Legal Geek North America was held June 2 in Chicago. Despite some changes, it’s still geeky. And still cool. Its tone was set in a powerful 10-minute opening talk from Gina Passarella, Centellic’s chief content officer. Last year, I wrote that the conference tone was one of legal being at a fork in the road when it came to AI.
After hearing Passarella, it’s clear that for some, mainly clients, we are long past the fork of “as they are” or “will be demanding change from their traditional outside law firms.” And, I know from experience, when business people manage a legal matter and outside counsel, the matter is handled differently. It’s not “anything goes” when it comes to legal work. It’s “you better show me why the work is necessary.”
So, for outside law firms, Passarella’s message is, “It’s their work to lose” right now.
The In-House Perspective
Given that Centellic (ALM) has its fingers on the pulse of legal and particularly Biglaw, what Passarella said in her 10 minutes speaks volumes about where we are.
Her topic was the state of legal tech and the current business climate given AI. While Passarella noted we have seen big changes in legal before, we are now at a once in a generation period of change, and key parts of the ecosystem are or will be impacted.
From the in-house perspective, Passarella believes the pressures are extreme. Unlike in times past, business leaders are demanding in-house change. They are demanding that AI tools be used to reduce costs. They are demanding in-house legal do more and reduce outside spend. They are also demanding that in-house stop willy-nilly approving any and all rate increases. And a number of other pressures are weighing on in-house counsel, who must feel like they are under siege. Pressures stemming from things like data ownership and privilege questions.
Given this, some of the more sophisticated in-house counsel are not waiting on outside providers to make changes in light of the efficiencies AI and automation can bring. If their providers don’t get better, says Passarella, more and more in-house counsel will simply go elsewhere.
And there is more and more elsewhere to go, according to Passarella. Hybrid providers such as AI-first law firms are popping up all over the place and are attractive alternates to in-house counsel seeking options to their incumbent, traditional law firms that are slow to adapt. And as we all know, massive tech companies like Microsoft, Anthropic, and, more recently, Open AI, are getting into the legal space.
Reactions (Or Lack Thereof) From Outside Firms
But how are firms responding to these pressures and threats? Not well, says Passarella. Many firms are not well prepared to face these competing pressures. Most firms’ current AI strategy, according to Passarella, is that they “are using AI but not changing how they operate.” So while the firms say some adoption is going on, they just aren’t going to let AI impact the work they do.
This is reflected by research cited by Passarella that shows over half of the firms let their CIO team set and run AI strategy. Since few CIOs have a direct line to law firm leadership, that’s a troubling gap and leads to expensive tech being unused since it doesn’t meet lawyers where they are.
Biglaw hiring exemplifies these gaps in understanding and in facing new realities. Many firms, says Passarella, are hiring graduates right out of law schools in record numbers. They are doing so seemingly without considering that increased use of AI may reduce the need for entry-level (and even beyond) associates. Their rationale: demand right now is strong and, in Passarella’s words, they “don’t want to leave any money on the table.”
Passarella is equally blunt when it comes to rate increases. She doesn’t believe that they can continue as a way to offset costs and losses due to AI efficiencies reducing billable hours.
What’s It All Mean?
This business as usual approach by firms ignores the pressures being placed on in-house counsel and what is going on in the legal market. The greatest evidence of this is the unquestioning approval of gargantuan rate increases.
Most remarkably, Passarella believes in-house counsel that have traditionally not insisted on big changes by their incumbent law firms will now be forced to by the business to make changes.
My Take
Passarella is right. My experience is that other than grumbling a bit about what law firms charge, how they do things, and how they do work, clients have mostly gone along with what their firms were doing and how they did it. Maybe that’s because in-house counsel had much the same law school training and, indeed, often worked for the same outside firms their companies were using before going in-house. They are risk-averse lawyers and often don’t see or accept new ways of doing things. And since the business took their word for it (mostly), they got away with not making demands on outside counsel.
But having the business exert more control changes the matrix. I could see a remarkable difference in approach in matters where I reported to a businessperson, not a lawyer. It was reflected not only in cost decisions but also risk analysis and how and what work they believed was necessary to be done.
Now with access to more and more AI tools, we are on the cusp of significant change as business takes more and more control.
When I was a kid, I remember a TV political ad in a close senate race. An incumbent was depicted driving a car as his associate kept saying senator, we are running out of gas. But the senator just didn’t hear it. Or didn’t want to. He lost the election.
That may be where many law firms are today: running out of gas but not wanting to hear it. A pretty strong message packed into less than 10 minutes.
Stephen Embry is a lawyer, speaker, blogger, and writer. He publishes TechLaw Crossroads, a blog devoted to the examination of the tension between technology, the law, and the practice of law.