Craig Carpenter, CEO of FRONTEO, isn’t old, but he probably feels it sometimes. He’s been in leadership positions at a lot of e-discovery companies in a relatively short period of time. But that perspective makes him a valuable observer of the industry – particularly to in-house lawyers, since he earned both a J.D. and an M.B.A. and has worked as a general counsel and a business executive. The interview has been edited for style and length.
You got a law degree and an M.B.A. at Santa Clara University from its joint program. What made you decide to go that route?
Craig Carpenter: I went to law school because I wasn’t entirely sure what I wanted to do when I grew up, to be totally honest. Initially I wanted to get a master’s in international relations, because that was my passion as an undergrad. My dad talked me out of it. He told me it would be very challenging to get a good-paying job, and he was probably right. So I ended up going to law school, but I did the joint program because I had a lot of interest in business. My dad had an M.B.A., and I thought it would be a good way to round out my knowledge base as a person.
What did you think you were going to do with these two degrees? And then, what did you actually do with them?
Carpenter: The two aren’t always the same. I did intend to practice law, and I thought I wanted to go into litigation. And I actually did go into litigation initially for the first two to three years that I practiced at a firm. I was on the business, transactional litigation team at a big firm in the [San Francisco] Bay Area here. And I enjoyed the legal side of it. The law firm side of it wasn’t really to my liking. It was a little too “old school.” It wasn’t really as dynamic as what I would have liked, and part of that I think was colored pretty heavily by what was happening in the Bay Area in ’98, ’99, 2000. Which was the dot-com boom, right?
My classmates in the business school and even some in law school were going into startups. It was just an environment that seemed so much more exotic and exciting. So a classmate of mine actually hired me at a Softbank startup to do business development – put together deals with big-box retailers. So we put together deals with Kmart and Costco, and companies like that, for them to distribute our software. I loved it. Really enjoyed the technology side of it, and just the pace of things and, you know, the youth, that exuberance – an ability to really be creative in everything you did. And that’s kind of what I’ve been doing ever since, to varying degrees. We kind of marry the technology with the legal side of things.
Would you say that you’ve been more of an M.B.A. guy than a J.D. guy?
Carpenter: Yeah, I think so. After I practiced law and went over to that startup, I actually had my own ill-fitted consulting firm with the guy who hired me at that company for about a year and a half. Never a good idea to launch a startup that’s catering to other startups when those same startups are running out of funding left, right and center. But, we didn’t know what we didn’t know back in those days. And then I went over to a network security company called Fortinet, which is public and is probably a $7 billion company now.
That particular stint was really not about the practice of law, although I was the acting general counsel. So I was using my legal hat there, which was very interesting because I was facing all sorts of issues that I had never encountered before. But it was mainly more on the business side.
A few years later you landed at Recommind, where you were the general counsel as well as the VP of marketing and business development. Was that a valuable experience in your career development?
Carpenter: I really enjoyed that work. If you’re at a startup or a global company, or both, you’re going to face, as general counsel, new challenges every day – literally. And that was exactly what happened. At Fortinet, where I was acting general counsel, one day you’d be putting together a distribution agreement, and you’d have a choice of law and a choice of venue someplace in Hong Kong, right? Or in Europe. The next day you’d have to let an employee go in Germany, and how do you go about doing that? That stuff was really interesting to me. But even more importantly, it allowed me to not just sympathize with general counsel but also to empathize. And that makes a really big difference.
If I’m buying someone’s technology or services, and they’ve walked in my shoes, and we can have that conversation, that makes a big difference. Because they’re speaking from experience, and so I’ve been able to use that and leverage it, I think, pretty effectively. It’s not just something I’ve experienced in an academic sense. I’ve experienced it in a real-world sense.
You were at Recommind for nearly seven years, and since then you’ve worked for several e-discovery and cybersecurity companies in executive positions. There have been a lot of changes in the industry (and a lot of changes for you personally). What’s behind them?
Carpenter: Acquisitions would be the big one. I left Recommind in 2013 and went to AccessData because AccessData, in my mind, was kind of a perfect marriage of e-discovery and cybersecurity, which is what it became known as. We spun out the endpoint business unit, two years into my tenure. After that I went to Kroll Ontrack, because I had never run a sales team. So I came on as SVP of sales for a year, year and a half, and then we got acquired by The Carlyle Group, the big private equity firm.
At that point, I got in touch with the FRONTEO people. I had known the Evolve Discovery people, which was one of the predecessor companies that became FRONTEO, when I was at Recommind, because they were one of our channel partners. We’re effectively the marriage of Evolve Discovery, which is headquartered in San Francisco, TechLaw Solutions, which is headquartered in New York, and UBIC North America, which is headquartered in Silicon Valley. UBIC is an AI e-discovery company out of Japan, and by far the dominant player in Japan and one of – if not the most – dominant players in the Asia-Pacific region. They went public in Tokyo and then branched out into the U.S. and acquired TechLaw and Evolve, and all of them became FRONTEO.
Long story short, the gentleman who was the CEO of FRONTEO USA, Andy Jimenez, had been the founder and CEO of Evolve Discovery. He was less interested in running a public company that was large and global. That really wasn’t his passion. So he pulled me in, we started talking, and we thought it’d be a really good fit. So, that’s how I became CEO about three months ago.
What’s driving all these changes in the e-discovery industry?
Carpenter: I’d say the way that e-discovery has traditionally been done hasn’t been as efficient as it should be. And the corporate clients have gotten far more vociferous and have gotten more involved. They’ve gone straight to vendors, and they’ve brought technology in-house, because they don’t want to keep paying exorbitant processing fees or hosting fees or review fees. That has put pressure on the market to become more efficient and more differentiated. And at this point for most companies, it’s difficult to differentiate.
There’s really only a few ways you can do it. You can differentiate on size, so DTI can differentiate because they’re the biggest, right? Or you can differentiate by being global. FRONTEO’s probably the best example. We’re not as big as DTI, but we have a bigger global footprint. So when you talk about cross-border or multinational matters, we do really well there. That’s our differentiation, or one of them. And then the third differentiation is with technology. Most companies in the space use kCura’s Relativity software, right? We’re fortunate that we have AI technology that allows us to differentiate. But for most of the industry, that’s not the case. So that puts a lot of pressure on vendors. If you’re not really, really big and you don’t have your own technology to bring to bear and to be able to sell and market, then it’s hard for you to differentiate. And if you’re not global, which is expensive and is a significant investment, you know it’s hard to differentiate there.
You find probably 95 percent of the market finds itself with shrinking margins, and they all of a sudden become interested in being acquired, because they don’t want to see their margins shrink to zero. Obviously it’s tough to run a business at that point. That’s a big part of why you’re seeing this increase in M&A activity.
Where does it go from here?
Carpenter: A lot of people will tell you the sky is falling because margins are shrinking. The good old days are over. I actually don’t think that’s true. I think this is an inflection point, where certain technologies or delivery vehicles are really revolutionizing the industry. It’s often hard to tell these until they’re well underway. Chief among them would be the cloud, AI and analytics.
The cloud is forcing more efficiency in price and cost. Which is a good thing, right? Consumers benefit from that. The second, which tends to be a misnomer because most people don’t know what it means, is artificial intelligence – something that will help you organize things in an automated fashion. And we’re fortunate here at FRONTEO because we have our own AI technology. That’s really helpful. And then the last, which is similarly a powerful and meaningless term, is analytics – the ability to allow clients to make connections using technology that they haven’t been able to make before. Those things are really revolutionary to the industry. It’s just that people aren’t entirely sure how they’re going to play out. So they’re a little leery. We don’t know either, but I do know that you want to be global, and we’re fortunate in that regard.
Have there been any surprises in what you’ve learned about FRONTEO since you joined?
Carpenter: This is the first public company I’ve worked for, and I would say it surprised me how much of my time and the time of the people here is spent on things that don’t directly help the business. Not to pick on regulators, because we love regulators, but with an M.B.A., I know a fair amount about accounting and finance. But I’ve become far more versed in the rules of GAAP [generally accepted accounting principles] and JGAAP [Japanese GAAP] and things like that than I ever really wanted to be. And that’s not necessarily helpful to the business, but it’s part of being public and doing what we do.
How many lawyers do you employ there?
Carpenter: About 10 to 20 percent of our U.S. employee base – 30 to 60 lawyers.
And what do they do?
Carpenter: Our sales organization, and particularly the support group around them, which we call our engagement managers, have litigated and worked at law firms. As have our data science group – they are all lawyers, and they’ve all practiced. And frankly they’re still practicing now, really. (And by the way, this predates me; the prior regime put this together.) And then some of our sales people as well are attorneys. The last group, which is our biggest group, is our project managers. Many of our project managers are also lawyers.
Why is it useful to have sales people and project managers with law degrees?
Carpenter: It’s funny because I don’t recall any project managers at Kroll Ontrack or at Recommind having law degrees. So again, kudos to the FRONTEO people. Two reasons. First, what I was talking about earlier, which is the difference between sympathy and empathy. It makes a big difference to the client if you’ve dealt with their problem before, not just on the vendor side but also on my side. Makes a big difference. And the second is just having the depth of expertise and knowledge.
What are the big technology issues forward-looking general counsel should be focusing on right now?
Carpenter: They fall in a couple of buckets. One of them is, “How do I continue to streamline my process and the processes around how I address regulatory matters and litigation so that I keep my legal bills to a minimum?” And it’s primarily outside counsel, right? Because the whole vendor community together is much smaller than the law firm community, obviously, in terms of how much the corporate clients pay. That could be rolling out new technology, it could be replacing technology that’s past its useful life. The second is, “How do I handle new challenges that are popping up? To give you an example, employment matters are increasingly requiring the collection of web content or social media content. That wasn’t really an issue or relevant even three years ago, let alone five or six.
That’s where having the ear of the client and having that trust relationship comes in. They’re going to come to you and say, “Listen, this is the first time we’ve dealt with this. Have you guys dealt with this before?” In almost all cases, the answer is yes. And then, obviously, there’s the globalization side of things. If you have a client in the U.S. that has a privacy issue or state secrets issue in China, and it’s something they’ve never dealt with before, that’s where we can bring our expertise to bear.
The world around them is changing, obviously. They want to focus on running their business, and they want to leave the expertise to us, because we do it all day long.
Published August 28, 2017.