Co-author Susan Raridon Lambreth wrote an article for the Report in 1989 about what’s ahead in the next 50 years. The pace of change today is such that had we known how rapidly technology would advance, we would have significantly shortened the time horizon. Which brings us to 2024. In addition to new technologies, we could foresee an era in which innovative business models would emerge to compete with traditional law firms. We just didn’t know which business models would emerge.
There were some unexpected twists and turns. If you were in the legal community 50 years ago, did you imagine:
We might’ve missed some of the above advances, but some of our other predictions did materialize. We nailed it when it came to the omnipresent use of computers and the fast availability of information. With all this technology we thought society would become less litigious, but the demand for legal services has grown even as the field has become more competitive with increasingly sophisticated clients and competitors. Fortunately, innovation within the industry has come to the rescue helping law firms manage costs more effectively than ever.
Some of our predictions may continue to alter the future. These include the following:
Publicly-held law firms: The trend for publicly-held law firms, which we expected to accelerate through the years, hasn’t gained momentum in the US. While it is allowed in the UK, Australia, and other jurisdictions, the ABA prohibited public ownership in the US under the Model Rules of Professional Conduct. However, some states like Utah and Arizona are pushing the boundaries and exploring regulatory changes. The jury is still out on where this will ultimately lead.
Competition: Although the anticipated competition from publicly-held law firms has not impacted Big Law, what did occur was the emergence of the aforementioned ALSPs. This caught some firms off guard and scrambling to adopt a strategic response. They have responded in various ways including competing through their own brand of innovation and efficiency initiatives, sometimes in the form of a captive ALSP. These approaches to competition may include the implementation of legal project management, process improvement, or investments in technology. Many law firms have also identified opportunities to collaborate with ALSPs to reduce their costs. Even more important is the competition with other law firms. Increasingly, the largest firms ( the “AmLaw 100” and within that the top 50) are pulling away in terms of profitability and rankings from the rest of the AmLaw 200. As was predicted by some industry pundits in the mid-80s.
Growth and Structure of Law Firms: In 2023 there were over 1.3 million US lawyers. Yet, that number has grown only 5% in the past decade. Compare this to the explosive growth between 1979 when there were roughly 500,000 lawyers and 1989 at 700,000 when the original article was written. That’s a 40% increase. The stagnation of the lawyer ranks is due partly to the competition that makes law a less lucrative field relative to other professions. Although first-year compensation in the leading firms is $250,000+ with bonus, many lawyers in the US earn an average of $80,000. This is not a competitive salary compared to recent grads in specialized fields like cybersecurity, software engineering, and investment banking, even without a graduate degree.
Large firms, on the other hand, have grown dramatically in size and profitability, and we foresee continued consolidation. Mid-sized and smaller firms, as a group, have experienced flat or declining growth in the last few decades, managing to keep up with inflation but nothing more.
Decline in Productivity: With the implementation of new technologies in 1989, we predicted a positive impact on productivity. If law firms were to preserve profitability, productivity had to improve to keep pace with higher labor costs. While lawyers have increased productivity as measured in a real economic sense, the legal industry measure of productivity (i.e., how many hours are being billed,) declined starting in the early 2000s and has continued its general downward trend ever since. We don’t know how much can be attributed to generational differences, a lack of engagement, increased scrutiny of hours by clients, or perhaps fewer partnership opportunities (and a smaller percentage of a firm’s lawyers are partners). We do know, however, that productivity (i.e., billing more hours), while a good thing for law firm profitability, shouldn’t come at the expense of quality and employee well-being, which is increasingly important to today’s young lawyers.
This leads us to the two most critical issues we identified in 1989. Artificial intelligence and talent will have the greatest impact on how firms deliver services in the future.
Artificial intelligence gained significant traction in law firms in the 2010s, which we called back in 1989. In the past, the scope was narrow and limited to tasks like e-discovery and legal research. This was no small advance since traditional approaches to discovery involved extracting data from multiple points and converting it to usable formats before large teams of lawyers and paralegals manually reviewed the data. The investment of time, labor, and rate of human error in these now-obsolete practices made discovery a costly process. E-discovery, using earlier forms of artificial intelligence, changed the preparation for litigation and the types of matters that could be cost-effective. Other uses of technology reduced the need for lawyer time, perhaps another reason for the slowing growth in the profession.
Today, AI can generate new content. This content mimics human creativity and intelligence, thus saving lawyers time and reducing client bills. AI may not replace lawyers, but it does have the ability to transform the legal industry and replace tasks handled by lawyers or other legal professionals. Lawyers will be needed less for research and review and more for their deep, nuanced understanding of the law, client advocacy, and ethical judgment. What that will mean for the future of lawyer formation we don’t know, but it likely is not good news for the younger members of the profession.
Rather than replacing lawyers in the near term, AI will supplement their work, making them more efficient. It’s what we see in practice today. A Harvard Business School and BCG consultants study involving the University of Minnesota Law School, found students using AI complete work faster with similar or higher quality and they may even earn higher grades. Of course, it is still important to have a solid understanding of the topic to recognize whether the outputs AI provides are valid.
As a headline in the Harvard Business Review aptly explains, “AI won’t replace humans, but humans with AI will replace humans without AI.” A sustainable strategy in any law firm is to find the best ways to unleash the power of AI before, or at least alongside, the competition.
Talent is the other challenge most likely to affect how law firms prosper in the future. As predicted, talent has become increasingly important over the decades. Growth in the profession is relatively flat, as mentioned earlier. The younger generations have presented interesting twists. Baby Boomers are reaching retirement age but have been slow to leave the workforce. Generation X, a much smaller cohort, largely supplied a dwindling population of new lawyers prior to 2010. Then the Millennials, a surprisingly large generation that is changing law firms with an emphasis on work-life balance, personal growth, inclusion, and social responsibility. For this generation, there are fewer opportunities to become partners, exacerbated by their sheer size. Lastly, there is Gen Z, a group that demands attention and input into their organization’s priorities and decisions. At the same time, they have the highest levels of mental health issues of any generation in history — coming into a profession that already has one of the worst percentages of substance abuse and mental health issues. Keeping this cohort engaged is currently one of the biggest challenges law firm leaders face.
Today, the challenges are to attract, train, and retain top talent, and provide fulfilling opportunities for career advancement and the work-life balance that lawyers want and need. How will the partners of the future be trained when they are working remotely, using technology to replace tasks lawyers historically trained on and perhaps not working enough hours to “learn their craft” — at least at the pace in the past? Part of the solution lies in using technology wisely and managing talent as a valued asset. Competition is stiff for top talent and the demand for inclusion is stronger than ever. The Boomers are retiring and the business of law is becoming increasingly complex. Firms must find sustainable strategies that engender client loyalty, ensure continuity and transfer of knowledge, provide efficiency and promote the quality service delivery upon which world-class reputations are built.
The future of law firms remains bright even in a changing legal ecosystem – at least for those willing to embrace and engage the key challenges we face. Now more than in 1989, firms must invest in the right talent, make strategic use of technology, and manage the firm intelligently.
Raridon Lambreth is a co-founding principal of LawVision and the founder of the LPM Institute. She has over 30 years of experience as a consultant to the legal profession and is widely recognized as a thought leader in practice management, legal project management and leadership in legal organizations Altonji is a co-founding Principal of LawVision and a senior strategic consultant and advisor to the legal industry. He is a frequent author and speaker on topics related to law firm strategy, governance, compensation and economic performance.