AI will reshape the business model of large law firms, Herbert Smith predicts

Rigotti: clients expect their law firms to deliver more value

Law firms embracing artificial intelligence (AI) are expected to create new business models to pass on the benefits to clients, research by City giant Herbert Smith Freehills has suggested.

In a report giving the client perspective on the impact of AI on firms, it said they expected practices to combine new technologies with new ways of working, including collaborating with third parties and challenging existing processes.

It found that clients also believe AI tools “will lead to greater efficiency and challenge revenue models but also – and more importantly – drive an enhanced engagement”.

The report continued: “Clients want their law firms to move beyond traditional transactional lead delivery to a new, more collaborative relationship model.”

A third key theme to come out of the research was that, while the less sophisticated, manual tasks on which trainee solicitors have historically cut their teeth become automated, clients still expect that their legal provider can deliver “top human talent”.

This may lead to a change in the traditional pyramid shape of the large firms.

The report said that, with clients themselves being disrupted by the digital revolution, “they need their legal providers to help them be innovative and progressive by investing in both new technologies and new ways of working”.

It continued: “General counsel have expressed an expectation that their law firms will need to be several steps ahead in their ability to grasp the opportunities available through AI. In providing technology-based solutions to legal issues, firms will need to accept that they may not be able to do everything in-house.

“Investment in technology might lead to considerable convergence and consolidation among law firms, as happened with the Big Four accounting firms. But another scenario could see smaller, niche players backed by market-leading technology, competing or collaborating with panel firms.”

The report said client demand was “for the legal industry to adopt a professional services approach”. General counsel, it found, “are excited about the possibility that firms with a solid investment in AI can increase their knowledge in industry sectors, and bolster their credentials and expertise through collaborations with academics, think-tanks and suppliers”.

This led to HSF’s contention that, “from a client’s point of view of the post-AI world, efficiency supercedes cost”.

It explained: Their expectation is that panel firms will provide solutions that go well beyond technology – the right resources, in the right place, at the right time, delivered by multi-disciplinary teams.

“For law firms, productivity is traditionally measured in terms of hours billed. In the new legal landscape, productivity should be measured in terms of output per hour, or value contributed. This is certainly how our clients view things.

“Technology is crucial for underpinning this solution-provision model – rather than technology replacing lawyers, it can make them more productive.”

The report pointed out the contradiction that clients want law firms to invest in talented lawyers, but they themselves do not want to pay for lower-level tasks when technological solutions are available.

“Trainees at some firms are already being taught the basics of coding language. Expectations are that going forward junior lawyers will have more time with senior lawyers to enhance their development and do more of the intellectual brain-work on a matter.

“AI-equipped legal providers will look differently to traditional firms, with their pyramid-shaped hierarchies. With fewer trainees performing the repetitive work now done by machine, firms may take on more of a diamond shape, with specialist employees – legal and non-legal – bulking up the middle.

“This talent pool will contribute enormously to a firm’s ability to develop alternative service offerings: legal project management, secondments and consultancy-style support to clients. Law firms might also be structured as intersecting circles, with lawyers collaborating internally within sector-specific groups that can offer a wide range of services.”

One thing was clear, the report concluded. Future legal talent must have “business-aligned EQ” – emotional intelligence – as well as legally-trained IQ.

Herbert Smith Freehills CEO Mark Rigotti said: “AI is advancing rapidly and changing the way law firms do business, the way we interact with clients and ultimately, the way we think.

“The traditional model for delivering legal services is being redefined and clients expect their law firms to deliver more value. Providing legal services aligned with legal technology solutions remains at the heart of our innovation agenda.”

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