From left, Kevin Clem, Mark Yacano, and Trevor Faure.

Kevin Clem of HBR Consulting LLC sees in-house law departments driving change with legal technology and dragging law firms reluctantly behind them.

Trevor Faure, former global chief legal officer at Ernst & Young and now CEO at consultancy Smarter Law Solutions in London, agreed, saying many corporations are at the cutting edge of using technology to drive the business. Law firms, Faure said, are more conservative.

But Mark Yacano of Major, Lindsey & Africa begs to differ. Yacano believes major law firms are actually leading the way on artificial intelligence, while in-house counsel avoid risk and await the benefit of a law firm shake out.

“It's popular to say that law firms are too wedded to the billable hour,” Yacano said in a recent interview. “I don't think that means law firms aren't going to find a way to deliver legal services more efficiently and faster.”

As global leader of managed legal services at his recruiting and advisory company, Yacano works with both law firms and in-house departments. He said law firms are becoming very aggressive about technology adoption and experimentation.

He cited law firms that are sponsoring hackathons. Others, he said, are creating legal apps that their clients can use, such as one that allows clients to question whether certain conduct might violate the Foreign Corrupt Practices Act, or another that answers managers' questions about whether an employee in specific circumstances must be paid overtime.

“Law firms are spending investment dollars to innovate and service clients more effectively,” he argued. “You are seeing firm leaders coming in with adaptive mentalities, and it will create a safer, riper environment for corporate law departments because [new technology] will be battle-tested by the law firms.”

He cited Seyfarth Shaw and Littler Mendelson in the U.S., and Allen & Overy in the U.K. as “really embracing and investing in technology.” For example, Allen & Overy recently announced collaboration with Legatics, an AI online deal platform, that will allow the firm's business clients to expedite the signing and completion of transactions.

Yacano pointed out that law firms are not publicly traded and spend their own money, so they can move faster on innovation. General counsel, he said, do not generally have the authority to make a major investment decision on new technology without proof of the business benefit first. While some e-billing and management matter programs have shown cost savings, the monetary benefits of using artificial intelligence is not as easily proven.

Clem, HBR's chief commercial officer, also works with both law firms and in-house law departments and sees a different dynamic.

“If you ask corporate clients,” Clem said, “most will say [innovating] law firms are few and far between. It is not yet the norm for law firms to be making significant investments in technology.”

Clem agreed, though, that his company is seeing some major law firms becoming more “client-centric” in their use of technology.

“We've seen some pretty advanced investments in the U.K. in the past several weeks,” he said. “Law firms realize that if they make an investment, it can drive revenue. On the corporate side, it can help reduce cost but not add revenue. So there's more upside for law firms to invest, both to control internal costs and generate new revenue.”

Still, Clem noted that a recent HBR survey showed that nearly 60 percent of in-house legal departments have someone dedicated to legal operations, while that figure jumps to 80 percent for California companies, thanks to the Silicon Valley. The percentage would not be anywhere to close to that for law firms.

Faure, who spent 15 years as an in-house counsel at Apple Inc., Dell and Tyco International before joining Ernst & Young, said in-house legal departments are “nearest to the earnings per share, return on investment calculations every quarter, so inevitably they have been asked earlier to be more efficient. Now they are passing that on to their law firms.”

Faure, who has a global perspective, said there is a saying in Australia that “Americans do it [new technology] first, Europe follows, and Asia and Australia are last. Broadly speaking, the U.S. legal market is by far the most sophisticated and least conservative in terms of its approach.”

U.S. in-house legal departments are still leading the way over law firms, he said.

“Law firms want to look attractive to clients so they cloak themselves in blue sky, cutting edge kind of language,” Faure said. “But in reality if you look at whether their business model is sensible to wide scale adoption of artificial intelligence and whether they make changes ahead of the market, well, you know the answer.”

His bottom line: “There is less motivation to rush to artificial intelligence if it doesn't square with how you make your money in your law firm, by the billable hour.”