While litigation funding can be essential to unlocking good claims, obtaining funding for this option presents a multitude of challenges. Indeed, the process of securing funding is complex and too often inefficient and riddled with avoidable pitfalls. These difficulties arise because of several factors, including the complexities of litigation funding itself, the opacity of the market, and the unfamiliarity that both lawyers and clients often have in dealing with the process.

Despite this, demand for litigation finance continues to grow with a significant increase in utilization by Am Law 200 firms. Indeed, $2.7 billion was committed to 353 deals in 2023, which were financed through 39 active funders that represented a total of $15.2 billion in assets under management, according to the 鈥淲estfleet Insider: 2023 Litigation Finance Market Report鈥�. Large law firms represented 35% of the new deals, representing $960 million in new commitments, the report showed.

Going forward, we expect an increase in litigation cases this year, and litigation financing will continue to grow along with it.

Navigating the market

Clients often may engage their trial counsel to pursue litigation funding for their case. However, for counsel, this typically is new territory that is not only transactional in nature but also transpires in a niche, unfamiliar market. Even for trial counsel experienced with litigation funding, their knowledge of the market is usually limited and often out of date.

Of the 39 active litigation funders in the US, there are generally three types: dedicated funders that specialize in litigation finance, multi-strategy funders 鈥� usually hedge funds with dedicated litigation finance desks 鈥� and ad hoc funders that occasionally participate in the litigation finance space. Some funders are publicly traded companies while others are privately funded, leading to differing investment criteria and capital deployment pressures. In addition, each funder may have its own unique approach and areas of specialization.

There’s been a 6% increase in legal fees due to the rise of litigation finance

The relatively limited but diverse universe of funders results in a market that tends to be both fluid and opaque at the same time. It鈥檚 very difficult to get information on who the funders are, what size and types of cases they fund, and at what point they might be in their funding cycle (which dictates their risk tolerance and appetite). This makes it challenging to vet them to determine the best fit for a given case, often placing clients and their counsel at a disadvantage in dealing with funders to negotiate a deal. Funders can carefully evaluate a case that鈥檚 brought to them, but on the other side of the table, there鈥檚 very limited information about funders themselves, their preferences, previous deals, their standing relative to competitors, and their current market standards for deals.

The financial aspects

Litigation funding, by its nature, often involves high-stakes cases with large litigation budgets. And due to the non-recourse nature of the funding, underwriting can be laborious and time-consuming. As such, these are complex deals that differ in many ways from standard commercial financing.

When approached thoughtfully with a case ripe for funding, funders will issue a proposed term sheet that sets out the terms of their potential investment. We routinely see dramatic spreads between these proposals, specifically, their return and waterfall structures, or the order in which litigation proceeds will be allocated to the funder, counsel, and client. Unlike other capital markets in which the cost of capital is measured in basis points, litigation funders often seek returns as multiples on invested capital (MOIC) ranging from 1.5x on the lower end to as much as 5x for some matters. At these rates, even relatively small differentials in these multiples can mean variations of millions or even tens of millions of dollars in the cost of capital.

In addition, there are many ways to structure financing deals. The return structure may be an MOIC, percentage returns from the proceeds of the case, or a combination of the two, as well as the inclusion of differing stages and triggers. There may be different waterfall structures or funding schedules, such as tranches based on milestones in the legal process. Some funders require repayment of transaction fees.

All told, the process of vetting these offers can be overwhelming to an inexperienced user, and negotiations with funders can easily end up leaving millions of dollars on the table or saddling clients with high expenses or unnecessary risk. It is essential that clients have a complete understanding of transaction costs, return structures, and payouts, and how the latter will impact what the client will ultimately see from the case proceeds, depending of course, on the outcome of the matter.

Financial modeling can help lawyers and their clients interpret these intricacies to determine the best deal for them. When done right, modeling can provide a comparative analysis of competing term-sheet offers, taking into account the likely outcomes of the case to determine how various proposals will impact the funder, law firm, and most importantly, the client. It can also enable a client to determine the optimal balance of internal and external capital and undergo a cost-benefit analysis relative to the client鈥檚 specific objectives. This can streamline the decision-making process and bolster confidence that the client obtained the best financing deal possible and that all options were thoroughly evaluated.

Navigating the process

In seeking the best terms, a major obstacle is that the market tends to be very opaque 鈥� even among funders themselves 鈥� in terms of pricing and other deal terms, making it difficult to know the current market norms or trends. Because litigation financing investments are non-recourse, they are considered high risk and funders seek a high return often set up under complex structures that can be difficult to understand. All of this complicates knowing how to initially present a case to a funder, what terms to ask for, and what areas on which to potentially push back during negotiations.

Even beyond pricing, there are significant differences among funders on access to capital, preferences for deal structures, as well as critical deal terms such as control. Funders have varying diligence processes for evaluating whether to invest in a case, including methods for reviewing cases, the approval processes, and investment tolerances. Funders can invest in litigation in several different ways, including funding fees and expenses; providing advances for pending claims, judgments, or awards; accelerating payment for law firm receivables; and combining funding with contingent risk litigation insurance. Additionally, financing can be for a single case or for a portfolio of multiple cases.

Because of the cumbersome details involved with diligence, lengthy delays are not uncommon. Any surprises encountered by either side during diligence can only add to the time involved to sort through and address matters as needed. While all of this is going on, most funders require exclusivity when issuing a term sheet, which prevents the client from approaching other funders. If it turns out that the funder is not the right fit, or the terms are not favorable and a deal is not agreed upon, then the process must start all over again. Moreover, approaching the wrong funder can taint a case, raising questions about why other funders previously turned it down. We have seen this impair or even ruin the ability to fund matters that were otherwise worthy on their merits.

Beyond the deal terms

There are other things to consider in addition to securing the most favorable terms. The closing of the financing agreement is in many ways only the beginning of the relationship. Compliance and monitoring are essential for all parties involved to ensure the deal is executed properly and with clear understanding. And the relationship between funder and client is long term 鈥� often lasting for years. As such, it is imperative that clients work with funders that they can trust and are good long-term partners.

Trial counsel frequently assist clients in pursuing funding, but this is generally done as non-billable time. As such, that diverts time and resources that could otherwise be devoted to case preparation. In addition, trial counsel negotiating funding open a potential conflict of interest for the firm: They are negotiating financing that may affect to what degree the firm stands to financially benefit depending on circumstances and case outcomes.

Litigation funding can be an important tool in enabling a case to proceed to trial. However, unless approached correctly, pursuing funding can be a time-consuming, difficult experience. Counsel and their clients should proceed with caution and develop a firm understanding of the market or consider the use of an experienced advisor to help them navigate the process and achieve a successful outcome.

This article was written for Forum magazine by , Counsel and Managing Director of Westfleet Advisors

The EU AI Act will have reverberations and repercussions throughout the world, as it leads the way in the type of legislation that will likely be coming to the United States and other countries, encouraging a paradigm that offers governing by preemptive regulation, rather than by penalty.

An EU AI Act compliance program or an AI ethical risk & responsibility program has to be creates as an enterprise-wide endeavor. The design, implementation, scaling, and maintenance of the program will require companies鈥� boards of directors, C-suites, compliance professionals, and team managers to determine and complete different responsibilities.

Building an AI program

To begin implementing these programs, it may be tempting to look solely at the technology itself as the solution. Any proper program, however, will include a combination of people, processes, and technologies from the beginning.

Saskia Vermeer-de Jongh, a partner in AI an digital law with HVG Law LLP, part of the global EY law network, says that Act 鈥渋s clear that building trust in AI starts with ensuring human oversight. Therefore, it is good that this value is reflected, with the stipulation that safeguards must match the risks, autonomy level, and context of AI usage.鈥�

Vermeer-de Jongh continues, noting that 鈥渟afeguarding the opportunity that AI brings鈥� necessitates a better understanding of the potential risks of AI, and develops an ability to govern these effectively. Indeed, initiatives and guiding statements from international governing bodies, such as the Organisation for Economic Co-operation and Development (OECD), the G7鈥檚 AI Principles, and the Bletchley Park Summit are testament to this. 鈥淭he EU AI Act鈥檚 detailed legislation provides a level of clarity and certainty for companies across sectors in developing and deploying AI systems.鈥�

The Act itself covers AI systems 鈥減laced on the market, put into service, or used in the EU,鈥� which can cause global reverberations. The requirements of the Act generally apply to three roles: providers, deployers, and users.

The general thought is the development of a tiered, risk-based system to determine the level of oversight needed for the system鈥檚 processes. The first level is unacceptable risk systems that are wholly prohibited. The next level is high-risk, which must be registered, and bears the burden of proving that it does not pose a significant threat to health, safety, and fundamental rights. This level includes technology used in critical infrastructures, educational and vocational training, product safety, border control management, law enforcement, essential services, administration of justice, and employment. The third level is the limited and minimal risk systems; this level is subject to its own transparency and ensures that humans are informed whenever necessary, fostering trust.

While the EU AI Act is the first legislation of its kind in addressing AI, it is not likely to be the last. That means for companies, developing business and risk mitigation plans is important regardless of where they are located.

There are three broad and total exceptions to the EU AI Act. First, any system developed exclusively for the military, defense, or national security is exempted. Second, AI developed exclusively for scientific research is exempted. Third, free and open-source AI, in which the code is in the public domain and available for anyone to use, modify, and distribute, is exempted.

The EU AI Act sets out a phased timeline for compliance. It starts with a ban on prohibited AI systems within six months after the Act becomes enforceable. Requirements on the use of general-purpose AI models capable of performing a wide variety of tasks either alone or integrated into other applications, including generative AI, are needed within 12 months after the Act becomes enforceable. Finally, requirements for high-risk AI systems should occur within 24 months.

The maximum penalty for noncompliance with the prohibitions stated in Article 5 of the EU AI Act is the higher of either an administrative fine of up to EUR 35 million or 7% of worldwide annual revenue.

Business implications of the Act

With potentially harsh penalties and complex standards for risk, the EU AI Act could have far-reaching business implications. 鈥淥rganizations need to start preparing now by ensuring they have regularly updated inventories of AI systems being developed or deployed, assessing which of their AI systems are in-scope of the legislation, and identifying their risk classification and relevant compliance obligations,鈥� says Vermeer-de Jongh, adding this is particularly important as there are three classes that require different levels of care.

Beyond this, she explains, organizations need to have a thorough understanding of the many requirements, risks, and opportunities of this legislation so they can review, evaluate, and adjust their current AI strategy accordingly. 鈥淐ompanies also need to train AI users, maintain transparency in AI operations, ensure high-quality datasets are used for developing AI systems, and uphold robust privacy standards.鈥�

Vermeer-de Jongh also recommends consulting with legal and tech experts in order to navigate the compliance processes. 鈥淔inally, companies will need to put in place the appropriate accountability and governance frameworks and keep the appropriate documentation for when the EU AI Act comes into force. Since AI regulations are evolving, companies need to continuously stay updated with the changes to maintain compliance.鈥�

While the EU AI Act is the first legislation of its kind in addressing AI, it is not likely to be the last. That means for companies, developing business and risk mitigation plans is important regardless of where they are located.

鈥淩eflecting the diverse cultural approaches to any regulation, we are seeing different regions adopt distinctly different strategies on AI policy,鈥� Vermeer-de Jongh says. 鈥淗owever, there are some general trends in the EU AI Act, including consistency with the core principles for AI set out by the OECD and endorsed by the G20.鈥� These core principles involve, in particular, respect for human rights, sustainability, transparency, and strong risk management.

鈥淲hile comprehensive legislation is not expected in the US in the short term, there is general consensus growing there around the need to limit bias, strengthen data privacy, and mitigate the impact of AI on the US workforce.鈥�

Let鈥檚 define successful outcome in regard to a legal matter. First, there鈥檚 no guarantee that every legal matter will be won or have the best possible result. Success does not have to be defined by wins and losses, however; speed of outcome, minimization of award value to amount claimed, staying within budget 鈥� all of these factors and more can be major contributors to how clients define a successful outcome.

In the recent Secrets to Successful Matters report from the 成人VR视频 Institute, we explored some of these secrets and found there were several key steps that can help both parties arrive at a matter outcome that meets the client鈥檚 definition of success as closely as possible.

Among those steps, putting in place a process to ensure sufficient clarity when clients and outside counsel are briefing new matters was considered one of the most impactful. While the specifics of the information to be conveyed will change from matter to matter, of course, having a process in place to ensure sufficient clarity helps ensure a meeting of the minds between outside counsel鈥檚 approach and the client鈥檚 vision.

The report revealed a multitiered framework at work in this process

On the lower end of the spectrum, clients should communicate information regarding cost constraints and their desires for resource allocation, whether that be law firm staffing, utilization of alternative legal service providers, or similar requests. These steps are foundational, and they likely will only have a smaller impact on how closely the outcome of the matter meets the client鈥檚 definition of success. Without this information, however, it becomes harder to meet those client expectations that are further up the checklist.

Matter briefing checklist

Boosting matter success by putting in the work early

Interaction of clients and counsel

In the next impact tier, clients and outside counsel should set clear parameters around how the matter relates to the overall goals of the client company. We know that corporate general counsel value outside lawyers who can provide commercially viable advice attuned to the broader business needs of the enterprise. Outside counsel鈥檚 understanding of those business needs can be created or bolstered by effective matter briefing at this stage. In this tier, clients should also be communicating their expectations around the level of service they expect to receive and any guidelines of which outside counsel should be aware regarding those service expectations.

Clients and their outside counsel should also be aware of how a matter is briefed in terms of the type of output required, relevant background information, who within the enterprise will be involved, and just how much risk the client is willing to take on.

Further, when law firms understand their clients鈥� expectations around the output required, it can take clients鈥� servicing expectations to the next level. This information may seem overly simplistic, but most GCs can recount situations in which a relatively simple question was met by an overly complicated response from outside counsel. This can be avoided if the client has been clear in conveying what they need to see, and outside counsel then operates within that framework.

It is also vital to ensure clarity of background information. Too often, information accompanied by a client鈥檚 statement like 鈥淥h, did we forget to mention鈥︹�� can have a dramatic impact on the bigger picture. At this stage of the briefing, it is perhaps better to share too much than to limit the background information provided to counsel.

Clients and their counsel should also have a clear discussion about clients鈥� risk appetite. Some legal matters are worth fighting to the bitter end, while others are best handled with a quick resolution, even if it is less favorable financially.

Additionally, it is important for outside counsel to be made aware of who else from the client鈥檚 team will be involved. If outside counsel is expected to provide commercially attuned advice, they need to know whom they are advising beyond just the GC鈥檚 office. It鈥檚 not that the base substance of the advice will change, but the delivery mechanism and how that advice is tied into the interests of the business can be more fine-tuned if this information is known.

Clients and their counsel should also have a clear discussion about clients鈥� risk appetite. Some legal matters are worth fighting to the bitter end, while others are best handled with a quick resolution, even if it is less favorable financially. This risk appetite briefing should include not only the financial and legal risk level the client is willing to accept, but also, crucially, the level of reputational risk as well.

The scope of the matter, too, is vitally important. This expectation, like many others on the checklist, may evolve as the matter progresses. In fact, the concept of revisiting matter scope is a well-recognized step in the project management process. However, scope cannot be revisited if it is not initially defined.

Finally, a matter briefing should include a clear communication of the desired outcome, as well as a thorough examination of the scope of the matter. The first item here should be obvious, yet our research revealed that too often this basic communication is overlooked. Indeed, this factor has the greatest potential impact on how clients and their outside lawyers rate the success of a matter鈥檚 outcome.

The importance of process

A majority of outside counsel surveyed for the Secrets to Successful Matters report stated that they did not receive sufficient clarity on at least half of the items on this checklist, negatively impacting their ability to deliver matters that met the client鈥檚 definition of success.

Perhaps this frequent lack of clarity is because of an absence of a repeatable process. Tools like the above checklist can provide a valuable starting point. Indeed, the exact wording of the checklist may vary, and it can and should be tailored to the needs of individual clients or law firms.

The onus is not just on the client either. Law firms would do well to implement their own checklist process. While the client should be looking to volunteer all the necessary information and expectations to help guide a matter to success, attuned outside counsel should also be asking the right questions to ensure they have the necessary information, guided by their own experience of working with a wide variety of clients.

Lawyers love process. To be fair, that鈥檚 probably an overstatement as many processes with which lawyers must comply are complex and perhaps a bit arcane. Process, however, is undoubtedly ingrained in the lawyer鈥檚 mindset. And by creating a repeatable process to foster a meeting of the minds between client and counsel, both sides will be taking a well-advised step on the path to ensure more frequent success in matter outcomes.

One concern over these new regulations voiced by compliance professionals is the lack of education on the requirements. This concern stems from a lack of widespread education and information on the new rule. For those enterprises with dealings in the US or those owned by US citizens, a beneficial ownership filing seems rather simple and like an obvious next step. However, this becomes more complicated in cases in which the company is formed in another country, or the owners are based there.

Most individual owners in that situation may not be accustomed to providing personal identifying information, and indeed, may be shocked when they realize how many individuals are considered beneficial owners under the new rule, despite at times being only tangentially related to the enterprise. The persons responsible for filing the report are often concerned about how they are going to get the correct information.

, a partner at the global law firm of Holland & Knight, points out one of the major issues in this situation is the complexity. 鈥淐ross-border legal structures designed to achieve tax efficiency and legal protection tend to be quite complex, so foreign investors need to move quickly and confidentially to determine how to comply with this new obligation to avoid hefty fines and criminal exposure, while preserving as much privacy as the law permits,鈥� he said.

Arista noted that in his practice he has been proactively letting those clients with complex situations know what they would need to do in order to comply. Not every attorney is that proactive, and it is unclear how foreign beneficial owners will learn of this new requirement if they don鈥檛 have a relationship with a US-based law or tax firm.

鈥淚nternational private clients who are beneficial owners of companies in the US need to rush their legal planning to completion to preserve privacy without incurring hefty penalties and criminal exposure,鈥� Arista noted. 鈥淭his advice is both prudent and necessary.鈥�

Five necessary steps

In such a complex situation, there are five basic steps that need to be taken by those enterprises concerned with compliance with the new rule:

1. 1. Consult with an experienced attorney that has expertise with the type of enterprise in question.

1. 2. Establish attorney/client privilege with that lawyer, making sure your business information remains confidential.

1. 3. Have the lawyer analyze the corporate structure and make a beneficial ownership determination.

1. 4. Collect the appropriate information from all individuals who must be reported as beneficial owners.

1. 5. File the report on time to avoid penalties.

While this might seem simple, each step requires time and care to ensure accuracy. Indeed, some of the steps have some delicate intricacies to them. For example, it鈥檚 crucial to make a clear delineation of who the client actually is 鈥� the individual or the company 鈥� and that determination should be made early.

Further, most law firms usually are not in the business of ongoing compliance, and filing into the BOI Reporting Database is not a one-time thing. The filing creates an ongoing obligation to update the information as any changes occur. Some lawyers will file, of course, but there must be a very close relationship with the client to ensure ongoing compliance.

鈥淚 don鈥檛 think the complexity of these entities will go away, as their complexity reflects the complex estate planning and tax laws.鈥�

鈥� Ed Arista

International filings for complex enterprises

In looking at the trajectory of international enterprises, Arista had a very intriguing thought. 鈥淚 don鈥檛 think the complexity of these entities will go away, as their complexity reflects the complex estate planning and tax laws,鈥� he explains. 鈥淚 do think that the companies, banks, and family offices, and maybe even accounting firms will have systems in place to gather information more automatically at the beginning of the relationship and have a system to continually follow up if anything changes. Everyone involved in the filing of a beneficial owner report must have done their due diligence.鈥� In short, the new normal for these complex enterprises will require a bit more meticulous behavior.

In the event that an attorney is not filing for a complex enterprise, they might be looking to their tax professionals to help, especially those that often deal with the IRS and the US Department of Treasury.

鈥淎ccountants are filing Foreign Bank Account Reports with [the Treasury Department鈥檚] Financial Crimes Enforcement Network, which contain financial information. However, beneficial owner reports do not contain any financial information,鈥� Arista says. 鈥淲hat they do contain is the personal data of the individuals who meet the legal definition of being beneficial owners, which makes it more complicated.鈥� Also, an extension to the compliance filing can put tax professionals in the deep end of murky waters.

The American Institute of CPAs has taken the position (at least for their malpractice insurance benefits) that filing these reports may be considered an unauthorized practice of law. This is not a determination that was confirmed by any state bars, but it does give pause to boutique tax & accounting firms about what actions are appropriate. Some accountants in smaller firms may do it, but midsize or large firms are not likely to take such a risk.

Arista, like most attorneys, says he expects that over the next 6 to 12 months, there will be a lot of scrambling to update some corporate structures, especially around who has to be involved in the legal structure. Some entities could be split up because they don鈥檛 want to share information within the whole group. For example, a family business may split into separate entities in order to provide more privacy.

After the issuance of a summary judgment in an Alabama federal district court in , businesses are questioning their obligation to comply. And there are also concerns over the constitutionality of the BOI Reporting Database. This ruling has already been appealed, and attorneys like Arista believe reporting companies should continue gathering information for timely filing and comply with CTA鈥檚 reporting requirements.

Over the next year, the legal battle over the constitutionality of the database will move though the appropriate judicial and regulatory channels. After the legal battle is completed, businesses will be left with this additional requirement as the time continues to tick away for entities to comply with this new standard. With more than 32 million current enterprises 鈥� along with 5 million new ones estimated to be created each year 鈥� being proactive is going to be key. While 2024 will be an important year in this regard, it will also serve as the guide for years to come.

You can find more of Ed Artista鈥檚 here.

Indeed, the COP26 climate summit in Glasgow in 2021 marked the moment the world got serious about measuring and disclosing information about sustainability-related risks and opportunities. The creation of the International Sustainability Standards Board (ISSB), to develop a global baseline of sustainability disclosures that are both in the public interest and meet the needs of capital markets, signaled an intent to harmonize the cacophony of voluntary initiatives.

Demand for consistent, comparable, and verifiable information from companies allows the risks and opportunities presented by climate change in particular, and sustainability issues more generally, to be appropriately priced.

Why global sustainability disclosures standards were created

In the latter part of the 20th century, capital markets became globally interconnected, and as investment flowed across borders, multinational companies established operations and subsidiaries around the world. However, the global financial system was unable to cope. Most countries had their own accounting requirements 鈥� an international alphabet soup of standards which meant comparing the financial performance of a company against its international competitors was difficult.

Market regulators, led by the International Organization of Securities Commissions (IOSCO), decided to take action, and in 2000 they endorsed a new set of international accounting standards for use around the world 鈥� the International Financial Reporting Standards (IFRS). The IFRS Foundation was born under the stewardship of the legendary US central banker Paul Volcker, who served as the first chair of the Trustees 鈥� and the International Accounting Standards Board (IASB) was created to take on responsibility for developing and maintaining these international accounting standards.

90% of S&P 500 companies voluntarily report sustainability metrics

Fast-forward 20 years and we now have more than 140 countries all speaking the same financial language, while the remaining countries such as the US are highly fluent. All global regions 鈥� Africa, Asia, Europe, the Americas 鈥� are represented in the development of the reporting requirements. Decision-making is fully transparent, with all IASB meetings held in public and all board papers posted online. And everybody affected by, and with an interest in, reporting requirements has the opportunity to provide input into the standard-setting process, including through public consultations.

The information needs of investors have continued to evolve, and today much of the focus is on climate and broader sustainability factors. Like 20 years ago, there has been no widely accepted capital market sustainability standards, with a mix of voluntary sustainability reporting initiatives filling the void.

Companies and investors alike have been confused by the range of sustainability reporting initiatives in the market, which often leave investors unable to access comparable or complete information upon which they can rely, with poor data quality impeding capital flows that are informed by an understanding of the risks and opportunities arising from issues such as climate change.

Given the previous success of the IFRS Foundation in transforming the global landscape of financial information by introducing IFRS accounting standards, there were many voices urging the Foundation to step in on the sustainability issue. Encouraged by the G20, the Financial Stability Board (FSB), and IOSCO, the IFRS Foundation started work.

COP26 saw the announcement of the formation of the ISSB as well as the integration of numerous previously disparate organizations into the Foundation, thus reducing the number of organizations developing standards and frameworks. The ISSB鈥檚 prototype standards were also published.

Progress since then has been rapid. In June 2023, the ISSB published its inaugural standards 鈥� a general sustainability disclosure standard, and a specific climate disclosure standard. IOSCO gave its endorsement of these standards in July 2023, and since then, many jurisdictions around the world have taken action toward incorporating the ISSB鈥檚 global baseline into their local requirements.

Uniting the global landscape

Further consolidation of the sustainability disclosures landscape continues at pace. The international FSB disbanded its Task Force on Climate-Related Financial Disclosures (TCFD) as a result of the publication of the ISSB鈥檚 inaugural standards, and the IFRS Foundation is now responsible for monitoring uptake of the TCFD recommendations, which are embedded within the ISSB Standards.

Many companies operate across national borders, and their value chains are often global, as are their investors, and we are addressing issues that are global in nature.

In the future, companies are likely to use ISSB Standards as the equivalent of a passport to travel between different jurisdictions without a visa. The ISSB will seek to support jurisdictions鈥� adoption and use of the Standards by working with public authorities, including with colleagues at both the FSB and IOSCO. Already, there are 14 jurisdictions that have decided to use the ISSB Standards or that are consulting, or preparing to consult, on their use, including Brazil, Canada, Japan, Nigeria, Singapore, Turkey, and the UK.

Globally comparable information is essential in supporting the ambition for a successful transition to a more sustainable economy. Many companies operate across national borders, and their value chains are often global, as are their investors, and we are addressing issues that are global in nature.

The ISSB also has worked closely with the European Union (EU) and welcomed the commitment from the European Commission and its European Financial Reporting Advisory Group to support international consistency in climate disclosures. The EU had already begun developing sustainability disclosure standards before the ISSB was created. Thus, it has been necessary to focus on ensuring that ISSB Standards and European standards work well together so that those companies using both sets of standards can do so efficiently. This work has successfully led to a very high degree of alignment that has reduced complexity and duplication for companies applying both the ISSB Standards and European Sustainability Reporting Standards.

In the US, a new climate disclosure requirement 鈥� in the world鈥檚 largest capital market 鈥� represents a critical milestone in the journey toward a global system of climate disclosures that鈥檚 built on common principles and can deliver consistent and comparable information to investors, while avoiding duplicate reporting by companies. The ISSB looks forward to working with the US Securities and Exchange Commission and other US stakeholders in our respective capacities to that end.

Future direction

The ISSB will shortly announce its future work plan, including identifying which standard-setting projects it will tackle next. For 2024, the priority is to work, including with partners, to support companies鈥� implementation of the ISSB鈥檚 first two standards, and to support regulatory adoption of the standards by jurisdictions and voluntary adoption by companies.

You can access the interactive Spring 2024 issue of the 成人VR视频 Institute’s .

This article was written for Forum magazine by Conrad Everhard and Leonard T. Nuara, Founding Partners of Flatiron Law Group LLP

We are living in the golden age of legal innovation. Not a week goes by without one legal tech start-up or another announcing a big venture capital haul, and large law firms are flooding the zone with messaging about how they are adopting and supporting innovation.

One thing that has not changed, however, is the law firm business model. Traditional law firms keep billing by the hour, increasing their hourly rates 鈥� often at a record pace in some practice areas. If any efficiency is being generated from current innovation initiatives, the cost savings are certainly not being shared with the clients, either through lower rates or through alternative fee arrangements (AFAs).

Indeed, AFAs require a law firm to make two leaps of faith. First, a firm looking to adopt viable AFAs must reimagine the delivery of legal services. Rather than marking up junior labor and selling billable hours the old-fashioned way, law firms would have to figure out how to deliver services at the same level of quality but more efficiently, maximizing profit margin rather than maximizing hours.

Second, firms would have to be willing to share financial risk with the client. All legal work is risky, and some practices, like mergers and acquisitions (M&A), carry acute risks in which negotiating deals can be a lengthy and unpredictable process. Often, the full complexity of a deal does not become known until the parties are deep into their due diligence.

For those law firms willing to make these leaps of faith, recent technology advances coupled with access to cheap computing power are enabling greater automation of many legal tasks, creating more standardized, repeatable processes and greater flexibility in the deployment of counsel. In turn, this opens the door for firms to more readily use AFAs, such as fixed fees for M&A work.

Of course, this pivot requires rethinking the law firm business model and moving away from accumulating billable hours and instead has firms focusing more on impactful inputs and outputs. These impactful inputs are centered more on deploying legal talent when and where it is most needed, rather than maintaining a stable of lawyers who are billing hours. Reimagined outputs focus on both quality and efficiency in closing deals.

Technology as a key enabler

Not surprisingly, technology is a core enabler of these changes. While collaborative workflow tools have become more commonplace in the legal industry, they can do more than simply allowing lawyers to work remotely. When incorporated within a project management framework, they can enable new models of engaging labor that are more akin to a gig economy model 鈥� providing lawyers who have senior-level experience with more agility and flexibility.

Traditional M&A deal flows offer many opportunities to create more efficient workflows.

Similarly, the ability to create bespoke software means many law firms can craft their own technology, including digital deal tools. In the M&A space, there are plenty of contract life cycle management and document management tools out there. Thanks to Moore鈥檚 Law and the rise of SaaS, cheap computing power is now available literally at one鈥檚 fingertips, making it readily accessible to create specialized, proprietary tools with advanced capabilities. It鈥檚 now possible to quickly leapfrog generations of legacy technology and enable new levels of automation.

Traditional M&A deal flows offer many opportunities to create more efficient workflows. The same data is often reused multiple times throughout every step of the deal 鈥� such as in delivering and reviewing due diligence, reviewing representations and warranties, creating and managing schedules, closing checklists, and more. In fact, the process is a constant cycle of reviewing and verifying in which every document is touched four or five times by different people. It is repetitive and time-consuming, and often results in additional charges to the client.

Automation can rationalize and organize this data at every step. Relevant data can be searched quickly with instant status checks and history trails of when a document has been viewed, verified, or modified, and by whom. This can significantly reduce repetitive steps and enable teams to focus on the end goal: delivering the deal as efficiently as possible.

A more flexible labor model

Further, automating and streamlining workflows can make costs more predictable which, in turn, makes use of AFAs more workable as a pricing model.

Adopting AFAs as the default pricing model, instead of just in those cases in which clients insist on it, requires adopting a different mindset. Traditional thinking manages and prices labor to maximize billable hours and labor markup. In contrast, pricing principally with AFAs 鈥� whether fixed fees, fee caps, risk collars, or other methods 鈥� gives firms every incentive to be as efficient as possible, which can benefit both the client and the firm.

Throughout and after the pandemic, many law firms advanced virtual lawyering and acclimated clients to interacting strictly online for certain legal matters. However, beyond enabling remote work, virtual lawyering also enables more flexible models for deploying counsel. With the traditional law firm model, legions of lawyers sit on the balance sheet incurring costs regardless of their utilization. Now, lawyers can be engaged on more of a project management or general contractor model, brought in and assigned as needed to meet the specific needs of each deal.

Automating and streamlining workflows can make costs more predictable which, in turn, makes use of AFAs more workable as a pricing model.

Because large law firms, as a rule, discard senior associates who don鈥檛 show a propensity for generating business, there is an abundant supply of highly trained, artisanal senior lawyers with pedigrees from large, prestigious firms who are readily available and eagerly willing to take on assignments on a project basis. Today, many of those lawyers are hired by ALSPs.

In a sense, labor 鈥� even highly seasoned and experienced counsel 鈥� can become more like a utility that鈥檚 flexibly deployed when and where it鈥檚 needed, but this too requires a mindset shift. This model largely runs contrary to the traditional law firm leverage model, and at the end of the day, a firm doesn鈥檛 make money strictly off its labor 鈥� it makes money off the matter.

Setting a new course, driven by technology

When we founded Flatiron Law Group, we felt the time was right to introduce the elements of this type of model to the legal market within a new firm. Our goal was to create a technology-leveraged firm that applied best practices to close deals more efficiently while maintaining quality. We mapped out a multipronged approach that included fixed fees or AFAs for most matters, a focus on cost control, agile deployment of labor, and a streamlined workflow process. Ultimately, our goal was to deliver high-quality work that exceeded client expectations.

Fixed fees would be integral in offering high-quality deal work with the predictable, value-based pricing that clients want. This introduces an elevated level of financial risk, not deal risk, for the firm, but managing deal work almost as a banker would, with deposits, progress payments, breakup fees and so on, makes the financial risks of AFAs manageable. It also means potential upside for the firm depending on how well each deal is managed.

Fixed fees would be integral in offering high-quality deal work with the predictable, value-based pricing that clients want.

We took a clean-sheet approach to reengineering and streamlining workflows. And because we knew technology would be key to enabling better data and decision-making in the deal flow, we took the step of building our own platform for extracting, processing, and delivering the reams of data needed to close a deal, as well as finding and pulling the right clauses when needed. For example, we recently closed a deal that involved more than 600 individual diligence requests. Doing that task manually would have required a lot of people going through a lot of boxes of materials multiple times. Instead, now we could enter a few search terms and answer requests in minutes instead of weeks.

Further, we鈥檝e now spun out our software, which we call 鈥淒eal Driver,鈥� into a separate company to complete its development as a commercial platform. Our vision is to eventually automate the entire M&A deal process from start to finish.

So far, we鈥檝e successfully completed more than 20 deals in the last four years at lower cost while providing the quality level that clients expect 鈥� and we have done it all while maintaining healthy profit margins. Also, our model is scalable and replicable for other practices. There鈥檚 no reason it couldn鈥檛 be applied to real estate, commercial lending, venture capital, project finance, and even litigation work.

While managing deals is professionally satisfying, at the end of the day, it鈥檚 about reinventing the law firm space. Disruptive innovation is possible with the right drive and commitment, and it can be a win-win for everyone: the firm, lawyers, and clients.

Real change only comes when it鈥檚 driven by the market 鈥� and today, the market is ready to move the industry in a direction that encourages greater use of AFAs for M&A as well as other legal work.

You can access the interactive Spring 2024 issue of the 成人VR视频 Institute鈥檚听.

Through my interview process, I realized that little was being said about the values of the firm and the culture it was creating and exhibiting both internally to its lawyers and staff and externally to clients and the overall market. If we were going to have success in moving our strategy forward, we first had to start with our culture and values, conducting a major evaluation of what both meant to us as a firm.

Just as importantly, we needed to determine what our purpose should be as a firm in helping shape New Zealand鈥檚 future. To that end, we began to talk about culture and strategy as appropriate bedfellows, but probably not in a way that many partners at the firm had thought about previously.

Beginning the process

I decided that I would use an upcoming annual partner conference 鈥� on the calendar for just six months after I started at the firm 鈥� to hold a major exercise around our values, starting with an externally facilitated workshop.

In this workshop, we asked the partners what they considered to be the firm鈥檚 values and priorities. We then broke into groups and rotated around a large conference room with flip charts and whiteboards in the corners, talking about the potential for values centered around a few key concepts. And at the end of that first day, I honestly felt that we were probably halfway there.

I was very proud how the partners took to it because I think it could have gone terribly badly. I was concerned that the partners would approach the exercise with skepticism, especially because I had so little history with the firm. However, even though they had never done an exercise like this, most put that natural lawyer cynicism aside and really engaged in the exercise.

But that was just the first step. Right away we knew that this exercise would not succeed if our staff did not feel that these were their values as well. So, we then ran 17 workshops across our Auckland and Wellington offices with me, our HR director, and facilitators present at all of them. We discussed what the partnership had come up with and asked staff for their honest feedback. Do we have the right number of values? Have we got the right kind of core concepts? Have we got the right language?

You can imagine what that kind of exercise in language might be like when you鈥檙e involving lawyers and other business professionals. However, there was a lot of good humor, energy, and a deep sense of engagement. Not surprisingly, they did fantastic work.

Each core value resonates much further beyond its initial meaning. For example, the first value 鈥� Respect Individuality, Work as One 鈥� is about teamwork, of course, but also the idea that individuals can turn up as themselves and that we鈥檙e stronger as a diverse group. That level of respect for individuality flows right into the second value.

We wanted to capture the way we look at our performance and service both internally and how we work with our clients. Many years earlier, a young partner had come up with the phrase listen, care, and deliver, and we thought that continued to fit almost perfectly. Then it was suggested that we add with excellence to the end of that phrase to show that we鈥檙e very deliberately raising the bar for our firm.

If we were going to have success in moving our strategy forward, we first had to start with our culture and values.

We latched onto this value so solidly that we use the acronym 鈥淟CDE鈥� as shorthand to sort of embed that phrase into how we work, especially with clients. We created our LCDE Awards for staff who were recognized as going that extra mile.

Our third value was probably the most controversial 鈥� Bring on the Future! Admittedly, this is not what you鈥檇 typically expect from a law firm. However, as a firm we have always had a strong future-facing focus including in tech and innovation. We were a founding shareholder in an artificial intelligence start-up a few years ago, and I remember thinking, 鈥榃ow, that鈥檚 a really radical thing for a law firm to do.鈥� It鈥檚 not our core business, but the firm鈥檚 idea was that we want to demonstrate to the market that we are genuinely interested in this stuff, and that we think like a business because we are a business. To that end, we鈥檙e going to align with our clients and demonstrate that we鈥檙e part of the business community, not some professional services provider sitting on the sidelines.

After we affirmed these three values, we translated them into te reo M膩ori, the language of M膩ori, the indigenous people of New Zealand. Our country has a strong bicultural foundation as a nation, and there鈥檚 been a real M膩ori renaissance. We wanted to be a part of that because it鈥檚 reflective of the kind of modern liberal firm that we are. Through that process, working with an advisor from the local iwi (tribe) we envisioned our idea as a kind of journey, of traveling and momentum. That translated into the image of a canoe, or waka, with a three-paddle motif, with those representing individual paddles as well as the collective effort to get all of our team paddling in unison to really make the waka go faster 鈥� that was our first value of Respect Individuality, Work as One or waka eke noa.

Our second value (Listen, Care, Deliver with Excellence) is waka whakarei. The actual symbol for that is the very ornate panel at the back of the waka 鈥� something that took a lot of care and attention to produce.

Finally, the symbol for our third value, waka hourua, is a double-hulled canoe with an outrigger, which is the next generation of waka 鈥� Bring on the Future! The whole waka journey theme really works quite nicely, and while not a literal M膩ori translation, it does provide a foundation that conveys the idea that binds those three values together and speaks to us as a firm.

We talk openly about our culture, values, and our cultural alignment with new clients.

It鈥檚 also a depiction of a partnership, as opposed to a corporation, because the structure is 鈥� and the real power comes from 鈥� the collective effort of partners (and staff) each with a paddle, working in unison toward a common goal, to literally make the boat go faster, rather than having a corporate engine to power the boat, with a captain on the bridge.

It鈥檚 our New Zealand-centric and more modern motif for the age-old expression of getting the right people on the bus. For us, it鈥檚 having the right people 鈥� each with a paddle in the MinterEllisonRuddWatts waka.

The launch

Almost five years ago, we did a big launch for our core values in our offices in Auckland and Wellington. We didn鈥檛 let the staff know in advance where we鈥檇 landed as a final concept, but I remember distinctly seeing the pride on the faces of the staff who had been in the workshops and now saw their particular changes come through in the final idea.

Today, we talk openly about our culture, values, and our cultural alignment with new clients. For example, we will talk about our Community Investment Programme (pro bono and volunteering) efforts, and clients will talk about where they鈥檙e involved in the community 鈥� and then we鈥檒l see whether we鈥檝e got alignment there. However, it鈥檚 been even more interesting with existing clients. I remember about two or three years ago, we were re-pitching for an existing client鈥檚 work, and we thought we were going to get really squeezed on price.

But the client didn鈥檛 mention price. They knew us well and didn’t need to be convinced that we were the right firm in terms of legal expertise, service, or understanding their sector. Instead, we spent the whole time talking about our culture and values, about our empowerment, our diversity and inclusion policies, and our embracing of te ao M膩ori or the M膩ori world.

In my mind, that interaction really validated our efforts. And these three core values have continued to be an important part of telling that story to clients, to our current team, and to young recruits 鈥� the story of who we are and what we stand for as a firm.

You can access the interactive Spring 2024 issue of the 成人VR视频 Institute’s .

Forum:听Here鈥檚 what should be an easy question:听Should you, as a legal professional, know how to use artificial intelligence (AI)?

Prof. Linna: The answer is that you likely already do, whether you realize it or not. Spell check, autocomplete, legal research or document management tools, even Google 鈥� just about every modern piece of professional software has some element of AI and machine learning baked in.听

Forum:听However, here is a potentially scarier follow-up:听Should you, as a legal professional, know how to use generative artificial intelligence?

Prof. Linna: That may be trickier to answer. Generative AI refers to a subset of AI that seeks to generate new data, text, images, and even videos that mimic the characteristics of human-generated content. This output is created by taking tons and tons of data 鈥� in some cases, much of which is publicly available on the internet 鈥� to compute an answer to a given prompt. And generative AI programs, headlined by OpenAI鈥檚 free ChatGPT application, have become a buzzy topic in business circles.

鈥淚鈥檓 talking to lots of law firms and some of them say things to me like, 鈥榃e don鈥檛 need to be at the bleeding edge, we鈥檒l let other people figure out what tools to buy.鈥� And that鈥檚 like saying I鈥檓 not going to practice playing the game of golf, I鈥檒l just figure out the best set of clubs to buy next year and then I鈥檒l go out there and I鈥檒l compete in the Tour.鈥�

To many legal professionals, tackling generative AI sounds daunting, perhaps impossible. However, according to Daniel Linna, Senior Lecturer & Director of Law and Technology Initiatives at Northwestern Pritzker School of Law and McCormick School of Engineering, the answer is a clear yes: You, as a legal professional, should know how generative AI works, at least at a functional level. It鈥檚 not a technology issue, Linna argues, it鈥檚 a client-service issue.

鈥淚f your client says, 鈥榊ou can use my contracts to train your system, but you need to guarantee me that no content in my contracts will ever be output from your system for a different client,鈥� do you understand the concern and risks? Do you understand what your client is asking, and do you know how to go to the vendor, describe the concern, and ask follow-up questions to be able to provide assurances to your client?鈥� Linna asks. 鈥淚f you don鈥檛 understand how the system works, you probably don鈥檛 really understand the concern, or the potential risks and benefits.鈥�

The first step to answering those questions then, is figuring out what different generative AI programs can actually solve and how they do so.听

What Gen AI does (and doesn鈥檛 do)

Many in the legal profession are in wait-and-see mode with generative AI technologies. 成人VR视频 Institute surveys conducted in April and May found that although more than 80% of respondents said generative AI could be used for legal work and half of respondents said generative AI should be used for legal work, less than 10% actually do so. Linna says in his conversations with legal professionals, some attorneys tell him they will wait until tools like ChatGPT are perfected by others and then they will adopt them.

There are a couple of problems with this line of thinking, Linna says. For one, ChatGPT and other public generative AI programs like Anthropic鈥檚 Claude draw from the internet as a data source, but specialized case law often isn鈥檛 found publicly. As a result, without that training data, these general-purpose platforms are unlikely to be perfected for specialized use cases in legal.

鈥淗ow are we going to solve the hallucination problem with ChatGPT and tools like that? Well, I think the answer is you鈥檙e not going to solve it because a large-language model is not designed to store cases and other facts about the world,鈥� Linna explains, adding that many attorneys are 鈥渦nlikely to get what they need from a tool like ChatGPT, so that鈥檚 why these specialized tools are being created for legal tasks.鈥�

Indeed, a host of legal technology providers 鈥� specializing in everything from legal research to contract management to electronic discovery 鈥� have hopped aboard the generative AI bandwagon. They look to develop new tools that will provide more accurate responses, training their applications with more law-specific data and not providing answers until they are cross-referenced with legal-specific data. Many of these providers also partner with large technology companies such as Microsoft and Google, whose respective Copilot and Bard applications draw on exceptionally large amounts of data in similar ways to OpenAI鈥檚 ChatGPT.

Even then, however, generative AI is just that 鈥� a tool. And realizing what these tools can and cannot do is also a function of what you want a tool to do. This is the analysis of the lawyers and legal professionals who deliver legal solutions. People and process, it turns out, still need to underpin any piece of technology, no matter how powerful the tech may be. A client service element, in this case, needs to be baked into the technology adoption decision.

鈥淵ou don鈥檛 just come with technology and then instantly transform something like drafting contracts or doing legal research,鈥� Linna says. 鈥淭here are other parts to it. You need to understand the process, need to understand what are our goals, what are we really trying to accomplish, how do people actually use this tool, and how are we going to build systems that empower people.鈥�

Of course, Linna adds, this will mean that people will need to change the way they work. 鈥淚f you want that to happen, you need to engage them early and empower them in the innovation process,鈥� he says. 鈥淥rganizations that start to do this now will have a sizable advantage over organizations that try to wait and 鈥榖uy the perfected technology鈥� down the road.鈥�听

Embracing the uncertainty

Figuring out how technology can be used to empower people is one thing, but law firms and corporate law departments actually empowering people to use technology for better client service is another. In the 成人VR视频 Institute survey on generative AI in the workplace, roughly the same number of legal respondents said their organizations had outright banned unauthorized generative AI as were using the technology in the first place.

Linna says he has heard from some law firms that are banning anything related to generative AI due to bad press around ChatGPT, such as the New York federal court case Mata v. Avianca in which attorneys were sanctioned for submitting fabricated case law created by ChatGPT. However, those policies often fail on two levels, Linna says. First is the practical: Ban it on company laptops, and people can still pull out their phones to use the same technology. 鈥淲hen people need to get the work done, they often figure out ways to work around these barriers,鈥� he says.

But perhaps more pressing are the business implications of not adopting the technology. Linna fears that those waiting until the technology is perfect may be left watching as a golden opportunity passes them by. 鈥淚鈥檓 talking to lots of law firms and some of them say things to me like, 鈥榃e don鈥檛 need to be at the bleeding edge, we鈥檒l let other people figure out what tools to buy,鈥欌�� Linna explains. 鈥淎nd that鈥檚 like saying I鈥檓 not going to practice playing the game of golf, I鈥檒l just figure out the best set of clubs to buy next year and then I鈥檒l go out there and I鈥檒l compete in the Tour.鈥�

As the adage goes, practice makes perfect. And right now, just about everybody is still practicing. Even so, law firms and corporate law departments often don鈥檛 want to admit they don鈥檛 have all of the answers 鈥� in our surveys, for example, a massive 83% of corporate law respondents said they don鈥檛 know how their outside law firms are handling generative AI on client matters.

鈥淗ow are we going to solve the hallucination problem with ChatGPT and tools like that? Well, I think the answer is you鈥檙e not going to solve it because a large-language model is not designed to store cases and other facts about the world.鈥�

This isn鈥檛 the time for reticence, Linna insists, even if the conversation is initially uncomfortable. 鈥淚 think these are challenging conversations to have because when you talk to your client, when you go pitch for business, when you do work for your client, you want to be able to be there as the expert,鈥� he explains. 鈥淚n this area, there鈥檚 a ton of uncertainty, so it鈥檚 even more difficult to have those conversations with the client. But that also means there are tremendous opportunities for law firms to talk to their clients, learn about their pain points, and find ways to collaborate on technology and analytics projects. Not enough of these conversations are happening.鈥�

That means the hard work of planning, of course 鈥� policies around proper generative AI usage, training around different types of tools, identifying use cases throughout the organization. However, it also means a truly collaborative effort to push generative AI initiatives forward. Linna says he believes that proper generative AI usage means education, but with listening occurring at the leadership level as much as the organizational level.

鈥淢ore than ever what we see with these tools is that it鈥檚 not going to be a top-down sort of thing,鈥� Linna says. 鈥淚 mean, the firm could decide, let鈥檚 use this 成人VR视频 tool or let鈥檚 use some other generative AI tool. But it鈥檚 really the people who are closest to the work who know best the kind of work they do and how these tools can be helpful. Empower people closest to the work to transform how they deliver value to clients. That鈥檚 where we鈥檙e really going to see innovation.鈥�

At the outset, it鈥檚 important to state that 2023 saw the average law firm post remarkably strong growth in the rates they charge clients for work on legal matters. Even law firms that are typically more conservative with the pace of their rate growth seemed to find a yet-untapped pricing power.

Through the midpoint of 2023, the average law firm grew their worked rates by 5.7% compared to the previous year, a pace not seen since before the Great Financial Crisis (GFC)-induced rate crash in 2008. On the high side of that mark, Am Law 100 law firms grew their worked rates by a startling average of 7.3%, a pace not matched even prior to the GFC. For their own part, Midsize law firms 鈥� typically far more reserved in pushing higher rates 鈥� grew their worked rates by 5.1% at the end of 2022, a full 1.3 percentage points higher than even six months prior.

The average law firm grew their worked rates by 5.7% compared to the previous year.

That law firms were able to push through these kinds of increases is indicative of a couple of realities: First, law firms have gotten more aggressive in seeking rate increases in the post-pandemic era; second, clients appear to be more willing to agree to rate increases. The first conclusion is evident from the chart 鈥� if law firms weren鈥檛 pushing for the increases, clients wouldn鈥檛 be agreeing to them. The second conclusion can be inferred from the very nature of the increases. The rates reflected in the above chart are what are known as worked rates 鈥� the rates clients agree to pay to engage a law firm on a new legal matter. In order for worked rates to be growing at the pace they have been, clients necessarily would have needed to agree to such increases.

With new high-water marks set, it seems likely the legal industry is potentially set for a period of sustained higher rate growth, if not continuously accelerating rate growth. After all, if law firms were successful in pushing through notably higher rates in 2023 compared to 2022, what factors in the market would lead to a conclusion that firms would not be similarly successful pushing rate increases going forward?

To answer that question, we must examine a few realities from the clients鈥� perspective.

According to the 鈥�2023 Legal Department Operations (LDO) Index,鈥� 70% of corporate law departments report higher matter volumes than a year ago. At the same time, 66% of clients report their internal law departments have flat or decreasing budgets, and 65% report their in-house attorney head count is similarly flat or declining. While 43% of clients said they expect to bring more work in-house in the coming year, it is evident corporate law departments are facing capacity challenges. The constant push to do more with less has put these law departments in a bind. Perhaps as a reflection of this reality, some 47% of corporate general counsel reported they expect their spending on outside legal counsel to increase in the coming year.听

The pricing conundrum

All of this would seem to be pointing to a potential future boom for law firms. Yet, it鈥檚 possible that at least some firms will find themselves in a bit of a conundrum.

Hiring a law firm is an expensive proposition. Given the current pace of rate increases, it is likely to become an even more expensive proposition very quickly. And while increasing the rates they charge is a vital component for law firms looking to boost profitability, it is not without risk.

One component of the risk that law firms run is the reality of what economists call price-demand elasticity. At a basic level, price-demand elasticity can be explained as the idea that the more expensive something gets, the less of it people will want to buy. The legal profession seemed to be largely immune from the effects of this economic rule for most of the 2010s. Am Law 100 law firms were the most expensive, then got even more expensive faster than any other segment of law firms. Yet demand for their services grew faster than any other segment from 2016 through 2021.

It seems likely the legal industry is potentially set for a period of sustained higher rate growth.

That immunity may be waning, however. Recent data from the 成人VR视频 Institute shows a distinct and prolonged trend of demand mobility. In essence, Am Law 100 law firms have been losing market share 鈥� as reflected by contracting demand 鈥� while Midsize law firms have been growing their demand. Through the middle of 2023, Am Law 100 law firms鈥� demand contracted by an average of 0.6%, while Midsize law firms鈥� demand grew by an average of 2.8%. Indeed, this pattern has persisted for more than 18 months at this point.

And it鈥檚 also paying dividends for clients. While the average law firm鈥檚 worked rates have grown by 5.7%, the average client has actually seen their effective average rates decrease.

Despite strong rate growth on the part of law firms, clients (regardless of their size) have managed to shrink the rates they pay across all timekeeper types by shifting, or tiering work to lower-cost providers. In fact, according to the 鈥淟DO Index,鈥� some 50% of corporate general counsel report that moving work to lower-cost law firms will form a significant part of their cost-control strategy in the coming 12 months.

Notably, lower cost is not synonymous with cheap 鈥� a law firm can be comparatively lower cost than a competitor firm while still commanding impressive rates. However, such a message should cause some discomfort among law firm leaders.

What can law firms do?

This highlights another portion of the law firm pricing conundrum 鈥� specifically, what can law firms realistically do about it? It seems unlikely that law firms will voluntarily slow the pace of rate growth. It has proven to be successful, and speaking to many law firm leaders, few firms have experienced an outflow of demand mobility to a degree that it makes them feel as though something needs to change. By contrast, a firm that is seen as less aggressive than its peers in growing rates may face potentially devastating reputational damage if such a strategy is not carefully managed and messaged.

And yet the reality remains that clients are voicing a desire for greater cost-effectiveness. So, what is a law firm to do?

First, law firms and their pricing teams must work hard to ensure that the money conversation focuses not on price, but rather on the value delivered. When asked about increasing rates, clients typically respond that for all but a few firms, rates definitely make a difference in whether or not that firm is hired. However, every client has a few select firms with which money seems to be no object due to the overall value delivered. This can be a factor of the timeliness or quality of outcome, the particular lawyers staffing matters, ancillary benefits the client receives in the form of legal technology consulting, or a host of other options that vary widely by client. It is incumbent on those law firms wishing to achieve the status of a valued partner to ask which of those factors the client most values and then deliver on those.

Hiring a law firm is an expensive proposition. Given the current pace of rate increases, it is likely to become an even more expensive proposition very quickly. And while increasing the rates they charge is a vital component for law firms looking to boost profitability, it is not without risk.

Second, law firms should be closely monitoring their position in the market relative to their peers. Law firms do not want to find themselves in a position where they are grossly overpriced for their market, nor do they want to fall too far behind, such that they later feel a massive push is needed to correct for years of underperforming rates.

Finally, law firms must be diligent and strategic in their messaging to clients. We鈥檝e already discussed the need to focus on value, but firms should confront head-on the reality of clients seeking lower-cost options.

For those firms that already enjoy a price advantage from offering lower rates, it is important to highlight not only the lower price, but the fact that the client will not experience any dilution in quality for making the switch.

For higher-priced law firms, the messaging is trickier. However, lower cost does not necessarily mean cheap. And there are additional costs involved with switching law firms, working with firms with slower cycle times, and losing the opportunity to work with experienced legal operations teams 鈥� all of which could be borne by a client switching firms for the sake of lower rates.

Whatever the added costs may be, law firms that cannot compete solely on price still have the ability to compete on cost if they can stake out ground in which they have the advantage.

According to the latest statistical data from the U.S. Treasury鈥檚 Financial Crimes Enforcement Network (FinCEN), a have been recorded through August 2023. Filing SARs allow financial institutions and other regulated organizations to alert regulators as to something the filer sees as suspicious or possibly illegal in transactions with customers. SAR filings are seen as a strong weapon in the fight against money laundering and other illicit schemes.

This year鈥檚 SAR filing pace aligns with the historical year-over-year growth of about 4% to 5%, a consistency observed before the significant surges in 2021 and 2022. If this trend continues, financial institutions and other regulated organizations are on track to file around 3.8 million SARs in 2023, slightly surpassing the 3.75 million SARs predicted in the 成人VR视频 SAR Special Report published earlier this year.

Uncovering trends in the SAR filing data

Certainly, fraud is now a focus for every financial intelligence unit leader. Confidence scams, job scams, check fraud, mail theft, friendly fraud, account takeover, and identity theft have all witnessed substantial increases in SAR filing activity and consumer losses since 2019.

International organized crime, leveraging compromised or stolen personal identifiable information and bank accounts, is fueling a major rise in bank fraud and consumer losses. As we analyze the data through August 2023, all indicators suggest these challenges are here to stay.听

Identity fraud and forgeries

Since 2019, we鈥檝e witnessed a substantial increase in identity fraud and forgery-related activities, with account takeovers, counterfeit instruments, forgeries, and identity theft standing out. Notably, SAR filings related to account takeovers are on track to surpass 129,000 in 2023, up from 108,000 in 2022, highlighting the escalating nature of this issue.

On a somewhat more optimistic note, SARs for counterfeit instruments are showing a slight year-over-year decrease from the significantly elevated numbers seen in 2022; however, filings still are significantly above pre-2021 numbers. Additionally, forgeries and account takeover filings are expected to slightly increase by the end of 2023, indicating a continued struggle against these types of fraudulent activities.

A key driver of identity crime and forgeries is the widespread availability of personal identity data. Indeed, data from reveals that more than 66 million victims of identity data breaches were identified in the third quarter of 2023 alone. Among the most frequently compromised pieces of personal information were full names, dates of birth, addresses, and Social Security numbers, underscoring the critical need for heightened security and awareness among consumers and institutions.

Elder financial exploitation

Elder financial exploitation has escalated dramatically, marking it as a major concern in the financial sector this year. By the end of August, institutions had already filed more than 105,000 SARs related to the financial exploitation of senior citizens, nearly matching the number of reports filed in all of 2022. This is a substantial increase from the roughly 62,000 filings reported annually in 2019 and 2020, and a noticeable uptick from the 72,000 in 2021. The 2022 jump to 106,000 SARs alone illustrates a concerning 47% increase.

As indicated in the chart below, the current elder financial exploitation-related SAR filing rate means we could see upwards of 158,000 SARs filed by year鈥檚 end. Back-to-back annual increases amounting to double the total number of SARs filed in two years is significant. A portion of this increase likely relates to increased education and awareness within reporting entities; however, the major uptick in elder financial exploitation-related filings strongly implies that the vulnerable elderly population is being victimized by a large increase in scam and fraud activity.

A (formerly the American Association of Retired Persons) sheds light on the magnitude of this issue, indicating that older Americans lose an estimated $28.3 billion annually to targeted scams. Significantly, a major portion of these losses remains unreported by victims, suggesting the actual extent of elder financial exploitation is likely much higher than what the SARs data reveals.

These stats should serve as a call to action to protect an especially vulnerable population. Understanding that this trend is growing at such an alarming rate, financial crime professionals in both the public and private sector ideally should be taking major steps to combat fraud and shield our elderly population from such financial exploitation.

听Conclusion

Heading into the end of 2023, the increase in Suspicious Activity Reports across various sectors 鈥� particularly identity fraud, forgeries, and elder financial exploitation 鈥� calls for immediate and unified action. The latest fraud trends show that the pressure the financial system has been experiencing the last few years has not lost steam and does not appear to be reverting to pre-pandemic levels.

Based on this information, there is a critical need for financial institutions, regulatory bodies, and the wider community to join forces, innovate, and strengthen all their defenses against fraud, scams, and financial crimes. However, as fraud continues to move into the next technological age, there is not one simple solution to combatting it.

Good data, collaboration, and advanced technology should all be leveraged to safeguard the financial system. In this case, the data speaks volumes, and our financial system needs to be ready to prevent, detect, and investigate fraud in real time.