One of the panels assembled by NetDocuments at its Inspire Conference focused on AI’s broader implications for legal practice. The panel was composed of Zach Abramowitz, Nicola Shaver, Zach Warren, and Jennifer Poon of NetDocuments.

These folks are among the most astute observers of legal tech, AI, and innovation that I know. They advise law firms. They undertake surveys and analysis of the market. They keep their fingers firmly on the pulse of what’s going on. When they talk, I listen. And they said a lot.

Here’s a rundown.

ROI and AI

The panelists agreed we have not yet figured out how to measure AI’s ROI. Quite simply, what AI does can’t necessarily be quantified on financial statements ruled by bean counters.

Most technology requires that many employees in an organization use it in a certain way. AI is different. Its first adopters were ordinary consumers, not businesses. People use AI like a personal assistant in various and individual ways to help them do work (and lots of other things). People want to use it, are going to use it, and are happier when they do. But this kind of use and benefit does not show up on a P and L statement.

Defining ROI for AI is also hard because while it may improve efficiency, it can reduce billable hours, so the ROI may even appear negative. But AI offers other intangible benefits like happier employees which businesses retain longer. It gets better quality results. It creates the ability to do things that couldn’t be done before. All things real but intangible.

Another intangible: AI can enable predictive analytics which, in turn, leads to preventing legal disputes and the associated costs.

But despite the fact avoided costs are hard to quantify, businesses may be ready to embrace this one. Here’s why: When I was a younger lawyer, I had an idea to work with clients to help them avoid litigation. I thought this advice would be valuable and I could charge for it. One of my mentors pooh-poohed the idea.

Why? Because then and now, you can’t quantify the value of avoiding litigation. So, when I would propose charging for the advice, the question would be: show me the dollar savings I will get for this cost. Which can’t be done because you will never know what you have avoided.

That may still be true today, but there is a big difference. The cost of using AI to avoid claims is so negligible as not be a significant factor. If it costs little to predict and avoid litigation, it’s a no brainer. Plus, according to the panel, CEOS and CFOs may now be more concerned than ever with avoiding litigation. They are certainly interested in avoiding legal costs.

The panel was right though: AI is so different that traditional ROI measurement tools just don’t work. We need new ways.

Pricing and Legal Work

The panel concluded that the use of alternative fees is rising. AI would seem to inevitably compel it. But use of those models will require a huge change in most law firm culture. Law firms will have to rethink how they compensate and advancement people with these models. They will need to rethink the entire leverage concept.

Which leads to an Abramowitz idea (which he has espoused before): Because the challenges to law firms to shift mindset are so great, AI-first law firms are on the rise. These firms ditch the leverage model and delegate to AI many of the tasks which only traditional law firms could previously supply.

Which raises the question, why need a law firm at all? They were needed to make the leverage model that has made lots of lawyers rich. But at an AI-first firm, your costs are negligible. So, whatever revenue you produce is almost all profit. And Abramowitz says traditional firms are losing significant business to these firms.

Nevertheless, law firms have continually been able to raise rates, often substantially, to combat revenue loss. But that won’t continue. And we are going to see clients demand greater efficiencies from their firms through AI.

AI threatens law firms in another way, according to Warren. In-house counsel are insourcing more work with AI. This trend could become more and more significant meaning less and less revenue for law firms.

But the panel agreed that wholesale reduction in lawyer count has not yet happened. Headcount reductions have occurred in other businesses, however, particularly in tech. Of course, as Abramowitz has opined and I have written, there is always the possibility AI will result in more legal work shielding for the time being some law firms from significant revenue disruption.

I think it’s too early to write the obituary of the traditional law firm. Lots of lawyers get security and their identity from their firms. And until law firms are ready to completely change their culture, a culture builds entirely on the billable hour, we aren’t going to see wholesale rejection of the billable hour either. Unless clients aggressively demand it, or flock to firms that embrace other models, which they haven’t yet.

AI Adoption by Law Firms

AI drives efficiencies. That’s well and good when it reduces human time for non-billable tasks. Not so good when it reduces billable time. Hence adoption is often slow walked.

But Warren pointed out somewhat surprisingly that overall legal is near the middle of the pack of businesses in terms of AI adoption. This may be because adoption is particularly gaining ground with in-house counsel who are having trouble keeping up with the demands placed on them. If so, clients may soon demand their firms do likewise.

Another trend: whether there are firm polices about use of models like ChatGPT, workers are significantly using them because they are easy to use. This creates a paradox: individuals in law firms are adopting AI faster than their firms.

The most significant point made by the panel is one I have also noticed. Many lawyers are still just sticking their heads in the sand and not yet concerned about the changes AI will bring to their work. Their attitude is like that of T. Thomas Andrews, designer of the Titanic, after it rammed the iceberg: “I have designed this ship so that it will float forever.”

We all know how that turned out.

The Future

The panelists agreed that there is lots of negativity about AI right now. And firms are having trouble keeping up with all the developments.

But there are a lot of positive things, many of what are not yet imagined, that are coming.

And all agreed that at the end of the day, AI is not an incremental shift but a profound one. AI that can understand us and output to us in ways we understand is revolutionary. It’s unprecedented.

A Recession Away?

While the panel didn’t discuss it, I wonder if we are just an economic downtown away from an explosion of AI adoption and corresponding disruption. Where we are today with AI is like where we were with remote working tools pre-COVID. Many of the tools existed but few used them. When COVID hit, there was a sea change, and we never looked back.

Similarly, if there is an economic downtown, businesses, clients, and even law firms will be forced to become much more cost conscious, and the efficiencies of AI can no longer be ignored.

We better be ready.

Author’s note: While much of what is contained in this post came from the panelists, I have weaved some of my thoughts in as well. I know the panelists and don’t think they will take offense.

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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