In a recent analysis, yet another study has underscored the significant disparity between the expectations of in-house legal professionals and the actual offerings of their external law firms, particularly regarding innovation and technology. Despite the ongoing discussions surrounding artificial intelligence (AI), it is evident that we have not yet reached the desired level of advancement.
The latest findings come from a study conducted by Thompson Hine, a prominent law firm ranked among the Am Law 200, based in the Midwest. This research involved nearly 200 senior in-house legal professionals and aimed to assess their engagement with innovation in the legal field.
Titled Bridging the Perception Gap-Disconnects, Expectations and Opportunities, this study also evaluated how in-house legal professionals perceive the performance of their external law firms in terms of delivering innovative solutions.
This marks the fourth study of its kind conducted by Thompson Hine in collaboration with Corporate Counsel, highlighting ongoing concerns in the legal industry.
Identifying the Disconnect Between In-House and Outside Counsel
As the title indicates, the study revealed significant gaps in perception. Shockingly, only 5% of respondents reported witnessing substantial innovation from their law firms. This figure has remained constant since 2023, reflecting only a slight increase of two percentage points since 2020, indicating minimal progress in this critical area.
This presents the first major disconnect; when in-house professionals were asked about their firms’ claims of innovation, only 20% stated that they believe their firms are genuinely innovative. This disparity raises questions about the authenticity of claims made by many law firms.
What Contributes to the Innovation Gap in Legal Services?
As someone once pointed out, there is a distinction between firms that genuinely aspire to innovate and those that merely wish to project an innovative image. Often, law firms communicate what they believe their clients want to hear regarding innovation. Some firms take pride in announcing their supposed innovations, merely ticking boxes without implementing meaningful change.
Reflecting on past trends, similar to the early days of computer adoption, some firms equipped their offices with desktops purely for appearances when clients visited, despite many lawyers lacking the necessary skills to utilize these tools effectively.
Furthermore, there is a definitional issue at play. In-house legal professionals seek innovation and technology to enhance their efficiency and productivity. In contrast, law firms often focus their innovation efforts on reducing non-billable hours or marketing, which may not align with the interests of in-house teams. Consequently, when law firms claim to be innovative, it may not resonate with the needs of their in-house counterparts.
Additionally, it is notable that only 16% of survey participants viewed their external law firms as superior to in-house legal departments in terms of innovation. A mere 3% felt that their outside law firms supplied all necessary innovation.
Consider this: law firms are generally smaller and organized into practice groups, which should afford them greater agility compared to the larger corporations they serve.
Moreover, as service providers, one would expect law firms to lead in innovation to enhance their service delivery rather than lag behind.
We observe a similar trend in attitudes toward AI. Twenty-three percent of in-house legal professionals acknowledge that AI has made significant strides and should be utilized, whereas only 18% of outside lawyers share this sentiment. Outside lawyers tend to express greater concerns about accuracy and privacy compared to their in-house counterparts. These findings align with the recent survey conducted by the Association of Corporate Counsel (ACC), which revealed that nearly 70% of in-house professionals are now leveraging AI.
Exploring Further Reasons Behind the Innovation Gap
Why, then, do law firms seem disinterested in embracing innovation and technologies such as AI to enhance their service offerings? Primarily, the traditional billable hour model constrains the adoption of transformative technology. Embracing innovative tools inevitably impacts the billable hour, and law firms are acutely aware of this relationship.
Moreover, the consensus-driven decision-making process prevalent in most law firms further hampers the adoption of new technologies. The partnership model often results in numerous decision-makers, each of whom can stifle innovation by expressing dissent. Coupled with the inherently skeptical and independent nature of lawyers, this creates a culture resistant to change and slow to embrace innovation.
When viewed holistically, this situation casts a negative light on outside lawyers, although they are not solely responsible for the stagnation.
Is It Fair to Place the Blame Solely on Outside Lawyers?
At first glance, it may seem justified to attribute the sluggish pace of innovation and technology adoption to outside law firms. However, other factors contribute to this dynamic, allowing firms to maintain the status quo without feeling pressured to innovate and enhance service delivery. In-house legal professionals often do not demand substantial change, and in fact, they frequently reward their firms for maintaining the existing state of affairs.
This is evident in the findings from Thompson Hine: despite 93% of respondents indicating that innovation is critical or at least important when selecting law firms, only 5% are satisfied with the level of innovation they observe from their firms.
A similar gap emerged in the ACC Study, revealing that 59% of in-house legal professionals were unaware of whether their firms utilized technology in legal matters, while 80% did not actively encourage their outside lawyers to adopt GenAI.
To paraphrase earlier observations: there are legal departments actively demanding innovation and those that merely claim to be doing so.
What Are In-House Legal Departments Rewarding in Their Partnerships?
This brings us to another pertinent study conducted by Thomson Reuters, which analyzed law firm rates. The conclusion of this study encapsulates the findings succinctly:
The legal profession has achieved a remarkable feat that many industries only aspire to: the ability to increase prices consistently year after year, with clients willingly agreeing to pay more. Over the past decade, law firms have raised their rates at twice (or more) the rate of inflation. In 2025, worked rates have risen by 7.4% compared to a mere 2.8% inflation rate. This trend reflects not just a routine adjustment for the cost of living but a demonstration of genuine pricing power that has fundamentally transformed how legal service firms generate revenue.
To provide a balanced perspective, the study indicates that this trend may soon face challenges due to various factors. While that may hold true, it echoes the long-standing predictions regarding the “death of the billable hour,” which has yet to materialize during my years in legal practice.
Addressing the Innovation Gap: A Call to Action
The undeniable reality is that unless clients actively demand change from their outside law firms, significant transformations are unlikely to occur. Why should they, given that established law firms, especially larger ones, continue to enjoy substantial profits without the impetus to change? Their clients consistently reward them with substantial rate increases, further entrenching the status quo.
This situation is exacerbated by the fact that in-house lawyers share a similar hesitance to embrace change and skepticism as their counterparts in external firms, many of whom they previously worked alongside. Additionally, the practice of law remains fundamentally relational; in-house legal professionals depend on and trust their outside lawyers, leading to reluctance in challenging their firms’ practices and needs. Furthermore, legal department budgets often pale in comparison to the broader business budget, limiting their influence.
Just as in-house legal professionals rely on the expertise of outside lawyers, the overall business must also trust the legal department’s insights and expertise.
Fostering Change: The Client’s Role
As we navigate the current landscape, it seems that many stakeholders are singing a familiar tune regarding innovation, yet tangible changes remain elusive within many law firms. In-house counsel express dissatisfaction, while law firms implement changes primarily for appearances. Will the emergence of GenAI and agentic AI facilitate genuine transformation? Not unless clients take decisive action.
It may be time for in-house legal professionals to engage in candid conversations with their outside counsel or, alternatively, to seek out new partnerships. One thing is certain: continuing to do nothing will not result in meaningful change.
The next time in-house counsel voices dissatisfaction regarding their outside lawyers, it may be wise to remind them to be mindful of the gaps in expectations versus reality.
Stephen Embry is a lawyer, speaker, blogger, and writer. He publishes TechLaw Crossroads, a blog dedicated to exploring the intersection of technology, the law, and the practice of law.
To keep up with the latest trends in litigation, regulation, deals, and financial services, subscribe to Finance Docket, a collaboration between Breaking Media publications Above the Law and Dealbreaker.
