Managing Legal
When the IRS changes a lease regulation, compliance protocol calls for review of every lease to which a company is a party. Until recently this always meant lots of professionals reading lots of pages for a long time – slow, costly, and error-prone.
Now – employing a tiny percentage of the professionals required for traditional manual review – EY, the Big 4 firm automates this review with an artificial intelligence-based system “three times more consistent and twice as efficient as previous humans-only teams” — and they do it for only a fraction of the cost.
Each of the other Big 4 firms has implemented its own artificial intelligence-based systems to complete faster, cheaper, and more accurately various labor-intensive tasks that have historically been staples of accounting practices: KPMG, Deloitte, and PwC.
But business lawyers are staying away in droves from this sort of labor-saving technology.
According to Altman Weil, a well-regarded consultancy serving law firms and in-house departments, only 7.5% of reporting U.S. law firms are even beginning to use technology tools that incorporate machine learning and other forms of artificial intelligence. And most of the rest report that they avoid such tools altogether: 26% are “not aware of what is going on in this area”; and 38% “are aware of what other firms are doing but are not pursuing it ourselves”.
PwC, the Big-4 accounting firm, reports similar responses from UK law firms: Just 3% report actual use of artificial intelligence; 4% robotic process automations; and 11% use of big data and predictive analytics.
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Why would the legal industry avoid innovations that save time, cut costs and reduce errors?
Because attorneys’ prevailing business model defines their work as the sale of hours. For most lawyers — therefore — work efficiencies reduce their earnings.
Nicole Auerbach co-founded Valorem Law in 2008 – a boutique litigation firm – one of a handful of prestigious law practices that never bills by the hour:
“There is absolutely no inherent incentive to be efficient and, I would argue, quite the opposite. When you’re trained to generate revenue by maximizing the amount of time it takes to do something, you maximize the amount of time you take to do something.”
J. Stephen Poor, partner and former chair of Seyfarth Shaw LLP – a leading international law firm renowned for innovation – but one that has not rejected hourly billing as Valorem Law has:
“Despite the continued argument that the billable hour is dead, the use of time as a pricing tool remains the predominant means of establishing cost … It should go without saying that a pricing structure based on volume of time supports inefficiency and thus, is a barrier to the adoption of tools intended to drive efficiency.
“… Most of the emerging technologies deliver value disassociated with time. Until [lawyers’] compensation dynamics change, they will continue to be a disincentive to the use of such technology.
Altman Weil principal Thomas Clay has consulted to the legal industry for 30 years:
“AI [artificial intelligence] will likely contribute further to the shrinking demand for lawyers, as well as the number of hours they’re able to invoice.”
Michael Mills, founder of Neota Logic, a major legal tech innovator serving law firms and in-house departments:
“Innovation destroys hours. Now, that’s bad wherever the majority of lawyers’ revenue is rates x our hours. Every hour saved is a dollar lost [to the law firm]”.
Jordan Furlong, Canadian lawyer and highly regarded advisor on the delivery of legal services:
“Virtually every recent innovation in the legal services market — from automation to process improvement to multi-sourcing — has operated to reduce the amount of time and effort required to produce and deliver legal services.”
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What’s the lesson for business owners and executives who want better legal and regulatory results for less cost?
Because your law firm and in-house attorneys have little incentive to speed up processing times, cut costs, and reduce error rates — adoption of legal tech likely requires a push from outside the ranks of lawyers who are captive to the traditional business model.
Like any other goal vital to the business, this calls for the leadership of owners and executives.
It calls for legal advice to general management independent of a business model that makes work efficiencies a money-loser. It calls for special legal counsel on your side of the lawyer / client table to be your objective, honest broker of the expertise otherwise possessed solely by your law firm(s) or in-house attorneys (see my December 6, 2017 post).