It’s been over two years since artificial intelligence went mainstream with the public release of ChatGPT. Within law firms, however, widespread professional adoption of generative AI tools has not yet occurred. At our company, we are already using gen AI to support our in-house legal teams—and across many of our functions.
And yet, the cautious approach to AI that persists at the top of some law firms shows that managing partners who still worry about moving too early are overlooking the significant adoption that’s already well underway. An international study of professionals we conducted last year found that AI is the top strategic priority for law firms, and a sizable 22% of respondents classified their firm as an AI innovator or early adopter.
The next wave of gen AI adoption in the legal industry will come from those firms that realize they need to be “fast followers.” And what I hear from managing partners is there are many perceived advantages to being a fast follower rather than a leader. That’s because there are real costs associated with technology and training, and some firms want to wait for others to sort out the thornier issues of how to handle client privilege and data privacy in the era of AI.
But with adoption underway in the legal industry, if we continue to focus too much on the uncertainty of this new technology, we risk obscuring its potential benefit: Firms that embrace the AI revolution and automation more generally will be able to pioneer new market opportunities that transform how they do business.
In charting a path forward, law firms must embrace AI as a strategic imperative to maintain a competitive edge and drive growth. I recommend that in working with their clients, managing partners will be best positioned to successfully implement gen AI by considering the following questions:
What happens to revenue and billing models?
We know that billing models must evolve. Because generative AI will provide significant time savings to law firms, the tried-and-true billable-hour model will become a less effective way to measure the value provided to clients. Instead, firms should be prepared to bill based on the quality of the work provided—not on the time spent.
Whether a new consensus billing model will emerge remains to be seen. Some firms may opt for a value-based billing model, while others may decide to add a surcharge to account for the AI technology used in legal work or simply increase their firm’s hourly rates to account for the increased efficiency.
These changes aren’t entirely new. We’ve seen a trend in recent years away from a billable-hour model in favor of value-based, project-based, or even outcome-based models. But as AI adoption by law firms becomes more prevalent, managing partners must determine how to best engage and educate clients about whatever new billing models they adopt.
Some clients will naturally want to understand how they benefit from more widespread adoption of AI tools, and specifically whether they’ll share in the resulting cost savings. And so, it will be imperative for managing partners to be transparent about their use of AI to build trust with clients, while underscoring the value that lawyers bring to the equation.
What happens to the apprentice model and pyramid structure for talent?
Managing partners who don’t address the need to adopt and adapt to new technology will have trouble attracting and retaining the best and the brightest among the rising generation of tech-savvy talent. And certainly, the time-honored talent pyramid, which at its base involves an apprenticeship model, must evolve—particularly for firms that leverage AI to automate routine tasks that free up associates to focus on higher-value work.
As AI technology changes the shape and complexity of a legal associate’s role early in their career, managing partners must ensure that the lifeblood of their firm stays healthy. Because firms have depended on this talent structure for so long, finding a way to update the apprenticeship model will require careful consideration and a robust evolution strategy. I anticipate the answer may differ from firm to firm. But managing partners will need to consider the implications of a newer structure, including a rethink of career pathways and how they communicate the new structure benefits to their clients.
What are the new lines of business that law firms might want to consider?
By embracing AI technology to automate routine legal tasks, lawyers can be freed to pioneer new ways to serve their clients, including offering higher-value services and strategic advice.
In the future, these types of changes could fundamentally reshape what it means to be a law firm. And that presents an exciting prospect for managing partners to answer another question: What legal services can we provide tomorrow that we couldn’t yesterday? Might a firm package its expertise and its technology in a new type of services platform?
A pertinent example of how firms can use current technology to evolve their services is in corporate debt transactions. These lengthy, complex documents have traditionally required weeks of analysis from a team. By using AI tools to automate this process, firms can significantly reduce the time and cost involved, while unlocking new business opportunities. They can leverage AI to create a corporate debt platform, for example, and support a whole range of higher-value, related services to facilitate deal syndication, deal discovery, and debt transactions.
What are the implications for client privilege and data privacy?
Even if there are compelling use cases, professionals across various industries have told us they are awaiting further clarity about the technology’s capabilities and safety before fully adopting AI. Some professionals haven’t fully considered AI’s potential because they’re concerned about risks related to data privacy. That’s certainly true for the legal industry.
What I’ve heard from managing partners from several law firms is they worry that being on the bleeding edge of AI adoption could jeopardize the entire business if it comes at the expense of client privilege. To what extent could using generative AI tools threaten client privilege by potentially disclosing client information? That’s an issue not yet settled, and those conversations are likely to evolve as adoption becomes more widespread.
What’s non-negotiable, however, is that your client’s confidential information should never be used as an output for third parties. Thomson Reuters has publicly pledged to protect our customers’ data privacy—and we urge our clients to do the same.
Trust is paramount.
Firms must bear the responsibility of managing and protecting client data, just as they’ve done in the past. What will change is that managing partners must thoroughly vet and audit potential vendors and prioritize working with trusted, professional-grade AI providers that have robust data security measures in place. To mitigate risks, it will also be important to stay abreast of global regulations related to AI.
How much should the firm spend on technology?
Even if managing partners are prepared to spend more money on technology, there’s more to that equation than a dollar amount. Firms must decide how to allocate technology budgets and to what degree it makes sense to customize tools.
While larger firms may have more available resources to invest in building in-house expertise, smaller firms may opt to work with a partner to white-label technology that supports higher value services to their clients. In either case, however, firms should prioritize a customized solution that can differentiate the firm from competitors and avoid relying too heavily on the convenience and cost efficiency of third-party tools.
Of course, developing that type of in-house technology requires a significant investment in terms of time, money, and human resources. The middle ground might be to adopt off-the-shelf tools from trusted vendors and use in-house expertise to customize them based on a firm’s specialized areas of expertise.
What happens to headcount?
It’s crucial to counter the false narrative that AI will destroy jobs. The only certainty is that technology changes the types of work to be done, and how we do it. Ideally, the new business opportunities AI can unearth will require law firms to increase headcount.
The AI transformation for professional services is already underway. To remain competitive and be poised to capitalize on new market opportunities, law firms must embrace this technology. The law firms of tomorrow will not just be law firms. They’ll be known as leaders in innovation.
There are, of course, additional questions relevant to each firm that must be addressed by managing partners. And they don’t necessarily yield easy answers. But the risk of moving too slowly on AI adoption far outweighs the risks of moving too fast.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
