Balancing the Potential and Pitfalls of Driving Innovation in Midsize Law Firms

Participants also emphasized the importance of full transparency and client approval. “We would need to disclose the use of generative AI to bill for it; once we utilize it more effectively on client work, we can be more transparent with clients and update our engagement agreements to reflect this effective usage,” advised one leader. “We are working on determining the type of disclosure that will be required for the use of generative AI; more and more clients are requiring usage, so the dominoes are falling,” said another. “Policies will be challenging, and we are waiting for the professional liability carriers to assess liability and lawyer responsibility for using generative AI,” offered a third.

Legal Technology Provides Fundamental and Widespread Benefits

As generative AI continues to develop, there is widespread appreciation for the advantages that legal technology generally offers to midsize law firms. Ninety-four percent of participants said it helps increase revenue and improve client service, and 81% said it helps drive law firm growth and retain talent. “It allows us to practice more broadly, which helps increase revenue,” advised an executive director. “It enhances our ability to service clients and provide them with value-added intelligence,” said another.

More specifically, 74% of participating leaders said automation is transforming how work is done in law firms. Seventy percent reported automating document creation, 60% reported automating email filing and 53% reported automating data extraction. “Automation is a gamechanger,” said a CIO. “Once people see what they can do with automation, they will adopt it; there are more options to use automation in midsize law firms that suit their practices,” advised another leader.

Considerations for Midsize Law Firm Leaders

The challenge for midsize law firms is earning a return on technology investments. “For a midsize firm, we need to consider using technology, but we must do so carefully and with a mix of aggressiveness and intelligence; you cannot swing at every pitch, but you need to find the right pitch to take a big swing on,” said one leader.

To realize the benefits of technology, especially generative AI, firms need a culture that is comfortable with digital transformation. “If your law firm culture is closed and archaic, then you will not be open to change; a law firm needs the practitioners to approach IT and ask for help to solve specific problems,” advised a participant. “It enables us to work with more clients and handle a greater workload more efficiently with fewer people; our objective is to work smarter, not harder,” said another. “You need tools and technology to attract new hires, and clients want to work with law firms that focus on driving efficiency through technology,” offered a third.

In addition to tools, training is essential. Forty-two percent of participants work at law firms that have changed their training practices due to artificial intelligence. “We have adapted our training in response to technological advancements and now utilize AI to develop training materials,” noted a chief financial officer. “Traditional training is dead; sitting in a classroom or a Zoom or Teams session for one hour is dead, so we need more dynamic training and AI-assisted training that can interact by voice or text using an agent,” added a peer. “After a training session, we use generative AI to create summaries to reinforce the lessons,” echoed another. “We have a trainer who did not think PDF tip sheets were effective enough, so we created a Copilot agent based on the tip sheets,” offered a colleague.

Traditional training is dead; sitting in a classroom or a Zoom or Teams session for one hour is dead.

Several participants expressed concern that as generative AI advances, baseline legal skills may erode, increasing the need for more dynamic, effective training. “The intelligence level of AI is changing the way lawyers write, and something will be lost when something else is doing your work for you; as a result, it will change the way we train young lawyers and make the identification of talent more difficult,” said one participant. “It is increasingly challenging to develop training programs on a moving target,” noted another.

Technology Is Transforming the Relationship Between Law Firms and Their Clients

With all the changes taking place in firms, more than two-thirds (68%) of respondents see the relationship between law firms and in-house teams evolving. Clients are increasingly focused on progress updates and expanding their capabilities to handle more tasks internally. They are also pushing firms to become more advanced users of emerging tools.

“Not long ago, clients prohibited the use of AI in their engagement letters; however, they now want to know how we are utilizing it, so their expectations have changed completely,” remarked one leader. In addition, “Clients have higher expectations for the sophistication of their outside law firms,” noted a chief operating officer. “AI will force a critical evolution; as metrics have become more accessible, law departments want to see more data about their matters and the law firm’s performance, which is motivating law firms to focus more on the business elements of the engagement,” concluded a chief information officer.

Clients increasingly want real-time feedback and greater transparency on their matters. They also want more data about law firm performance, including billable hours, rather than periodic reports. “Since the pandemic, we have received more requests from clients to share risks through alternative fee arrangements, hybrid billable and contingent matters, and success fees,” reported a leader. “In-house counsel are pushing back on law firm billing rates and fees,” echoed a peer.

They are also expanding their capabilities to handle more tasks internally. “Clients are using technology to perform the work and simply asking lawyers to review, rather than generating their own work,” said one leader. “There is a view at our firm that more work is being done in-house due to the use of generative AI,” noted another.

Clients are using technology to perform the work and simply asking lawyers to review, rather than generating their own work.

Clients are also pushing firms to become more advanced users of emerging tools, especially midsize law firms. “In-house legal teams, especially at larger companies, seem to have gotten the jump on generative AI sooner than midsize law firms, so there is an expectation that we will be as efficient as they are,” added a peer.

Dynamic Leaders Are Preparing for an Uncertain, But Promising Future

As digital natives step into leadership roles, they will need to combine tech-savviness with adaptability, resilience and a stronger focus on client service to empower future-ready legal teams. Preparation is paramount. “Not preparing sufficiently for the future keeps me up at night; we are getting much better at dealing with truly strategic elements, such as succession planning, growth planning and shareholder expectations,” noted one participant. Strategic experimentation is also becoming more important. Said a chief operating officer, “Law firms need to become more agile organizations, embracing a ‘yes’ culture and being willing to test tools or processes, even if it means failing to progress.”

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