At the media briefing today at the NetDocuments Inspire conference, the CEO, Josh Baxter, made a bold statement: “There is the opportunity for the first time to change the practice of law.” I think he may be right. But opportunity is just that. Whether anyone capitalizes is a different matter entirely.
That’s why I thought one of the more compelling presentations here at Inspire would be the one entitled “Closing the Client-Counsel Divide.” It was given by Michael Owen Hill, NetDocuments’ director of product marketing, and Kathleen Hogan, NetDocuments’ legal innovation partner.
The session was all about some critical questions: What will the future relationship between in-house counsel and outside lawyers look like? Who will reap the benefits of the AI revolution? As between in-house and outside counsel, who will end up controlling the work? Who will end up being the dominant player?
The Missing Audience
These are important question since the answers will govern the legal marketplace in the years to come. It will decide who the customers are and the fate of many law firms. And they are questions few seem to be focusing on right now. Why do I say that?
Eight people attended Hill and Hogan’s presentation. Eight. And of the eight, one was a media rep (me) and one was a NetDocuments PR person. That’s telling since the future of so many here hinges on who will control and do future legal work.
It seems folks are more fascinated by the technology than by what the technology might do to our business.
The Great Divide
Right now, in-house and outside counsel are like two ships passing in the night. Here’s some proof Hill and Hogan offered, drawn from various surveys:
• 52% of in-house counsel are using AI. But 59% have yet to notice any savings from their law firms’ AI use.
• 64% of in-house expect to rely less and less on outside counsel. Yet only 7% have seen lower matter costs from their outside lawyers. Talk about firms whistling past the graveyard.
• 61% of in-house plan to push for different delivery and pricing models. Only 6% have been offered something different by their outside firms. Apparently, law firms have heard all the talk about changing how legal services are delivered and decided to keep doing what they’ve always done.
I don’t know of any other business that tolerates such a gap between what the customer wants and what the providers are providing. Maybe the providers ought to be following the Savannah Bananas’ playbook, which its owner, Jesse Cole, recently laid out at another legal tech conference. Fans First.
Before we put all the blame on outside counsel, though, let’s look at the other side of the table:
• 68% of in-house don’t even know if their firms are using AI.
• 80% (80!) don’t require or even encourage their firms to use AI. All the while wondering where the AI savings are. Duh.
• And neither side does a very good job of determining ROI.
Someone should tell these people: Hey, you’re the customer. You’re paying the bills. You have some leverage here.
Calling this a divide is a little generous. It’s more like the Grand Canyon.
Two Paths In The Woods
Hill and Hogan did a good job outlining two potential future paths. One based on convergence and one on divergence.
Under the convergence model, firms would start disclosing AI use. They would share matter workspaces and joint metrics. (What, you mean law firm transparency? Right.) This model assumes, at the end of the day, a move to outcome-based fees and the sharing of AI savings: firms deliver more value, and clients reap the benefits.
Under the divergence model, however, the picture is completely different, say Hill and Hogan. AI usage remains “murky,” and the savings from it remain unclear. Clients begin to build and use in-house AI capabilities to do more work while firms keep trying to defend their hours. And it’s the end result that is most important: clients move more work in-house, and outside law firm fees are reduced and may even go into free fall.
Which Version Sounds Better?
Obviously, the convergence model is the best for both sides. But never underestimate the power of lawyers to ignore what’s good for them long term. To resist change.
Convergence would mean a lot more sacrifice on the law firms’ side. It means revising the billable hour culture. It means figuring out a new way of doing work. It means transparency and actually talking to clients about some sensitive matters. Like how much time should a task take? What is the value we are bringing? And what level of law firm profitability is reasonable and makes sense for both sides?
On the in-house side, it means some sacrifice too. It means recognizing that trying to squeeze every possible dollar out of law firms’ bills is not a long-term solution. It means defining and recognizing what value a law firm brings. And rewarding that. It means more transparency on their side too. Hard questions for in-house departments as well.
So Which One Will It Be?
I’ve given up trying to predict the future of AI and its impact. Every time I do, I get it mostly wrong. But I do know lawyers. I am one. I know how we think. We are born skeptics. We treasure our independence. It doesn’t matter which side of the table we sit on. These traits are ingrained in just about every lawyer I know.
So if I were to bet on how likely it would be for either side to change, I wouldn’t bet the house. I might not even bet the price of a lottery ticket. Lawyers in law firms think what they do and how they do it is nobody’s business, least of all the clients. Their hubris is unmatched.
In-house, on the other hand, has shown a remarkable proclivity not to make waves. To not make demands on how outside counsel work. And to keep approving annual rate increases with nothing more than a little grumbling. That doesn’t augur well for either model.
So it will be the status quo. Until the day the CFO comes calling on in-house legal and says there’s a new sheriff in town. You’re going to use AI, and you’re going to use it to cut legal spend. Both for your department and for outside counsel.
When (not if) that day comes, in-house legal is going to drop everything and do all the things the divergence model envisions. Why? Because building the convergence model takes time. Time they haven’t invested. And now they are out of time. Not a pretty picture.
So What?
So, other than lawyers in firms and in-house counsel, few of whom attend conferences like this (well, maybe the six in the room with Hill and Hogan do), who cares?
Everyone here should care. Because what model wins will govern where and how legal tech goes. Who its customers are. What tools it needs to come up with. Who answers to who. Who controls purchasing. If divergence wins out, many of the dollars being spent on law firm tech could become a relic of the past. And yet only six people at the whole conference seem to care. That tells you something in and of itself.
So in-house and outside lawyers and legal professionals, just keep ignoring the elephant in the room and see where it gets you. You might wish you had come to Hill and Hogan’s talk.
Full disclosure: NetDocuments paid my way to Inspire. And my old firm was one of its original users, so I’ve known the product a long time. But nobody tells me what to write. Just ask any vendor who’s paid for my travel.
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.
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