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Will technology kill the billable hour?

3 May 2024

| Author: Reweti Kohere

Of all the disruption that technology might wreak upon the legal profession, the most transformational could prove to be the demise of one of its most sacred cows – the way lawyers charge for their services.

Source Legal commercial director Amy Kingston-Turner says artificial intelligence (AI) “may fundamentally be the end of the billable hour”.

“If you’ve got AI doing even just 20% of the work you would have done [yourself], you’re not going to be able to charge the client [as much as] you would have,” she says, adding that AI will force law firms to drop their prices, double down on their current price because the work is still worth the same [level of] expertise or move to a different model.

One such model is what Kingston-Turner, a member of The Law Association’s Technology & Law committee, is familiar with at her law firm.

“We don’t count hours – ever. In fact, we’re quite allergic to counting hours,” she says, explaining that her team of in-house lawyers charges clients a fee based on the value of the work they produce. “There’s quite a lot that we take into consideration that has nothing to do with time,” including the volume and complexity of the work, the number of practice areas a client is engaging and the seniority of the clients’ people. “We look at it much more holistically.”

Changing one’s pricing cannot be done in isolation, though. “The thing about value-based pricing is that it has to infiltrate your entire firm,” says Kingston-Turner. Lawyers’ traditional remuneration – how their performance and bonuses are measured and how they’re tracking toward partnership – “all comes back to time”.

In contrast, her firm’s innovative pricing method means “we have to find other ways of measuring our people’s performance”. This might include references to client feedback, work culture participation and the same factors used to determine the pricing itself. Kingston-Turner says, “It’s more [about], you have to be a good lawyer but you also have to have good soft skills.”

 

Total flexibility

While experts LawNews has spoken with describe the extent of innovation in the legal profession as “pretty low”, “nice marketing-speak” and “stuck”, it is nevertheless happening – and not just with technology because work culture and practices are evolving too.

Law firms are starting to charge clients, and consequently measure the performance of their lawyers, in different ways. And innovative firms are leading the charge with flexible work, empowering their lawyers to work when they want, where they want.

The innovativeness of Source Legal partly comes back to Kingston-Turner’s desire, post-pandemic, to find a law firm that allowed her to work flexibly. She had no luck, however, so she started her own firm.

“Part of our culture is around total flexibility of work: our lawyers work when they want and where they want – and it’s up to them. We treat them like adults,” she says. “It shouldn’t be innovative, but it is. Our lawyers just get on with the job and they manage their own lives.”

Innovation is also inherent in the work of in-house lawyers. “We’re a law firm in the eyes of the Law Society, but the way we practise is that we are the in-house legal team but on an external basis. That’s a mindset shift,” Kingston-Turner says.

Other law firms could provide secondees to their clients or remote chambers where people work online as opposed to in a physical office, but they all share a closeness with their clients that more traditional law firms might not have.

“When a client knows that they’re being charged every six minutes for calling their lawyer, they’re not going to call their lawyer as much. When they know what their fee is for us every month, they’ll call us as much as they need and we’ll be available for them,” Kingston-Turner says. “So, inherently, it creates a closer relationship.”

 

Client-centric innovation

For a long time, innovation has been “inward focusing”, says Andrew King, organiser of annual legal innovation and technology conference, LawFest.

Law firms have looked first at their processes, structures and practices and sought to make them more efficient, responsive and coherent, he says. The next stage of innovation will be “client-centric”, where law firms innovate their services with their clients in mind.

“At the end of the day, it’s the clients who pay the money to the law firms and those clients are adapting how they work. So lawyers need to be valuable to them in the way they provide services,” King says.

When he first started LawFest in the early 2010s, King could count on one hand the amount of technology on offer. It’s a far cry from today’s showing – at least 40 businesses were exhibitors and sponsors of the 2024 conference.

“The market has evolved as far as what is available,” he says, adding that the lack of options a decade ago, together with the clunkiness of what was available, didn’t help the cause. “We’ve been very lucky, in probably the last five or so years, that there’s a lot more tech available in the space.

“Sometimes, when people talk about legal innovation, actually defining what it means is helpful. I would say it’s change that adds value. That doesn’t necessarily mean going out and buying the biggest and latest piece of software. It doesn’t need to change the world completely, but incremental change can actually mean quite a lot.”

The work practices that technology has helped shape during the past decade include practice management, document management and note-keeping, compliance with anti-money laundering laws, communications and transcriptions, and eDiscovery systems.

“Back in the day, we used to put 20 juniors in a room with boxes of documents and you started somewhere and finished somewhere. You just can’t do that. If you printed everything out and they were in boxes, you’re talking warehouses full of stuff now,” he says. “So that just became a no-brainer for people [to change]. And at the same time, clients don’t want to spend thousands and thousands of dollars on juniors reviewing things.”

A look at the 2024 LawFest sponsors and exhibitors page also highlights innovative research platforms, evidence management software, legal cybersecurity, legal phone systems, IT support, foreign exchange services, smart search platforms, operations and project management and cloud-based “smart timesheets”.

 

First-mover advantage

One of the roadblocks preventing more innovation from happening is the lack of incentives. The independent review panel, which was tasked with looking at how the legal profession will be represented and regulated, made several recommendations geared at unlocking innovation, including:

  • establishing a new “freelance lawyer” model that does away with the requirement for lawyers to seek prior approval from the regulator before being allowed to practise on their own; and
  • freeing up lawyers to choose the corporate structure through which they provide services, with the potential, for example, to partner with non-lawyers in offering multi-disciplinary services.

Both recommendations would have to be considered further, the New Zealand Law Society said in its response to the panel’s report.

Antonia Modkova, director of IP and innovation at AI company Soul Machines, says the first mover advantage is up for grabs. “The first company to innovate would outcompete the rest. The company that’s brave enough to actually do that will disrupt everyone else and force everyone else to innovate. The opportunities are, for those first movers, only amplified by the reluctance of the rest to change and adapt and innovate.”

Firms are adopting practice and document management systems, e-signing and other technologies because it’s profitable to do so. What isn’t profitable is “disruptive business” – removing the billable hour or offering “automation-heavy” self-service solutions, for example.

“That sort of innovation, we haven’t seen a lot of it…It does take time, money and investment and it would be a risk for the firm. Law firms aren’t set up as startups,” Modkova says.

“They don’t have the mentality or the expertise or the people. Lawyers aren’t necessarily the kind of entrepreneurs who could tackle that sort of change.”

 

People, process, technology

Could innovation occur on a wider scale, with law firms collaborating as opposed to competing? “People are a lot more willing to have that discussion than perhaps they were quite a few years ago, where it was very much a closed shop,” King says.

“Obviously, we’re not saying a chief executive is going to sit there and talk about all their financials, key clients and those they’re chasing. But the conversation would be ‘what have you tried to implement? What did and didn’t work? What were your pain points? How did this software work? We’re not taking on as many juniors anymore; has that worked well for you?’”

Bringing the profession “up as one, as opposed to everyone operating in their silos”, is a benefit, he says, adding that firms should look at their people first, processes second and then the technology before innovating. Turning to technology first is a trap. “Too often, people have a very persuasive salesperson from a tech company [saying] ‘you need to do this, you need to do that’. Whereas, it’s important to realise what problem you are looking to solve. And is tech the answer?” King says. “For a lot of people, it may not be.”

Steven Moe, a partner at Christchurch-based firm Parry Field Lawyers, agrees. Too much focus is often placed on the technology “tool” itself, he says, “when actually you still need someone guiding the tool so that, first of all, you’re picking the right tool and secondly, that you’re using it skilfully.”

 

AI: threat or opportunity?

Technologies of the past – the fax machine, email and the internet, to name a few – were innovations in their day and lawyers back then thought everything would change, says Moe, a member of The Law Association’s Technology & Law committee. “But actually, they’re just tools and ultimately, the client wants to talk to a person who can understand their situation and give them bespoke advice.”

The same can be said about AI, which is an opportunity for the legal profession to grasp – but not for all facets of lawyers’ work, says King. Lawyers are still working out where AI will be helpful and how it will help, but initial low-hanging fruits are research, first drafts of contracts and other documents, templates, and administrative tasks. “These tools – whether it be AI or any other piece of technology – are all to enhance how the lawyer works. It’s not to replace them.”

Lloyd Gallagher, managing partner of Gallagher & Co Consultants, agrees. AI will be “incredibly disruptive” across every industry, not just the legal profession, “but it’s never going to remove the human element”. Gallagher, who is the convenor of The Law Association’s Technology & Law committee, describes AI as an excellent tool to cut down time, which could make accessing justice easier and free up lawyers to focus on what matters. But AI is nothing more than a tool.

“Once you’ve created the draft, you then have to go through [it], check references, and refine it. You have to know how to ask the right question. I’ve seen many lawyers, just in testing, put in a prompt statement and it’s come back with absolute hallucinogenic garbage. So you have to know how to prompt,” Gallagher says, offering one example prompt for generative AI: “You are an expert lawyer, you will tell the absolute truth and will reference only legitimate and real sources”.

“Just that statement alone means it doesn’t hallucinate and create cases. It actually goes through and develops from its knowledge base, rather than [thinking] ‘I’m telling a story because this might be for a fictitious book you’re writing’,” he says. “You’ve got to treat it like a five-year-old. It doesn’t know the world. It only has access to all the information of the world.”

 

End of the billable hour?

The area where Gallagher thinks AI will prove the most disruptive is the lower-tier jobs, “which is going to make it difficult for the people who will want to intern and start their legal careers because they are in a position where AI can do their job”.

But, he says, juniors will have to adapt by upskilling themselves with generative AI knowledge so “they can create the questions that lawyers need for the simple drafts”.

Lawyers are grappling with how to use AI without breaching their professional obligations. “We have to make sure that if we’re going to use generative AI tools, we’re adhering to our obligations to our clients in terms of confidentiality, privacy, privilege, anything like that,” KingstonTurner says. “It’s a bit of a minefield when you start giving your clients’ information to a third party for them to then use.”

Modkova is bullish. While the “human factor” will remain crucial to its use, especially since the current generative AI systems aren’t sufficiently reliable yet, the technology is a “huge opportunity to attract clients, improve quality and take the mundane out of legal practice,” she says. “I hope that more lawyers will see the new advances in AI as opportunities instead of a threat to their egos or income source or the profession.” ■

 

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