Leverage technology, not lawyers

Law firms will need a new approach to developing junior lawyers and generating sustainable profits. They can start by changing their leverage model and investing in their new lawyers from Day One.

Illustration by Midjourney

The role of the law firm associate has never looked more tenuous than it does now. It’s threatened from one direction by law firms’ fixation on hiring lateral partners, and from the other by the implications of Generative AI’s rapid advance into law firm workflow.

1. Today: Associates not wanted. Many law firms are prioritizing the acquisition of senior partners with strong client relationships over the drafting and development of junior lawyers. Law firms are cranking up their lateral partner engines while entry-level lawyer hiring is down across all US firms. It now takes twice as long for homegrown associates to become partners as it does lateral hires. Even associates don’t want to be associates, given the lure of higher-status (albeit poorly managed) “non-equity partner” roles. Not coincidentally, over the last 10-15 years, the proportion of “workers to owners” at many firms has been declining, to the point where the ratio of non-equity holders (associates and income partners) to equity holders (full partners), which ideally ought to be 3:1 or 4:1, is closer to 1.5:1 or 1:1 — or in some cases, even below.

2. Tomorrow: Associates not needed? As Generative AI becomes more capable and more widely used in law firms in the years ahead, it will reduce the number of hours lawyers spend performing many tasks. This will make lawyers more “productive,” in the traditional sense of the term. But that enhanced productivity will hurt law firms’ profitability, because it clashes with their time-based pricing, compensation, and valuation systems. Lawyers, especially juniors, will have fewer hours to bill and more hours to fill. Theoretically, you could push more legal work down from partners to associates — but partners like doing that work, they’ve never been better at it, and most importantly, they still get measured and rewarded in part according to their billables, so they’re going to hold on to that work tightly.

If your law firm is fixated on the short term, generating maximum profit right now for senior partners with little concern for the state of the firm in ten years — and there’re more firms in that category than we’d like to think — none of this is a big concern. Keep on poaching laterals, keep a few associates and non-equity partners around to handle the partners’ overflow, and drive that car at top speed until the fuel runs out.

But if your firm does care about the 2030s and 2040s and beyond, then you need to give some thought now to the composition of your future workforce. I think the first step towards answering that challenge is to recognize a major change taking shape in the law firm world, foreshadowed by these foregoing trends: The leveraged labour model is coming to an end.

Law firm profit has always depended on this model. Firms push their non-equity lawyers to bill as many hours as they can, because past a certain point in the year, those hours pay the lawyers’ full freight, and every hour billed after that drops straight to the partners’ bottom line. A lot of firms seem to have lost sight of that, judging from the diminishing ratio of workers to owners. Time- and effort-saving technology — Gen AI is only the newest and most formidable iteration — is reducing the supply of hours further.

Dwindling hours of work for junior lawyers to bill, combined with proportionally fewer such lawyers, means that firms generate less profit from each individual junior and from their lawyers overall. As profits drop, firms intensify their efforts to secure powerhouse laterals with books of business, and they lay off idling associates as a cost-saving measure. From here, that looks like a downward spiral, and I’m not sure what could reverse it.

If the leveraged labour era of law firm profitability is in fact ending, I won’t shed a tear for it. To be blunt, it was always exploitative — working young lawyers terribly long hours, year after year after year, all for the promise of an admission to partnership someday that only a few ever received (and learned, upon admission, that the pie-eating contest never stops). It was also deeply inefficient, discouraging the development and deployment of time-saving innovations by which client tasks could be completed faster and better.

But what really irked me about the leveraged labour model was how it wasted human time and talent. The partnership track today is more than twice as long as it was 25 years ago, and that’s not because it takes young lawyers twice as long to become skilled partners. It’s mostly because law firms wanted to prolong the profitability of their junior lawyers, regardless of those lawyers’ professional development. The early years of an associate’s career could have been used not to enrich the firm’s partners by the billing of dull tasks, but to supercharge the quality, effectiveness, and speed of the lawyer’s development into a polished, proficient, and confident legal professional.

Law firms have spent decades stunting the growth of their lawyers, because it profited the firms to extend the lawyer’s time of labour (and delay their admission to profit-sharing) as long as they could. But that fundamental flaw of the leverage system also points the way towards its superior replacement.

Look: Law firms need work from clients, and the higher-quality that work in this Gen-AI era, the better. Entry-level lawyers have only ever been expected to perform and bill entry-level work — but that work is going away. At some point, inexperienced lawyers just won’t be able to contribute value to the firm. So why not make them experienced lawyers, sooner rather than later?

The challenge and opportunity ahead for law firms is to start turning “associates” into “partners” from Day One. Forget trying to bill your newest lawyers’ time on basic work — that work will be gobbled up by AI whether you like it or not. Instead, immediately enroll your new lawyers in an intensive two- to three-year program to accelerate their development into those polished, proficient, and confident legal professionals who can go get work from clients four, three, even two years into their careers. There won’t be a “partnership track” anymore — everyone who joins the firm would be immediately on track to become something way better than a mere “partner.”

Law firms need to get into the business of putting old heads on young shoulders, faster. They can’t afford to waste the first 5 to 10 years of lawyers’ careers anymore on billable drudgery — aside altogether from the unfairness to the lawyer, it won’t be profitable to the firm. Firms need to enable their lawyers to hit the ground running with strong business development and client relationship skills, so that they’re generating real value to themselves and the firm sooner than they ever could before. This is how law firms will “replace” all those hours of lawyer work lost to AI: by empowering lawyers to go find replacement work of their own.

This is also how firms will survive the end of the leveraged labour model: by recognizing that from now on, they will leverage technology and systems instead of people, breaking the long-held belief that the only way to get a legal task done is by giving it to a lawyer to do. When you leverage technology and systems, you quickly learn that speed and efficiency magnify your profits, rather than diluting them. That enables you to price your work by the project or the matter or the quarter or the client, whatever, rather than by how long it takes a single lawyer to complete a single task.

New technology will permanently diminish the role of time and effort in the production of legal work. The implications for new lawyers in law firms seem dire — until you realize that there’s no longer any reason to needlessly prolong these lawyers’ developmental paths. That’s a door few law firms have ever opened — but if you walk through it, you’ll find a path to a world of incredible opportunity.

And by the way, you don’t need to call these lawyers “partners” or “associates” anymore. As I wrote a couple of months ago, law firms need new categories to describe their workers — lawyers and non-lawyers, in-person and at-home. Spend two to three years intensively upskilling these “Trainees” — at the end of that process, you and they will both know if they’re destined to be “Core” or “Ancillary” members of the firm. The pyramid is on its way out — the circle is on its way in.