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The Indoor Management Rule is a legal principle that protects third parties who deal with a corporation in good faith. It allows outsiders to assume that a company has followed its internal procedures and that the people they are dealing with have the authority they claim to have—even if that turns out not to be the case.
What Is the Indoor Management Rule?
The Indoor Management Rule is set out (although not by name) in section 18 of the Canada Business Corporations Act (“CBCA“) and section 19 of the Ontario Business Corporations Act (“OBCA“).
Section 18 of the CBCA states:
- 18 (1) No corporation and no guarantor of an obligation of a corporation may assert against a person dealing with the corporation or against a person who acquired rights from the corporation that
- (a) the articles, by-laws and any unanimous shareholder agreement have not been complied with;
- (b) the persons named in the most recent notice sent to the Director under section 106 or 113 are not the directors of the corporation;
- (c) the place named in the most recent notice sent to the Director under section 19 is not the registered office of the corporation;
- (d) a person held out by a corporation as a director, officer, agent or mandatary of the corporation has not been duly appointed or has no authority to exercise the powers and perform the duties that are customary in the business of the corporation or usual for a director, officer, agent or mandatary;
- (e) a document issued by any director, officer, agent or mandatary of a corporation with actual or usual authority to issue the document is not valid or genuine; or
- (f) a sale, lease or exchange of property referred to in subsection 189(3) was not authorized.
Section 19 of the OBCA states:
- 19 A corporation or a guarantor of an obligation of a corporation may not assert against a person dealing with the corporation or with any person who has acquired rights from the corporation that,
- (a) the articles, by-laws or any unanimous shareholder agreement have not been complied with;
- (b) the persons named in the most recent notice filed under the Corporations Information Act, or named in the articles, whichever is more current, are not the directors of the corporation;
- (c) the location named in the most recent notice filed under the Corporations Information Act or named in the articles, whichever is more current, is not the registered office of the corporation;
- (d) a person held out by a corporation as a director, an officer or an agent of the corporation has not been duly appointed or does not have authority to exercise the powers and perform the duties that are customary in the business of the corporation or usual for such director, officer or agent;
- (e) a document issued by any director, officer or agent of a corporation with actual or usual authority to issue the document is not valid or not genuine; or
- (f) a sale, lease or exchange of property referred to in subsection 184 (3) was not authorized,
Practically, the Indoor Management Rule means that any persons having dealings with a corporation are entitled to rely on the representation or belief that an individual held out to be an officer or director is in fact an officer or director, notwithstanding that the individual may have been improperly elected or who does not, in fact, hold that office by virtue of some clerical, formal or legal error. Effectively, if a corporation is holding an individual out as being an officer or director, third parties are entitled to rely on same for the purposes described in sections 18 and 19 above—meaning that the individual actually has the authority to do what an officer or director, properly elected, would ordinarily have the authority to do.
Indoor Management Rule Example
Consider this scenario: A supplier enters into a contract with ABC Corporation. The contract is signed by someone introduced as the company’s Vice President of Operations. The supplier delivers goods worth $50,000 based on this agreement.
Later, ABC Corporation refuses to pay, claiming that the VP was never properly appointed at a board meeting and therefore had no authority to sign the contract.
Under the Indoor Management Rule, the supplier is protected. Because ABC Corporation held this person out as their VP, the supplier was entitled to rely on that representation. The corporation cannot use its own internal procedural failure as a defense to avoid paying for the goods. The contract remains enforceable.
Indoor Management Rule Exceptions
While the Indoor Management Rule provides important protections for third parties, it does not apply in all circumstances. The rule will not protect a third party when:
- The third party had actual knowledge of the irregularity or lack of authority—if you knew the person signing didn’t have proper authorization, you cannot claim protection under this rule
- The circumstances should have raised suspicion—if a reasonable person would have made further inquiries but the third party failed to do so, the protection may not apply
- The transaction was clearly outside the company’s powers—if the corporation’s articles explicitly prohibit a certain type of transaction, third parties cannot rely on the Indoor Management Rule
- There was forgery involved—the rule protects against procedural irregularities within a company, not against forged documents or fraudulent impersonation
- The third party was an insider—directors, officers, and others with inside knowledge of the corporation’s affairs cannot claim the same protections as external parties dealing at arm’s length
Tools like entity management software help corporations maintain accurate records of directors and officers, reducing the risk of indoor management disputes and ensuring corporate compliance.
process your request
How do you know if you are qualified to be a director for a Canadian corporation?
The answer is surprisingly easy. There are no specific legal requirements for directorship in Canada. The law in Ontario is similar.
Instead, the Canada Business Corporations Act (“CBCA”), at section 105(1) sets out the four criteria that would disqualify someone from being a director, namely:
- anyone who is less than eighteen years of age;
- anyone who is incapable;
- a person who is not an individual;
- a person who has that status of bankrupt.
Similarly, Ontario’s Business Corporations Act (“OBCA”), at section 118(1) sets out four similar criteria that would disqualify someone from being a director, namely:
- A person who is less than eighteen years of age;
- A person who has bee found under the Substitutes Decisions Act, 1992 or under the Mental Health Act to be incapable of managing property or who has been found to be incapable by a court in Canada or elsewhere.
- A person who is not an individual.
- A person who has the status of bankrupt.
Although the foregoing disqualifying properties are fairly straightfoward, the criteria of A person who is not an individual can be tricky to understand. At law person has a defined meaning, which, for example, includes corporations. At law corporations have, for the most part, the same legal status as persons. Corporations, in fact, are persons. Corporations are not, however, indviduals (i.e. human individuals). Therefore, we can conclude that a corporation, despite being a legal person, cannot be a director of another corporation because a corporation is not an individual.
A Canadian business that wants the legal protection of a corporate structure has a single practical task and a number of legal choices. The task is to file articles of incorporation. The choices include whether to incorporate federally or provincially, whether to use a numbered or named corporation, who to appoint as the initial directors and what to include in the share structure.
In 2026 the mechanics of incorporation are mostly online and reasonably quick. The decisions that drive long-term cost, name protection, regulatory exposure and operational flexibility are made before the filing button is pressed.
This article walks through the federal and provincial methods of incorporation available in Canada in 2026. It covers the federal-versus-provincial decision, the steps and costs of each route, the NUANS report and naming process, the ISC Register filing introduced by Bill C-42, extra-provincial registration and the post-incorporation requirements that follow.
Federal or provincial: the first decision in Canadian incorporation
Every Canadian corporation is created under a specific corporate statute. Federal corporations are created under the Canada Business Corporations Act (CBCA). Provincial corporations are created under each province’s business corporations statute, including the Ontario Business Corporations Act (OBCA), the British Columbia Business Corporations Act (BCBCA), Quebec’s Business Corporations Act (QBCA) and equivalents in the other provinces and territories.
The choice has a few practical consequences:
- Name protection. A federal CBCA corporation receives nationwide name protection. No other federally incorporated corporation can register a confusingly similar name anywhere in Canada. A provincial corporation’s name is protected only within its province of incorporation
- Director residency. A CBCA corporation requires that at least 25 percent of its directors be resident Canadians. If there are fewer than four directors, at least one must be a resident Canadian. Ontario removed its residency requirement under the OBCA in 2021. British Columbia, Alberta and Quebec also have no residency requirement
- Filing fees. Federal incorporation costs $200 when filed online through Corporations Canada. Provincial fees vary, for example $300 in Ontario, approximately $351.50 in British Columbia and $379 priority in Quebec; Alberta varies by registry agent
- Processing time. Federal CBCA online filings typically clear within 1 business day, with a paid 4-hour express service available for an additional fee. Provincial filings (especially for numbered Ontario corporations) often clear the same day
- Extra-provincial registration. A CBCA corporation operating in a province must still register extra-provincially in that province. A provincial corporation operating in another province must register extra-provincially in each additional province where it carries on business
For most domestic Canadian businesses operating in a single province, provincial incorporation is faster and less expensive. For businesses with operations across provinces, with international founders or with strong brand-protection requirements, federal incorporation is usually the better choice.
Articles of Incorporation: the modern method across federal and provincial regimes
Every Canadian incorporation today happens through articles of incorporation. The articles are the founding legal document of the corporation and typically capture three categories of information.
The first category is identity. The articles set out the corporation’s name (or a numbered designation) and the province or territory where the registered office will be located.
The second category is share structure. The articles describe the classes and any maximum number of shares the corporation is authorized to issue, plus any restrictions on share transfers.
The third category is governance. The articles set out the number of directors, any restrictions on the business the corporation may carry on and any other provisions the incorporators wish to include. Common “other provisions” include classes of shares with different rights, conversion rights and pre-emptive rights.
Once the articles are filed and accepted, the corporate registry issues a certificate of incorporation. The corporation legally exists from the date and time on the certificate.
This is the same conceptual mechanism whether the incorporation is federal or provincial. The differences sit in the form, the fee and the registry that issues the certificate.
How to incorporate a federal CBCA corporation
Federal incorporation in 2026 follows a defined sequence:
- Decide on the corporate name (or use a numbered designation)
- If using a name, run the corporate name search inside the Corporations Canada Online Filing Centre (incorporators may also obtain a NUANS pre-search report dated within 90 days to verify availability before filing)
- Determine the share structure and any restrictions
- Identify the initial directors and confirm at least 25 percent are resident Canadians (or 1 of fewer than 4)
- Select the registered office address
- Identify the individuals with significant control (ISCs) for the post-incorporation ISC Register filing
- File the articles of incorporation through the Corporations Canada Online Filing Centre
- Pay the $200 filing fee
- Receive the certificate of incorporation, typically within 1 business day (or in 4 hours with paid express service)
Once the certificate is issued, the corporation must immediately address the post-incorporation organizational matters. These include passing organizational resolutions, adopting by-laws, issuing shares to initial shareholders, setting up the corporate minute book and filing the initial ISC Register information with Corporations Canada.
How to incorporate provincially (Ontario, BC, Quebec, Alberta)
The provincial routes share the same article-based structure with different specifics:
- Ontario (OBCA): File articles of incorporation through the Ontario Business Registry (OBR). Filing requires a My Ontario Account (formerly ONe-Key) and the corporation’s Company Key. Fees are typically $300 for online filing. No director residency requirement since 2021. The OBCA also requires private corporations to maintain an ISC register inside the minute book under section 140.2, effective January 1, 2023
- British Columbia (BCBCA): File the Incorporation Application through BC Registry Services. Fees are typically $350. No director residency requirement. BC has required a transparency register inside the corporation since October 1, 2020
- Quebec (QBCA): File the Articles of Constitution with the Registraire des entreprises du Québec (REQ). Fees are typically $379 (priority) or lower for standard. No director residency requirement. Quebec requires ultimate beneficiary disclosure to the REQ since March 31, 2023
- Alberta (ABCA): File articles of incorporation through Service Alberta or an authorized registry agent. Fees vary. No director residency requirement. Alberta is the only province (along with Yukon, the Northwest Territories and Nunavut among the territories) without an in-force ISC or transparency register requirement. Alberta held a stakeholder consultation on beneficial ownership in 2025
Provinces other than the four above use similar processes. Each maintains its own registry, fee schedule and incorporation forms.
Numbered vs named corporations and the NUANS report
Founders who want a corporate name (for example, “Maple Tech Ltd.”) must clear it before incorporating. Founders who do not need a brand name can incorporate as a numbered company (for example, “1234567 Canada Inc.”), which removes the name search step.
The Newly Upgraded Automated Name Search (NUANS) is the federal name-search tool used to verify that a proposed corporate name does not conflict with existing corporate names, business names and trademarks. Corporations Canada has integrated the corporate name search into the federal Online Filing Centre, so a separately ordered NUANS report is no longer strictly required for online federal named incorporations. Incorporators may still obtain a NUANS pre-search report (dated within 90 days) to verify name availability before filing.
NUANS reports cost approximately $13.80 from authorized search houses or roughly $48 to $80 through a service provider. Most provinces use NUANS or an equivalent provincial search when filing a named provincial incorporation. Ontario, for example, accepts a NUANS report (or accepts a numbered corporation without one). Quebec uses its own search through the REQ.
MinuteBox’s registry services include NUANS searches alongside federal and provincial incorporation filings, which keeps the name search and the incorporation in a single workflow.
A numbered corporation can change its name later by filing articles of amendment with a NUANS report at that time.
ISC Register filing at incorporation under Bill C-42
The most significant change to Canadian incorporation since 2019 is Bill C-42, which came into force on January 22, 2024. The amendments require federal corporations to file information about their individuals with significant control with Corporations Canada on a defined schedule:
- At incorporation
- Within 30 days of amalgamation or continuance
- Annually with the corporate annual return
- Within 15 days of any required update to the ISC Register
For a newly incorporated federal corporation, the ISC Register filing is part of the post-incorporation organizational sequence. The information is fed into the public Corporations Canada registry. Maximum statutory penalties under the CBCA include fines of up to $100,000 for the corporation and, for directors or officers who knowingly authorize, permit or acquiesce in a contravention, fines of up to $1,000,000, imprisonment for up to five years, or both, on summary conviction. Actual outcomes depend on the facts and prosecutorial discretion.
Provincial ISC and transparency register obligations vary. Ontario, BC and Quebec have their own internal-register requirements. None of those provincial registers is publicly searchable in the way the CBCA register is.
Extra-provincial registration when operating beyond your home province
Choosing to incorporate federally or provincially does not control where the corporation can do business. Any corporation carrying on business in a province where it was not incorporated is required to register extra-provincially in that province.
Extra-provincial registration typically involves a provincial filing in each province where the corporation operates, a registered agent or registered office address in that province, annual filings or updates in that province alongside the home-jurisdiction filings and compliance with the host province’s corporate transparency, ISC and tax registration rules.
For corporations with operations in multiple provinces, the extra-provincial filing burden is often the strongest argument for federal incorporation. A federal CBCA corporation has the right to operate in every province, subject only to extra-provincial registration. A provincial corporation that grows beyond its home province eventually has to register everywhere it operates anyway.
Post-incorporation requirements
The certificate of incorporation is the start of the corporate life, not the end. New corporations typically need to:
- Pass organizational resolutions (appointing officers, issuing shares, approving by-laws)
- Adopt by-laws
- Issue share certificates and update the share register
- Set up the corporate minute book
- File the initial ISC Register with Corporations Canada (federal) or maintain it internally (most provinces)
- Obtain a Business Number (BN) from the Canada Revenue Agency
- Register for GST/HST, payroll and provincial sales tax accounts as applicable
- Open a corporate bank account
- Register extra-provincially in each additional province of operation
The corporate minute book is the home for most of these records. Articles, bylaws, organizational resolutions, shareholder and director registers, ISC Register, share certificates and meeting minutes all live together. For more on what belongs in a minute book, see does my company need a corporate minute book.
Historical methods of incorporation in Canada
For completeness, three historical methods are worth noting because they appear in legal historical references and occasional special cases:
- Royal Charters. The oldest form of incorporation in Canada, used to create chartered monopolies such as the Hudson’s Bay Company. No new commercial Royal Charter incorporations are granted today
- Special Acts. Used near the end of the 19th century and into the 20th to incorporate entities serving specific (often quasi-public) purposes such as railways and telecommunications infrastructure. Crown corporations are still occasionally created by special act of the federal Parliament or a provincial legislature
- Letters Patent and Memorandum of Association. Older general-act methods that have been replaced by articles of incorporation in most Canadian jurisdictions
In modern practice, articles of incorporation are the operative method for nearly every commercial Canadian corporation. The historical methods are mainly relevant for understanding pre-existing corporations, crown entities and certain heritage organizations.
How MinuteBox Approaches Incorporation Workflows
MinuteBox is a modern entity management platform used by law firms and corporate clients to handle incorporations, post-incorporation organizational sequences and ongoing maintenance of CBCA, OBCA, BCBCA, QBCA, ABCA and other Canadian corporate entities in a single system.
Registry services inside MinuteBox cover federal and provincial filings, NUANS searches and ISC Register submissions to Corporations Canada. The platform tracks the post-incorporation checklist (organizational resolutions, by-laws, share issuances, minute book setup) and stores the resulting documents alongside the rest of the corporate record. For corporations operating across multiple provinces, MinuteBox handles extra-provincial registrations and the ongoing annual return cadence in each jurisdiction.
For corporations migrating from paper binders or legacy systems, MinuteBox offers concierge migration supported by the MinuteBox team. Security is backed by SOC 2 Type II, ISO 27001, ISO 27017 and ISO 27018 certifications. For related reading, see how CBCA record-keeping evolved from Bill C-86 to Bill C-42 and the annual corporate filing calendar.
Book a demo to see how MinuteBox helps corporations move from incorporation through to ongoing governance in one workflow.
This article is for informational purposes and does not constitute legal advice. Consult qualified legal counsel for guidance specific to your situation and jurisdiction.
FAQ – Methods of Incorporation in Canada
The outcomes described below are illustrative and depend on specific facts. Consult qualified legal counsel for advice on your situation.
Should I incorporate federally or provincially in Canada?
The decision depends on three main factors: where the corporation will operate, where the directors live and how important nationwide name protection is. Federal CBCA incorporation provides nationwide name protection and the right to operate in every province subject to extra-provincial registration. Provincial incorporation is faster and less expensive but limits name protection to the province of incorporation.
Federal also requires 25 percent Canadian-resident directors, while Ontario, BC, Quebec and Alberta have no residency requirement.
How much does it cost to incorporate in Canada?
Federal CBCA incorporation costs $200 when filed online through Corporations Canada. Provincial incorporation fees vary, for example $300 in Ontario, approximately $351.50 in British Columbia and $379 priority in Quebec; Alberta varies by registry agent.
Additional costs may include a NUANS report (approximately $13.80 directly or $48 to $80 through a service provider), legal fees if counsel is retained, share certificate preparation and a corporate minute book setup. Total all-in costs for a basic incorporation typically run $400 to $1,500 depending on jurisdiction and whether legal services are used.
How long does it take to incorporate a corporation in Canada?
Federal CBCA online filings typically clear within 1 business day through the Corporations Canada Online Filing Centre, with a paid 4-hour express service available for an additional fee. Provincial filings often clear quickly as well, especially for numbered corporations.
Ontario can issue numbered OBCA corporations the same day. BC and Quebec generally turn around within 1 to 3 business days. Same-day priority filing is available in some provinces for an additional fee.
Do I need a Canadian-resident director to incorporate?
For federal CBCA incorporation, yes. At least 25 percent of directors must be resident Canadians, or at least one director if there are fewer than four directors total.
Ontario removed its residency requirement under the OBCA in 2021. British Columbia, Quebec and Alberta also have no director residency requirement. Founders based outside Canada often choose Ontario or another residency-free province to avoid the federal requirement.
What is a NUANS report and when do I need one?
A NUANS report compares a proposed corporate name against existing Canadian corporate names, business names and registered trademarks. Corporations Canada has integrated the name search into the federal Online Filing Centre, so a separately ordered report is no longer strictly required for online federal named incorporations. Most provinces, including Ontario, still accept a NUANS report when filing a named provincial incorporation, dated within 90 days. MinuteBox’s registry services include NUANS searches as part of the incorporation workflow.
The history of “corporations” is a long and colourful story.
Perhaps the most interesting and unique trait of a corporation amongst the different forms of carrying on business is that a corporation is a separate and distinct legal entity from its “owners”.
This means a corporation can own property, have debts and debtors and carry on business as a separate legal entity. A corporation can, of course, carry on business separate and apart from its owners. In fact, in law, a corporation is considered a “person”. This is not to be confused with an “individual”, i.e. a human individual or personhood, but to convey that a corporation has almost all of the same legal characteristics as legal persons.
Two very important characteristics of corporations follow from the fact that a corporation is a separate and distinct legal entity. 1) Corporations may sue or be sued in their own name and 2) Corporations enjoy perpetual existence.
Unlike other forms of carrying on business, a shareholders’ liability is limited only to the value of the assets the shareholder has transferred to the corporation.
Earlier this year MinuteBox team members (MB) had the pleasure of sitting down with Karen Dunn Skinner and David Skinner, the two principals of Gimbal Canada. Gimbal is an industry-leading consulting firm, advising leading law firms throughout Canada and the United States.
MB: How did you both find yourselves in the legal consulting field? And working with Fireman & Company?
Karen: Our goal has always been to help lawyers continuously improve their practice, their business, and their bottom line. After spending years practicing law for large international law firms, in-house, and also as sole practitioners, we came to the conclusion that there had to be a better way to practice law and deliver value to clients.
David: We were attracted to Lean’s focus on value and waste, especially its approach to identifying, evaluating, and then redesigning processes to eliminate, or at least reduce, waste. We saw the potential of Lean to transform the legal service delivery model. Since then, we’ve worked across North America applying Lean, mapping, and process improvement methodologies to improve all aspects of the model. Because we’ve both been lawyers for decades, we’re able to combine our knowledge of Lean and with our understanding of the legal profession. We apply Lean thinking to both the practice of law and the management of law firms and in-house legal departments. We help lawyers in firms and in-house teams do more with less.
Karen: We connected with the consultants at Fireman & Company and created the Performance, Profitability, and Innovation Group to help clients integrate a range of innovative solutions. As a group, we are able to offer deep expertise in pricing, process improvement, legal project management, knowledge management, staffing, legal technology, and data analysis. We improve service delivery by increasing efficiency and productivity, maximizing profits for law firms, and helping in-house legal departments better balance budgets, headcount, and workload.
MB: Has the legal industry embraced Lean and Six Sigma? Are they warming up to the idea?
David: Warming up? Yes. Embraced? No, but that has nothing to do with Lean’s methodologies or the tools. There is tremendous resistance in the legal industry to even the most basic of change. Not only are lawyers conservative by nature, but the partnership structure creates a huge amount of inertia. It can be hard for those interested in doing things differently to garner the necessary support for their innovations. Altman Weil’s 2017 Law Firms in Transition report revealed a disconnect between what leaders of some of the largest law firms know they should be doing and what they are actually doing: 94% of survey respondents said a focus on improved practice efficiency will be a permanent trend going forward, but only 49% said they have significantly changed their approach to the efficiency of legal service delivery.
MB: What is the biggest challenge(s) facing law firms today?
David: The biggest challenge facing law firms is that demand is flat or declining in most practice areas. The only way to get more business in this climate is to take it away from others. To do that, you’ve got to distinguish yourself from your competition by becoming some combination of better, faster, and/or cheaper. Improving productivity, quality, and profitability all ties back into efficiency and the value proposition for clients.
Technology can be another big challenge. Getting everyone in a firm to accept, adopt, and then regularly use technology to its full potential is a lot harder than you would think. Some lawyers even resist using Outlook and other calendaring systems. We know of others who still use WordPerfect.
Karen: Lawyers are also facing growing pressure from clients to be much more efficient; clients are demanding better quality service in less time and at less cost. In some cases, lawyers are under pressure to provide more interactive services, whether that’s more self-service through client-facing portals or more accurate data delivered in real time as to the progress and cost of their matters.
Then there’s competition from both traditional and non-traditional service providers. Historically, the more routine, commoditized legal work wasn’t seen as a priority for many of the big firms. They focused instead on more “bespoke” services for larger clients. It’s becoming increasingly clear to many that if you can get the process right, there’s a whole lot of money to be made, even on a fixed fee basis, from this commoditized work. Think of things like drafting commercial leases, litigating loan defaults, minute book storage and maintenance and filing trademark applications. The pressure is on for firms to recapture profitable portfolios of work they previously passed over.
David: And the category of non-traditional service providers who are competing against law firms continues to expand. Pressure is coming from accounting and auditing firms, legal process outsourcers, e-discovery and document review companies, and also organizations that provide alternatives to traditional legal staffing models.
MB: What kind(s) of law firms will succeed given the changing industry?
David: The firms most likely to succeed are those that have the most efficient methods of delivering real value to their clients at a fair and reasonable price. Such firms will have adopted an integrated approach to innovation. Rather than focusing on single initiatives, these firms will combine different change elements with other strategies in a comprehensive series of initiatives that they will actually execute and implement in a coherent fashion. Successful law firms will likely be characterized by an optimized use of existing technology and other tools delivering, among other things, cloud-based document, knowledge, and file management across mobile platforms that integrate with other relevant practice technologies to enhance collaboration.
MB: What role are clients playing to encourage their law firms to innovate? Should they be doing more?
Karen: Clients are driving the pressure to innovate. They want better value with greater certainty as to the cost. They are less inclined than ever to accept the inefficiency and waste that is common in law. They are simply holding lawyers to the very same standards that their own customers and clients demand of them. They’re not always happy with the pace of change, either. Thompson Hine recently released the results of a survey that showed a really clear “innovation gap” between what firms said they were doing and what clients perceived them to be doing.
MB: The recent Thomson Reuters/Georgetown Law report painted an image of an industry with flat demand and decreasing future returns. Is that an accurate description of law today?
David: We think so. That report’s findings are based on data, which we aren’t in a position to challenge, and it mirrors what we see in the firms we work with.
MB: Similar reports published by the same bodies have been released annually for years with nearly identical messages. Are we becoming inured to the message that change is required?
Karen: Maybe so, but that doesn’t lessen the need for nor the urgency of continuing to deliver the message. That Thompson Hine survey is very clear: clients want change. Eventually, the industry will have to change. Citi Private Bank and Hildbrandt Consulting’s 2017 Client Advisory puts it well, “In a market where clients want the most efficient delivery of legal services, the market will reward law firms who focus on operational efficiency in its broadest sense — not just managing expenses, but transforming the way they run their firms and deliver legal services.”
MB: Are law firms actually reticent to adopt new technology? If so, why? If not, why does it seem like they are?
David: We have a colleague who always says, the best technology is the technology you actually use. If it doesn’t immediately make their work easier, with minimal effort on their part, lawyers are not going to use it, no matter what the ultimate benefit might be.
Karen: Firms aren’t reticent to buy new technology. Instead, they tend to look to technology to provide them with a silver bullet that will solve their problems. But technology is NOT a silver bullet. Technology doesn’t solve problems. Rather it’s the combination of smart and creative people using technology that solves problems. Adoption issues are usually related to (a) not really understanding the problems they’re trying to solve; (b) buying the next shiny butterfly without understanding how the lawyers will use it or interact with it (and without knowing if it will really solve their problems); and (c) not putting enough effort and time into training.
MB: What are some of the non-technological issues facing law firms today?
David: Clients aren’t buying time. They are paying for your knowledge and experience, and your ability to deliver what they need. That most lawyers bill by the hour creates a significant disconnect in the value proposition when viewed from the clients’ perspective.
As well, a tremendous amount of what we do as lawyers involves processes. If you don’t see the process in what you do, then you don’t really understand in detail what you (and those who produce work for you) do. Once you recognize the processes involved in your practice, it is easier to isolate and analyze each step to develop a comprehensive understanding of the costs and bottlenecks. With this information, you can determine what solutions (technological and otherwise) your law firm should consider adopting.
MB: How will the role of lawyers change given the rapid advances in legal technology?
Karen: Hopefully for the better. If technology can take over a lot of the lower-value tasks, then lawyers can concentrate on adding value where it’s actually needed. In an article by D. Casey Flaherty about contracts, he argues that standardization and automation are necessary, but first we have to really understand the meaning of the documents we’re standardizing. We have to examine the boilerplate content, parse those standard clauses, and focus our legal knowledge on making sure our contracts are delivering exactly what we say they are (and what our clients need). That’s the critical role for lawyers. Only then can the new documents be standardized and automated.
MB: What advice would you give to the new generation of lawyers, many of whom have been trained the same way as the previous generations?
David: Look at what you do from your client’s perspective. Most law firms are designed by lawyers for lawyers. They’re not designed for clients. Think about how you buy something major, like a car or a holiday. You shop around for options, research, consider the value you’re getting and then compare prices. And you know the price of all those options or elements up front. Now think about how you sell your legal services. In all likelihood, all you’re going to tell your client is how much you charge per hour. And often, you can’t even tell them how many of those expensive hours it’s going to take to get their result. That’s not “doing business from the client’s perspective.”
Also, look to develop business skills. Learn basic accounting, marketing, finance, change management, and design thinking. Engage in a conversation with your clients about their business (not just their legal problems). Educate yourself beyond the law in things that matter to your clients.
MB: As legal consultants, have you come across any interesting law firms or law firm initiatives?
Karen: We don’t like to play favourites…but one of the most interesting things I’ve seen lately is a shift in compensation models. It’s hard to get people to spend time on innovation or change when that time eats into their billables. We’re finally starting to see firms rewarding people for participating in projects and for successful completion of improvement initiatives. The reward may be financial compensation for participation, or credits for innovation hours. Firms are getting creative and it’s great to see.
Thank you both so much for taking the time to speak with us. Can’t wait to connect with the Gimbal team again soon.
