How AI Can Help Corporate Legal Departments Survive The Economic Downturn

Eleanor Lightbody is CEO of Luminancea leading provider of AI technology for document review and legal process automation.

As I look ahead to 2023, it feels in many ways that we are entering the year with a similar sense of uncertainty to the one before. Soaring inflation, along with the ongoing conflict in Ukraine and supply chain insecurity, has left the global economy on the precipice of a recession. And as these stresses combine, businesses—and the legal teams that sit at the heart of them—are finding themselves on the front lines of dealing with the growing ramifications.

Economic uncertainty is creating an environment of enhanced commercial risk and concern around existing liabilities. Customers and suppliers are considering terminating contracts in an effort to reduce costs, while staff reduction measures are often resulting in time-consuming personal information requests such as data subject access requests (DSARs). All of this work falls at legal’s door, and in the face of market volatility, businesses will look more and more to their legal teams for strategic counsel, with an estimated 80% of Chief Legal Officers already reporting directly to their CEO.

But even as legal departments are asked to contend with increasingly complex issues, they, too, are under significant pressure to do this at a lower cost. Against a backdrop of hiring freezes and the rising costs of outsourcing legal work to private practices, 88% of legal departments are expecting budget cuts this year—all at a time when in-house legal workloads are at their peak.

In the face of these wide-ranging challenges, AI has become a necessity for companies needing to do more with the same amount of resources. With next-generation AI that can automate routine legal tasks such as contract negotiation and management, in-house legal teams can not only remain resilient in the face of economic uncertainty but also be profitable.

Contracts form the heart of any business. They define the pivotal relationship that an enterprise has with its employees, suppliers and stakeholders. Yet much of any legal department’s time and resources is tied up in important yet highly repetitive and routine tasks like managing these contracts. From sales to procurement and HR, every facet of a business interacts with contracts on a daily basis, whether by searching and reviewing existing contractual terms or generating new agreements. The wording of these contracts is often highly standardized, but a small error or deviation in clause wording could have major business implications, meaning legal departments are typically forced to manually draft and review each and every contract.

The countless inefficiencies associated with contracting result too frequently in bottlenecks and delays during the commercial process. According to an EY Law and Harvard Law School survey, over half of business leaders believe inefficient contracting has led to lost business. This has done little to dispel the reputation of legal departments being a corporate “cost center.”

Against significant time and economic pressures, AI’s ability to automate the review of these documents, flagging key information for lawyers to analyze and act on, can transform legal departments into value creators. However, we should be careful not to regard AI as a panacea. AI is ideal for surfacing key information and handling the routine tasks that frequently take up so much of lawyers’ time, answering questions such as: Is a suitable limitation of liability clause present in all signed agreements? Does the wording of a certain clause match our previous internal agreements?

But complex questions will always require the experience and expertise of lawyers. And other work, such as intellectual property (IP) projects and complex litigation matters, will almost always require the specialist expertise of highly qualified outside counsel. In this way, the traditional relationship between in-house legal departments and law firms is unlikely to change drastically. After all, it’s a simple truth that AI can’t do everything: Essential legal skills, such as the application of critical, creative and strategic thinking to cases, will never be replaced by AI. But what businesses do need is for their legal teams to focus that expertise on the work that drives the most value. And AI can be the key to freeing legal teams to do exactly that.

However, with considerable media hype surrounding AI, business leaders looking to unlock its benefits across their legal departments may well encounter early challenges in navigating this burgeoning market. The prospect of evaluating what “real” AI is can be daunting, mainly in part due to the term’s undeniable effectiveness as a marketing term. When on the lookout for AI software, organizations can ask a few key questions: Is the AI ​​instantly deployable with no lengthy setup or machine training? Can it scale and maintain the highest levels of security? Can it automatically handle different languages ​​or terminologies? Can I teach new concepts and ideas with simple point-and-click learning? If the answers are “yes,” then businesses should be confident in moving forward with implementation.

Of course, with the proven ability of AI to save both costs and time, businesses will inevitably look to extend this technology beyond the legal function. With every business function interacting with contracts, the cost-saving potential of AI-powered legal process automation technology appears boundless.

• Sales functions can rapidly locate and review contracts relating to successfully closed deals to analyze motivated pricing and formulate future sales strategies.

• Commercial teams can use AI to identify termination dates and keep abbreviations when sales agreements are due for renewal, so they can proactively encourage business growth.

• Procurement teams can automatically generate compliant sales agreements that meet internal standards.

Now more than ever, legal departments will be relied upon by their organizations for expert and strategic counsel. These teams cannot afford to be cost centers. With AI expediting traditional resource-intensive and routine legal work, lawyers will be able to focus on the work that delivers the most value. Despite the challenges posed by today’s complex business environment, the emergence of AI technology means that legal departments have never been better positioned to drive maximum profitability for their organizations.


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