Legal revolution? Law firms invest in cost saving AI tools like ChatGPT to stave off declining profitability

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Law firms are continuing to invest in cost-saving technologies, including artificial intelligence driven tools like ChatGPT, in seeking to stave off falling profitability.

A sharp drop in M&A deals has hit US law firms’ profitability, wiping out the majority of all gains they made during Covid, the research from Thomson Reuters shows.

US law firms have, however, continued to invest in tech, in seeking to boost efficiency and retain their competitive advantage against rivals, the research shows.

It comes as Magic Circle law firm Allen & Overy today announced it would be giving its own purpose built AI tool to lawyers working inside its firm with a view to boosting its own efficiency.

The research shows falling demand for legal services has caused US law firms’ profit-per-lawyer ratios to slip for the fifth quarter in a row, to lows last seen in 2020.


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The decline in work comes after law firms in both Britain and America bolstered their ranks during Covid, in their efforts to capture a larger share of the boom in demand seen during the pandemic.

The economic disruption caused by Covid-19 saw demand for legal services surge during the pandemic, particularly in areas surrounding deals and insolvencies.

Work has, however, fallen across all practice areas, with particularly sharp drops in demand for M&A, real estate, and bankruptcy services.

Overall demand for legal services has fallen by 3.9 per cent over the previous year, leading to a 7.2 per cent drop in productivity, the research shows.

The shift has seen the average number of billable hours worked per lawyer drop from 121 in 2021 to 112 in 2022.  

Legal tech

US law firms have, however, sought to tackle this drop in productivity by continuing to invest in technology, the research shows.

The continued investment comes as US law firms are now finding themselves over-resourced for the amount of work available, after bolstering their ranks on the back of the boom.

The bumper salaries being paid out to lawyers, as a result of the battle for talent, have also dented law firms’ profits.

Top ranking law firms including Cooley, Goodwin Proctor, and Stroock, have all laid off lawyers in recent weeks.

Legal tech solution are however coming to be seen as a means of boosting profitability without cutting, amid new advances in machine learning (ML) and artificial intelligence (AI).

“Current economic challenges are making it imperative for law firms to improve their operational efficiencies,” Thomson Reuters analyst Paul Fischer said.

Cutting edge developments in language computing models have created a new set of tools that have the potential to transform white-collar work through automation.

“Law firms should look at either maintaining or expanding their investments in technology, putting themselves in stronger competitive positions to support clients and win new business as they navigate the uncertain year ahead.”

The report follows news Magic Circle law firm Allen & Overy has begun using an AI chatbot to help its lawyers’ draft contracts.

The new tech, called Harvey, will be used to automate jobs “various aspects of legal work” including contract analysis, due diligence, litigation, and regulatory compliance, Allen & Overy said.

Harvey will be used to “generate insights, recommendations, and predictions” using large volumes of data, to help lawyers deliver “more cost-effective solutions” to their clients, the firm continued.

Allen & Overy is set to give the AI tool, which is based on OpenAI’s ChatGPT tech, to all 3,500 of its lawyers in 43 offices worldwide.   

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