Why AI is becoming the hottest cost-cutting tool in corporate legal departments

Corporate legal departments are facing significant financial pressure as external law firm bills rank among the largest expenses for companies. However, artificial intelligence is emerging as a powerful ally for in-house legal teams eager to cut costs. Doug Mandell, general counsel at Inflection AI, utilized a legal AI tool from startup GC AI to draft a new data security policy by analyzing his notes and background materials. This innovative approach allowed him to refine the policy before sending it to an external law firm for review, significantly reducing the time and costs associated with traditional legal processes. Mandell emphasized that while AI is not a replacement for outside counsel, it streamlines the process, benefiting the company by enhancing efficiency. The adoption of AI tools in legal practices has not been uniform; firms that bill by the hour may resist these innovations. In-house legal teams, on the other hand, are more inclined to embrace technology that enhances productivity, as they are evaluated on their ability to facilitate business operations without delays. According to venture capitalist Bogomil Balkansky, the urgency for in-house teams to adopt AI stems from the pressure to avoid prolonged processes that could jeopardize business deals or candidate recruitment. As a result, these legal professionals are increasingly turning to AI solutions that can transform tasks that once took days into mere minutes. In-house lawyers now have access to a range of AI tools that draft documents, ensure compliance, and analyze contract terms, allowing them to work more efficiently. Harvey, a startup that initially catered to law firms, has expanded its services to large corporations like Walmart and General Mills, focusing on speeding up contracting processes and reducing the burden of repetitive tasks. Cecilia Ziniti, CEO of GC AI, reported that a recent survey revealed that 14% of in-house lawyers experienced a reduction in outside legal expenses after adopting AI tools. GC AI itself saw its annual revenue surge from $1 million to $13 million last year, underscoring the growing demand for AI in legal work. Gusto, a company leveraging AI for legal compliance, exemplifies the transformation taking place in corporate legal departments. Chief Legal Officer Dina Segal oversees a team that uses AI to monitor and summarize thousands of rules across various legal domains. This efficiency allows her team to focus more on strategic advisement rather than rule tracking, which she describes as a "game changer." As in-house legal teams adopt AI, they are also shifting expectations for the law firms they engage. General counsels are increasingly inquiring about their outside firms' use of AI when making hiring decisions. This trend is occurring amid budget constraints; a recent survey found that 35% of general counsels plan to increase their legal spending, a decline from previous projections. Mandell articulated a clear boundary regarding legal expenses, stating he would not pay exorbitant hourly rates for tasks that can be handled swiftly by AI. He values the insights and judgment that human counsel provide, particularly in critical decision-making scenarios. This evolving landscape illustrates how AI is not only enhancing efficiency in legal processes but also reshaping the relationship between in-house teams and external firms.