149 | 💸 💨 AI Impact on Equity Partner Pay

In today’s Brainyacts:

1. AI and Equity Partner Pay

2. Tipping ChatGPT to get better replies

3. DeepMind watches humans to learn and more AI model news

4. AI wiretaps and other related content

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Lead Memo

💸 💨 AI Impact on Equity Partner Pay

Three articles inspired today’s lead memo":

1. Consulting Giants See AI Shaving Years Off the Path to Partner

2. AI could mean free doctors and lawyers for everybody in 10 years

3. Most M&A Attorneys Would Use AI for Due Diligence

There is a lot to consider in these articles. But the question that kept leaping into my brain was this - what will lawyers do with all of this extra time AI gives them?

Those lawyers who rely on the billable hour (most of them) don’t see extra free time as a good thing. And I doubt they will be happy to hear that so many lawyers will make partners earlier in their careers. I mean I am sure they will be happy for them but more partners do not equal more profits per partner.

See what I am saying here?

Along with the articles above, many observers who have direct experience with the pragmatic use of generative AI in legal are thinking that this all could be leading to an accelerated path to partnership and potentially affecting the number of billable hours.

This presents a complex interplay of financial and human dynamics.

Let’s use some light strategy work to organize this a bit. We will use a basic version of scenario planning. This involves envisioning different future situations to help prepare for various potential outcomes.

Here are some scenarios and their potential implications:

1. Increased Efficiency Leading to Fewer Billable Hours:

   • Scenario: AI-driven efficiency leads to tasks being completed faster, reducing the total billable hours per client.

   • Impact: While this may decrease revenue per client, it could enhance client satisfaction and retention. Firms might need to acquire more clients to maintain or grow revenue.

   • Potential Outcome: The firm could develop a reputation for efficiency, attracting more clients, but would need to ensure the quality of work isn’t compromised. Or client development is weak, and AI cannibalizes billable work.

2. Higher Billing Rates for Speed and Expertise:

   • Scenario: Firms could justify higher billing rates due to the speed and expertise brought by more senior-level partners and AI tools.

   • Impact: This could offset the reduced billable hours, but there’s a risk that clients might seek more competitively priced options.

   • Potential Outcome: If clients perceive added value (quality, thoroughness, etc.), they might be willing to pay premium rates. Otherwise, firms could lose price-sensitive clients. Or partners might not be strong in “selling” the new value proposition and thus lose opportunities.

3. Expanding Services and Client Base:

   • Scenario: With more partners and AI tools, firms might expand their range of services or target new client segments.

   • Impact: Diversification can lead to new revenue streams, potentially compensating for reduced billable hours.

   • Potential Outcome: Successfully tapping into new markets or services can lead to overall revenue growth, but it requires effective market analysis and strategic planning. Or, the firm struggles to manage a fragmented group of services and undervalues operational discipline and governance.

4. Adjusting to Market Competition:

   • Scenario: As AI becomes more prevalent, clients might expect faster service at lower costs, given the market competition.

   • Impact: Firms might face pressure to reduce rates or offer more value-added services.

   • Potential Outcome: Firms that adapt well to market expectations can maintain a competitive edge, while others might struggle to retain clients. Or AI outright replaces some services altogether.

5. Alternative Billing Models:

   • Scenario: Firms could shift from traditional hourly billing to alternative models like flat fees, subscription services, or performance-based pricing.

   • Impact: This shift could align costs more closely with client value perceptions rather than hours worked.

   • Potential Outcome: This can lead to more predictable revenue streams and client satisfaction, but requires careful structuring to ensure profitability. Or, we still consider AFAs unethical (many lawyers do).

Regardless of the scenario, partner profits will be critical to protect. I am not sure there is a law firm brave enough to declare that all its partners make less money, but also work fewer hours!

Do I have an answer to this? Heck no. But it is starting to play out and will only accelerate. But it will happen slower than most expect.

Spotlight

Here in the US, tipping has gotten out of control. Self-serve gas pumps are prompting us to tip the store clerk! So I should not be shocked to learn that if you “tip” ChatGPT, it performs better. (pardon the language below)

AI Model Notables

► OpenAI applies seeking trademarks for ‘GPT-6’ and ‘GPT-7’ in China

► ChatGPT can leak training data, violate privacy, says Google's DeepMind

▷ related to above - ChatGPT will no longer comply if you ask it to repeat a word 'forever'— after a recent prompt revealed training data and personal info

► Google’s GPT4 rival Gemini delayed over performance worries

▷ related to above - Google preps public preview of Gemini AI after postponing in-person launch events

► OpenAI’s GPT Store delayed to 2024 following leadership chaos

► DeepMind's new AI can learn tasks directly from humans

► Amazon's AI chatbot, Q, might be in the throes of a mental health crisis

► Elon Musk's AI firm xAI files to raise up to $1 bln in equity offering

News You Can Use:

➭ Can an AI chatbot be convicted of an illegal wiretap? A case against Gap's Old Navy may answer that

➭ UK Solicitors make government list of jobs ‘most exposed’ to AI

➭ Getty lawsuit against Stability AI to go to trial in the UK

➭ AI startup Runway has reached a deal with Getty Images

➭ Meta’s chief scientist and deep learning pioneer Yann LeCun said he believes that current AI systems are decades away from reaching some semblance of sentience, equipped with common sense that can push their abilities beyond merely summarizing mountains of text in creative ways.

➭ OpenAI - Senior Corporate Counsel opening

➭ AI companies can define their public purpose through governance

➭ Generative AI is disrupting EU regulators and AI Safety Act

➭ Montreal research hub spearheads global AI ethics debate

➭ Uber Eats is using AI for pictures of food. And it is creating some issues.

Who is the author, Josh Kubicki?

Some of you know me. Others do not. Here is a short intro. I am a lawyer, entrepreneur, and teacher. I have transformed legal practices and built multi-million dollar businesses. Not a theorist, I am an applied researcher and former Chief Strategy Officer, recognized by Fast Company and Bloomberg Law for my unique work. Through this newsletter, I offer you pragmatic insights into leveraging AI to inform and improve your daily life in legal services.