What a week for Freshfields. For a firm looking to spin off its multibillion-dollar legal AI business, the first rule is simple which is not to dismiss some of the richest sovereign funds on earth in writing.
Freshfields has managed to do that without checking the email distribution list between two of the senior lawyers in the firm, revealing a plan to carve out is AI unit and expressing some remarkably candid views about Middle Eastern money.
The result, at this stage, was not any deal but an ‘unreserved’ apology.
The Billion-Dollar Brainstorm
It started with a Friday email tha global managing partner Alan Mason (pictured) wrote to Ethan Klingsberg, co-head of Freshfields’ US corporate and M&A practice, about turning Freshfields Lab, the firm’s in-house AI unit, into a separate legal entity.
That entity could take outside investors, or even float. Mason pointed to legal tech valuations of 25 to 40 times revenue and name-checked Harvey and Legora.
He said two Wall Street banks had already come knocking and an apparently breathless Klingsberg reckoned the business could be “worth billions.”
Klingsberg (pictured, right) also had views on who should be invited to the cap table. The firm should pitch “sophisticated investors that are respected by the rest of the investor community for their leadership.” That, he added, “probably” ruled out “Middle Eastern sovereign wealth money.”
Oops.
Then, over the weekend, Mason forwarded the entire thread to a distribution list helpfully named “$Freshfields All.” The email was recalled. The recall button worked about as well as it always does – with screenshots taken, and the Financial Times had the story within days.
Damage Control in the Desert
For most businesses, sniffing at Gulf capital is a questionable fundraising strategy but for Freshfields, it is closer to a diplomatic incident given the firm’s reach via offices in Dubai, Abu Dhabi, Bahrain and Riyadh.
Its own website describes it as the “trusted choice for government and the private sector in the UAE for decades,” with around 50 fee earners in the UAE alone. As recently as January it was advising the Abu Dhabi Investment Authority on a continuation-vehicle deal. Sovereign wealth funds aren’t a side line for Freshfields in the Gulf; they are the business.
Cue Monday’s cleanup, delivered via the FT:
“We apologise unreservedly for a comment made about Middle Eastern sovereign wealth investors… the comment does not reflect the position or beliefs of the firm or those participating in that email exchange, and we sincerely regret the offence caused,” the firm said.
“We hold our clients across the Middle East in the highest regard and deeply value the longstanding relationships and trust we have built in the region.”
The Bigger Story
Underneath the embarrassment is something more interesting. A Magic Circle firm’s leadership is seriously pricing its in-house AI capability against venture-backed legal tech valuations. They are talking to banks about it.
It raises interesting questions about who owns the IP the associates’ work helped to build and how do the proceeds get split? And can a firm sell clients the technology that lets them need fewer lawyers?
Those are billion-dollar questions. In the meantime, while major law firms like Freshfields pour millions into generative AI, partners might want to invest in a far older and cheaper piece of technology – a two-minute send delay in Outlook.
