivotal role given they also advise governments and regulators worldwide on topics like the global pandemic, financial crises, state-level sanctions such as those imposed against Russia and corporate reorganizations that follow conflict escalation as seen in Ukraine, energy market reforms, and how corporations navigate the challenges, or grasp opportunities arising from, tax changes due to substantial fiscal gaps.
Technology Enhancing How Corporates Leverage External Knowledge Services
In today’s more digitally connected world, large enterprises are deploying advanced technologies to more efficiently and effectively manage their supply chains. Buyer/supplier relationships with knowledge providers, almost by definition, spawn high volumes of data and information. This, in turn, is intensifying demand within corporates for improvement in any decision-making that arises from the services being procured from law firms and, indeed, through the advisory services offered by accountancy firms, management consultancies, recruitment agencies, advertising holding companies and the like.
Yet Technology Is Also Presenting Competitive And Cyber Threats
Of course, the strategic role law firms play also make them an attractive target. We at Hence Technologies authored an article in this publication in August 2022 highlighting how “law firms are finding themselves as unique nodes under attack in a geopolitical environment with cross-cutting adversarial intentions,” further illustrating how fragile the legal services supply chain has become in an increasingly adversarial geopolitical context as well as how important it is that corporates ensure their relationships are as robust as possible.
When Buying Services From Law Firms, Knowledge Of Geographical Markets Key
Interestingly, from the study we conducted with the senior-most legal representatives of global enterprise, the top-rated option when respondents were asked to choose the “key areas of knowledge and understanding sought from external lawyers,” 89% rated “knowledge of the geographical markets their company (i.e. the corporate) serves” as “very/quite important.” When read casually, it might imply that in-house teams want to work with lawyers who know their geographies — this seems pretty basic and indeed might reduce itself to a desire for attorneys with the right country level credentials.
In fact, the point is deeper, which is that companies are looking for strategic legal partners who can advise them on the broader cross-currents affecting their business context. It’s no surprise, then, that major law firms like Dentons have invested heavily in building up geopolitical offers to help their customers see and navigate the full picture, as we wrote about previously. This is particularly true as the geopolitical risks firms are facing are increasingly localized and in far-flung geographies.
Thus, it’s critical to be able to map the full footprint of an enterprise’s legal providers in order to understand if they actually have these capabilities. It would be time-consuming and futile to search one by one through all publicly available data to do so, and simply asking for references isn’t good enough when the risks one is facing are so micro that others may not have had that experience. That’s where legal tech software can come in, cataloging everything that’s knowable about law firms and surfacing it in real-time for decision-making.
Importance Of Transforming How In-House Legal Teams Buy From Law Firms
So while corporate investment and adoption of legal tech solutions forms just part of a corporation’s implementation of wider digital transformation strategies, legal tech solutions specifically are fundamental to global enterprise embedding greater agility, flexibility, and resiliency into their worldwide operations as they seek to better respond to geopolitical instability.
The challenges stemming from today’s flux in the global political environment are far from over and, if this is so, then now is the time for corporate leaders to drive transformation in the procurement of services from knowledge providers and, perhaps especially, bolstering how in-house legal departments buy-in support from external law firms and lawyers.
Sean West is Co-Founder of Hence Technologies, a software company that transforms how enterprises work with external counsel. He was previously Global Deputy CEO of Eurasia Group, the geopolitical advisory firm. He writes a biweekly column in Above the Law on geopolitics and the practice of law.
Boko Inyundo is Director, Strategic Relations at Hence Technologies, a role he took after 15 years at DLA Piper, Linklaters and Lewis Silkin.