The following article is reprinted by kind permission of Thomson Reuters, where it first appeared in their Forum magazine. It was written by Antonio Leal Holguin, Director, Adam Smith, Esq.
The Colombian case.
Twenty years ago, Colombian lawyers were still artisans. Most of them practiced law the same way their predecessors had a century before. The country has had a long and strong legal tradition, inspired by the formalistic Spanish and French systems.
This tradition has reinforced the view of a lawyer as the knowledgeable doctor of laws, possessor of an almost unattainable knowledge, writing commentaries to the Civil and Commercial Codes, lecturing at local universities. These artisans worked alone, at their desks and among books. There were few “large” law firms and the largest probably had around two dozen lawyers. In fact, except for a few pioneers, most lawyers thought the idea of a law firm as anathema to the way they saw their profession and their role in society. So, it is perhaps surprising that Colombia’s legal market today is one of the most dynamic and open legal markets in the Americas.
There is no great case study of how the Colombian legal market became an open one. There wasn’t a legislative commission studying the need for reform or a high-profile antitrust case that tore down the barriers of the profession. A managing partner of a Colombian law ?rm recently suggested to me the most plausible explanation: neglect.
By design or not, the Colombian legal market is an open one, where everyone competes freely. Unlike in Brazil, foreign law firms can practice Colombian law. And, in contrast to the US, Big Four firms can provide legal services. There is no restriction to non-lawyer ownership of law firms and no requirement that they organize as partnerships.
Has this openness resulted in more competition?
For sure. Competition is intense and legal service providers battle fiercely for market share. The openness of the market and the growth and increasing internationalization of the economy have created many changes in recent years. From 2006 to 2015, the legal market grew fivefold. The number of law firms increased threefold. In the past five years or so, international firms have started operating in the country.
They are now significant players in the market. Some of the Big Four firms have robust legal areas and are moving up the value chain. In recent research that Adam Smith, Esq. conducted, Colombian law firm partners told us they see the Big Four as the greatest threat to their business, more so than foreign firms arriving in the country.
Has this openness resulted in more innovation?
Not exactly. Proponents of open legal markets often argue that openness spurs innovation. Colombia is a case study of how this isn’t necessarily so. Absent other conditions, openness does not lead to greater innovation.
Before we continue, let me suggest a definition of innovation. Drawing from Peter Drucker’s work, I’ll define it as finding opportunities in change for doing something new or doing something differently, which clients find valuable.
Have Colombian legal service providers found those opportunities to do something new or different? The openness of the market, the resulting competition and changes in the economy have at least forced law firms to manage themselves differently. As Adam Smith, Esq. partner Janet Stanton says, sometimes “innovation” in Law Land is just applying standard business practices widespread in other industries. In addition to the few firms that pioneered the idea of the law ?rm in Colombia, many more have realized that they ought to manage themselves as a business if they want to survive. Several law firms have adopted standard, common-sense business practices. A select few have adopted practices that are exceptional even in more mature markets.
But don’t look to Colombia for transformative business models that are reshaping the delivery of legal services. New Law providers have begun to appear, offering online services and automated document creation. But they mostly follow successful business models implemented elsewhere. Even though most law firms are now organized as corporations (an innovation by U.S. standards!), they’ve mostly stuck to partnership-inspired structures and models. No law ?rm has seized the opportunities that the lack of regulation of legal services provides to present the market with a completely different approach to doing law.
Why hasn’t a more competitive legal market resulted in more innovation? Our recent research of the Colombian legal market offered clues. Some market leaders we interviewed blamed clients. Clients, too, are enmeshed in the traditional legal culture. They like to do things the way they’ve always done them. Sure, they may whine a little about fees, but overall, they’re not interested in experimentation. One respondent told us that for his firm to evolve, its clients would have to do so, too. The firm didn’t want to go too fast and have the client say, “Let’s go back to the way we’ve always done things.”
