Adapted from AI for Lawyers by Noah Waisberg and Alexander Hudek. Copyright 2021 Wiley.
By: Dr. Thomas Laubert (Vice President and Group General Counsel Daimler AG), Dr. Pietro Brambilla (Head of Digital Transformation Integrity & Legal, Daimler AG)& Dr. Jörg Hanke (Skadden, Arps, Slate, Meagher & Flom LLP)
Picture this – you have been tasked with supporting the largest business reorganization project in years: the transformation of the company’s two main operative business divisions into two legally independent entities by way of a hive-down. This means ensuring that all permits, authorizations, contracts etc. required to conduct the respective businesses need to be validly transferred to the relevant new entity and/or amended or newly obtained. Any impediments such as change of control provisions, transfer restrictions and obligations in connection with the consummation of the transaction (e.g., information or consent requirements) need to be identified. The framework conditions were demanding:
- Timeframe: one year to signing.
- Team: lean as possible.
- Documents to review: approximately one million active legal documents, such as contracts, certificates and permits.
By conservative procedure: mission impossible.
Looking back to spring 2018: Daimler AG has decided to strengthen its customer focus and to increase the Group’s agility by separating the car and van and the truck and bus businesses to two new subsidiaries – internal project name: “Project Future”. Upon consummation of the hive-downs, the new Mercedes-Benz AG controls the global business of Mercedes-Benz Cars & Mercedes-Benz Vans and the new Daimler Truck AG is responsible for the global truck and bus business. Daimler AG, as the parent company, will be responsible for governance, strategy and control functions, and will provide group-wide services. To achieve this, each of these entities is required to be fully operational immediately upon effectiveness of the hive-down.
An enormous effort in which the legal department also played a decisive role, especially regarding the necessary contract management.
Typically, a traditional approach to a large project like this might involve reviewing somewhere between 20,000 and 200,000 documents, which could take (at the upper end) more than 50 people working for approximately one year at the review, and need a very large budget. How would we review one million documents and accomplish it in the expected timeframe? Even with a super-heavy lift, a 200,000-contract review would only reveal what was in 20% of the documents. What about the other 80%? Should we decide to just look at samples and hope for the best?
This project demonstrated clearly that traditional ways of resourcing legal work might no longer be sufficient to deliver on business objectives. The traditional way did also not fit with the DNA of Daimler or the philosophy of its legal department. For more than 130 years, Daimler has been moving people and goods all over the world - safely, efficiently, comfortably and with innovative technologies that have always kept the company a step ahead of the competition. It is this spirit that also drives the work of the legal department.
Innovation and technological change has been an integral part of the strategy of the Daimler legal function for many years. As such we had the advantage that we already had created a specialized technology team within the legal department. Its aim is to promote the use of innovative technologies to drive automation, reduce complexity, increase speed and improve efficiency in order to free up the legal colleagues for more strategic and transformative work. “Project Future” was a perfect opportunity to demonstrate the relevance of this transformative approach also for the largest projects on hand – and to show that modern technologies such as Artificial Intelligence (AI) can take the importance of the legal department for the business colleagues to a new level. An important part of the better value equation when leveraging innovative technology is volume, and with AI you have the opportunity to accomplish what was never considered possible so far, such as creating a complete picture of a large document landscape.
Together with Skadden, our law firm commissioned for the project we scanned the market and selected the contract review and analysis software from Kira Systems to do an AI-enhanced review of all active legal documents. To do this project, the legal team needed to train the software to find the information and legal concepts they sought in German and to verify if the pre-built modules in English were sufficient for their purposes. Such training requires a certain number of documents providing for positive and negative samples.
IT-infrastructure (Daimler preferred not to upload all data to an external cloud but to use anon-premise system) and all users had to be set up so everything was ready to go, all in short order. We did not always have sufficient samples to train the software for every legal concept(e.g. certain types of permits); nevertheless, the software still proved valuable for review purposes.
In the course of doing the review, it became clear that, worldwide, there were far more legal documents on file than initially expected. In sum, the number extended to four million active documents. The one million that were initially expected to review was now only 25% of the total number of contracts. However, the project team kept their heads down and got it done.
Despite the massive volume, the review team consisted of less than ten people. In order to ensure the best quality, the first-level review team checked approximately 80,000 of the most important legal documents manually with the help of the software. By that system, potential issues were highlighted which helped to focus on the relevant provisions and to speed-up the review. All other documents were primarily analyzed by the software. The flagged provisions were just reviewed by a so-called first level team, which also curtained related sections as well as a pre-agreed number of the other documents for quality check purposes. The team was supervised by senior lawyers who made decisions in cases of doubt. In addition, a second-level review team carried out quality checks throughout the whole volume of documents. Over the review period, trust in the capability of the software and the trained modules increased more and more, and consequently the number of quality checks could be reduced.
In the process, the Daimler and Skadden team found meaningful information in contracts that never would have surfaced if only 20% of the documents had been reviewed (or more realistically 5%, given the emergence of a larger document universe than initially expected). Unsurprisingly, low priority contracts were less likely to contain unexpected information. However, even these types of contracts provided for certain clauses requiring further action in order to consummate the hive-down (e.g., to inform a counter party or to obtain a counterparty’s consent).
In the end, the review team was able to finish the challenging task with a far more thorough picture of all of the contracts held by the company that would have been possible without the help of AI.
This massive undertaking is a great illustration of the sheer volume of work that can be achieved by utilizing AI. In an increasingly complex world facing an exponential growth of information, one needs exponential technology able to deal with these new challenges.
What else did we learn from the project?
Data is the foundation for AI. Having a good qualitative and quantitative data set is a prerequisite for running a successful AI project. This is why we have further strengthened our overall data and information strategy with a dedicated Data Officer for our organization. In addition, we are focusing our efforts on the targeted adoption of AI technology to have the greatest transformative impact with limited resources.
The use of AI clearly empowers people in the legal department to do higher value work. However, innovation and transformation doesn’t happen overnight. Driving digital transformation really takes a lot of commitment, because it is not just as simple as buying software and getting people on the team to open the application. It is equally important to foster behavioral change as well.
The close cooperation between internal and external lawyers enhanced by powerful modern technology turned this initial “Mission Impossible” to one of our most successful and efficient projects of the legal department in recent years. It clearly demonstrated the added value a modern legal department can bring to the entire company.