Artificial Intelligence, Law Firms, and the Marx Brothers

Quit the AI theatrics and get on with the business of legal service.

I’ve had it. Had it with the legal industry’s incessant blither blather, adjective-laden hyperbole, and histrionic pearl-clutching – hello, law firms – pertaining to the perils and rarely the pluses of artificial intelligence.

The continuous and roiling notions around AI, its impact on the legal market, and how services will need to be offered, provided, and priced strikes me as a crazy collision of Marx Brothers movies, “A Day at the Races” and “A Night at the Opera.” Wacky, zany, and clear over the top.

AI will – and should – drastically affect how law firms the world over conduct business. Still, it’s becoming more difficult to assign much validity, never mind credence, to the yakkety-yak and handwringing over business advancements verses practice threats of this technological tool.

It all makes for a lot of noise. Much of that noise pertains to if and how AI is being adopted, and rings with the deafening chime of “us too.” This tiresome cacophony is an overreaction seeded in a desperate fear-of-missing-out hope that clients, prospects, and perhaps potential lateral talent will feel some degree of assurance that whatever-firm-is-doing-the-chiming is in the know and actively adopting AI.

But is it really? To what end? And whose benefit?

AI Adoption and Adaptation

When AI – like any other technology – flows directly and transparently through a law firm to its clients, that will be the true test of how well artificial intelligence is being adopted and adapted within the legal services sector.

But let’s not stand on one leg and wait for that to happen. Why? Because lawyers love to admire a problem. As a problem, AI is ripe for the picking and being picked apart.

Among the problems AI creates is its impact on pricing, which will now and forever affect current and prospective business. And as a result, the billable hour is finally on trial for its life.

Yet, while many law firms and legal service companies are aware of this and are experimenting with AI for a myriad of purposes and to various extents, it is utterly astonishing that there are prolific name-brand law firms continuing to choose to be myopic to the point of willful blindness, and instead electing to dither and kick the can down the road. 

Good luck with that.

AI’s impact on how the global legal service industry conducts business and prices services has been signalling its impending arrival like a light in a tunnel for years. Yes, that light is an oncoming train. So, your choice is clear: get on the train or under it.

Value-Based Pricing

According to a recent study, Thomson Reuters 2024 Generative AI in Professional Services: Perceptions, Usage, and Impact on the Future of Work, 58 per cent of legal professionals said they don’t believe GenAI will impact the rates they charge clients. What tommyrot. This 58 per cent of legal professionals had better think again because it’s fair to expect that 100 per cent of their clients will think about whether those rates will be paid in full, in part, or at all.

This is why smart law firms are shifting – even if it’s in stages, and slowly but surely – from hourly rates to value-based pricing structures that leverage the efficiency of Al and enable transparency that underscores client trust.

After all, value pertains to expertise, experience, and smarts related to strategy, future-state thinking, problem solving and, better yet, proactive issue avoidance.

Value does not pertain to run-of-the-mill tasks, such as drafting and reviewing – never mind the perverse cottage industry of such disbursements as paying for photocopies and phone calls – for which no client should ever pay big (or small) bucks and is often why they rightly push back hard or refuse outright when such items appear on an invoice.

Value and Worth

Value is a measurement of worth. In a service-based industry like legal, worth is determined by how much more value a client receives from you than you receive from them in payment.

And payment is only a small factor of an ongoing value exchange. That’s because a deep, trusting and valued relationship has far greater worth than money can buy. This is why the most valuable relationships are priceless.

Here’s a personal-professional illustration of value and worth:

Rarely am I paid for the time and effort to draft, edit, and publish my thought leadership material. However, the combination of expertise, experience, and smarts plus investment necessary to create the depth and range of intellectual property contained within my articles, webinars, and keynote presentations results in an ability to attract and select only those clients with whom I wish to engage – and be fairly and well-compensated via solution-based pricing – for mission-critical strategy work.

This high calibre work has two key hallmarks. For me, it sits dead-centre within my four smart strategy pillar wheelhouse. For clients, it enables full access to strategic legal market thinking and future-state problem avoidance. Value is realized because what clients receive is worth more to them and their business than what I am paid. Of even greater worth are mutually deep and trusting relationships that lead to being each other’s first call.

And therein lies the compound advantage of sophisticated work, value-based pricing structures, and relationship worth.

Structural Shifts

In non-traditional law firms, structure is usually minimal or flat, which enables easier adoption and adaptation of AI as well as solution-based pricing. 

However, for traditionally structured law firms, the double whammy of a global pandemic recovery and all it continues to entail plus the impact of AI and its effect on pricing is a serious threat to solvency. We are witnessing this now and will continue to do so for some time to come.

A related issue is that, in the chronically short-sighted traditional law firm environment, concerns around AI’s impact on the bottom line far eclipse problems around its effect on if and how young lawyers will learn legal ropes.

The ‘if’ part of this conundrum is very real and more concerning than the ‘how’. In many instances, AI is already grinding through low-level work that used to be the prevue of how new lawyers learned about legal practice, and it’s doing so at a fraction of human cost and time.

The upshot is that this lowest level of traditionally structured law firms will either be tightly compressed or completely lopped off, and the traditional pyramid structure will be significantly diminished.

Why? The hard truth is that even though lip service may be paid to the traditional new lawyer apprenticeship process, next to no law firm will dedicate full attention to this concern until current and future solvency is secured, and answers to the ever-present profits-per-partner (PPP) questions are wrestled down. 

Go Big or Get Gone?

This is one of the reasons I believe global and big law firms are seeking market advantage by becoming even bigger. I’m talking about that ridiculous more-is-better chestnut of “lawyer headcount” rather than hardcore business principles around market strategies, distinctiveness, and EBITDA that are hallmarks of commerce and economic growth.

I commented as much on LinkedIn recently in response to this story that, without the AI angle, could have been written 20 or 30 years ago when law firm size was all the rage the first time around. And now, much like often-repeated fashion trends such as bellbottoms, turtlenecks, and gold chains, here we go again.

Obviously, AI’s efficiencies are scaring many law firms to death and perhaps because of it more law firm deaths may happen literally.

Whether AI will directly result in law firm failures remains to be seen. Still, we’re at a reckoning point where it is realistic and reasonable to expect that life in the legal market will be tougher and more demanding than it has ever been – and that’s saying something.

My Recommendation

The Internet changed the world; AI is flattening it.

For the love of all that’s Holy, knock it off with all the annoying Sturm und Drang around AI. Instead, figure out – right now – how best to adopt and adapt AI as part of your structure and culture. Price services and offerings accordingly – in whole, in part, or in stages – and get on with the business of doing business.

Granted, doing so will require an ongoing investment of time and money along with change management, determination, and grit. However, not doing it will have adverse consequences, perhaps not immediately but most certainly in due course.

The choice is yours.

If not doing it is your choice, then feel free to surrender to the operatic hysteria, faffing about, and déjà-vu-all-over-again nonsense. And while you’re at it, flop on a couch and cocooned in a haze of blitheful indifference, enjoy the antics of the Marx Brothers.

This article appeared on Slaw, September 2024.