Managing Legal
The Point
The business press and specialty legal press are replete with speculation about how “Generative AI”, ChatGPT, GPT4, and other AI developments might change law firms’ delivery of legal services. Most center their discussion on functionality: How well will they work?
But the likelihood, and pace, of adoption will depend on the answers to two other questions:
1. Will law firms apply such exciting new technology to significant portions of their work now performed by junior associate lawyers at hundreds per hour?
2. If so, will law firms share with clients — by reduced charges — the resulting efficiencies?
Based on my career as a practicing lawyer, and my 12 years as a business executive at Whirlpool and GE (where I worked with and supervised law firms), I believe that the answer to each of these questions is more likely to be “no” than “yes”.
This Matters to Your Business
The most important corollary to law firms’ billable hour business model is this:
“Associate leverage” — The strategy of maximizing the hours for which clients can be billed by augmenting efforts of fully qualified, experienced attorneys with “assistance” from less qualified, inexperienced law grads. Then charge handsomely for their hours. (See my LinkedIn post documenting exactly how “handsome” such charges can be.)
Unsurprisingly, the work of junior lawyers whose hourly bills are the basis of “associate leverage” are only marginally helpful add-ons to what the fully qualified, experienced attorneys provide the client: routine, recurring scut work that doesn’t require a law degree and license. And that are not worth hundreds per hour.
As former Big Law partner and legal technology expert Stephen Embry wrote last week:
“You can bill more hours to a file if two lawyers work on a project. Or 3. Or 10. The expansion of law firms and the explosion in profitability over the last 50 years have been based on billable hour and leverage concepts. But with automation and generative AI, you may not have work to leverage.”
What “work to leverage” is he talking about? The “routine, recurring scut work that doesn’t require a law degree and license.”
Because …
I once heard opinion writer George Will argue for a policy because it was “better in the long-run.” To which another pundit countered, “Yeah, but as Keynes said, ‘In the long run we are all dead.'” Will’s reply: “But you must remember that Keynes had no children.”
Only if you care about posterity will you concern yourself with the long run.
But senior ranks of Big Law firms have no “posterity” to care about, due to their partnership structure. Most such individuals will depart in 15 years or less. And, unlike a corporate executive, none can leave with a continuing ownership interest.
For the past 20 years, Big Law firms have carefully resisted technology adoptions whose efficiencies could have replaced the routine, recurring scut work to which they assign junior associates. They are unlikely create efficiencies from AI or any other technology if it means a substantial hit to their “associate leverage” income.
Legal technology authority Richard Tromans puts it this way:
“To really change things, lawyers would have to pass efficiency savings onto their clients for substantial portions of their billable work … That *could* happen. It’s possible. But so far, automation and NLP tools [such as GPT4] have not driven such a radical change.”