The future of law: Building trust, value, and efficiency

April 22, 2024

The legal industry is undergoing a seismic shift: Law firms are caught in a balancing act of boosting profitability while minimizing costs. Client expectations are increasing and what where value-added services are now just table stakes. Then there’s AI, whose role in the industry is still unfolding… is it friend or foe?

At Sandpiper Partners’ 12^th Annual Law Firm Profitability, Pricing, and AI Conference, Joe McSpadden, Williams Lea’s EVP for Global Legal Services, joined a panel of strategic leaders from global law firms and their clients. Together, they explored the priorities, prospects, and pitfalls facing law firms today, and discussed how they can navigate these complexities and position themselves for future success.

Here are the key takeaways from the event:

Adapting and building client trust in the age of law firm convergence

According to panelists leading corporate legal departments, the mounting pressure to manage expenses effectively and show ROI for outside legal counsel,  are driving their corporate legal departments to push for greater accountability, more streamlined billing practices, and stricter standards to evaluate their law firm partners.

“Corporate legal departments continue to be under tremendous pressure to reduce costs; our wallet size and buying power are shrinking, and that’s forced us to reassess how we view our relationship with law firms,” said one client panelist. “This has translated into having fewer law firms that we have longer-term relationships, allowing them to focus on what we refer to as ‘total value proposition,’ having our partner law firms dispense excellent legal advice, be very responsive to our needs, and support us in so many ways, such as our pro bono efforts.”

Convergence, referring to the strategy of choosing a small group of preferred law firms to streamline outside counsel management, is gaining momentum as clients seek more fruitful collaboration with their law firms and prioritize value propositions beyond just legal expertise. However, convergence can also work toward a law firm’s favor. “What it’s doing is creating opportunities for law firms that are really aligned with their clients,” said a corporate law department panelist. “Spending is going down, but it’s an opportunity to increase spend with the fewer firms that a client decides to stick with and drive longer-term relationships.”

How can law firms ensure they continue to be among their clients’ trusted partners? This is where law firm-client alignment comes into play. A law firm that fosters institutional knowledge can serve their clients more effectively in the long run and navigate the inevitable ups and downs of their relationship.

Scoping, while often overlooked, is also crucial to building trust. “Make sure you’re setting expectations around what’s it going to take, how long it’s going to take, what you think the budget might be, what the risks are, what your strategy is,” another client panelist piped in. “Engage your clients in what you’re doing and why you’re doing it.”

There is no magic formula clients use when choosing law firm partners. Their decision-making process is holistic and all-encompassing, emphasizing trust, value, and overall connection. Interestingly, one client succinctly summed it up with just one word: “‘Attentive’ is the word I would use. Law firms need to be attentive to clients’ needs, scope, billing, general counsel… They should be attentive with how all things are going.”

Rethinking the rate race with margin management and value-based pricing

For law firms to thrive in such a volatile industry, they must look beyond the billable hour and consider things with a margin-focused mentality. This requires financial discipline, something that all the panelists agreed was a challenge to get lawyers to embrace. Too often, lawyers focus solely on practicing law, leaving financial management as an afterthought. However, if a firm wants to remain financially healthy, everyone, lawyers included, should contribute to maintaining a positive controllable margin.

“We’ve been talking to our lawyers more, partners as well, breaking down about how we get to where we are, how we get paid, making sure our fees exceed the cost of production,” said one law firm panelist. “What’s our controllable margin? When you are setting up a matter, how do you make sure that at the end of the day, we’re making enough so that we can pay people and take away a profit as well. It’s a challenging conversation; they’re used to doing their business the way they do it.”

Another panelist shared: “Oftentimes, lawyers will say, ‘We have a fixed fee arrangement.’ Well, if you’re not paying attention and not working closely with our legal project management team, your costs and expenses could exceed those fixed fees. You have to stay on top of those things, so we have meetings with them [lawyers] on a fairly regular basis and discuss, ‘Okay, how are you going to get back in line here?’”

As law firms strive for profitability, they are also exploring ways to increase client value and implementing value-based pricing strategies. “I love value-based pricing, because at the end of the day, we want to be talking to our clients about the value we bring to them. Also, knowing what value we brought in the past helps inform the pricing.”

More and more law firms are also setting up client value teams, tasked with managing pricing and client negotiations, as well as devising strategies for implementing value-based pricing models.

Unlocking the full potential of AI adoption with the right technology partner

The exponential growth of artificial intelligence (AI) presents a unique opportunity for the legal industry. However, firms should approach using such tools with caution. While they could potentially reshape the way they work and, ultimately, deliver value to their clients, data privacy and security risks remain. A crucial step to take is to evaluate the capabilities of the firm’s in-house technology team or chosen technology partner. They need to determine their capacity to identify and understand the firm’s objectives and requirements, as well as the risks that come with implementing AI tools.

“Data exposure is a risk, every single day and every single time we use a piece of technology, but the other risk is the use of material to train the [AI] model, and there’s a difference of opinion in that,” said one law firm panelist. “There are some clients that say ‘Don’t use our materials, but I want the benefits.’ There are those that say, ‘I want you to use it [the tool] for me, but don’t use my materials to train it.’ There are some that don’t want you touching it at all, while there are others, who say, ‘I want you to use our materials to train [the AI model] using our general corporate materials, but none of our bespoke advisory materials.”

A technology partner panelist shared that AI is fast becoming their bread and butter, with an increasing number of clients expressing interest in its adoption in several areas. “It started with research tools, being able to apply AI to the research process,” they said. “Others in the market are also now starting to focus on other parts of the workflow… all of this goes back to the idea of enabling lawyers to work more efficiently, so I think you’ll hear more over the next 18 months about the idea of ‘AI assistants.’”

Joe McSpadden, Williams Lea’s EVP for Global Legal Services, highlighted the importance of client collaboration to determine what use case to focus on or what AI tool to build. “We pick up a lot from conversations with our clients and their technology teams, and sorting through what it is they’re doing,” he said. “A client told me, ‘Hey, we really want to know what you’re spending your time on and where you’re investing, because we don’t want to spend money on the same thing.’”

Law firms that build trust, deliver value, and operate efficiently can ensure the future of their business amid a landscape hampered by the complexities of AI adoption, cost management, and the convergence of legal services. The future is even brighter for those who embrace proactiveness, client-centricity, and financial discipline.

To learn more about the technology innovations reshaping the modern law firm, download our latest workplace transformation brief, Powering up: Enabling the workplace through technology innovation.