The End of the Billable Hour: Bjarne Tellmann on Why Clients Will Break the Law Firm Model

Bjarne Tellmann00:00
I think for most firms, they're just paralyzed right now. the irony is you won't fail because you're so bad at what you do. You will fail precisely because you are so good at what you do.

Cecilia Ziniti00:08
Yes, Welcome back to CZ and Friends, where we talk with legal leaders, operators, and technologists shaping how modern companies work. I'm your host, Cecilia Ziniti. Today I have Bjarne Tellmann the CEO of FjordStream Advisors and the author of a new book on, you guessed it, AI. His book is called Law in the Era of AI and it's out this week from Wiley. Bjarne has spent 30 years as a general counsel at some of the biggest companies in the world, Haleon Pearson, Coca-Cola, Aramco. He had a front row view of how in-house teams operate. And his new book makes the argument that most people in legal aren't ready to hear. That the thing that finally breaks the billable hour and finally cracks the law firm model that we've been talking about since I've been practicing is not going to be a startup. It's going to be the stakeholders and the clients. We're going to get into why he believes that, how that fits with kind of AI and in-house and, know, topics that we've talked about a lot on the pod. and what he's seen from the inside and then the point of view of a leader, right? A lot of folks are emailing us like, what do we do about AI? How does it work? I'm getting pressure from the board, pressure from the CEO, pressure from everywhere. And, you know, I'm just trying to, you know, set up my co-pilot kind of thing. So we'll get into some practical tips as well. Oh, and before any of this fun stuff, he's excited to be in the studio because Bjarne was a professional actor doing film and TV work in Norway before he came to the US for theater school. So. proof that AI really is a creative endeavor. So very excited to do the show today. Bjarne welcome to the show.

Bjarne Tellmann01:48
Well, hey, thanks so much. It's great to be on.

Cecilia Ziniti01:50
You've described your career philosophy as asking yourself what the Sage of Bjarne should be about. So kind of this aspirational future forward view. Where did that come from? And then how do you step outside yourself or within yourself to make decisions?

Bjarne Tellmann02:06
well, so, you know, where that came from, I think. You know, I think basically I've kind of always lived my career and my life a little bit. I'm from Norway and I've lived it a little bit like the way the Vikings talked about stories. They had this thing called sagas, which are basically like these heroic stories where you kind of talk about great people who did amazing things with their lives. And so I've always thought about my career and my life and how I want to live it as a saga or an adventure. I've always asked myself, you know, is this going to be something that feels like an adventure, something that feels like taking a risk, stretching into things rather than, you know, just a, ever wrote a song about somebody who had a 60 year career and went back and forth from A to B to B to A and got a gold watch, played some golf and then died. Like that's just not very exciting saga. that's kind of been my guiding light, I guess you could say.

Cecilia Ziniti03:04
So you went to the College of Fine Arts at Boston University, and then you went to Sullivan and Cromwell of course, a big law firm. Then you went to Coca-Cola, and then Aramco, and then Pearson to Haleon. This saga idea, like, did you know in advance, like, that you'd be like, all right, I gotta make sure I get the big law firm, so I got, the hero's journey of getting out of there, and then, you know, I've got the big... know, consumer CPG or, you know, consumer with the Coca-Cola, obviously global bench. So how did you assemble that saga and how do those four things that I mentioned fit into it?

Bjarne Tellmann03:46
So first of all, I did not have a plan at all. I selected theater because I was drawn to it. I had an interest in creativity. I also had a crush on a girl in high school who invited me to be part of the school play. And then some talent scout showed up and asked if I wanted to be in a movie. And then that led to another film and a TV series in Sweden. so it kind of went from there. And then I decided to go to theater. theater school. And after, you know, about a year or so in theater school, I realized I was curious about a whole bunch of other things and I wasn't getting that itch scratched. So I started double majoring. And then from there, ended up switching over to political science. Went to the UK in my senior or junior, junior semester abroad. Worked in the House of Commons for somebody who had been at the London School of Economics. He was a former minister and he suggested, well, why don't you stay on and see if you can get in and do the master's program there. So I did. took a gap year in LA, had no idea what to do, and watched a lot of a TV show that back in the day was called LA Law and decided that looked pretty good. And so ended up deciding to go to law school, got into the University of Chicago. And that was sort of the first moment at which I realized the law was just this amazing home. It brought together economics and justice and philosophy and storytelling and human nature and economic sort of the economic allocation of rules just fascinated me. And so I actually had a great first year. really enjoyed it.

Cecilia Ziniti05:32
I love law school. mean, people, know, portray it badly, but I had never thought about it as like, I mean, obviously justice, but the other things you mentioned of like economics and the saga really, like you're right. Like how many movies and things are there like LA law? My personal favorite, course, Legally Blonde, which was my, you know, go to law school kind of inspo movie.

Bjarne Tellmann05:55
Yes.

Cecilia Ziniti05:56
So you added the law aspect to your saga.

Bjarne Tellmann05:56
Yep.

Cecilia Ziniti06:01
and then basically went on to live in Oslo, Paris, Cairo. I've got a list here in my notes. Oslo, Paris, Cairo, New York, Stockholm, LA, Helsinki, Frankfurt, London three times, Vienna, Athens, Tokyo, Atlanta, Munich. All right. So was that a deliberate kind of like, I'm going to be a citizen of the world? And then from a legal perspective, how did that show up in your work?

Bjarne Tellmann06:24
So no, I mean, I think just it's almost a continuation of the first part of that story where I really just followed my heart and I did sort of try to combine that sense of adventure and sort of where my saga would go next with a three year plan, because especially when you move abroad or whenever you take risks in your career, whether it's, know, Hey, do you want to move to Athens? And by the way, the hitch is it's going to be a permanent move. Um, nothing in life is permanent, right? But you have to make some fundamental decisions. And the way I always thought about this was in three year increments. So do something, take a risk. and then commit to it for three years and then sort of see at the end of three years where you're at and does this still make sense for me? Does it make sense for us as a family unit? And basically as a family, we always kind of gave each other vetoes. So we all committed, we all held hands and jumped. And then, you know, at the end of a three year period, anyone could raise their hand and say, I don't like this. So I think it's about putting structure on the back end and having sort of an emergent front end, as it were. And that's maybe the way that I've tried to live my career and my life.

Cecilia Ziniti07:38
So it reminds me almost of like the military. you know, three year tour of duty. So when you move to a place, do you like, and I mean, suppose it's extensible to just any job. If you consider it a tour of duty, Reid Hoffman, who I super admire, talks about kind of CEO of you and, you know, having a tour of duty with people. So when you land in a Cairo or wherever you go, your family's decided to take the leap, you're relocating, you're this global executive.

Bjarne Tellmann07:43
Yes.

Cecilia Ziniti08:08
Do you kind of make a list? Do you wait to have an itchy foot? What? And then how without that network, like even just literally like the basic things like getting a new pediatrician or, you know, figuring out who's the random work friend that you have coffee with once a month or whatever, like you, you start from pretty much zero in a lot of ways. So how do you, you know, first of all, like the kind of either tax on your career or tax on yourself as human of having to rebuild all that periodically, but secondly, how you make it an advantage. So tips for listeners on that. And then any funny stories about, know, in Egypt, they don't blah. Like, I don't know. mean, any stories you can share would be helpful.

Bjarne Tellmann08:46
Yeah, so... I Um, no. So listen, I mean, so first of all, Egypt was actually when I was a child. So I I was a diplomat brat growing up. So, um, I, lived in, uh, in Cairo when I was a kid, rather than, uh, in, uh, for work. I'd say there are a couple of things like you, you start to, there may be two things. There's a practical and a spiritual element that you need to know before you move abroad. So the practical comes with experience, which is you kind of.

Cecilia Ziniti09:06
Mm.

Bjarne Tellmann09:22
You have a whole bunch of things that you set up right away. You know, where are you going to live? You you, you put a, a one mile circle, circle, a one mile radius around the school that your kids are going to go to. And you kind of, you go based on that. the spiritual part, I think is recognizing that every move has a. Kind of a change curve. go through this culture shock curve where the first six weeks anywhere is great. It's euphoric. It's kind of like taking a, an extended vacation. and then, you know, after about six weeks, you kind of go into this funk where, yeah, the pipe bursts and you need a plumber in Athens and it, and it's really hard to find. And you can't figure out the process or how anything works here. And you. through this almost like a crisis where you're living in a world that feels like you're surrounded by, I don't know if it's zombies, but you feel like you're not in a normal environment. You're in a place where everything is a little different and weird and you're out of place. And then you kind of come out the other side. About six months in, that curve starts to move up and you start to realize this is my new home. I know how things are done here. I speak some of the language. I understand the customs, but yeah, it's bizarre. you know, I think the most interesting place that I've lived of all the places that I've lived and worked was Tokyo. And I would move back in a second. I'm a huge fan of Tokyo for so many reasons, but one of them is just Japanese society is endlessly fascinating. And there are just so many stories I could tell you about it. Just every day you see things. I remember the first week I got there, I got off the subway for work in the morning and there's this guy on the steps, like this workman, and he's got what looks like a toothbrush and he is scrubbing so intensively. Like it was the most important thing in the world to get this spot off the step. And I was just thinking, how do you get people to do that? What is it that causes that level of commitment? And it was just everywhere in society, this unrivaled sense of service and dedication and commitment to every task, however meaningful it was or menial it was, was just remarkable. And then just living a riddle. You're constantly confused about what people are saying, what the subtext is. And you go to meetings. I remember going to meetings with my number two and I'd come out going, that felt like a really good meeting. do that sort of sucking in sound that Japanese people do it. go, might not have been such a good meeting. I'd be like, well, I guess I missed that one. So yeah, it's a mix of spiritual and structural. then I think just leaning in for the ride and enjoying the fact that you're confused and mystified by everything around you.

Cecilia Ziniti12:05
I'm out.

Bjarne Tellmann12:21
It also just gives you a different perspective of beauty,

Cecilia Ziniti12:24
So many incredible threads to pull. let's talk about legal. So you went to Pearson, course, you global publisher, education company, one of the, you know, leaders in the space. Tell us about your team there. And then I've gotten my notes that you cut costs in legal more than 40%. So I hear that and I'm like, okay, let's talk about layoffs. But, but I'm sure there's more to it than that. So tell us about walking into Pearson. you know, you were facing and then what you did.

Bjarne Tellmann12:58
Yeah, no, I mean, look, Pearson was an interesting story. I mean, by the time I got there as general counsel, the industry that Pearson was in, which was, I mean, it was a very diversified company, 200 year old. business that it owned lots and lots of things over the course of the centuries, starting as a construction company back in Victorian England and building the Panama Canal and lots of other things before moving into media and then publishing and educational publishing. And its core business when I got there was the $180 college one-on-one textbooks, which was a beautiful business until It wasn't, you know, until Amazon came along and started renting textbooks to students in exchange for prime membership and digital was on its way up the scale. so textbooks just weren't the business they had been. So there was a lot of disruption and change and The structure of the business was changing. was also moving from being a decentralized holding company that owned the Financial Times and The Economist and Penguin and this educational publishing business to a very, very centralized structure that focused on education and ed tech and testing. And so the legal department was kind of very decentralized and had evolved over the years for a very different business model and a business structure. So when I came the pressure was on to change it and this was in 2014 So kind of well before most of what we now know as kind of the legal technology revolution, legal technology in those days was hybrid staffing, which they called super temping. There was, you know, there were some CLMs and contract management systems, but it really was in the infancy. And so I realized pretty quickly that if I'm going to do this right, I can't just lay off, you know, we had about 230 people. I can't just lay off enough people to make this work. It's really a fundamental restructuring. We have to kind of step back and really think about the model. The cool thing was, because it was so decentralized and so evolved for a different structure, it was almost like starting from scratch. It was almost like you could kind of just redraw the whole thing. So that's kind of what we did. We did a full-scale diagnostic, and we looked at all of the different opportunities we had. And what I realized was, You know, literally just by changing how you deliver services from soup to nuts. So what is the workflow? How is that happening today? How could that happen more efficiently? And then where can we leverage hybrid teams? Where can we leverage technology to the extent that it exists? And also the internal to external spend ratio. And we kind of did a whole study around what should the optimal ratio be for our industry. And we kind of plotted. that out on graphs and we thought a lot about numbers and arrived at a ratio that we were far away from. And so we began to shift that and we optimized the sourcing of external counsel. So really at the end, if you put it all together, it was really about stepping back and thinking about the legal department as a business. So I kind of imagined myself as a CEO of this legal services business that has one client, Pearson. How are we going to do this in a way? that actually returns a profit for us. And the profit margin was basically our budget. And that forced me to think not just about all of those kind of technical and structural things, but also just culture and change management. How do we lead through this? What are the values and beliefs that should drive behavior in this organization? How do we instill those in the right way? How do we navigate through all this? What's our strategy? Why do we have a license to exist? What's our license to win? going to get there. that was really kind of the whole approach. And it was very, very early days. And I think the benefit of that was I learned a ton that I took with me in later roles. And as technology evolved, it was really, really helpful.

Cecilia Ziniti17:18
So you home date on the business of a legal department. Did you bring more work in house from law firms? make this real. So there is data. We can drop it in the show notes, essentially, that for the last 25 years, since about 95, and it looks like right when you were in Pearson in the 2000s. But in that entire period, particularly since 2008, but basically since 95, that companies have been finding that bringing legal in-house, you know, a trend or at least an idea really pushed by the Ben Heineman and others that they could provide legal better by working for the actual companies. How did that play out? you know, it's been a minute, so you may not remember the ratios, but... give us a from to, so you walk in and you're like, here's what I gotta do, and then how did you keep quality not only still, but presumably higher quality from being in a house?

Bjarne Tellmann18:13
Yes. So, and by the way, I think when I came in, it was a few years after Ben had been at GE and done the sort of the inside council revolution. And I think what had flipped from the time he was there and the time that I joined Pearson was.

Cecilia Ziniti18:35
Yes.

Bjarne Tellmann18:42
Budgetary pressure just became my impression of what Ben did. He was amazing He did some incredible things and was very inspirational for me And I had a chance to meet him a year in the year I joined But what he did was at a time when I think budgets were I wouldn't say unlimited but there certainly wasn't that same level of pressure because the goal was to expand Legal as a source of governance in a rapidly globalizing market where relying on outside counsel to run everything kind of ended up in many, scandals, know, Enron, WorldCom, Parmalat, you name it. And so there was this sucking sound towards bringing top talent into the legal department. When I came, there was all that, but the more for less challenge had started where, you know, there were real pressures being brought to bear on Pearson as a company and on me for reducing the cost footprint. When I looked across, think we were somewhere around 70 % external, 30 % internal when I joined, and much of that external was concentrated in a handful of firms. what we ended up deciding our optimal spend ratio was around 60-40 internal to external. And as we looked at that, what I realized was There's a very easy way to reduce external spend, which is to panelize, right? To think more proactively about what firms you're using and for what work. Use a Ferrari when you need a Ferrari. and use a Honda when you need a Honda, rather than, and just by doing that, just by shifting, let's say 20 % of your spend from a premium firm to a mid-market firm, you save, let's say 20 to 30 % on your hourly rate, you multiply that by however many number of hours a year, and right there you're cutting a ton of spend that you're then able to divert some of to shift towards your internal. None of that was pain free. And I'd say I still have scars from some of the decisions I had to make. I learned a lot, a lot about the importance of change management. You can set a strategy and you can tell everyone what you're going to do and how you're going to do it. But if you forget to tell people why you're doing it, That is a painful lesson and it's one that I learned, you know, and I also learned by the way that you don't need to convince everyone. You need to make sure that everyone understands why you're doing it. And if they understand why, even if they disagree, at least they understand why you're doing it. And that, that makes a big difference in bringing people with you because those who do understand it and buy into it would be the acolytes, the missionaries, the mavens, whatever you want to call it, who will drive your change. And then maybe the last piece of all of that was culture. was really... understanding how culture is an absolutely essential part of the DNA of your team. And if you try to reorganize something or create something without thinking carefully about the culture that you want to create or that you want to maintain, you're going to fall into a lot of problems.

Cecilia Ziniti22:06
Wow, so much to unpack there. So Bjarne talks about a pretty typical journey from almost 75 % outside spend down to 30 with 60 % of it or kind of 60-40 split of in-house. So put us in one of those conversations of like, presumably you're working with a big law firm and you know, I do, there are those moments when you want the very best, when you want that. advice and you know, the kind of house firm idea people used to talk about kind of Larry Sonsini walking around HP and you know, in the in-house team at that time did not have the power and authority that a general counsel's office would now. But presumably you're making some phone calls, you know, you're very diplomatic about it, but you're making some phone calls being like, all right, great, your train's done, you no longer do our M &A in country X. So was that the kind of sorting moment where there were the people that wanted to be on board and the people that weren't? And the firms that you did end up retaining, you talked about panelizing, why did they make the cut?

Bjarne Tellmann23:12
it wasn't so much of a rupture as it was an expansion. And what I found is that there's, it's seldom that you need to fire a firm. I think the better way to do it is to retain them on your panel and just use them less, you know? And that's a gentle nudge. And frankly, I think over time firms, the firm that was

Cecilia Ziniti23:21
Mm.

Bjarne Tellmann23:35
Let's say the closest to a house firm for us I think they got the they got the message that you know price mattered and they weren't going to be able to compete on all of that But what they were interested in was can we still compete for the premium stuff, I'd say the key was It was really getting the CEO on board and I was very lucky that I had a supportive CEO and also lucky in the sense that the whole company was undergoing rapid and profound transformation. So it wasn't like anyone was confused about why I was doing what I was doing or how that would play out. In terms of the firms we picked, I'd say, mentioned culture being really important. That was a key part of... the panel selection process. And I remember one firm in particular, well, an ugly and a beautiful story. They're both very well-known firms, ugly firm came in they were pitching for an &A slot. and clearly hadn't done their homework or if they had shame on them because the head of our and A team was a woman and they spent their entire time with their back to her, pitching to me, and not really paying attention to her questions, paying attention to mine. And then at one point we asked them, you know, what their.

Bjarne Tellmann24:54
approach to diversity was, and they started telling us about their pro bono program, which made me realize they don't even understand the word. And they showed up with just 100 % middle-aged white guys, which probably didn't, it kind of sealed the deal for us in terms of this is not a firm that values a diverse range of perspectives The positive one, a top class firm came in. They brought with them a mix of people. The Rainmaker sat down and then sort of there were five other people in the room. And I started by saying, so we met three of your peers this morning. You guys all seemed to do great work. What distinguishes you? And please don't tell me it's that you're collaborative because we have a drinking game. Every time a firm tells us they're collaborative, you know, we'll take an extra shot in the evening. And to his eternal credit, he said, well, you know what? think I'm going to let Joanne answer that question. everyone looked down the table and there's this young female associate whose native language is not English.

Cecilia Ziniti25:44
Thank

Bjarne Tellmann26:03
And she started explaining why this was a great firm, why it was unique, how they were able to work together even in the most stressful of times with support, how she appreciated the transparency of her partners, the accountability, et cetera. That blew us away. That was like, okay, this is a firm that gets it. They have a sense of leadership. They trust their talent. And they trust them enough to do the opening question. So that was, to me, like culture has always been really important. And I have just almost a gut instinct around what does this mean? If people are not happy and they don't feel that they have a sense of purpose in a firm, they're not going to do great work.

Cecilia Ziniti26:44
love that story, what's the equivalent in house? So how do you develop your people? And then, if you're deciding like this management of outside firms and the idea of managing them, I had a fascinating conversation with Michael Jacobs a few pods ago about deciding to bring an offensive litigation is deciding to open up a business unit and you basically need to manage it as such.

Bjarne Tellmann26:50
man.

Cecilia Ziniti27:09
And so in-house, this creativity, I am very unabashed that I think that in-house lawyers, particularly at Amazon, our approach was they paneled the heck out of every firm. And the Amazon culture was so deep from Bezos that legal was just like any other function where we had to be creative, we had to be smart, we had to be the best of the best. And it was this idea that I think was a legacy idea in the 90s or something that lawyers in-house were somehow less good was just false. And it just wasn't like... And so how do you play that out in-house where you had enough &A, sounds like over the years, to even potentially bring the whole thing in-house? So how did you develop leaders in-house with that same spirit? And then, you know, what's your your thought on that kind of, could you have gone farther or like how far did you go on that split?

Bjarne Tellmann28:11
So I think, you know, one of the things that I tried to do early on was make sure that everyone felt that they were part of this journey, that they understood. both what we were trying to achieve and also sort of where we were heading. So I had conversations with every single person in Pearson. I did this at Haleon too and GSK, but really like sit down with every single person from the secretaries all the way through. And I asked them three questions. I said, tell me three things I don't know about yourself that you feel comfortable sharing. So I just know who you are. And then tell me three things you think. that we're doing really well and three things that you think we should change. And I took copious notes and then I fed all of those notes into a word cloud. And then I had a global call, and this was very much in the beginning, and I said, here's what you told me. And then I said, who's going to help me do that? Who wants to be part of this journey? And I got some people to raise their hand. And they came up with the strategies around how are we going to double down on these things that will make us excellent? And how are we going to start moving away from the things that we don't like about ourselves? And so they came up with a whole series of objectives and tasks and priorities. And as we got into trouble, inevitably you hit that change cycle and people start resisting it. I was able to say, Hey guys, you you told me what we needed to change. And then you told me what we were going to do to change it. So it's don't come to me. you know, we need to look at ourselves cause this is a collective journey. So that was one thing was I think getting everyone on board, together and making everyone feel that they had a stake in it. The second thing. strategically to your point around excellence was challenging people to understand why we have a license to get paid. And the question I asked them was, you know, if McKinsey came to our CEO and basically said, hey, you know what? We could save 30 % of legal costs by outsourcing 100 % of legal. Why should our CEO say no? Because if you can't answer that question, you're just a commodity. If you can, then you've learned something about what it is we do uniquely well. And the cool thing was they went away and thought about this. And this was a question I challenged my legal leadership team with, not the whole function. I didn't want to freak people out with hypothetical.

Cecilia Ziniti30:47
Yeah.

Bjarne Tellmann30:50
And they came back and sort of said, well, there are two things that we figured out that we do that no external provider can do. We can be proactive so we can prevent problems from happening before they're problems. And by definition, only we can do that. And two is we can be pragmatic. We can combine our deep knowledge of the risk appetite, the objectives of the company, its culture. with the legal advice and translate that into something that truly is valuable to the company. And so for many years, was, those were the twin engines on which our whole strategy rested. Like this is what we do uniquely well. And we understand where we sit in the ecosystem versus our outside providers and how they plug into that. They add immense value if they do their job well, but they can't take it the final mile. You you talked about Amazon. It's like, the CO2 and the value and the customer satisfaction is all in the final mile. So if you don't get that right, you could be great on your sort of unloading from the warehouse in China onto ships, but it's not gonna help you with the end customer, right? So it's all important, but that last part is really critical and getting them to see that and getting them to show me that that was the case, I think was really one of the key insights.

Cecilia Ziniti32:08
So you mentioned the CEO and the satisfaction with legal. I love this framework of the productivity and the pragmatism. That's exactly what I see. And funny, you mentioned customer obsession. I think that's actually one of the reasons that Amazon in-house legal team was so good. And you think about privacy work. So you mentioned depth on the... the business. So one of our customers is a leading restaurant chain and hundreds of locations. And I was chatting with our customer of GC AI and he said that he was preparing a disclosure and it needed to go literally on the point of sale, like literally on the thing and talk to counsel. They sent him the privacy advice and the disclosure that was that they advised was essentially like 75 words. And he's like, what about you? But like the little tiny screen where like you swipe your credit card, that's not going to be the thing. you know, advice like that would land like a lead balloon, you know, if you're trying to give it to the person in charge of actually getting the, you know, the sandwiches or whatever in people's hands. And so that idea of like in-house is different and the what the business craves is actually, you the risk mitigation or the customer obsession or getting the thing done. And so I love that story. Do you think AI changes that? Because now obviously as a company, I can consume AI, you know, directly from an AI, be it GC AI or, you know, pick your AI of choice. But does that pragmatism and productivity change? how companies consume legal.

Bjarne Tellmann33:57
Yeah, it's a great question. So first of all, I love your description of Amazon and you know, at Coca-Cola we have the same obsession and I remember one... team challenging themselves, hey, could we take this five page or 10 page customer agreement, you know, for basic customers like small stores, can we turn it into one page in plain English that no one will push back on? And so they got rid of all the clauses that ever had pushback and they took a risk, right? I mean, yeah, you're taking on more risk by doing that, but how many times are we really going to sue our customers? over something like that. And they ended up actually shortening turnaround time from signing to exit, you know, from, from the initial draft to execution by a number of days. And then they multiplied the number of sales days and translated that into profit over a year. And then over whatever the average number of years, the customer is usually with you. And it turns out you're adding huge value. Even if you did get sued one in a thousand times, you're still adding value that, you know, so anyway, it's just, it's just a.

Cecilia Ziniti35:09
No, that's an incredible story and it's very along the lines of what we see. So we've tuned our AI to exactly what you described to be pragmatic and proactive in a way that like as a law firm, you wouldn't this kind of like holistic view of risk of like, are we really going to sue our customers or whatever it is? know, it reminds me almost of like I had this, you know, this torts professor that was just a legend rip professor Levi, but anyways, torque professor who basically was like, look, like

Bjarne Tellmann35:26
Yeah, exactly.

Cecilia Ziniti35:38
risk management doesn't mean you're shipping a million plates over the Atlantic. It doesn't mean no plate breaks. Literally, that is bad business. And so actually thinking about that way to risk. then funny you mentioned the plain English thing. That's one of the biggest benefits I see of AI. And it's very difficult to put a monetary value on it, but it's incredible that you actually were able to do that. So literally, people are signing. And by the way, the company's in a better way. The risks, the core risks of like, OK,

Bjarne Tellmann36:00
Yes, I totally agree.

Cecilia Ziniti36:06
you pay us for the thing, know, the free onboard delivery, like whatever the Inco term type situation, and then being able to translate that to, you know, then put, you know, beverages in every person in the world's hands. Like that is very real in a way that like, I think people debating, you know, an indemnity, you know, provision, it's easy as lawyers to get wrapped in our heads and not to see it that way. I love that.

Bjarne Tellmann36:36
Yeah, I totally agree. just to kind of answer the second part of your question, how AI changes it, I think it changes it in two ways. One is in terms of the operating structure, it changes a lot.

Cecilia Ziniti36:36
So.

Bjarne Tellmann36:53
And I spend a lot of time now talking with clients about this and, you know, and when I sort of, when I was a GC myself, as AI started to come online, we started to ask ourselves, you know, again, if we were a business, what business would we want to be and why? And we looked at a whole bunch of different businesses. We looked at Ikea for self-service and McDonald's for process optimization. And, and we ultimately landed on Amazon. And partly, and we met with the Amazon team, not the legal team, but the commercial team. And what we loved about Amazon was this combination of sort of putting tech at the center of their operating model and yet at the same time being customer centric. And I just love that idea of every time someone clicks onto their Amazon screen, they're getting a better array of choices based on the data that has been captured on the backend by hybrid teams, by full-time employees, and then fed back into a continuous learning loop and taking advantage of AI in ways that put it at the center of its operating model. So we sort of set about with that as an objective. So that's one way. it changes things. I think the other and increasingly important one is if you think about how GC's add value today and how legal departments add value. So we talked about productivity and pragmatism as kind of the twin engines. I think there's a third engine that's come on board now and that is governance. Because if you think about these systems, they have all the benefits that you've mentioned. but they scale rapidly across the entire enterprise. They make decisions increasingly with a gentic. They're making decisions autonomously in milliseconds at scale, right? And so as those systems start deciding how to engage with a customer, what... promotions to offer. What data should I draw from? Is it privileged data? Is it confidential information? How am I using that? What commitments am I making? What regulations am I interacting with as I make these decisions? All of those things require governance. And it's kind of like, sort of think about it, you know, I live in Germany and here we have the, the famous out of bond, you know, where you can, there are like sections that you can drive without a speed limit, right? But what tourists forget is when it's raining and icy on the roads, those limitless speed limit areas, they have digital speed limits that turn on. the German police are really strict about when there's a speed limit on the out of bond, you do not go above that.

Cecilia Ziniti39:13
Yeah.

Bjarne Tellmann39:34
speed limit. You will lose your license. And I think that that's a great metaphor for sort of, we need to add value in an AI era by It's helping businesses to accelerate safely, right? And that means putting the kinds of governance systems and guardrails in place. When are humans in the loop? What human is accountable? What policies does the AI need to comply with? How do we make sure that we can reverse engineer decisions? All of those things, you could leave that to the IT department. And I think that's the big mistake most lawyers make. If you do that, you're going to be in discovery before you know it. You need to be in charge of raising those questions because that is a core way that we're going to add value. Just like Ben Heineman kind of scaled out the inside council revolution in an age of globalization where we put governance at the center, we need to now be scaling out governance for the AI era. And that is a huge task. I don't think most of us are prepared for, but we sure need to start focusing on. that.

Cecilia Ziniti40:44
You use the phrase AI factory to describe what companies are becoming. obviously, there's the, we talked about Amazon and then sellers of physical goods, but also digital. And this idea that now, or the reality that now of the Fortune 10, it's half tech companies, which was not the case 30 years ago. Say more, unpack that term and then. What does it mean for us going forward?

Bjarne Tellmann41:12
it's a central feature in my new book, Law in the Era of AI, which is coming out at the end of this month, actually. AI Factory, I had a professor at Harvard Business School, Marco Iansiti who wrote a book called, Competing in the Age of AI, together with Karim Lakhani who's also at the business school back in 20, it was like 2019, something like that, before generative AI was really on the scene. And they used this term AI Factory to describe, where companies were moving, what they were moving towards. And they didn't mean it as a metaphor. They meant it as a kind of almost like a structural description of how digital platforms, companies that put digital platforms at the heart of their operating model actually work. And the idea is really, you know, a self-reinforcing operating model where data kind of comes in and flows continuously through the organization. And that data is mined to generate insights to automate decisions, to improve performance at scale, to develop new use cases. And I remember reading that book and I was thinking, that is truly powerful. Like if you think about, you know, the millions of search ad auctions that happen at Google. There's no human auctioneer making decisions about that, right? There's no dispatcher at Uber who's making millions of decisions every second on what car gets matched with what passenger. All of that is digitized and it's enabled by an AI factory at the heart of those models. And the thing that is fascinating about those models is when you have an AI factory at the heart of your company, you can scale, scope, and learn at rates that are just unbelievably powerful. And by the way, it's not just digital companies, right? If you think about Walmart is a perfect example of what was once a traditional company that as a result of COVID and the crisis that they faced when all of their, you know, 10,000 or 16,000 stores were, 10,000 stores in the U.S. were shut down. They decided to put tech at the heart of their operating model. They combined their digital marketplace with their physical infrastructure and created a mode that was unbelievable. And today they just passed the $1 trillion market cap. Their PE ratio exceeds five out of the seven, magnificent seven. And so they're kind of valued as a tech company. And the point that I'm making with AI factories is as companies move towards that AI factory status, what they need out of a legal department is going to change. about how you add value by putting governance at the heart of it. You also need to just fundamentally restructure how you operate, right? If your marketing colleague, if your CMO comes to you and says, hey, you know those ads we used to run where we'd give you like two versions to consider and you'd have a week to decide what you thought about it? Well, we can now generate 400 of those and we need your answer by tomorrow. You can't just keep doing things in the same way that you've always done. them, right? You need to up your game and you need to create an AI era legal department. And in the book, I talk a lot about what does that model look like structurally? How does the technology platform look? What are some examples of companies that are doing this well already? And then how do you begin moving towards that? And of course, all of that has a knock on effect for law firms because And this is all happening at an exponential rate and it's improving as you know at an exponential rate. And I think most people don't realize what exponential means, but if computer processing power continues to double every two years or shorter period, and it's been doing it 32 times and we're now sort of in the 33rd or 34th turning of that, the implications of that for... how powerful this technology is going to be mind blowing in the next five years. And on the other side of that equation, so we have companies moving towards that, we have legal departments that are moving towards that, not because they're so insightful, but because if you don't do it, somebody's going to come in and do it for you, right? And then on the other side of that equation, you have law firms based on a pyramid model that was developed in the early 1900s by Cravath that relies on a mountain of human junior talent paying, you know, charging hourly rates for input costs using low levels of technology and constantly upping their price. You know, with clients who have manifest, you know, dissatisfaction with that model. It's kind of like I thought about it and I looked at this and I was like, this is Clayton Christensen's innovators dilemma unfold. Right.

Cecilia Ziniti46:18
100%. Yeah. I'm saying literally right now. mean, we have people use GC AI and their outside council bills go down immediately, 14%, just like, without even doing anything, this is constitutional, where people ask me, like, hey, why did you direct GC AI in-house? And I said, well, look, ultimately, the company is not, if you are selling legal services like a crevasse,

Bjarne Tellmann46:31
Yes.

Cecilia Ziniti46:43
that unit just got a lot cheaper. And so you have to live in the value add above. I mean, I've seen this transition happen relatively slowly. So what do you think happened? So play this out. It is 2030 and how are companies consuming legal services

Bjarne Tellmann46:58
So. so in short, think there's gonna be a big shakedown coming. I think what you will see is... is sort of, think that clients hire firms to do a particular job for them, right? And it's this whole notion of what Clayton Christensen calls jobs to be done theory that people hire a service or a product to do a job for them. And as soon as some other alternative comes around that can do it better, they'll fire the one and hire the other. So if you think about Nokia in 2007, cover of Fortune magazine, can anyone stop the cell phone king, right?

Cecilia Ziniti47:20
Yes.

Bjarne Tellmann47:40
made world-class handsets. And then that was also the year...

Cecilia Ziniti47:44
But it's also really better, that's other thing. I come from mobile phones, I worked on devices at Amazon, and when the first iPhone came out, it really was better because it also had the internet, it the touchscreen, it had all these things. from Tokyo were like, oh my gosh, the phone sucks. And that's to me the same thing as this hallucination idea of like, oh wow, I spotted one.

Bjarne Tellmann47:59
And that's the whole point. Well, but Because if you're Nokia, you're going to double down on the handset. you're like, the iPhone, it came out that same year, 2007, was arguably inferior. It didn't have a keyboard. It was expensive. All these things. The screen just wasn't great for a handset. What they missed was The job to be done had shifted, right? It was no longer about the phone. It was about the app store. was about the iOS infrastructure and. And so.

Cecilia Ziniti48:34
I remember it like was yesterday. We got called the iPhone of Legal AI.

Bjarne Tellmann48:40
Yes. And so like when you think about that and you think about law firms, it's kind of like the same thing. It's like, I want what you're selling me until I suddenly don't. You know, I want a nice handset until I suddenly realized actually what I want is to take a picture of myself at this restaurant and upload it into Instagram. Right. And your phone can't do that. Well, it could be the best phone in the world, but I don't just need a phone anymore. So that's one reason why I think it's going to change. think the other is.

Cecilia Ziniti48:57
Thank you.

Bjarne Tellmann49:08
The speed and scale at which legal advice is going to move in an AI enabled environment, an AI factory model, where you have agentic systems triaging legal work and sending it outside automatically at scale and speed, you cannot service that if you have that human centric pyramid model. Super hard to change. So what do I think is going to emerge? A, I do think some firms will survive. And I think there'll be boutiques in the same way that, you know, there are still tailors in London that do handcrafted suits for $10,000. There just aren't that many of them. Right. And so I think, and every firm I talked to thinks they're in the top 10. So, you know, some of them won't be right, but even the ones that do survive and are able to scale that human centric tailor made partner level advice. that we're all prepared to pay $10,000 an hour for, they're still gonna have to figure out what to do below that. they're still going have to restructure their model and technology is going to eat away at that base. Then I think you're going to find other models. think PE firms are going to corporatize some law firms. And I think that's going to be very interesting to see once you put a real CEO in place, once you find out how to incentivize the partner base to keep them there and then figure out how to capitalize a firm in a way that allows it to invest in technology and think of new ways of pricing, that will be very interesting. then lastly, I think... You're going to see what I call in my book, Swiss Army knives or sort of proto, you know, they're kind of like almost proto big fours where you put law at the center rather than accounting. And then you have a whole range of services in a modern AI enabled legal department will need consulting technology, whatever advisory around that. So, so there will be models that emerge, but I think for most firms, they're just paralyzed right now. And it's, you know, you're kind of almost like it's the irony is you won't fail because you're so bad at what you do. You will fail precisely because you are so good at what you do.

Cecilia Ziniti51:18
Yes, yes. Yeah, I was talking that like, you know, do you need operators of a horse carriage to drive a car better? Well, it's sort of helpful, but not really. Well, we are coming up on time. I wanted to end with a lightning round. What is a leader book or podcast that has shaped how you think?

Bjarne Tellmann51:40
Wow. I am an avid reader, so there are like a whole bunch of different books. I could probably never decide on one. I'll give you a couple that really have impacted me. One is called the knowledge illusion. And it's kind of all about how we actually have this illusion that we know more than we do. You know, if you ask someone, Do you understand how your toilet works? Most people will say, yeah, I know how my toilet works. But if you double click on that, do you really understand when you... pull the handle, like what happens and why doesn't the water just keep flowing out over the bowl and how do you make ceramics? And we actually know so much less than we think and yet we're capable of sending people to the moon. And the book is just fascinating because it really is all about how as a species, it's the collective hive intelligence that we have as a group that enables us to do these amazing things. But as individuals, we fool ourselves into thinking we know more than do. And the second book I would recommend is How Will You Measure Your Life? Clayton Christensen wrote just an unforgettable guide to how to think about career, how to think about your life. I recommend it to everyone graduating. I think it's an amazing book. And then the last one might be Walter Isaacson's Leonardo da Vinci, which is just such a powerful story about one of the most brilliant humans ever to have lived. And in many ways, I think it's that combination of creativity, art, science, curiosity, that in many ways I've aspired to myself throughout my life, obviously never achieving anything close to the greatness of Jim DaVinci, but I really recognize that the power of multidisciplinary thinking, of being open to ideas outside of whatever silo you happen to inhabit as being a really key element of success.

Cecilia Ziniti53:39
I love that. Yarny, this was so much fun. One last thing, if somebody give us a pitch for your book, A Law in the Era of AI.

Bjarne Tellmann53:50
so it's really just all about how clients are going to be the source of disruption, for all the reasons we've talked about, because they're moving towards AI factory status. And then what that means for the legal industry, with a lot of practical tips for general counsel, but also for law firm partners about how they should think about strategy. What can they do given, the paralysis that they face institutionally, what are some actual things that your peers are doing both on the legal department and on the, on the law firm side? And also for law schools, like what's changing there and if you work in a law school, how should you be thinking about that? So it's coming out. I'm super excited to see what people think. yeah.

Cecilia Ziniti54:31
I love it. All right. Well, hey, thanks so much for joining me. This is a fantastic conversation.

Bjarne Tellmann54:36
Thank you, I've really enjoyed it. Thanks so much.

Cecilia Ziniti54:38
That was Bjarne Tellmann CEO of FjordStream Advisors and author of Law in the Era of AI, coming out from Wiley. If you want to see how in-house teams are using AI to do better work, to be pragmatic, to be proactive, to be all the incredible things that us as lawyers for companies can be, head over to gc.ai. Follow CZ and Friends wherever you get your podcasts. Thank you, and we'll see you next time.