Have we reached peak legal inefficiency? And if we have, what does that mean for us all? Artificial Lawyer explores.
First, what is it? The idea relates to the concept of ‘peak oil’, which was developed in the 1950s by M. King Hubbert in relation to oil use and the belief that reserves would run out.
Later it took on a more sophisticated meaning, related to the environmental movement and the societal shift away from CO2-producing fuels toward green energy. It’s this latter meaning, i.e. one energy source replaced by another, that is at the root of the idea behind peak legal inefficiency.
It’s also part of a wider analysis of how ‘Big Law’ and its buyers operate and resembles in several ways ‘Big Oil’, which still dominates the energy sector.
In this analogy, Big Oil & Gas and Big Coal’s CO2 emissions and pollution from burning fossil fuels to get energy to power civilisation, are the equivalent of burning through human billable hours based on ‘manual labour’ and elbow grease to generate the legal outcomes that civilisation also needs. I.e. ‘highly calorific legal activity’, but inevitably it comes with some negative side-effects.
The thesis is that while the energy sector can get the outputs it needs from new sources and methods, so can the legal sector. GenAI is part of this, so is standardisation, so is thinking more broadly about KM, legal data and automation as not a point effect, but something that runs through all processes where it can be helpful.
Thereafter there is a movement beyond fossil fuels, hence ‘peak oil’, and in the legal sector there is a move to get beyond the billable hour and excessive manual labour, which is inherently inefficient for process work, as processes can be partially automated and do that work faster.
Hence, doing lots of process legal work ‘manually’ that ‘pollutes’ the economic environment with excessive billable hours, when there is clearly a better alternative means to do this, drives law firm and client behaviour into a world of post-peak legal inefficiency.
To conclude this part: peak legal inefficiency refers to a sector-wide stage in our legal sector development where clients begin to no longer accept outputs that are ‘economically polluting’ / ‘unnecessarily inefficient’ and seek to bring in more technology as well as better working methods and/or ALSP approaches to handle the meetings of these legal needs. That is also a point of no-return.
This also does not mean a loss in law firm profits. As AL has explored, integration of AI and other automation tools will increase both revenue and profits for those law firms that get it right. (More on that in another piece.)
Barriers to ‘Unlearning’
Another corollary to fossil fuels is that, as we have seen, the transition from ‘old energy’ to ‘new energy’ is long and hard. We should not expect a similar transition in the legal sector to be any less difficult.
In fact, it’s very complex because the buyers and sellers are intrinsically linked through the medium and methods of the old system.
E.g. with oil, most of us still have ICE cars, most filling stations only provide oil, most government grants and tax breaks remain in place for oil and gas, and many thousands of people are employed by the oil sector and the sub-sectors and support services reliant upon it.
Plus, oil makes a lot of money for some very wealthy people who don’t want to see that change for a moment, and makes some dividends for more regular folks through their personal shareholdings. So, even if we are ‘green’ in our outlook, extricating ourselves from fossil fuels is hard. The same goes for extricating ourselves from legal inefficiency.
Although a wave of the regulatory magic wand would help, e.g. such as banning new ICE cars from 2030, or in law, Bar organisations banning the billable hour from, let’s say, 2035. But, we cannot count on that.
So, it will also take significant cultural change. And that is one of the hardest things to shift.
Ironically, the law firms that start to embrace the post-peak inefficiency world will have to find a way to let their clients ‘unlearn’ the lessons of the past.
Many inhouse lawyers were associates in larger law firms where the time-based nature of their work was drummed into them – and reinforced with a raft of KPIs and targets that decided whether they kept working there or not.
Plenty of inhouse lawyers still have a form of professional PTSD over timesheets and work targets, and that generational trauma will be hard to remove. This psychological shaping is one of the key reasons that many inhouse lawyers intellectually will agree at conferences that the billable hour needs to be withdrawn, yet when back at work and in the flow of work it becomes incredibly hard not to just carry on with the same pattern (now as buyers) that they learned as young lawyers in the hothouse world of Big Law.
But, we have got over many aspects of social / professional conditioning over the years and we can get over seeing manual labour on process work as a proof of value. Plus, the economic incentives will help, namely corporates will save money and the law firms that move strategically with AI will make more money. So, that should help too.
What Happens Next?
Now, clearly there is a whole book to be written here. In fact, just addressing the time-based legal economy on its own would be worthy of several weighty tomes. So, this is a very short version of what happens next:
- A detectable high-water mark is reached for the use of the billable hour. It doesn’t all change at once – no chance of that! Perhaps it’s just that areas that already often see a fixed fee start to see a gradual uptick. It’s a firm here and a firm there. Like the start of the winter thaw, there’s a drip, drip, drip of change.
- (And note: the future has to be about pricing data transparency and fixed fees and not value billing – which would be much worse than the billable hour, as value billing replaces one troubled metric with something that is totally subjective. More about how we get to real fixed fees in another post.)
- Such moves will probably start to increase among the larger clients, e.g. banks, Fortune 500 corporates, as these are the ones that are already rolling out genAI tools and getting cost savings elsewhere at scale in the business. When everyone in the business has some form of AI tool working with them, including the CEO and CFO – and all the members of the Board and key investors, seeing the bigger picture in relation to the legal and regulatory sphere is a lot easier.
- We may also see some efforts here among mid-size companies that are feeling cash-strapped and as they use more AI-tools for their own legal matters internally to save money, they start to demand more efficiency and clarity on external matters primarily because they need to save money there as well.
- In terms of the tech: AI / automation tools will proliferate. Most importantly they’ll be chained / integrated together and linked effectively to KM systems, to create truly effective workflows that keep lawyers absolutely in the loop and retaining ‘agency’ on all legal matters, but also drawing out inefficiency that exists within the production processes for each stage of an output.
- There will also be more standardisation and platforms or perhaps ‘channels’ that allow the easier negotiation and completion of contracts. So not everything will be about AI and automation – there will be a lot of action around removing friction via standardisation and creating digital spaces for better contracting and dispute resolution.
- And so it goes. There’s plenty more to say here, but hopefully you get the picture.
Conclusion
Clearly we are not at peak legal inefficiency yet. Many law firms are making great progress, but even now we are far from the peak.
When does it happen? Let’s be realistic. Many times now energy analysts have predicted peak oil and the dates came and went.
Right now, around 80% (depending on who you ask) of all our energy globally still comes from fossil fuels, and that’s about 70 years since the theory of peak oil was first developed. But does that mean we should give up? Does a hard slog and systemic barriers mean that change can never happen?
Well, let’s ask this question: do you believe most people will still be driving ICE cars in 50 years from now? Most people would say: no. So, the main issue seems to be timing. It’s ‘when’ not ‘if’. And if that’s the case then some strategic level preparation from management teams at law firms and inhouse groups makes a lot of sense.
In short, at some point we will reach ‘peak legal inefficiency’; systemic change to how legal work produces its outputs will happen and we will move beyond an hour saved here or there and move instead to whole work streams being improved. Will the billable hour go entirely? No. But will it, in a significantly different tech environment, really start to seem anachronistic and perhaps even unprofitable for lawyers? Yes.
Change is coming. But, timing, as ever, will be critical. Whatever the timescale, peak legal inefficiency will arrive, even if we are not there yet.
By Richard Tromans, Founder, Artificial Lawyer, April 2024