Sustainability (ESG) as a driver for new ecosystems in the legal market?

Actually, sustainability – and as a result ESG (environment, social, governance) – is nothing new. The only surprise is the speed and vehemence with which the issue has taken root in the economy thanks to the “Friday for Future” movement, the corona pandemic and the climate debate. How are legal service providers dealing with this?

For law firms and legal departments, these developments are first resulting in an increased demand for legal advice. But which of them will want to serve their customers with more than “mere” legal advice and be able to position themselves successfully among competitors in the long term? One thing seems clear: it will not be sufficient to simply add the ESG tag to one’s legal specialisation (for instance, competition law and ESG). Nor will it be sufficient to reduce one’s CO₂ emissions. This is hardly likely to go through as Green Legal.

In order to ensure that their legal services have more than a merely legal benefit for their customers, it will not be enough for legal service providers to understand the difference between a sustainability strategy and a sustainable business strategy. In particular, they should know their customers better, and thus also be more familiar with their products, framework conditions, value creation chains, customers and suppliers. Today, this will become even more important since ESG has to be understood as a cross-sectional issue which cannot simply be confined to a single department. Without the corresponding sensitization of lawyers to this issue, their legal advice will continue to be correct but – from a customer’s point of view – not always also have a beneficial and useful effect. Thus the question arises: how do you as a lawyer become a good, legally trained sparring partner?

Finally, it must be added that a single legal department or law firm is unlikely to be able to cover the issue of sustainability comprehensively on its own. It is imperative that further experts will have to be integrated. But who is to offer the whole package to customers? Here, a look at the concept of ecosystems might prove useful.

Ecosystems improve results

The idea of corporate ecosystems consists in various companies working together in order to jointly provide a product, a service or a whole package of products and/or services, to improve the overall outcome. A single company would be unable to do this or do it with the same quality. Sabine Keller-Busse, President of UBS Switzerland, said about this recently that her bank does not think that it could do everything best on its own and that it works with partners where it spots a higher degree of competence elsewhere. She added that increased cooperation within the framework of innovative ecosystems enables them to create economies of scale and network effects which ultimately also result in added value for its customers – this is what matters, regardless of the industry (cf. NZZ of 28 May 2022, p. 17 of the supplement). And when it comes to the provision of in-house services and procurement, why not transpose these reflections to the legal industry?

If we look at the legal market in starkly simplified terms, we can discern three groups of legal service providers: (1) legal departments, which should know the company and the industry and thus their customers best, (2) law firms, which are primarily distinguished by their specialised legal expertise, and – in comparison with the two before-mentioned traditional service providers – (3) “alternative” legal service providers, which, in particular, are characterised by pronounced process orientation and better digitalisation competencies (cf. Bruno Mascello, “Wie Kanzleien und Rechtsabteilungen die nächste Welle überleben könnten”, 6 March 2018, with reference to Bruno Mascello, “Strategische Positionierung der Kanzlei in Zeiten von Legaltech und Digitalisierung”, in: Anwaltsrevue, 1/2018, p. 18-24). Each of these three providers has its very own strong points, but if they pooled resources, they would provide their customers with even greater benefit. Thus whoever occupies the so-called “sweet spot”, i.e. where all three providers meet and therefore combines the advantages of all the providers, will be able to provide customers with a much more valuable service.

Sustainability as a trigger for more cooperation

Companies, and even governments, have to come up in no time with an answer to the question as to whether, to what extent they already are or by what time they will be sustainable. This also concerns legal departments as parts of companies, and law firms as companies in their own right. The sheer magnitude of this challenge alone calls for the various competencies to be pooled. If we also take into consideration the speed required for the presentation of solutions, an individual legal service provider will be unable to cover all this alone. Customers would welcome it if the three above-mentioned groups of legal service providers were able to pull together and offer legal services from one single source. This would prevent customers from experiencing unnecessary interfaces, duplications, contractions and loss of time. The issue of sustainability (or ESG) would thus be predestined for trying out a new form of value creation that would benefit everyone.

Possible options for cooperation

Currently, I see the following forms of cooperation in this respect:

• Concerted procurement of legal advice: Today, lawyers working in legal departments are already organised in professional associations and are engaged in a lively dialogue about operative issues and the procurement of legal services (cf. for instance Association of Corporate Counsel (ACC), Corporate Legal Operations Consortium (CLOC), Vereinigung Schweizer Unternehmensjuristen (VSUJ)). Many smaller companies lack the necessary purchasing and negotiation power when it comes to brokering better conditions from law firms. If you take the whole thing a bit further, a joint purchase of legal services could compensate for this disadvantage and carry even more weight in the cooperation ventures of big corporations concerned. Initial activities along these lines can already be observed. It goes without saying, of course, that such cooperation will have to be vetted in terms of competition law and that legal relations will have to remain isolated in the confidential treatment of cases.
• Involvement of third parties ordered by customers: Law firms, in particular, regularly succumb to the temptation of wanting to do everything themselves. But why? After all, they work in the outsourcing industry: basically, they only exist because their customers outsource work to them. If we think in terms of ecosystems, a customer would be perfectly entitled to ask one of his suppliers to cooperate with other suppliers in order to generate advantageous effects in this way. From a customer’s point of view (for example a company’s CFO), the legal department, the external law firm and further legal service providers (for instance, the Big 4, Legal Tech, etc.) would constitute a joint ecosystem.
• Voluntary extension of the sphere of influence and control by new providers: Law firms and other legal service providers could also understand the ecosystem idea as a new business model. This means that a service provider does not only offer all the areas of legal expertise from one single source (the classic full service provider) but, above and beyond this, also offers services related to them as an extended one-stop shop. Thus the focus shifts from the traditional perspective of areas of legal expertise (cue: specialisation and inside-out perspective) to a view driven by a customer’s compressive needs (outside-in). In this way, the excellent specialist expertise is extended to further areas that have to be covered in the customer’s interest.

Defining one’s own market position

In the service provision sector, in particular, companies today are prepared, or may be forced by changes in general conditions, to cooperate more with others in certain areas. The fact that in the legal industry, too, further increases in efficiency are possible, is unlikely to be seriously disputed by anyone. Why, then, not begin to think in terms of ecosystems here as well and gradually test the idea against the topical issue of sustainability? This could result in a win-win situation in many respects: better results, lower costs, more satisfied customers, less waste of resources, more permeability in employment, integration of the so-called alternative legal service providers and – at least for the law firms retained – more customer retention and thus more turnover. In addition, such a positioning would be bound to lead to increased attraction in the recruitment market.

For strategy- and business-oriented legal service providers with a focus on customers and their needs, this would thus be a perfect opportunity to position themselves in good time and make themselves indispensable. The market will continue to remain exciting.