The legal services industry in the UK has historically been one of the largest in the world, with UK legal industry revenue expected to grow to almost £40bn by 2028. But the sector is in a state of flux as US law firms look to grow market share in the UK and Europe, while a report by Thomson Reuters on the UK legal market suggests it is becoming harder to stand out as legal work becomes commoditised. In addition, a growing number of UK clients are looking to keep more activity in-house to improve efficiency and cost savings.

Multinational, newly merged law firm A&O Shearman is one company innovating to stay ahead – part of its mission is to be the world’s most advanced in its sector. An integral part of this is delivering legal services in new and flexible ways and optimising technology. This drive prompted the organisation to become an early adopter of AI, allowing it to successfully carve out a competitive advantage in a traditional industry.

As David Wakeling, partner and head of A&O Shearman’s Markets Innovation Group (MIG), explains, the company started its generative AI journey in November 2022, when it began trialling a generative AI tool designed for law firms, named Harvey. “As lawyers, we’re extremely focused on risk management. My team and I looked at generative AI, and we quickly realised it was going to be really disruptive for the global legal industry, as well as carrying with it quite a lot of risks.”

When deploying Harvey, Wakeling and his team focused on the governance needed to enable safe deployment. They introduced a feedback loop to understand how lawyers were using the AI tool, as well as to capture any concerns they had or challenges they were experiencing. “We did an incremental rollout, piece by piece, and developed governance around deployment, to ensure that it was done responsibly and in a way that was trustworthy. We made it our objective to roll it out to 2,000 lawyers across 43 jurisdictions by Christmas Eve 2022.”

The feedback from lawyers painted a very clear picture: “We could quickly see that this technology was going to augment, rather than displace the lawyer,” says Wakeling. “AI can ‘hallucinate’ – bringing up incorrect or misleading results – meaning that human decision-making and judgement, tailored to the specific industry sector in which the lawyer operates, is paramount.”

After the successful trial, the technology was integrated into the firm’s global practice, making A&O Shearman the first firm in the world to deploy generative AI at enterprise level.

A productive partnership

This led A&O Shearman to partner with Microsoft and Harvey to develop its own generative AI contract negotiation tool that leveraged its unique company knowledge. “We wanted to create an AI tool for lawyers that streamlined contract review and negotiation, while also managing the risk of hallucinations. We did this by grounding the AI output in high quality ‘benches’ of legal knowledge – in other words, a bank of gold standard precedents. We wanted to make sure the lawyer had a really good work product, which is quality assured,” says Wakeling. The result was ContractMatrix.

Wakeling says lawyers have long worked in Microsoft Word, meaning that they are familiar with the Microsoft environment. “We made ContractMatrix a Word add-in because we wanted it to be operated from the natural workspace of the lawyer. The idea is you hit the app, ContractMatrix opens, and your benches and previous deals are immediately accessible to you. It was so logical to build it in that environment.”

The tool speeds up many manual tasks, associated with drafting contracts, that a lawyer usually undertakes during their working day. “No one went to law school for manual process exercises – this is about enabling lawyers to focus on tasks that require strategic thinking and decision-making,” says Wakeling. “From a business perspective, it’s more productive and more efficient.”

The firm currently has more than 1,000 of its lawyers using ContractMatrix, and Wakeling estimates that the tool saves seven hours on average for each contract review, which is a productivity gain of about 30%. “That’s pretty significant,” he adds.

One of the biggest advantages afforded by ContractMatrix is the ability to access gold standard precedents in seconds. “We can find precedent contracts and bring those up to the screen with a couple of prompts of an AI engine,” says Wakeling. “That is huge for lawyers because the whole legal system is based on precedent, so if you can get the best precedents quickly, that is extremely impactful.”

ContractMatrix runs on Microsoft’s cloud computing platform, Azure, which was an additional pull for partnering with Microsoft. As John O’Donovan, chief technology officer at A&O Shearman, explains, the law firm has a large IT infrastructure and a huge amount of information based in existing data centres. “It’s quite an intimidating job for a law firm to manage and organise such a vast infrastructure; you really need to be in the data centre business.”

Centralising technology with Azure

The opportunity to move its infrastructure into Microsoft Azure’s cloud computing platform enabled A&O Shearman to centralise its technology. “When you build things in an on-premise environment, you have to buy lots of infrastructure, such as new servers, and that restricts you. By moving from on-premise to a cloud environment, you can scale quickly and easily according to your needs.”

This also enabled A&O Shearman to scale ContractMatrix as software as a service for client and wider market use. As Wakeling says, this has presented a unique opportunity for the law firm to differentiate itself with, what is effectively, a new business. “We’re a law firm focused on the deployment of legal AI to clients, with Microsoft as the common infrastructure of delivery. Clients know how to use Microsoft Azure and we can deploy it for clients’ in-house legal functions through that environment, so it is very enabling.”

O’Donovan adds that lawyers rely on Microsoft’s suite of tools – such as SharePoint and OneDrive – in their everyday work, and this creates further opportunities for A&O Shearman to build on that within the wider Azure environment. “Microsoft has really invested in legal technology in the last couple of years, and we see that in the use of other tools like Power BI [a data visualisation tool augmented by AI]. So we can use those platforms to build customised tools and workflows for our firm and our clients – we’re not having to develop them from scratch. We are also able to help Microsoft to make products more relevant to the legal market, so it’s a mutually beneficial partnership.”

A&O Shearman has invested heavily in improving the firm’s technology capability over the years. The company ramped this up when generative AI appeared. “We hired loads of developers and added some data scientists, but we also realised we needed to upskill certain functions,” says Wakeling. “Our risk committee needed to be upskilled, as did some of our board members. All members of our risk committee now consider AI in their day-to-day work.”

The firm’s investment in generative AI touches everyone in the company, from marketing and finance to project managers, and the technology is transforming the business. “AI provides some very generic capabilities, such as using Copilot for Microsoft 365 [a Microsoft AI assistant designed to enhance business productivity] to take and distribute meeting notes,” says O’Donovan. “People used to have to do these things manually, so there are some simple, huge efficiencies being gained.

“But our use of AI now goes all the way through to augmenting the very specific skills and knowledge of our lawyers. ContractMatrix, which was made by our lawyers, for lawyers, is a prime example of this.”

A&O Shearman’s integration of AI has also prompted it to overhaul its graduate recruitment process, chiefly by asking graduates questions around AI, such as how they would write the prompts if they were given a certain research task. “We’re looking at their logic and prompt engineering,” says Wakeling. “And then we’re saying: ‘How do you validate the output and look for errors?’ So we’re asking them for a different skill set right from the beginning of their careers. We’re thinking about what’s going to make graduates good lawyers in the coming decades – it’s no longer about learning by rote; it’s more strategic.”

The innovation doesn’t stop there. Allen & Overy’s very recent merger with Shearman & Sterling has also been enabled by working with Microsoft, helping with the integration of systems and data. For example, O’Donovan cites Microsoft’s cross-tenant synchronisation capability, which allowed A&O Shearman to reroute the two legacy firms’ companies email addresses to the new email domain, as well as manage communication between the two organisations through Teams.

“These technologies have been invaluable in taking two large law firms and bringing them together,” he says. “A lot of work is required in a merger, which usually takes years, but we’ve been able to do some things fairly quickly by taking advantage of these technologies.”

Wakeling and his team are looking at opportunities to apply generative AI beyond contract negotiation, such as to due diligence, litigation discovery and mergers and acquisitions. “That’s where we’re starting to turn our attention,” he says.

A&O Shearman’s unique experience of developing and deploying AI systems also means that a large number of clients have approached it for advice on how to deploy AI safely within their businesses. “Since last summer, we have had incredible demand from clients for our global expertise on the key issues around AI deployment, as well as for advice on AI-related disputes, AI collaboration agreements and AI-focused transactions. Our tech expertise on building and deploying AI systems, unusually, sits at the centre of our AI legal advisory group. This is so valuable as clients want to know what responsible AI looks like in practice.”

Wakeling adds that it is likely that future apps his team develops will be devised in tandem with Microsoft. “It has certainly set a very good precedent for how one of the best tech companies can work very successfully with one of the best law firms.”

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Non-independent content produced as part of a commercial deal with Guardian Labs.

Header photograph: Rick Pushinsky/The Guardian

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