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| Ralph Baxter |
After spending 23 years at the helm of Orrick ending in 2013, Baxter went on to participate in a number of roles in the legal innovation and legal technology space, most recently as a board member of software and AI provider Intapp.
Baxter said the current moment is a pivotal one in which rapid transformation is occurring in the delivery of legal services. It's a moment, he said, when strong law firm leadership is needed.
"There are a lot of different ways to do what we do," he said. "And we need to be ambitious, confident, and thoughtful about deploying the best ways to do what it is our mission to do. Our mission is to help clients solve their problems."
Here, Baxter discusses AI, his problem with the billable hour model, and where he sees law going in the next decade. This article has been edited for length and clarity.
Your expertise is in legal innovation, and I typically ask my interview subjects what has changed most since they started practicing law. But I thought it would be fun to ask you, what hasn't changed in law over many years that you think stands to be turned on its head?
What hasn't changed? There are some things that haven't changed and they should never change. Let's start with the lawyer. The lawyer in legal service is dedicated to serving the interests of the client first and foremost — not making money first and foremost, not being famous first and foremost — delivering what the client needs, helping clients solve their problems and achieve their goals. That's what a lawyer is supposed to do, just like a doctor is supposed to help clients be healthy, overcome a disease, or engage in practices that will prevent disease. A lawyer is designed to help clients with its objectives. And I believe one of the reasons I'm proud to be a lawyer and want to be so involved in legal services is that that is at the core of what drives all the great lawyers.
And that's one of the reasons that it's important to understand what the role of money is in delivering legal services. Lawyers in private practice in the largest law firms today are making remarkable incomes, and that's fine. That's a good thing, as long as their objective remains first and foremost to deliver service to the clients and the money is what happens as a consequence of that.
What hasn't changed during my time as a lawyer and must change is the billable hour. When I first became a lawyer in 1974, the billable hour was a thing, but it didn't define the business. It didn't define the way you practice law. I really felt no pressure as a first-year associate. The idea that I had to have a minimum number of billable hours just didn't come up. And we had very rudimentary systems for keeping track of the hours. We charged for legal services, but it wasn't like the be all and end all as it has become.
The billable hour has never been a good idea. It's an easy way to quantify how much you're going to charge. It's an easy way for the clients to audit whether or not you actually put in the amount of work you said you were going to put in. But it's never been a good idea, mainly because it creates the wrong incentives. The incentive for the lawyer and the law firm is to spend as much time as possible.
The lawyer should not be doing anything that's not in the interest of the client. But what the lawyer ends up doing with the billable hour is editing that brief one more time. One of the things I learned early on in my career, any writing that you prepare, if you set it down for a while and then go back and work on it, you can make it better. You can, but when you do a legal pleading, at some point it's good enough.
But the lawyer has incentive to make it even better, and they do make it better. You stay longer and you write it again, search for a few more cases to add. And that minimum billable hour requirement drives you in that direction, and the economics of the firm drive you in that direction. And even when you're not acting unethically, even when you're really trying to do the best thing for your client, the judgment that you would make if you were operating on a different economic model would be better for the client and better for everybody.
Generative AI is on the minds of many law firm leaders and many have invested heavily in AI. However, many firm leaders are still unsure of how exactly AI fits into their practice beyond a handful of limited applications. And maybe more importantly, how they're going to reap a return on their investments in the technology. Does AI present an opportunity for further profitability for law firms? And if so, how do firms tap into that benefit?
I don't think there's a single leader of a law firm, certainly not a leader of a large law firm, that doesn't think generative artificial intelligence is going to change the way firms do things over the next 10 years. They have different ideas of the scope of the application of generative AI to their practices. And so some are more ambitious than others. It's going to be profound. I have no doubt about this. And it's going to be profound for two reasons.
One, the capability of the technology to do elements of work that previously were the exclusive domain of human beings, and more particularly human beings with legal training and with law degrees. The technology now can do many, if not most, of those things. Natural language processing was achieved, I don't know, some number of years ago, and that converted all words, all writing now is data. So you can deal with the language of humans just like you can deal with numbers.
If you send a lawyer out to do legal research, the lawyer can read some number of cases. The technology literally can read all of them, and the technology will never forget. The lawyers forget. Technology never has a hangover, never has a dispute with its spouse. The technology will make mistakes. There's a lot of talk about hallucinations. But humans make mistakes and then humans learn to make fewer mistakes, and so does the technology. The technology, step-by-step, is getting better at making fewer mistakes.
But here's the other thing. There's competition. One of the drivers of the change that we're going to see in the next 10 years will be good old-fashioned competition. The law firms will be competing ever more fiercely to be in the position to be chosen to advise and represent clients in their matters that involve the law. And so that competition will cause the firms to make the most of this technology. It's available to them. It's going to take change management, it's going to take investment, but the ones who don't make that investment are going to be left behind.
Today's law graduates are still assigned to do legal research, some of it manually. Most of it is computer-assisted. But in the world ahead, the tasks assigned to the associate will be different. They will be informed by the work that needs to be done after the technology has done its part. And those tasks will require the person doing them to be really effective at dealing with the technology. But it's all going to change how the work is done, who does it, and so on.
That kind of brings us to the question of the billable hour model. What does AI mean for law firm profitability under the billable hour model?
It can mean that the profitability goes up, the amount charged to the client goes down, and therefore, everybody's happier. The client gets better work delivered faster and more responsively. The law firm charges less for that better, faster, more responsive work. And because the law firm's costs are going down faster than its revenue per unit of work, it makes more money.
There are moments that create challenges for leadership. This is, I think, the grandmother of that because it's going to so quickly, so fundamentally, change how you do what you do. And then that's going to change the competitive landscape. We're at a time now where the technology has been developed in ways to make it so much more approachable, accessible. It costs money, but not nearly what it would have cost 10 years ago, and it's going to get cheaper and cheaper and cheaper to deploy just like a lot of other technologies with which we're familiar.
So anyway, I've been saying the billable hours should go away for a long, long time. People still say, "Oh, it'll never go away." Clients say it, law firms say it, but it will, and the reason it will now is that it won't work for the law firms. You can't justify on hours-times-rates the millions of dollars that you charge per merger. But it is worth that. The market has decided that helping two gigantic companies merge together is worth a lot of money, and getting it done soundly, reliably on the best terms, that's worth a lot of money. But you can't say you should pay that because it took us 10,000 hours to do your merger when it took you 1,000 hours or 500 hours. So you're going to have to have a different rationale for why it's worth it. I think what's going to happen here is the market's going to end up paying less than it's now paying, but the law firms are going to organize themselves so they can still make as much money if not more.
What lessons do you hope the legal industry will learn to bring it into the next decade and beyond as a thriving profession?
The main lesson is there are a lot of different ways to do what we do. And we need to be ambitious, confident and thoughtful about deploying the best ways to do what it is our mission to do. Our mission is to help clients solve their problems and achieve their goals in those circumstances when the law is part of the mix of considerations.
What's the best way to do that? Law firms and everybody in law needs to be thinking like this. What is the best way to deliver what the clients need in 2035? Right now, the best way is to go to Orrick or another great law firm and get a lawyer to help me. What will it be in 10 years' time? Will it be the law firms? Will it be something else? And, it should be the law firms. The law firms are so far ahead and they're so much better prepared to do that than anybody else.
Will it be a mixture of technology and lawyers? And really importantly, will the humans that are working, the people who are working in law, delivering the legal service, interacting with the clients, interacting with the courts, will those people all be graduates of law schools, or will it be that when we really think most effectively, most creatively about what we do to help these clients solve their problems and achieve their objectives, will it be that the mixture of people will be some lawyers, mainly lawyers perhaps, but a lot of other people, too.
The bar associations and the law firms need to be open to all these new ideas that weren't there when I started practice 50 years ago. Many of those ideas and opportunities are here now, and even more of them are going to be available a year from now, five years from now, and 10 years from now, so the law firms should focus on that. Let's do things the best possible way for our clients, and let's move our firm from looking like it's 1955 to looking like it's 2035.
--Editing by Nicole Bleier.
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