Tom Pfennig

[00:00:00] Tom, good to see you this morning Good morning, good afternoon, Ted Yeah, I guess it's... Is it evening your time? I'm in Singapore right now. Yes, it's a bit after 9:00 PM. Okay. And s- and it's 7:00 AM my time, so I'm glad we were able to find a time that works for both of us. Uh, well, you and I got a chance to meet each other and have a little bit of a, a chat at the FT Innovative Lawyer Summit in London a few months ago, and you had a lot of interesting thoughts on the industry, so I knew we had to have a chat here.

Um, maybe we could start off by, um, just a quick introduction. Tell us everybody a little bit about who you are, what you do, and where you do it. Perfect. Thank you for having me, Ted. Yeah. So my name is Tom Fenech. I am a lawyer by training in the US and in Germany. I was in the corporate world for almost 25 years with AT&T Broadband in the US, BMW in the US and Germany, and [00:01:00] then 20 years with Bayer or Bayer, uh, depending upon where you are, uh, AG, ultimately, uh, becoming the global head of compliance, the global head of data privacy, and the, uh, global sponsor of the digital transformation of the legal and compliance organization We, the company, uh, had bought Monsanto Corporation in 2016, uh, the largest corporate acquisition in Germany, and unfortunately struggled after its completion or conclusion to, uh, gain the commercial traction that was expected.

So obviously, there were some conversations around improving the business model, gaining further efficiencies, and it started one of the most complex digital transformations in the corporate world. I had the privilege of being one of the architects of that [00:02:00] transformation, which the Financial Times called, uh, the most innovative in-house legal department of 2023, and, yeah, brought it more or less to completion, and then ultimately decided in my mid-50s to do something new, and I founded a company, uh, Transforming.Legal, which is a nimble advisory boutique for companies that are also, uh, changing course, transforming, embracing the digital opportunities.

Uh, but we are not just a consultant, we also help with the selection of legal technology, and for that we have built a platform which is called Golt AI, Golt with a T for transformation and technology, which is more than a repository or directory. We really want to supplement our advisory with this tool, which is an AI search engine, recommendation engine, and marketplace.

So I have been that CEO, uh, and founder [00:03:00] for almost three years now, a completely different life. Coming from corporate as a senior vice president to being the CEO of a startup is a total 180. Maybe we can talk about this as a, an example of transformation and personal change. But that's essentially what we are doing.

We have offices in the US, in the UAE, in Germany, and in Singapore. We are fortunate to have very good clients in the NASDAQ, in the DAX 40, and also now in Asia Pacific, which gives me the access to a global network of innovators to also share a little bit on your podcast today. So we are not a partnership focusing on one practice area or one jurisdiction.

We are a nimble global boutique which comes from the trenches, knows what transformation means with everything, uh, being contemplated, and has the [00:04:00] technical expertise to supplement the guidance that we give our client- clients. Very interesting. Yeah. So we have a, a, a couple of connect points here. I'm, I'm in St.

Louis, which is where- Yes. ... Monsanto was headquartered. Been there many times. Yep. And I was also a founder- in my 50s. So my previous company was Acrowire. We were a consulting organization. We built Legal intranets and extranets on a time and materials basis, um, basically bespoke. And we productized in 2022 and relaunched the company rebranded as InfoDash.

So I, I feel you on being a, a founder and having a pivot and a bit of a transformation in midlife. So, you know, I honestly, just a, a, a quick little commentary on that. I had a post yesterday about th- being a, a f- a founder, an older founder, and, you know, I think there are a lot of [00:05:00] advantages to, you know, being twice the average age of today's founders.

I take a very conservative, capital efficient approach, approach to building the business and understand the value of taking care of customers and the network effect of doing good work. And I'm not sure... You know, some of the younger founders I've i- in our space, in the legal tech space, I've been so impressed with.

Winston Weinberg's a good example of a young guy who really seems to get it and has had tons of success. He, uh, you know, I, I was, uh... At, at 28 or 30, whatever he is, he's, he's a, he's a young guy. Um, it's been really impressive to see, you know, him build that business. So I hear you on, on being an older guy and, and, and jumping in headfirst and taking a different direction.

M- maybe as we have not scripted our conversation [00:06:00] today, uh, Ted, I can take it even a level higher up because we are living in times of change, and for some, like you and me, these have times of profound change. If I, as I said, compare the life of having an admin, uh, an HR department, a salaried job, uh, a company car, uh, business class flights, four-star hotels, whatsoever, to what you endure as a founder, it's a complete opposite life.

But we have gone through changes that will most likely come to many that are currently still in that environment. I have made a deliberate choice. You have made a deliberate choice. Some may not have the privilege of that deliberate choice. So my story is a little bit of a door opener, frankly speaking, also in my consulting agreements and engagements because I embody [00:07:00] that change in a good and in a bad way.

I think when we leave these cocoons and jump into these cold waters, it feels very uncomfortable, and in a startup it feels uncomfortable for many years. You take risk. When I hear corporates say, "We need to live a startup mentality I now know what it means, and you cannot replicate it unless you are in a startup environment.

But my point is, we all need to embrace for change. Uh, it may not be as significant as what you have done or what I am doing right now, but we, and this relates to especially larger organizations where people have been living two, three decades in the same organizational structures, have to jump out of our comfort zones.

We have to anticipate that our jobs will change either significantly or they will go away, uh, fairly rapidly. So this may be a bit of a segue [00:08:00] into what we are convers- uh, conversing about on our, on our, uh, podcast today that, you know, the times of these comfortable years, and I myself experienced this for two decades, are coming to an end.

Yeah. And, you know, I hear a lot of chatter out in the ether around big law firms Taking interesting liberties with terminology like we are gonna build, we are gonna build an AI native practice, you know, inside our big law firm. Honestly, I don't think that's viable. I don't think that's possible. AI native means AI native.

That means you started with AI as the foundation in how to deliver services- Right ... how to build your offering, how to go to market. And big law can make strides in, you know, maybe achieving some of the objectives and [00:09:00] benefits that these AI natives have, have started out with. But I do think that it requires a different mindset to build a law firm from the ground up with, you know, some disadvantages, right?

There are some advantages and disadvantages with the AI native approach. One of the big disadvantages is lack of data, revenue, and a bullpen full of experienced lawyers who have the relationships and the Rolodex to acquire new business. But, you know, on the flip side, some of the benefits that AI natives have is they don't have all the baggage.

The law firm partnership, we saw, we saw how fragile the partnership is- Oh ... the partnership model with Wile, and Wile's not gonna be the last, I can assure you of that. And, you know, I have gotten a lot of phone calls. So I've been in the industry about 20 years, and, um, I've had the podcast for almost four.

I s- I go to about 14 [00:10:00] events a year. Uh, I speak at most of them, so I have a really good network, and people-- I've, I've become a little bit of a hub. You know- Mm ... I have, like, former podcast guests or people I've met along the way who reach out to me and a- you know, ask questions like, "Hey, I'm thinking about a new role," you know, or I've had recently, since the Wile collapse, I've had a few partners who have-- who are spooked, and they're worried about their firms, and I think they have reason to be in c- in certain circumstances.

Any firm who is a laggard in this transformation is at great risk because we've now created-- Wile has demonstrated the fragility. We've-- There have been many examples of th- this law firm collapse. I've written about it. It's not a new concept, but a-- this was one of the more sudden and dramatic collapses with, uh, you know, with Wile, who was AM Law 30 [00:11:00] Couple billion in revenue, uh, five million PPEP, and which, you know, is half frankly of what Kirkland's PPEP numbers look like, but still very-- a very healthy business from the outside, and it, it, it demonstrated...

So everything that I have read about this collapse has been related to lack of investment in modernization, not specifically AI, but just in general la- relative to peers, and that, that relative divergence between... I, I call it a K-shaped trajectory. You have firms on the lower leg of the K that are kind of limping into this transformation, and you have firms who are going all in, who, you know, are bringing in outside DNA into the firm, who are rebuilding their organizational structure to align with what, what post-transformation world looks like.

They are making real strategic investments in the transformation in these, these [00:12:00] tools, and if you are on the l-lower leg of that K, you're sweating a little bit right now and maybe even thinking about making a move. So I don't know, what is your, what is your take on where we are today? So two things.

Tomorrow in my LinkedIn newsletter, I address exactly that point that while Gottschal, Gottschal was not an AI Related incident, but that AI could trigger similar situations in the future with the exit of some of the most senior partners, either post-retirement or pre-retirement, and wanting to do something really cool really from scratch.

One example is Norm Law. I interviewed Mike Schmidt Berger, who is the chairman of Norm LLP, and he was the number one guy at Sidley. He brings a stellar reputation and is now, uh, the chairman of a [00:13:00] small but highly effective quasi AI native law firm, uh, that serves clients like Blackstone, uh, for example.

So you see with a handful of people, a law firm can actually have a significant impact. And unless you diversify like a Kirkland and all the bigger players and focus on M&A like Wild did, you might really be in, in, in troubled waters. So I think there is nothing certain, uh, but that there is certainty change in these, uh, verticals.

On top with, for example, Germany or the European mar- the European Union really struggling in terms of economic viability almost. They have a lot of companies on burning platforms. My company before was a burning platform basically because with litigation, uh, unfortunately, uh, uh, you know, no, the commercial success not coming in as quickly as possible, uh, debt that was accumulating higher interest rates, you [00:14:00] need to save cost.

As a GC or as a CFO, you are definitely expected to leverage AI in terms of running cost reductions. And I think we all read about it, and we may even see it, that the first or the biggest bucket of cost is outside counsel spend So right now, I would say a lot of GCs have their hands full with a lot of big issues outside transformation, tariffs, regulation, geopolitical impact, supply chain, cybersecurity.

So you don't want to have another monster in the house, if I may say so, because a transformation is a challenge. I've been in a one thousand two hundred legal people environment, so law... basically, a law firm of the size of Weil with one thousand two hundred professionals and the former Bayer, uh, [00:15:00] legal patents and compliance team.

And if you start implementing change, in our case, it was pre-ChatGPT. It was really process optimization, pruning, simplification, automation, elimination. You create turmoil, you create competition, you start all of a sudden with data collection, uh, to measure performance output. So that is something, uh, if your plate is already full with daily challenges, do you really want to have yet another one of that magnitude in the house?

I think this is also a, a challenge for big players, even Harvey and Legora. Uh, I see this also in some of my client engagements. There is a lot of pilots running, and these pilots are running for months, and it's not even certain that one of the two big players will ultimately make it, because there is Claude, there is internal LLMs, there is Microsoft [00:16:00] Copilot.

There is so much opportunity or optionality these days that there is no certainty for any legal tech player to not be a pre-- you know, a victim of churn in one or two years. And as we know, uh, agreements are not entered into for much longer than one year these days. So my point is, what has happened to Weil has only tangentially something to do with the dynamics created by AI, but it shows the fluidity, it shows the As, as you said, you know, optionality also for partners to go somewhere where they have safer ground, more profits maybe even, and perhaps also a little bit less bureaucracy, uh, and complexity.

So the world, both in-house and outside, is pretty much in a state of fluidity, and I don't have any prediction where this is heading. What I only see [00:17:00] is many are still able to massage it in gently rather than really disruptively bringing down an organizational structure. But I would say as we see some moving faster than the others, that trajectory will accelerate in '27.

Yeah. So you know what's interesting is historically law firms have signaled to the market based on a set of financial, very short-term financial metrics, which PPEP is at the center of. And, um, there's now a bit of a shift. Y- we've had Paul, Weiss and Kirkland both say that they're no longer gonna participate- Right, in reporting

in the AM Law, right, reporting their financial metrics. And I-- what I think is going to be the signal now to the, to the market as to a place you wanna maybe hitch your wagon to is going to be how you're investing and to what extent in the [00:18:00] post-transformation world. So let me give you some examples. I had a post a couple of months ago where I talked about bold moves versus limping in, and that is really...

I talk about the-- I wrote an article actually on the plane ride home from the FT event- Oh ... called How, How AI Will Kill Law Firms. And in there I talk about the K-shaped trajectory and the divergence of both financial performance and investment in w- within the transformation. And I think the firms on the upward leg of the K are making bold moves.

I, I hinted to it earlier and I outlined 10, 10 of them. I won't read them all, but a couple I mentioned, uh, hiring external DNA, reorganizing your structure to support this transformation, re-engineering the work from first principles. Yes. So we're very much in a, a, a copilot lowercase C era where you're bolting on tools to existing workflows, and you'll get some incremental efficiencies that way, [00:19:00] but it, it won't be, it won't be transformational.

Bringing pricing innovation to clients before they demand it. Um, we're already talk- we're already hearing from some of the biggest firms. Uh, the CEO at Cooley has talked about AFAs are coming, and we welcome the opportunity. Many firms are still very much focused on the billable hour, and it's so deeply ingrained in law firm culture and hierarchy and lawyer identity and compensation structures and KPIs that firms use to manage their business.

So those are s- some, some of the bold moves. Limping in, those are the firms that are on the downward leg of the K. Promoting your a- application manager to chief AI officer, holding tech spend flat and calling it physical discipline. Um, adding AI to somebody's ex-existing job title. Uh, living in pilot purgatory, you talked a little bit about that Leaving [00:20:00] the bill untouched and hoping that the efficiency gains stay invisible.

So I, I think in the future, rather than just purely short-term financial metrics signaling to the market of, hey, this is a place where you wanna move your book of business, I think it's going to be these bold moves where lawyers say, uh, especially lawyers who aren't right on the edge of retirement that maybe have a five to 10-year retirement horizon, they're gonna look at firms and go, "Okay, who's making the longer term investments, uh, and who's not?"

And that may be where I wanna go again hitch my wagon. W-what, what are your thoughts on that? So first and foremost, I, I think as you, uh, hit on a certain cohort within, uh, a law firm, the most important layer I think will be even more important in the future, and that's the senior-most layer of a law firm, the top experts.

If [00:21:00] you are losing them, and this goes also partially to Wael, this may be even more devastating than being an AI laggard because these are the people that have built decades of reputation, trust, and more or less also client loyalty. So that to me is an anchor of stability that you want to preserve, no matter how aggressive AI moves in.

Last week in Singapore, the Law Society had a very cool format where they introduced AI to senior lawyers, so the average age, uh, in the room was probably 57, 58 whatsoever. Singapore is very entrepreneurial and very innovative, but still many are running smaller five to 10 lawyer law firms where AI is not yet embedded much.

They were [00:22:00] fearing that they would be made obsolete with AI. Ultim-ultimately, there was consensus in the room that without this professional expertise, there is no real legal advice, 'cause people want people to defend them in court, in front of a regulator or a stakeholder. So I just wanna also put this part out as we always talk about innovation and changing the pyramid and, uh, you know, whatever AI tools being deployed, the good old, quote unquote, "lawyer" will still be one of the stalwarts of success.

Now then shifting to what you had said, um, in terms of junior partners, senior associates, I learned a lot from Mike Schmidberger at Norm, actually, because they are basically building an AI-enabled law firm. It's not really... I mean, you could technically say it's an AI native because they are building from scratch, but they [00:23:00] are bringing in senior experts, and they are bringing in more third- and fourth-year associates than first, second, and third because this is the stuff where AI shows its muscle.

You know, first, second, third year, you know, this is discovery, document review, research, whatsoever. Clients oftentimes don't pay for this anymore. You can keep your billable hour for these services, but submit this to a payer, for example, you would get a thank you, but thank you note back. Nobody would pay this anymore.

But for Norm Law, for example, I heard Mike say, "We still hire juniors, first years, but not with the expectation of winnowing them down. We bring them in to train them to become experts faster than before." So this, I think, is a model that many law firms o- of a traditional size will have to [00:24:00] embrace. What does it mean for first to three years associates?

It's gonna be much bigger competition because they're competing against the AI tools, and unless you're broadening or, you know, widening the scope of your services, there is not much more business for these people to be handled. So this is gonna be, you know, where you need to look for your future talents, those you can present, uh, to a jury, to a regulator, to a general counsel.

So there is quite a bit of human talent management, I would say, and interestingly, on both ends of the spectrum Most senior lawyers should be managed very carefully to not lose them, and the best, most junior lawyers should be managed very carefully to keep them. And in the middle, you know, that's where I think is a big, little bit of a secret how to manage that middle layer, uh, because this is also where, unfortunately, you might have a bit of inefficiencies and overhead [00:25:00] that cuts into your PP, or into your margins and your profits per partner.

So that's my answer. It's no Holy Grail one, but I think, as I said, ju- ju- juniors and most seniors are gonna be the key human elements of successful law firms in the future. I did some analysis. You, you hinted at something that, uh, I think is an interesting point, where you talked about, like, small, smaller law firms at the lower end of the market feeling vulnerable.

PwC released-- They have a, a study they've, or survey they've put out for 35 years, and it's, uh, of the top UK, uh, 100. And there was a really interesting dynamic i- that showed up in that report that caught my eye, and I decided to evaluate in the US market to see if there was a similar trend. So where the vulnerability has existed, before I looked at this data, I thought it was really the Am Law Second [00:26:00] 100, but this data changed my mind, and where the PwC survey, uh, signaled towards vulnerability was in the top 26 to 50 And then I said, "Okay, let's see what the Am Law data looks like."

I have- Mm ... Am Law data going pretty far back. Is there a similar trend there? And what, what the PwC report showed was that revenue growth for the top 26 to 50 was the lowest, and they also converted- Yeah ... the least amount to profit. So top line growth, the slowest in the, in the top 100, 26 to 50, and the profitability also grew the slowest, which I thought was super interesting, and here's my theory on why this is.

So firms that are 26 to 50 are, are competing with the top 25, and they have- Mm ... aspirations of moving in that direction. So th- [00:27:00] that means they're competing with-- They're adopting a similar cost structure as those top 25 firms. They can't-- They don't have to do what Kirkland does, but they also can't let too much distance get created between what they're doing and what the firms at the top of the list are doing.

However, they don't have a top 25 revenue structure to spread- Yeah ... these costs against, and that firms 50 and below, they don't have the, the option of trying to c-compete with a Kirkland, right? Or a Latham or a Gibson Dunn or a DLA Piper And as a result, they are more conservative in their approach.

Mm-hmm. And so this has really changed my perspective on where these vulnerabilities exist. Guess where Weil sits or sat? Okay. AM Law 30, right squarely in that range. Ah, ah. So I think we're entering into a new world where w- Mm. There will be [00:28:00] multiple middle markets, right? There's a middle market within the AM Law 100.

There's an a-- There's a, uh, middle market within the AM Law 200. There's a middle market within the AM Law 200 as a whole. And I think that middle market, maybe even the upper middle market, there's gonna be some interesting dynamics that could dictate how this transformation plays out and who's successful and who's not.

And then maybe, I don't know if you use the term tier one, tier two firms, but I would say there's a lot of tier two and if tier three exists even on that level that have the potential to cut into the top 100 or maybe even top 50 within the next two or three years if... You know, you brought Winston Weinstein up.

I know him. I admire him. Amazing. And I think the pitch is 10X lawyer productivity with Harvey. So if you take this literally and seriously, it means you buy one Harvey [00:29:00] license and it does the work of 10 lawyers. Maybe they mean it differently, but that is my translation of that pitch, so to speak. And I can also tell you from my prior in-house experience, if you deploy Legal technology systemically, and you really substitute with agentic AI a lot of mundane human services, you can fourfold the productivity of a team.

So imagine a tier two with maybe three, four, five hundred lawyers would not go 10X lawyer productivity, but five X lawyer productivity. Weil had twelve hundred and belonged into the top 50. Then you can easily jump from number 159 to number 50 within two years if you systemically apply these technologies.

I think [00:30:00] nobody has really done it at that, you know, scale and pace yet. But there is a lot of innovative people out there, and actually senior lawyers that are doing this, the former Allen & Overy partner as well, Will de Jong, I think you know, the Falcon advisor. So you're building a completely new layer or market of these young, dynamic or quasi AI law firms that will most likely generate dynamics amongst the top 50 or even top 25 we con- cannot yet imagine.

Yeah. And what, what's interesting, the, the, the 10X number is, um, you know, we used to say in the software engineering world that we have, you know, there are 10X engineers, and I, I think that the, the concept of a 10X lawyer Today is very elusive. A-and, and that's most of the [00:31:00] productivity numbers that have been published in the industry have been vendor-sponsored research.

Yes. There's, uh, I don't know how to pronounce her last name. First name Anna, la-last name G-U-O, Guo. Mm-hmm. And she, she published something this morning where they went and surveyed 131 lawyers, and interesting data when it's independent. So the areas o-overall generally lukewarm satisfaction about- Mm.

Uh ... true productivity gains- Mm ... as a result of these tools, and where the areas where there have been gains have been document review and extraction. That's where they're seeing the, the clearest value. But the true efficiency gains have been elusive, and all you have to do is talk to law firm clients. I hosted a roundtable two weeks ago in London with the top GCs and top law firm leaders in the [00:32:00] UK, and I bought-- we brought-- I did this in collaboration with, with Reena Sangupta- Mm

from RGSI, who you know. Yes. And the purpose of the roundtable was around law firm transparency. The corporate side is getting very restless around, "Where are my cost savings? I'm seeing innovation by press release about- Yeah ... your chief AI officer and your Harvey Lagora rollout. What I'm not seeing is my bill go down."

And when you talk to law firms privately, and now it's even starting to make its way into the public domain, is that they're still figuring this out, and the efficiencies that are gained seem to get absorbed into other areas. You have the verification tax, which is very real, right? No, no work- Totally ... can go out the door unverified.

Correct. And it's gonna be interesting to see how this plays out because the, the GCs really want [00:33:00] that bill to go down for the, for the, uh, reasons you mentioned earlier. Y- they're getting a, a hard mandate in 2027 that says, "I wanna see these, I wanna see either costs go down or throughput go up, and I'm-- I want you to pressure your out-outside counsel, your panel, to deliver on that."

The, the, the mandate was soft in 2026. The mandate is hard in 2027. We heard that consistently across that GC audience. I think it's a natural resistance that's happening, Ted, because, again, coming from my own experience, after kind of finished of this project- The company's legal department was about 40% lighter in terms of FTE, 35%.

We built up some, you know, regional hubs in, uh, the labor arbitrage markets. But I think if you expect cost savings of [00:34:00] that magnitude, it leads to a disruption of the business models that is unheard of. And this is something I had said before, do you want this, create this voluntarily? There's not really a choice at some point maybe, but right now, unless you really have a pressure like my former company had, you can maybe still ride it out for a year or two.

And that's where I think there's a major disconnect between the promises of the legal tech world, which can be achieved, I, I have no doubt. But in order to achieve them, there is a consequence, and the consequence is either significant reduction of force Or what is currently the narrative also o-of, you know, Legora or Max Eunistrand who says, "My clients are hiring more lawyers."

If that was [00:35:00] the case, wow, I, I think that's the ideal world. Realistically, I would still say it's not going to happen at scale. So you talk about a 1,000 lawyer law firm with, let's say, 4 or 500 associates. If you want to generate these savings, your number of associates would need to go down 10 to 15%, or you have to increase your business by 30%.

And both are hypotheticals right now because both are very difficult to achieve. Yeah. Completely agree. So we talked about what, what segments of the markets might have vulnerability. May-maybe we can talk a little bit about the nature areas of, of practice that, that might, might be vulnerable, and I think there are many.

But, you know, from your days in-house and in your consulting work, where are you seeing clients pull work back in-house versus even trying [00:36:00] to negotiate... You used to work at AT&T. They've been a leader in- Yes ... the building the in-house capabilities- Yeah ... and making lots of headlines about- Yep ... the... And, and they're not alone.

I mean, Ford is another one. There's been several inside corporate teams that have really been pushing hard to build internal capabilities versus trying to negotiate with law firms to get their, their, their pri-pricing concessions. So what, what... Where do you think the... Where do you think there's the most opportunity for corporates to, to bring work in-house?

Yeah. So let, let... Before I answer this, let's flip the script and say, where is the least opportunity to bring- Okay ... work in-house? And we see law firms still booming. I think even 26, with all the AI coming into play, profits have still increased, at least at the top 25. Revenue has increased, so there must be a market [00:37:00] buying these services, right?

So those are litigations. You still are living in a very litigious environment these days, and you don't want to have, and I come from pharmaceuticals where you constantly have litigation and sometimes bet the company litigation. You don't want to be a, a penny pitcher, uh, there. Uh, so you better stay with those guys who have won these battles for the last 20 years in order to win it the 21st year as well.

Second, M&A. We've seen DoorDash, all these massive M&A deals, 17 billion. There is tons of lawyer work still being paid by the hundreds of millions, even though you could deploy tools to go through the sets of data in the terabytes without an army of associates. But I think people still want clarity, uh, you know, is there a smoking gun or not with these verification layers [00:38:00] that you mentioned before.

Then regulatory exposure. Also, you know, automotive, pharmaceuticals. That's something you want the experts handle your, you know, license to operate, if you will. So this, I would say M&A litigation, regulatory Maybe also some, yeah, M&A, uh, some mergers, some, some acquisitions. Uh, that's, that's what stays. What goes in are repetitive and, you know, I'd say even mundane matters, contract drafting, review, uh, third-party due diligence, some compliance investigations.

I think this is where the big players, Harvey, Legora, you know, you know the n- names, or, um, you know, others, they are, are bringing in, uh, a lot of powers to the in-house teams to conduct the research, have templates, leverage the collective wisdom of a [00:39:00] in-house team much more effectively than in the past.

Knowledge management are obviously being enabled also with these tools. Uh, I think this is the butter and bread business that comes in. I just spoke with one of the largest CLM tools. This market alone is 20 billion, you know, contract management, complex contracts. This is where, where I wanted to add maybe complex contracts stay, still stay with a law firm when it comes to partnerships or product launches or, or whatsoever.

But everything that, you know, doesn't really create criminal liability, everything that's transactional, repetitive, we, in my former company, called it pain points. You know, if I asked you tomorrow, Ted, what would you like to drop like a hot potato? This is what AI should handle, or it will be eliminated.

And this brings me to another topic also. Many, many organizations, and fortunately I am consulting with some who do it differently, [00:40:00] think that by bringing in AI, somehow their structure will magically improve. Somehow the AI will bring the processes, the data, the decision trees into flow. It's not happening.

You better invest into cleaning the kitchen first, like we do. Bucket it into four pieces. What is something that is not gonna be done in the future? Let it go. What is something that needs to be done by humans? Let it stay. What is something that can be streamlined and efficient, you know, more efficiently handled?

Bring it to AI. And then you may have repetitive services where you may want to have lawyers in lower cost countries than, you know, the ones that we all know of handle this. This could still be third-party due diligence, uh, this could be some research agreement reviews [00:41:00] whatsoever. Bucket your services, map your portfolio, and carve out those mundane, repetitive, not business critical use cases, and then bring in legal AI.

Yeah. That, that makes a lot of sense. So I'm not sure if you saw, there was a Citi report from Citibank this year- They survey law firms and ask about hours and demand. So in 2026 Demand for big law hours is up four point six percent. Normal growth is one point five. Interesting. So yes, it very interesting because if AI is truly reducing hours, why would we see almost a three hundred percent growth in law firm hours?

Hmm. There's not that much new legal work out there, right? Like I think there will be as a result of AI, you're gonna have robotics and um- Yes. [00:42:00] Aerospace ... aerospace, data center, you know- Yes ... um, jurisdictional, you know, regulatory matters to, to navigate. AI is also gonna create demand around as, as, as cost lowers, there's just gonna be a m- natural demand.

Like legal, legal spend tracks almost in lockstep with GDP. If you look over time, like, uh, two thousand and eight was a great example of the tight- tightly coupled relationship- Hmm ... between l- law firm demand and GDP, right? We saw, we saw a massive drop. So that's another weight on the scale on the side of demand.

Uh, so how... Yeah, how this ultimately shakes out is gonna be super interesting, and it's very clear that AI is not delivering cost savings today. Deloitte did a, uh, study of chief legal officers that was released in June. Ninety-six percent of-- I think they surveyed a hundred and twenty legal leaders.

Ninety-six [00:43:00] percent s- say that they've seen no financial benefit from their law firm's use of AI. So I need to make this, this point because, uh, as we are also in a, in a funding round, uh, we are constantly in conversations with our investment bank, and there's a large private equity firm called Apollo, and one of the partners also released a report last week where he analyzed the profitability gains of the Dow Jones five hundred.

Uh, and the only profitability gains that that report found was in the Magic Seven. The other four hundred and ninety-three did not show a productivity gain. But, and here comes my learning from this, this is not due to AI, Ted. This is not due to a deficient technology. The technology is great. The technology delivers what it's supposed to be delivering.

It's the underlying foundation that is not moving. And this is [00:44:00] where, I, I mean, this is where big legal tech players are having a tough time soon. Maybe they have been riding the fifteen percent early adoption wave, but it will come to the next layer of procrastination and hesitance. And consultancies are also seeing this.

You know, you're going in, you may rock the boat while you're there, but the moment you leave It's going back to, uh, the previous modus operandi. So this is a call for leadership in my view. It's not a call against AI, it's a call for, look, we put this phenomenal engine in front of you, and it really moves you from, you know, horse-drawn carriage to automobiles.

Start getting the driver's license. Start daring to drive without a chauffeur. So that to me is the lesson learned, uh, from these reports. It's not a blame on AI not delivering. It's the blame on us leaders embracing [00:45:00] AI and delivering. Yeah. Well, things change so fast. Think about just this time last year.

We are in it, like with Opus 4.5 that came out right about now in- Yes ... 2025. That was a, that was a step change in capability that opened up a million new doors and honestly led to very visible market dynamic shifts like SaaSpocalypse that happened in late January, early February, right? That was largely a, a, a huge overreaction.

Many of those stocks have recovered, but you saw firms with, with real moats like Thomson Reuters and Relics- Yes, including ... the parent company of LexisNexis, that are, that have real moats and diversified businesses take 20% hits. So, you know, TR is a good example. Their market cap is about 65 billion. They took a 20% hit i- almost overnight as a result of the fear, uncertainty, [00:46:00] and doubt that these new capabilities created.

So we are gonna be in for a very messy transition as new capabilities emerge, and everybody goes, "Whoa, whoa, whoa. Stop the presses. Let me evaluate my f- portfolio and see where there's new risk." That's gonna happen over- Yes ... and over and over. And we'll see more lighthouse cases that will showcase what's possible and probably nudge the ego of some who want to also celebrate innovation and change, and we will see more of those lighthouse cases, both from law firms and in-house teams in '27, which will then set in motion in, in stage, in my view.

But right now, uh, as you said, there is still some doubt. There is way too much on the plate to just move the wagon without significant transformation, and there is this significant human impact where you also have to have a strategy. You just don't have to [00:47:00] have an IT procurement strategy. You need to know, like in my prior company, if you have to redeploy 30% of your people or have to let go some of them, how do you do it?

This is something which requires a lot of emotional intelligence, HR input, personal conversations, and this is something where many leaders unfortunately don't have the time and/or the appetite these days. Yeah. Well, we're almost out of time. I wanna discuss one more point that, that you alluded to, um, and that's around leadership.

So in the law firm world, there are very deep Cultural norms and, you know, hierarchies that have been in place for 100 years. Yes. The p- the practice is the center of the universe for a law firm. Yes. And they reward, you know, rainmakers ruthlessly as they historically have should. [00:48:00] Anything outside of the practice has been sometimes viewed as overhead or necessary evil.

All of that is about to change. Mm. Legal engineers are gonna be just as important as lawyers in getting work out the door, and the, the competition for talent in that space, especially the way we're currently defining legal engineers, like, you read some of these job recs, they're really three roles in one.

They want JDs with Big Law practice experience, they want process engineering capabilities, and they want AI capabilities. That's three roles in one, and they're paying these people less than a third-year associate. That has to change. Yeah. It's not going to work. But th- the, some of the smartest law firms out there are still...

I see the recs, I look at them, I look at the comp range, and they're completely out of alignment with reality. How do we, how do we shift... And, and these, these norm, these cultural norms and [00:49:00] hierarchies are so deeply established in these firms. How do we expect that to change overnight and the comp structures and the, and the empowerment that, that, that these new roles are going to need to have, how do we change that in, in such short order?

So, so I think there's two levers here. One is really front runners on the top, at the top of these law firms, and you have them. People who really think in generations even though profit is allocated on an annual basis, they think ahead and want to see these law firms thrive in 50 years from now. I think those people will drive change organically.

The bigger lever may be really the big corporate clients, as you said. Uh, and I know corporates that are currently asking for an AI strategy, and that buys you half a year or one year. But beyond that strategy, [00:50:00] at some point they wanna see the numbers, as you say. And there is competition even amongst Big Law, and there will be somebody offering you, I, I hear it, uh, was it Alan Ovary, uh, with ultimate.

No, I'm sorry, Hogan and, and Lovells, I believe, they have ultimate. So there is some option if you want AI being part of your service, you get a 10% or 20% discount. So if that's happening, and if I, uh, as a GC, I, I'm not tied to the jet, the panel firm of 1995 anymore, I'm just delivering the savings to my CFO, I will at some point make the switch.

I will make that switch even for a 10% discount. And that point, I think is clear that will come, is known also to many law firms. It's just as we say, it's a tanker. It's a well-oiled machine as well. It produces profits the best year of all times [00:51:00] You're changing a jockey out of a running horse. That is, I think, also a, a, a big hurdle to jump over, frankly speaking, you know?

So there's lots of psychological dilemmas that are out there that if I was in that position, I would probably not have an easy answer either. Yeah. There are no easy answers in, in this. No. Uh, th- there really isn't. On the corporate side, that historically has been tremendously under-resourced. I talk about it a lot.

I spent 10 years at, uh, Bank of America, and I was in senior compliance roles, like anti-money laundering. This is in the early 2000s when anti-money laundering was one of the top risks to the bank. Mm. Interestingly, they just got a huge multi-billion dollar sanction from, I think it was the OCC. And my ability to engage with legal was so...

There was so much friction between, you know... And, and I was at the top of the risk chain, right? Like, [00:52:00] when I brought a risk to the table, I spent time in corporate audit, I would go in and audit a line of business and say, "The control environment here is completely insufficient. I need to get a legal review on, you know, X, Y, or Z."

And my ability to engage as a senior vice president at Bank of America was extremely limited. So we're asking these- Mm ... these resource-constrained corporate legal departments to also completely transform- Yes ... and to your point, with all their other stack of work. Yes. Yes, yes. It's, uh, it's a illusion right now still.

It's like this brings this cartoon to mind where you have a couple of people ca- drawing a ca- a cart with these square shaped wheels, and somebody is handing them a round shaped wheel, and they say, "Sorry, we don't have enough time to make the change, so we still pull this cart with the square shaped wheels."

This is... It's not funny, 'cause I know a lot of these people, they would love to go [00:53:00] into a more innovative direction, but just having project managers, just selecting legal tech tools, this is, you know, where we help with Gold AI, just to implement at scale against some of the resistance that you will always see in an organization of 100 or 1,000 lawyers.

This is stress beyond the stress that is already occupying a GC role. So I have the utmost respect, and frankly, also understanding for the pace that we are seeing right now. Yeah, absolutely. I completely agree. Um, well, this has been a fantastic conversation, Tom. I knew it would be. Uh, before we wrap up, how do folks find out more about the work that you're doing?

Thank you. So I'm on LinkedIn, Tom Fennek. I'm approaching 50,000 followers. I have a weekly reflection video, which I call Tom Time, which comes out on Monday. I have a biweekly- [00:54:00] newsletter. Tomorrow I'll talk about the Weil Gotshal scenario and whether or not it has anything to do with AI. I have also a podcast called GOLTalk!

where I interview interesting people. Maybe at some point you come to my podcast and we extend our conversation. Yeah. Yeah. Then you find my, I'd say, overall value proposition at U- or https://transforming.legal, but the platform that helps you for free, uh, because it's a freemium platform, there is no subscription, you have several prompts granted, is GOLT.ai.

G-O-L-T for technology and transformation .ai. Lists 2,500 tools, but again, we are not a repository. We are not a directory. We are a growing, fully fledged digital transformation partner. Upskilling, implementation, comparison. We'll soon have a community corner maybe at [00:55:00] some point. I'm not revealing too many secrets.

Uh, something really cool, uh, that helps people get into new jobs as well. So GOLT.ai hopefully will be the Google for lawyers at some point as we see it growing, and, uh, we offer it really to anybody, whatever level of maturity and wherever you are. That's the beauty of us not being a fragmented partnership, but a globally active consulting boutique with globally engaged legal tech vendors as gold stars that we validate in order to back their claims as well.

So this is where you'll find me. Thank you so much, uh, for, I would also say, a very unique exchange. It's rare that I have the opportunity to talk to someone of your caliber and expertise. I enjoyed every minute. Hopefully, we can repeat it soon again. Wishing your podcast and your viewers and listeners all the best.

Awesome. That's great. And let me know. I [00:56:00] would love to l-- I, I enjoy being on both sides of the mic. So if, um- Yeah ... yeah, if there's an opportunity there, I'd love to come join you and, and riff a little bit further. Okay. Well, we will include the links that you mentioned in the show notes so folks can easily get to, uh, the resources that you mentioned and, uh, I look forward to seeing you at the next conference.

Definitely, Ted. Thank you so much. All right. Thank you. Everyone, afternoon greetings to St. Louis. Yes. Thank you very much. Cheers. Thanks for listening to Legal Innovation Spotlight. If you found value in this chat, hit the subscribe button to be notified when we release new episodes. We'd also really appreciate it if you could take a moment to rate us and leave us a review wherever you're listening right now.

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