The traditional pyramid model, whereby junior lawyers generate volume under the supervision of senior partners, loses its economic rationale when technology can generate that same volume at a lower cost.

For years, revenue rankings served as the shortcut that informed decision-making. General Counsel turned to external law firms for what their organisations could not provide in-house: scale, accumulated specialist expertise and the ability to mobilise resources quickly when dealing with complex matters.

A firm’s size was regarded as an implicit guarantee of quality and capability. Today, however, that correlation is beginning to break down.

Large in-house legal departments no longer expect external counsel to process high volumes of work or generate regulatory alerts. They now perform these functions internally, using proprietary technology on a continuous and automated basis. These are no longer isolated experiments. They are replacing work that historically would have been outsourced to law firms, placing increasing pressure on the revenue growth of many firms.

The traditional pyramid model, in which junior lawyers produce large volumes of work under the supervision of senior partners, loses its economic rationale when technology can produce that same output more efficiently and at a lower cost.

The paradox that the dominant AI narrative fails to address

The more artificial intelligence an in-house legal department adopts, the more sophisticated its production capabilities become, and the more essential human judgement is in supervising the results. A GC who becomes less dependent on external capacity simultaneously becomes more dependent on expert judgement.

They are not looking for greater production capacity. They need an adviser who knows which questions to ask about what technology produces; someone who understands political, commercial and reputational context; and who is prepared to exercise judgement where data alone is insufficient. Such firms do exist, but they are far less common than the rankings would suggest.

What this means for your firm

The firms that succeed in occupying this space will not necessarily be the largest. They will be those that have developed a new generation of partners capable of providing the judgement that technology cannot replace.

A firm that fails to cultivate this capability among its second and third tiers of leadership is effectively building its own ceiling for future growth.

Those firms that have not completed this transition by the time the market demands it will see the impact reflected in their financial performance before they recognise it in their strategy.

I will be in Miami on 11 June at the Legal Management Forum, discussing these very issues with General Counsels from some of the world’s leading corporations. I will be sharing the key conclusions in future editions.

How well is your firm positioned to capture this opportunity? Schedule a conversation with me.

Marc Gericó
Global Managing Partner, Gericó Associates