As I wrote in one of the previous posts ‘Clients don’t have legal issues, they have a business to run’. Ideally a company would like to avoid legal issues altogether. That is why most SMEs try to avoid disputes involving lawyers at all cost. Actually, this is not unlike medical issues. No-one wants to be ill, people in general will want to avoid doctors and hospitals. The difference is that the medical profession has recognized this decades ago and started to focus on prevention and prediction.
It would be very unsatisfying if doctors would only cure people who are already ill. That is why there has been a lot of public and private research trying to figure out why people get sick and what can be done to prevent this from happening. By now we all know that smoking might cause tumors and that lead pipes plumbing for tap water could seriously affect the development of the brain and nervous system off children. Discovering AIDS in 1981, the first priority became prevention as there was no adequate cure at the time.
More recently the medical profession has also focused on prediction. What you can predict, you can perhaps prevent. Predicting an outbreak of flue, will open the opportunity to vaccinate more individuals and thus limiting the number of sick people and even the number of deaths due to complications. By now we know that certain genetic patterns have a higher risk of developing certain medical conditions. More frequent periodic screening might lead to discovery in an early stage, increasing the possibility of a successful cure.
Why is this relevant for the legal industry? The surprising thing is that from an academic point of view lawyers have never focused on prevention and prediction. When I went to law school, like all of you, I had to study lots of case law. As a consequence, lawyers are focused on the outcome of a dispute and not on why disputes arise in the first place. I am frequently in touch with law schools and law faculty all over the world. I am not aware of one that does systematic research on how and why disputes originate in the first place. From an academic point of view this seems like an omission.
Prevention: creating a litigation feedback loop
Universities, I suggest, should start systematically paying attention to the origins of disputes that end up in court. By doing the analysis, I am convinced certain patterns will arise. Probably the result will be that many disputes could have been avoided if for example less ambiguous contract clauses would have been used. There needs to be a feedback loop of which systematic analysis of the root of the dispute is an integral part. It is important that this becomes an integral part of legal education and an area of research in its own right.
These kinds of feedback loops should also be used by law firms and corporate legal departments. The majority of law firms and the majority of legal departments work is silos and have no formalized process to analyze what is causing litigation and using this information to make changes in other parts of the organization. Systematic analysis and systematic exchange of information will substantially help prevent future litigation. This will help lower the cost and the pressure on resources. Analyze – Communicate – Optimize, that should be the drill.
Law firms might fear that such practice will cannibalize their dispute resolution department. Any litigation prevented could be seen as a potential loss of income. This however is old school thinking, based on the current time-based billing system. From the value-based perspective it is easy to see that there is monetary value to help clients prevent litigation. Law firms could easily ‘sell’ their feedback loop and price it in their transaction and advisory services. It can even be priced in the litigation services as this will hold the ‘promise’ that potentially the client only needs to litigate once. How value pricing works is explained in my book Data & Dialogue, a relationship redefined.
Prediction: anticipate what might happen a couple of years down the road
Back in September 2017 I was invited to deliver a keynote at the 22nd annual conference of the IAP (International Association of Prosecutors) This was a great event, bringing together best practices from prosecutors all over the world. One of the things I learned is that several police forces are already experimenting with Artificial Intelligence based tools that help predict were crimes might happen. This will help the police department to adequate locate resources and might even help prevent crimes from happening. Given the early stages, none of this is perfect, but the first results look promising.
If data-analytics can help prevent a highly individual thing as crime, it certainly must have the potential to help prevent commercial disputes. Academic studies show that there are certain underlying patterns that can help predict what will happen next. For society it often starts with discussions on social media, followed by discussions on major news platforms. This in turn leads to discussions in politics, leading to legislation. Legislation, after a while will lead to enforcement. By studying and analyzing what is trending on social media today, companies could anticipate tomorrow’s legislation and enforcement.
These cycles typically take between five and ten years. By recognizing these patterns and by using artificial intelligence to filter out what is relevant and not, it will become possible to predict what might become a legal issue in ten years' time. Knowing this we can include this in our contracts today to prevent future issues.
Let me give two examples where this can be applied. The first is the rapidly changing sentiment in societies across Europe towards exuberant remuneration of bankers and executives. Despite the fact that it was perfectly legal at the time the contract was signed, it had become unattainable once the contracts had to be executed. Simply monitoring the sentiments could have prevented this. The second example is the acquisition of Yahoo by Verizon. The problem here was that close to completion it became apparent that Yahoo had been subject to a major data breach which it had failed to report. Again, by monitoring technical developments and media reports on other data breaches, it could have become apparent that cyber security should have been part of scrutinous due diligence. This obviously could not have prevented the breach, but might well have led to a provision.
For law firms prevention and prediction will be a new service line that will require a new and more holistic and proactive approach. Once in place it will inevitably lead to stronger ties with clients because it will be more tied in with the client's business goals.