By Ed Kowalski | Valley Viewpoint
For more than a hundred years, America’s largest law firms have operated under a business model that, quite frankly, most other industries could only dream of.
Hire the best and brightest young attorneys, put them to work for extraordinarily long hours, charge clients substantial hourly fees, and reward the partners at the top with an increasingly generous share of the profits.
It was a pretty good arrangement. At least for the law firms.
But as a recent article in The Economist points out, that century-old business model is undergoing a transformation. And from my perspective, having spent much of my professional career in human resources, corporate management, and risk management, I would suggest that this transformation is long overdue.
What interests me most isn’t simply the impact of artificial intelligence on the legal profession. It’s the fact that an industry that has spent generations advising businesses on how to operate is now being forced to take a hard look at how it operates itself.
And that, I believe, is where the real story begins.
The Billable Hour: A Business Model That Defies Common Sense
Think about this for a moment.
In virtually every other industry, management is expected to find ways to become more efficient. Companies invest in technology, streamline operations, reduce unnecessary costs, and look for ways to deliver better products and services with fewer resources.
That’s what good management is supposed to do.
Yet for decades, the traditional law firm has operated under a system where spending more time on a project often generates more revenue.
An attorney who spends twenty hours researching an issue can potentially bill ten times what another attorney charges for resolving the same issue in two hours.
Where exactly is the incentive for efficiency?
Now, I’m certainly not suggesting that all legal work is the same or that experienced attorneys shouldn’t be compensated for their expertise. Quite the contrary. Good legal counsel can be invaluable, particularly when an organization is facing significant financial, employment, or regulatory exposure.
But there’s a difference between paying for expertise and paying for the time it takes someone to demonstrate that expertise.
And I suspect more corporate clients are beginning to recognize that distinction.
Artificial Intelligence Is About to Change the Rules
Artificial intelligence is already demonstrating that many of the tasks traditionally assigned to junior attorneys can be completed much more quickly with the assistance of technology.
Contract reviews, document analysis, legal research, and the preparation of routine legal materials are all areas where AI is beginning to change the economics of legal services.
Consider the implications.
If a law firm previously assigned several associates to review hundreds of documents over the course of a week, and technology can now assist in completing that work in a matter of hours, what happens to the bill?
More importantly, what happens to the business model that depended on all those billable hours?
That’s the uncomfortable question facing Big Law.
And I would suggest that the answer shouldn’t be to find another way to charge the client the same amount of money.
It should be to recognize that the value of professional services needs to be measured by the quality of the outcome, not simply the number of hours recorded on a timesheet.
The Client Should Come First. Imagine That.
Throughout my career, I’ve worked with outside legal counsel on employment matters, employee benefits, regulatory compliance, litigation, and organizational risk.
I’ve also seen firsthand how quickly legal expenses can accumulate, particularly when multiple attorneys become involved in what initially appeared to be a relatively straightforward matter.
Sometimes that involvement is absolutely necessary.
Other times, you can’t help but wonder whether the process has become more complicated and expensive than the underlying problem warranted.
And therein lies one of the challenges facing the legal profession.
Corporate clients are under enormous pressure to manage costs. Human resources departments, finance executives, and business owners are expected to justify expenditures and demonstrate a return on investment.
Why should outside legal services be treated any differently?
A company retaining legal counsel isn’t looking to purchase fifty hours of someone’s time. It’s looking for an answer, a solution, or protection from a potential liability.
That’s what the client is paying for.
The law firms that understand this will have a significant advantage over those that continue to believe their reputation alone justifies their fees.
There’s Also a People Problem
One aspect of this transformation that I find particularly interesting involves the future development of attorneys themselves.
For generations, large law firms have operated on what is essentially an apprenticeship model.
Young associates spend years conducting research, reviewing documents, drafting agreements, and supporting senior attorneys before developing the experience necessary to handle more complex legal matters.
But what happens when technology begins performing much of that entry-level work?
Where do young attorneys gain their experience?
How does a firm develop its next generation of partners when many of the traditional opportunities to learn the profession are disappearing?
From an HR perspective, this is a significant workforce planning issue.
Technology may eliminate certain tasks, but it doesn’t eliminate the need to develop judgment, professional relationships, negotiating skills, and an understanding of how businesses actually operate.
Those abilities come from experience.
Law firms will need to rethink how they recruit, train, compensate, and develop their people. And they may discover that simply hiring graduates from prestigious law schools isn’t a substitute for having a meaningful professional development strategy.
That’s something corporate America has understood for quite some time.
The Partners May Be the Biggest Obstacle
There’s another issue that deserves attention.
Organizational change is difficult enough under normal circumstances. It’s even more difficult when the individuals responsible for making those changes are the same people who have benefited enormously from the existing system.
And let’s face it, the traditional law firm partnership has been very good to those who reach the top.
Why would a successful equity partner enthusiastically embrace a business model that could reduce the revenue generated by the firm’s associates or require substantial investments in technology and new operating systems?
It’s a legitimate management challenge.
But it’s also one that businesses in other industries have confronted repeatedly.
Successful organizations don’t wait until their existing business model collapses before recognizing the need to change.
They anticipate what’s coming and adapt accordingly.
The legal profession would be wise to do the same.
Good Legal Counsel Will Always Have Value
I don’t believe for a moment that artificial intelligence is going to eliminate the need for talented attorneys.
There will always be a demand for experienced legal professionals who understand complex business transactions, litigation, labor and employment law, regulatory compliance, and the countless legal issues confronting employers and individuals.
In fact, I would argue that the increasing complexity of our regulatory environment makes good legal counsel more important than ever.
But the real value of an attorney isn’t how many hours can be billed.
It’s the ability to understand a client’s problem, exercise sound judgment, identify potential exposure, and recommend a practical course of action.
Having spent years managing organizational risk, I’ve always believed that the best legal advice is often the advice that prevents a problem from becoming litigation in the first place.
Unfortunately, prevention doesn’t always generate the same legal fees as defending a lawsuit.
And perhaps that’s another part of the profession’s economic structure that deserves reconsideration.
A Final Thought
What we’re witnessing in Big Law is really part of a much broader transformation taking place across American business.
Technology is changing how work gets done. Clients and consumers are demanding greater value. Organizations are being forced to reconsider staffing models, compensation structures, and longstanding operating practices.
The legal profession is simply discovering that it isn’t exempt from those pressures.
And while the transformation may be uncomfortable for some of the country’s most prestigious and profitable law firms, I believe it has the potential to produce a better system for everyone involved.
Better use of technology. More transparent pricing. Greater accountability. More efficient delivery of legal services. And perhaps a renewed emphasis on the relationship between an attorney and the client being served.
None of those seem like unreasonable expectations.
For years, attorneys have advised corporate executives that failing to adapt to changing business conditions can expose their organizations to significant risk.
Perhaps it’s time for the legal profession to take some of its own advice.
Because at the end of the day, a law firm is still a business. And no business, regardless of its prestige, history, or profitability, has an unlimited right to operate the way it always has.
The marketplace eventually has the final say.
And Big Law may finally be learning that lesson.
