How will you spend your AI Dividend?

Generative AI is going to free up hundreds of hours of lawyers' time, whether the lawyers like it or not. How should they use this gift? By reinvesting those hours in these four types of development.

As we all re-discovered this week, life is full of surprises, some of them exceedingly unpleasant. In this period of extreme volatility, it’s becoming much more difficult to forecast even the near future with any real confidence, let alone the medium term and beyond. That continues to apply with particular force to artificial intelligence, which we’ve recently learned you can use to create an AI avatar and invite it to take part in a Zoom call. Fun times.

We can know barely a fraction of what Generative AI will eventually do in (and to) the legal sector, and only a hazy picture of what it can accomplish right now. But if there’s one effect of Gen AI that hardly anyone disputes, it’s that it vastly reduces the amount of time and human effort required to complete many standard legal tasks.

We’ve been aware of this since 2023, when a Legal Value Network study conservatively estimated that 20% of lawyer work tasks at large law firms could be performed by AI. Last week, Clio’s 2024 Legal Trends Report went further and concluded that 57% of lawyers’ hourly billable work activities could be automated by AI. This week, Thomson Reuters’s 2024 Future of Professionals Report predicted that AI could free up work time at a pace of four hours per week (200 hours annually) within one year, tripling that total within five. Want a real-life example? In the first quarter of 2024, Husch Blackwell displaced about 6,000 lawyer hours using AI tools.

This is the emerging reality of legal work. A productivity revolution is underway in the law, and nobody knows how far it will take us. So even if Gen AI never has any other effect on legal services delivery (which is highly doubtful), we will have to deal with the rapid diminishment of the average lawyer’s supply of billable hours. Those hours will no longer be used to complete legal work. What will they be used for?

I suppose the easy answer to that question is, “More work.” And it’s true that the rapid acceleration of task performance will clear lawyers’ plates for more tasks to be dumped on them. But as I’ve argued, Jevon’s Paradox doesn’t help us much, because most of the new work will also be susceptible to AI-accelerated performance. We’ll just end up clearing our plates at super-speed, and while that’s great for our clients, who get their issues resolved much faster, it’s bad for lawyers who price their work by time. We won’t make as much money, and our work pipeline will empty out fast.

I’ve already written about how AI’s efficiency impact will force a reconfiguration of lawyers’ business model. But I want to linger on this question of “What will those freed-up hours be used for?”, because it contains some profound implications for both law firms and individual lawyers.

I think a good way to describe the time-saving impact of this new technology is as an “AI Dividend.” I don’t mean “dividend” in the purely financial sense of a shareholder payout or profit distribution, but in the broader meaning of an unexpected reward for doing something worthwhile, like the “dividend” of a clearer mind following regular exercise. AI’s efficiency dividend for law firms and lawyers is the gift of more time — and whether or not they consider that a gift, they’ll have to decide what to do with it.

From the perspective of law firms — or more accurately, the equity partners who own the firms and collect all the profits — the obvious AI Dividend is a significant reduction in the cost of doing business. You could spend hundreds of thousands of dollars annually to support a bunch of leveraged lawyers grinding out billable work — or, you could replace most of them with a powerful Gen AI system, classify it as a capital expense to be amortized over time, drop your fees by an acceptable amount, and still enjoy mind-blowing profit margins beyond what the old system could deliver.

I’m not saying this is what law firms should do. But I’ve been around law firms long enough to know that this is what many of them will do, sooner or later. That ties into my increasingly frantic efforts to upgrade lawyer formation, but that’s a topic for another day.

The balance of this article is addressed to individual lawyers, from sole practices to the Global 100, who can expect their inventory of billable hours to be gradually fed into the AI machine. AI will give you a dividend of time, “freeing up” several hours a week, hundreds of hours a year, of your life. How will you use this dividend?

My advice is that you reinvest that liberated time, and classify those newly available hours as Development. What kind of development? I’m glad you asked! Because it gives me a chance to break out every consultant’s favourite tool, the four-quadrant chart:

These are the four ways in which every lawyer can take the hours in their schedule that will be opened wide by AI’s extraordinary efficiency gains, and put them to good personal and professional use.

1. Personal Development: In this scenario, the billable hours erased by automation are replaced with … nothing. Or more accurately, nothing related to a legal business or career. The lawyer redirects this newly available time to spend with their family, or to hit the gym more often, or to learn how to play the piano or speak Portuguese or whatever. They reinvest this time in enhancing the quality of their brief lives on this planet.

Obviously, this won’t be a widely pursued option. Most lawyers can’t just give up hundreds of billed hours of income a year, let alone afford Portuguese lessons without it. But some lawyers will take this path, maybe more than you’d think. Depending on your stage of life, your personal priorities, and your other income sources, and if you really do believe in “work-life balance,” this might be for you.

2. Professional Development: In this scenario, those liberated hours are devoted to upgrading the lawyer’s legal expertise and professional proficiency. Maybe the lawyer decides to become an expert in an emerging industry or a specialist in a particular type of practice, or maybe they get coaching on how to be a better advocate, or instruction on how to develop a specific type of business, or training in how to make more profitable use of AI.

This approach trades a present deficit in monthly revenue for a future benefit in enhanced proficiency and credentials, which down the road can lead to new clients, higher fees, greater profitability, and so on. This would be an especially attractive option for a lawyer who’s struggled to differentiate themselves in their markets to this point in their career, or to demonstrate clear superiority over their competitors. This is how they get that extra edge.

3. Business Development: In this scenario, the lawyer decides to spend their AI Dividend expanding their corner of the legal marketplace: raising their profile, speaking at industry events, marketing their services to promising potential clients, or starting a specialist periodical to establish their expertise in a particular area, all of it carried out to gain new business. The money that disappeared with the loss of hourly labour is replaced with new money from new clients.

This will be the most attractive option for many lawyers, since most of us can’t forgo a whole lot of income for very long, and most lawyers really dislike not being busy. The built-in risk with this option, however, is the one I identified earlier: What if the work you gain from new clients is also susceptible to AI? The lawyer would just end up on an ever-accelerating treadmill, feeding more and more work into the machine. That leads us to the fourth option:

4. Client Development: If the hourly-billed work that a client was giving you has gotten automated, maybe it’s time to approach the client and seek higher-level retainers. Are there complex, strategic, sophisticated legal services you could offer those clients, such as legal health improvement regimens, risk assessment and prevention services, competitive industry intelligence analyses, and so forth? How else could you add value to these clients’ lives or businesses?

Among the advantages of this approach are the opportunity to charge higher fees than you could previously command for work that got commoditized, to establish fixed-fee retainer relationships that deposit payments into your account every month, and to deepen your already solid relationships with already valued clients. This option moves the lawyer closer to the fabled “trusted advisor” tier of professional services.

In reality, of course, very few lawyers will allocate all their “freed-up” time to just one of these quadrants. Most lawyers will instead diversify their portfolio — investing, say, 60% of their time into professional development, 30% into finding new clients, and 10% into seeing their kids at breakfast every morning. And then changing up that allocation over the course of the year as circumstances, preferences, and opportunities dictate.

And as you’ve no doubt guessed, this kind of approach can be adopted by entire law firms. Skip the easy, short-term cost-cutting: What’s the best use of your lawyers’ newly liberated hours? Should you launch a brand new practice group? Send a batch of young associates off to negotiation training? Create a permanent rotating “strategic secondment” with key clients? Encourage partners to dedicate more time to pro bono work? The answers will vary according to both lawyers’ priorities and the firm’s strategic plan.

None of this is going to happen tomorrow. AI’s impact on lawyer work will unfold over the course of months or years. But that’s precisely the problem: AI’s efficiency impact will be stealthy. You won’t get a memo announcing that the New Age has arrived. It’s not going to suddenly appear as a black hole in your revenue.

But little by little, the erosion will take place. Regular client assignments will start missing a task or two, then a few more. Associates will finish their work a little quicker than usual, then faster again. Billable hour totals will start to decline, and they won’t pick back up. And as the pace of AI development quickens, the tempo will increase and the impact will be faster and deeper.

Given this likelihood, the time to think about how to prepare for that impact is now. If half of your billable hours disappeared, what would you do with all the open space on your schedule? Would you invest it in your clients, or your marketing, or your proficiency, or your own life? In what ways, and in what proportions? Reflect on those questions today: Draft a few lists, start to develop some strategic plans.

And who knows? By the time you’ve finished mapping out what a higher-value, more rewarding legal career could look like, you might decide you don’t need to wait in order to cash in your AI Dividend. You could start making that transition right now.