In a post two years ago this month “Here We Go All Over Again… or Not”, I posed a series of questions about what might happen to the legal world in this era of Generative AI. While the takeover of the industry by computers that some feared did not move at warp speed, the direction of AI advance as it relates to the law is clear – it will increasingly play a role in the business and practice of law and, likely within a relatively short time, change dramatically the day-to-day activities of lawyers. With those changes will come fundamental changes in what it will means be – and to become – a successful lawyer. Another corollary of this change will likely be a change in the primary criterion for a successful firm – aggregation and maintenance of the right talent base for the future. Put differently, the successful (and potentially the only surviving) law firms will be those who can play and win the talent game.
Talent, not AI or other factors, will be the primary differentiator for firms of the future. Sophisticated AI as part of the practice of law will be available to all and will become a component of “table stakes” within a few years. As a necessity, AI adoption becomes primarily a capital question, as well as a question of firm structure and funding, including acceleration of the industry entrée of external (PE, VC, etc.) capital. But the fundamental question remains – what will differentiate firms when core tools of the legal practice are available to everyone? Talent will be the answer, making the focus on all aspects of talent management critical to future success.
Over the past few years, when we’ve asked Managing Partners about their most important challenges, the common topics have included “the associates” and a general concern around the eroding productivity of their lawyer teams generally. The productivity issues stem from many causes, and we’ve written about them in various other recent blogs (see “Are You Worried about Your Associate Classes?…”, or “The Scariest Chart on the State of the Legal Industry” ), but even successfully addressing those concerns does not ultimately guarantee your firm the talent it needs to succeed in the future. While overcoming the cultural and other factors underlying these challenges will be a necessary factor in success, it won’t be a sufficient one. What else will firms need to do on the talent front?
First and foremost, firms individually, and perhaps the industry broadly, will need to deeply rethink both what it will mean to be a future successful partner, and perhaps more importantly, how to develop one. The most successful partners today are those to whom the clients will turn in their most challenging times. The trusted advisors, and the true strategic partners when it comes to dealing with important challenges – whether in the courtroom or the deal room – will be crucial. But as AI increasingly supplants much of the work currently done by younger lawyers, and moves into assisting in strategic decision making and other components of the practice, how will firms create the next generation of truly valuable partners? Yes, we will likely need fewer younger lawyers to do relatively routine work (and fewer older lawyers who do routine work too), but we will still need a large – and likely larger than today – number of highly skilled and trusted lawyers upon whom the clients confer their trust. A different development model will be needed to assure this supply, which may require two additional changes: a rethinking of the typical legal pricing model, and a new level of cooperation with the clients. That development model itself will have a different structure. Just as today the share of total partners who are truly the trusted and strategic partners of the client are a small-ish subset of the total partners in most firms, likewise the share of total new hires the firm can invest enough in to eventually get them to that level will be smaller than the total group of new lawyer hires every year. But proper selection, and long-term retention of those new hires will be crucial.
Second, the overall leverage structure of many firms will need to change. In the short run, and reflecting the point in the paragraph above, firms might consider building two entirely different groups of associates – one group ready and able to become the next true group of strategic owners, willing to put in the hours it takes to build a truly successful career and another group who may not have the talent or desire to be those future leaders but who can contribute to the firm’s current success while handling the remaining routine work and much of the more basic work that is still needed in the firm. In a sense, the latter group becomes a type of “super paralegal” or new paraprofessional group with its own career path, while the first becomes a smaller, but more intense associate class. The second group might resemble an enhanced “staff attorney” program but provide a separate lifetime job category with its own benefits and rewards. The first group will need a different compensation model from today to protect the firm from undesired losses and will become an area for intense investment by the firms.
As a corollary to the restructuring of associate life, firms will need to think carefully about what they are looking for in the new lawyers in whom they plan to make significant investments. Most firms have come to the realization that brainpower alone – whether reflected in LSAT scores, law school rankings or your place within your graduating class – is insufficient to assure career success. It takes more than that – drive, empathy and social skills and other characteristics — to rise to the top and gain the trust of clients. These associates will also need a strong business sense, and perhaps psychological traits more readily found in the business world than the legal world. Most firms have yet to discover how to systematically identify and attract such candidates, and when they do get them fortuitously, are often hard pressed to keep them.
Third, firms will need to find ways to better capture the value of the senior talent where a significant portion of current law firm knowledge resides, while also doing a far better job of managing transition as lawyers approach retirement. Much of this challenge relates to compensation models and legacy overhead structures. It just doesn’t work in today’s law firm economic structures to have many senior people (intentionally) working part time, even though their potential contribution is significant. More than a few firms face capacity shortages for highly skilled work, while simultaneously struggling to train and develop the next generations. While many senior lawyers struggle, understandably, with the transition to retirement, better transition management programs, different overhead structures, and more flexible compensation design might help firms and lawyers manage much more fruitful and productive transitions.
Finally, in addition to better managing the early and later parts of a lawyer’s career, firms will need to focus more intently on its middle. Retaining the key, well trained mid-career star lawyers who manage the bulk of the firm’s work (and do most of the hands-on training of younger talent) is critical to assuring the quality and success of the firm one and two decades from now. While individual firms obviously have radically different experiences, the median partner retention rate in the AM Law 100 firms was roughly 90% for the period 2020-2023[1]. Even at this reasonably strong retention rate, a firm loses roughly half its partners every six years, and many firms have far worse retention rates. Given this challenge, most lateral hiring strategies do little to build a law firm – most are working as hard as they can to stay in the same place, with new hires replacing departures and retirements. To build a stronger, deeper firm, you must both hire and retain people for the long term.
Each firm’s talent base is unique, but not all are created equal. To the extent a firm’s talent is primarily just capable of efficient processing of relatively routine legal work it may find itself a few years from now the victim of a rapidly accelerating AI driven revolution in the industry. Such firms will likely be either much less profitable or potentially cease to exist. But to the extent the firm has a talent base capable of gaining and keeping client’s trust for their business or for key aspects of important work, those firms will remain relevant to the clients, and profitable to their owners. Talent is the one component of the successful firm that can’t be easily duplicated simply by spending money. You must build the right culture, select the right people, build the right structures around them, pay them appropriately, create opportunities for growth, and build reasons for them to stay with the firm long term. It’s not easy, and the outcomes will fall along a spectrum of success. But the firms who figure out how to win the talent game will ultimately be the winners of the future.
Which brings us full circle. The next time your firm sets out to do its “strategic plan”, think carefully about what you are really doing. A strategy that doesn’t include a serious, long term talent focus – not just a “plan” to “grow out office in X city through lateral hiring” – is not a strategy that can meet the future our industry faces. Talent is the final strategic frontier, and those that wade boldly into its challenges will have the best shots at being winners of the future.
[1] “Which AM Law 100 firms have been retaining their lateral Partner hires?”, Pirical, February 12, 2024, pirical.com/data-insights/amlaw100-partner-retention
