Legal sector’s adaptability proves the key to success

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is executive director, RSGI

At an FT managing partners roundtable in New York in 2012, when the legal sector was starting to grasp the importance of big technological developments, one guest remained sanguine. Lawyers are clever people, he said, and would adapt to every eventuality.

In 2012, his confidence seemed misplaced. The legal sector was known to be slow at adopting even basic document-management systems and seemed wedded to billing by the hour for its hard-won expertise.

Roll on to 2023 and the arrival of generative AI. The sector has jumped to attention, and adoption rates have been surprisingly fast. Firms such as Ashurst say 60 per cent of their workforce are using AI every day in some form.

Steve Immelt, former chief executive of Hogan Lovells, says: “AI is transformative, but so were previous digitisation phases. Like any Darwinian process, people adapt.”

However, the change in mindset among legal leaders in the past two years is remarkable. Instead of their usual “wait-and-see” approach, many law firms and in-house legal teams actively wanted to get in front of generative AI. “We came at it saying, why not be at the epicentre of what is happening,” says Frank Ryan, Americas chair and global co-chair of DLA Piper.

Likewise, the in-house legal team at Unilever has become a role model in the consumer goods group for the use of AI. Support from the company, pilots and focusing on AI as an augmentation tool “helped us get our legal team on board”, says Maria Varsellona, chief legal officer.

In many ways, there has been more appetite for innovation and change in the sector in the past two years than at any other time since the FT’s Innovative Lawyers series began in 2006. And in the background, norms such as the stubbornly persistent billing by the hour or partners owning all the equity have been looking much less certain.

Dan Troy as general counsel at pharma group GSK led an in-house team of more than 600 for a decade until 2018, during which time it moved further towards a fixed-fee arrangement when appointing external law firms. Jim Delkousis, a former DLA Piper partner, turned legal tech entrepreneur in 2016 by founding Persuit, which enables companies to buy legal services at a transparent, competitive price.

As generative AI accelerates the trend for law firms to commoditise elements of practice areas and turn them into products, firms are willing to try new pricing models.

Rajesh Sreenivasan, technology partner at Rajah & Tann in Singapore, says: “We are accepting that low-hanging fruit [in our legal practice areas] will be commoditised and we are making those data sets available to clients on a subscription basis . . . a lot of work is going into pricing it.”

When it comes to ownership, the potential for change is hardly better exemplified than by recent news from two former managing partners of a firm known for innovation — Allen & Overy, now A&O Shearman. David Morley and Wim Dejonghe have set up an eponymous consultancy that aims to enable private equity investment into the sector.

“The partnership model has been declared dead more times than we count, yet it keeps adapting,” says Morley. Yet he foresees the model potentially giving way to hybrids where “scale and recurring revenue are more valuable than individual star partner power.”

A few law firms have experimented with the listed law firm model, but have had limited success. DWF, based outside London, went public before going private again in 2023, while RBG Holdings, another pioneer of law firms listing, closed this year.

Yet, with £534mn invested by private equity into the UK law firms and related businesses in 2024, according to Acquira, a merger and acquisition broker for law firms, Morley sees smaller and mid-tier firms being able to challenge the status quo.

The kinds of people walking through the front door of law firms or joining in-house teams are changing too. The lawyers increasingly depend on data and tech specialists to help them provide the legal expertise.

More firms and in-house legal teams have subsidiaries or specific units designed to help digitise services. The term “non-lawyer” has fallen into disfavour as business service professionals in law firms join and take up client-facing roles; in-house legal operations professionals are now central to legal teams.

Neal Katyal, a prominent US litigator, forecasts that future legal practice, even in a very complex area such as his own, will be all about “breaking down disciplines, just like academia” — where the best papers and discoveries are multidisciplinary.

With technological disruption and threats to the rule of law intensifying, lawyers may need more than adaptability for the next 20 years — or even the next five.

As Immelt warns: “Don’t fall in love with what you are doing today. The critical skillset will be the ability to keep learning.”