NEXT STOP: THE INTELLIGENT FIRM
Over the last 15 years, in trying to help the Latam legal market evolve into more sustainable and successful organizations, I have used an evolution model that describes the market in three stages: 1) Family/Informal; 2) Professional; 3) Institutional. The Professional Stage describes a transition period in which the firm grows because of initial success and produces certain changes required to manage that growth (strategy, compensation system, talent development, governance, infrastructure and staff support, etc.). Notwithstanding those changes, in this stage, firms tend to retain cultural and leadership features that are more applicable to the Family stage: concentration of power in a few partners, informal methods of making decisions (below the formalities of governance), excessive dependence on a few individuals – typically rainmakers – who retain control of the firm above the formal structures and even the interests of the firm as a whole.
This is the main difference compared with what I call Institutional firms: those in which partners – including important ones – are ready to give away substantive control and personal convenience to allow the strength and growth of the firm and the brand above the individuals. This is, of course, a constant goal and aspiration. Law firms – at least in Latam – are never fully institutional. The natural autonomy and individual recognition that the market gives to the highest individuals create constant and inevitable tensions that the firm needs to deal with. The difference is not that those tensions are eliminated, but that Institutional firms are aware of this challenge and work constantly to improve it by trying to create a culture and leadership style that can make institutional goals real and achievable.
The Institutional Change is not finished
In looking at the past 15 years, it is obvious that significant progress has been made in the region. Back then, only very few firms had started down this road, and it was not seen as productive for the rest of them, especially for those leaders who were comfortable with the traditional informal and individualistic format. Being institutional was not something that firms considered relevant. But reality showed that firms that made the effort became more effective and grew at a solid pace, reaching higher levels of recognition in an increasingly competitive market. Successful but individualistic firms progressively started to lose their market status, driven by leaders who did not want to lose control and their share of the pie.
In the last few years, reaching institutional quality has become a goal for most of the leading pack in the market and for younger firms that wished to become part of that group. Not embracing these changes looked like a dinosaur attitude which probably would lead to extinction, or at least progressive irrelevance.
The truth is, however, that institutionalization has made more progress at the formal level of the firms than in their operational functioning. Most firms have internal committees, support areas, cultural messaging and partners’ meetings, but they still depend on individual relationships, non-codified knowledge, mixed compensation systems that often have contradictory incentives, high levels of partner autonomy, reduced accountability and low discipline for collective execution.
It is also true that this “unfinished” version of the institutional model has not worked that badly for firms. In a way, it matches the existing level of sophistication and collective excellence that the market requires, at least in Latam. This combination of institutional development with the still existing resistance of lawyers to make their firms more solid organizations has expressed itself in different ways depending on jurisdictions. Clearly, Brazil is heading the pack due to the size of the market and growth of firms. Mid-size markets led by Mexico, and others like Argentina, Colombia, Peru and Chile, have also made progress but more slowly and with fewer firms willing to make the effort. Smaller markets are following the trail as well.
This process would probably have continued towards a better and more mature market, at a reasonable but not urgent pace. Issues like client sophistication, generational change, partner succession and stringent economic needs have been leading firms to become more efficient and careful. But changes were not immediate. They were dealt with within the “still incomplete” institutional model. No sense of urgency.
Then, suddenly, AI came along as a truly disruptive force. Until recently, AI was an interesting topic that Latam leaders talked about and started to experiment with. It was certainly a major technological tool that would affect work, yet it was uncertain whether it meant a threat or an opportunity.
In a matter of months, this interesting tech discussion turned into a massive change as AI companies flooded the market – not just the legal market – with AI agents that produced unprecedented results. Suddenly, not using AI became unthinkable and the real effects of this disruptive change are still being evaluated.
Several elements make these initial stages of change incredibly challenging:
- None of the previous changes that occurred in the legal industry has challenged the traditional “Cravath Pyramid Model” like AI is doing now.
- All aspects of law firm organization are impacted by these changes: strategy, culture, leadership, compensation, client relationships, talent development and economics.
- The changes are happening at an exhilarating speed. The way AI moves forward seems to be much faster than the adaptive capacity of individuals and organizations.
There is still significant uncertainty about how and when firms will need to adapt to this new environment. For starters, we do not know exactly what that environment will look like. Lawyers feel very uneasy when they need to face uncertainty. They prefer well-known scenarios and predictable futures. Innovation is a nice word – but not when it requires taking risks.
In this unpredictable scenario, different types of reactions can be heard:
a. Denial. Disruption will not be that profound. We will certainly need to adjust, but the fundamentals will not change that radically and, after some turmoil, the adjusted markets will return to a “new normal” not substantially different from now. Of course, some will win and some will lose from these changes, as it happened in the 90s, but the essence of our business will remain.
b. Catastrophe. AI will eventually destroy our business as we know it. Severe layoffs will happen, especially at the junior levels. Law firms will be smaller and less profitable, as hours will be significantly reduced. AI will replace most of what made our work profitable and our firms solid and stable.
c. Concerned but optimistic. This is, in fact, a radical change, although how radical is yet to be seen. Also, the structure and roles of the firm will need to change, but the results will not necessarily imply fewer junior lawyers or a less attractive business. The tremendous capacity that AI is showing so far will probably increase significantly our efficiency and sophistication in servicing clients. We just need to find the right way to do it.
Next Stop: The Intelligent Firm
Until now, my evolution model explaining the Latam legal market ended in the Institutional Model. Becoming institutional was the way to solve all the major problems of the firm while creating the environment that could propel the firm to growth, success and the future. The pending issues in this evolution were not a problem: we can always become more institutional and efficient. But that model was a valid “north” for all firms that wanted to become and stay leaders in their markets. That is why it has probably been the term most used by leaders in presentations, off-sites and celebrations.
The model has now changed, and a new stop has been added to the journey: the Intelligent Firm. Because I do not have, like anybody else, a crystal ball, I can only offer some ideas to foresee how that Intelligent Firm (IF) will look:
(I) Stages of Evolution. Being institutional will become even more necessary, because without that framework becoming intelligent will be impossible. The “still incomplete” version will become a “not enough” since its limitations will have a greater negative impact on the functioning of a more evolved platform. This will mean that both evolutions will need to be addressed simultaneously, completing the institutional process and beginning the new adaptation to the IF.
(II) A New Platform. It will not be enough to be more “institutional and professional.” The IF should be able to learn, coordinate, innovate, measure, protect and scale collective knowledge.
(III) Culture and Leadership. Neither institutionalization nor AI will produce sustainable results if the firm does not work actively with its culture and leadership. They will not simply be other components of the transformation program; they will be the operating system on which any strategy will either work or fail.
(IV) AI is not a technical issue, but a human challenge. Studies indicate that 63% of organizations see the human challenge as the primary factor for AI implementation. That goes directly to the “still incomplete” institutionalization process, where lawyers are resistant to change and overvalue their autonomy and independence.
(V) Operating platform with well-designed workflows and knowledge. Various – partial or total – new elements will be relevant: curated knowledge, expert judgment augmented by AI, scalable outputs, continuous learning, hybrid teams, etc.
(VI) Governance. The “still incomplete” version of being institutional produces inefficiencies for decision-making and accountability. Those will need to be adapted to a much more efficient organization where strategic decisions will be enforceable, with less informal veto by partners and more accountability. The level of investments, standards and risk control cannot depend on individual preferences.
(VII) Talent. The automation of work will break the traditional apprenticeship model, which will require teaching judgment in a different way. Organized and systematic mentorship will be needed, as well as client succession and new forms of young-talent development.
(VIII) Compensation. AI will reduce the value of hourly-based work. The value of judgment and coordination will increase. Some aspects that now have secondary importance – if at all – in current systems will need to become more important, such as collaboration, client institutionalization, knowledge, talent and innovation.
(IX) Pillars under attack. Four pillars of the traditional model will come under significant pressure and will need to be redesigned or eliminated: the leveraged pyramid, hourly billing, the expert partner (as a solitary professional with knowledge in their head), and professional autonomy (each partner decides how to work).
(X) Client service and relationship. AI will make clients much more sophisticated and demanding. Many things on which clients rely on their law firms today will disappear. Value will need to be tangible once hours stop being a good proxy for value. That value will come from (1) a sophisticated platform of applied and curated solutions for critical client needs produced by the combination of a well-used and well-designed AI system plus an advanced team of professionals who can interact smartly with AI and provide that value, and (2) the intangible value – personal and collective – of those human skills that AI cannot – and probably will not – provide, such as applied experience, intuition and human relational skills (see below the comment about the 7 core dimensions).
Over the years I have seen and read tons of studies and analyses about how the future may look. There were always experts who liked to claim that the future hid uncertainties they could solve, helping companies or professionals navigate those changes. The truth is that those changes did not become as radical as anticipated. This time, I must acknowledge, looks different – at least for the working and professional world. AI will inevitably change the way we work and lead our organizations. New contracts with talent about their roles and careers will be needed. New cultural contracts with our partners about what culture means for us, what culture we need and how we make it real. A new contract with our clients to define what value is expected from us and what is the best way to provide it, including the resulting economic value that should be paid for it. A new contract with society, understanding what should be the role of law firms in developing new professionals and serving clients, etc.
A study conducted with Jaap Bosman from TGO Consulting during the pandemic showed that 83% of clients value the human skills that provide excellence in service. In the context of AI amplification of legal knowledge, this finding has a new and sharper meaning: the 83% is precisely what AI cannot replicate, and it is what AI will help to extend. This “partnership for excellence” between AI and human talent could push the profession – and the role of law firms – beyond what we currently imagine (see “Law Firm Partner Compensation,” by Jaap Bosman, co-authored with Jaime Fernández Madero. 2026. Amazon).
Current leader generations have transformed law firms into professional and – some – institutional organizations. The next generation will need to make them Intelligent Firms, capable of learning. Those firms that complete the pending institutionalization and build AI skills, talent, knowledge, pricing, culture and leadership will have a historic opportunity. Those who stay middle-of-the-road run the risk of being too costly for repetitive work and too little integrated – culturally and operationally – for the sophisticated work.
I am in the “concerned but optimistic” group that looks into the future. The integration of AI and human intelligence can produce the next stage of Intelligent Firms, which will create enormous opportunities for those who embrace change with enthusiasm and courage. It will be exciting to be there and see it happening.
