A new HSBC survey reveals that corporate clients are increasingly handling legal work themselves, raising uncomfortable questions about the future of law firms and their traditional billing models.

For decades, the relationship between large companies and their external lawyers has followed a familiar pattern. When a legal problem arose, the company called its law firm, the lawyers did the work, and the client paid the bill.

That relationship may now be changing.

According to a new HSBC survey of more than 100 senior law firm leaders in the United Kingdom, 60% identify clients bringing more legal work in-house as a source of disruption to the profession.

Companies can now handle more legal work themselves

The reason is relatively simple. Corporate legal departments now have access to technology that allows them to perform tasks for which they previously depended on external advisers.

And increasingly, they are using it.

This creates an unusual situation for law firms. Their competitors are no longer just other firms offering lower fees or better services.

In some cases, their competitors are the very clients they have advised for years.

The problem goes beyond losing individual assignments

The problem goes beyond losing individual assignments.

A company that can review documents, prepare preliminary legal analyses or develop its own legal strategies may still need an experienced lawyer.

But it may no longer need that lawyer for the same number of hours.

That raises an uncomfortable question for a profession whose business model has traditionally depended on charging for time.

Artificial intelligence is also changing the client relationship

Helen Drayton, chief executive of Penningtons Manches Cooper, has highlighted another difficulty: clients sometimes arrive at meetings with strategies already prepared using artificial intelligence, leaving their lawyers to explain why those strategies may be wrong.

How should a firm charge for that conversation?

The answer is not obvious.

The nature of the legal work may have changed before the meeting even begins. Clients no longer necessarily arrive with a problem they expect their external lawyers to analyse from scratch.

They may arrive with reviewed documents, developed arguments and a potential strategy already prepared with technological tools.

In that environment, the lawyer’s value may shift from producing the initial work to reviewing, validating, correcting and helping make the final decision.

The billable-hour model faces new pressure

The shift raises particularly important questions for the traditional billing model.

If technology allows in-house legal departments to perform some of the work previously sent to external firms in less time, the number of external hours required may fall.

Clients may still need specialist advice, but they may become less willing to pay external advisers for preliminary tasks they can increasingly perform themselves.

This forces law firms to consider not only how much they should charge for their work, but which parts of that work will continue to carry enough value for clients to outsource them.

The competitor may now sit inside the client organisation

For years, a law firm’s competitors were primarily other law firms.

Firms could compete through specialisation, reputation, pricing, international reach, technology or quality of service.

A different competitor is now emerging: the client’s own in-house legal department.

Better-equipped corporate legal teams with access to increasingly capable technology can take on a larger proportion of legal work and reserve external advisers for matters involving greater complexity, specialisation or risk.

This changes the traditional division of legal work between companies and external law firms.

Technology does not necessarily eliminate the need for lawyers

There is, however, another side to the story.

Technology cannot necessarily replace the judgement, experience and responsibility of a good lawyer, particularly when the consequences of a mistake are serious.

And perhaps that is where the future of the profession lies.

Clients may become less willing to pay for work they can perform themselves, but they will still need someone they trust when an important decision has to be made.

From producing legal work to taking responsibility for decisions

The shift may force lawyers to concentrate on the areas where their contribution is hardest to replace.

Interpreting a complex situation, assessing risk, anticipating consequences, negotiating, designing a strategy, managing a dispute or assuming professional responsibility are fundamentally different from simply producing a document or conducting an initial review.

Artificial intelligence may reduce the economic value of certain tasks while simultaneously increasing the importance of professional judgement applied to its output.

The question for law firms will be which services remain sufficiently differentiated to justify the involvement of external counsel.

Clients will decide which legal services are still worth paying for

For law firms, the real challenge may no longer be convincing clients that they need lawyers.

Companies will continue to face transactions, disputes, investigations, regulation and strategic decisions requiring legal advice.

But technology may fundamentally change the point at which they decide to call an external law firm.

Routine, preliminary or easily automated work may increasingly move inside the corporation.

Work involving greater risk, responsibility, specialisation and complexity may become the real competitive territory of external law firms.

The real challenge may no longer be convincing clients that they need lawyers. It may be convincing them which legal services are still worth paying for.