LegalHub: theory
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So let us state the manifest failings of reg tech: rent-seeking and iatrogenics.
Rent-seeking in that no reg tech provider has figured out a business model for how to be suitably paid, other than by extracting rent. This they commonly do by reference to the value their product provides, which they equate to the total cost of labour and infrastructure they save.
Historians and lovers of crushing irony will note the resemblance of this notion to the labour theory of value — that the economic value of a service is equals the total amount of labour required to produce it — or in this case, that one would be required to hire to produce it without this new piece of kit. Why “ironic”? Because it is odd to hear a bedrock intellectual foundation of Marxism babbling from the mouths of small-time rentier capitalists, that’s why.
In any case, we are supposed to be so grateful for saving wage bill for a handful of school-leavers in a service-centre in Sarajevo, we will gladly pay the same amount to a guy in Old Street who worked up code from some moonlighting school-leavers in Bucharest, and let him intermediate our processes for the hereafter, doing nothing but cheerfully clipping our ticket each time the machine spits out another document, or even just sits collecting dust on his server (this is called “hosting”). But the promise of the information revolution is something different it is to disintermediate. Shit is meant to be free, not just marginally cheaper than snail mail.
Iatrogenic[1] in that in promising to alleviate the tedium of the boilerplate, pernickitiness and low-level wrangling over representations and warranties, technology throws open the window wide on a panoramic vista of unlimited low-level tinkering. Before the information revolution, the anality of contracts was bounded by any lawyer’s natural capacity — deep, to be sure, but ultimately finite — to hold a superstructure of piecemeal salutary conditionality in her head. With a laptop and an adeptness with JavaScript, that limit has now been taken away. Contracts can be infinitely pedantic, variable, customisable. We can cater for any predilection, whim, doubt or proviso. We can find and propagate Biggs constants at will. We can put one in every line, if that is our wish. We can command that a space between words must be italic. When the great J. M. F. Biggs first isolated and documented a Biggs hoson in the wild — the celebrated bold full stop in a “Boats” repackaging — it was a once-in-a-generation event.
This should not be a surprise. The invention of the word-processor did not shorten legal discourse. The arrival of email did not truncate the nature or volume of our communication. Andy gaveth, but it was not Bill, but our innate gift for verbal diarrhoea that took away. Note note the interests here: those providing the cure have a direct incentive — in fact, a need — to continue helping, because that is how they get paid. They design their disintermediating machines to only disintermediate so far: it must still remain sufficiently dependent on their code, their systems, their expertise, that the users are obliged to pay an annuity for it. To pay rent.
Our friends in the management consulting profession (also rent-seekers, needless to say) encourage this disposition through the dogma of outsourcing. Here the gist is: if you have a convoluted process that is costing you time and money, outsource it, to someone better specialised, incentivised and remunerated to do it, who can do it cheaper, better and — thanks the magic of Adam Smith’s invisible hand — at the optimal cost. In this way do we intrench rent-seekers, by building an entire (rent-seeking) infrastructure around it — management, operations, compliance, internal audit, procurement, you name it — that it so costly to remove that it is easier just to live with it, from time to time tweaking it; optimising it; readjusting it; relocating that service centre from Bangalore to Manilla to shave off another half a point in running costs, in each case keeping that entire bureaucratic iron lung that you have created fully engaged. And no management consultant will tell you the obvious truth: had you decomplicated the process in the first place, perhaps giving away some peripheral protections in the mean time, none of this would have been necessary.
So where does this leave us?
Rent-seeking encourages us to squirrel away verbal mush on the grounds that it is “proprietary technology”: we straight-facedly say “my fifteen minutes of effort, wherein I rendered a Contracts (Rights of Third Parties) Act clause, must perpetually be rewarded.” This is a profoundly awful disposition. Sorry, folks, but there is nothing — utterly nil — that is special, clever or even desirable about legal boilerplate. It is to witness marginal utility at the point it touches zero: it is the dreary formality one must go through to get to the heart of the deal. The same goes, my friends, for your ISDA schedule — yes, friends, the whole god-forsaken thing, even the customised ATEs. No-one cares. No-one likes it. No-one wants it. It is a regrettable externality; a grim fact of life. It is not the act; it is the johnny and the duly witnessed consent and disclaimer you need before you get on with it.[2] It is the mask you need in order to go into the supermarket.
So these feedback loops drive us away from the place we want to go.
See also
- Outsourcing
- Service level agreement
- Management consultant
- Subject matter expert
- Metrics
- ClauseHub: theory
- ClauseHub
- Legal services delivery
- Why is reg tech so disappointing?
References
- ↑ This is a super concept and if you haven’t come across it you owe it to yourself and Nassim Nicholas Taleb to read about it in his superbly bombastic Incerto series.
- ↑ Oh, and make sure there’s a counterparts clause for good measure.