The corporate segment of the legal marketplace is a buyer’s market, and they are driving change. Legal consumers were once content to proscribe cost-controls including discounts, staffing limitations, “most favored nation” rates, and travel. That was followed by more aggressive steps including variations on fixed-fee arrangements, requests for proposals (RFP’s), firm compression, and other competitive processes. Since the financial crisis of 2007, disaggregation of ‘legal’ tasks—peeling functions away from law firms and sourcing them elsewhere—has increased dramatically in volume and complexity. ALM’s recently released Intelligence Report revealed that 73% of corporate legal work is now performed in-house with another 2%–and growing—sourced to legal service providers. The service provider (read: non-law firm) percentage would be considerably higher were it to include legal operations (legal ops) in corporate legal departments.
The corporate segment of the legal marketplace has a new buyer/seller dynamic. Buyers are increasingly seeking alternatives to law firms except for a narrow band of high-value matters that remain predominantly sourced to a handful of brand-differentiated firms—law’s ‘one-percent.’ For everyone else, the traditional partnership model– sustained by high rates, monstrous hours, and an absence of ‘outside’ competition– is fraying in a marketplace that is increasingly leveraging technology and process to drive more efficient legal delivery. And while many partners in those firms still earn princely sums, it’s only a matter of time before they experience financial pain.
It is against this backdrop that approximately 30 General Counsel of major corporations banded together to form AdvanceLaw. The group’s stated purpose is to “improve the legal market…(and) provide customized support to each of our GCs, who view us as an extension of their in-house teams.” AdvanceLaw recently announced the launch of ‘The GC Thought Leaders Experiment,’ a joint data collection initiative to determine what works and what does not with the groups’ outside firms. The intent is to create more effective, better-aligned relationships between corporate departments and their shrinking list of panel firms.
The GC Thought Leaders Experiment is noteworthy for several reasons: (1) collaboration among participating GC’s; (2) affirmative steps by legal consumers to improve the legal market; (3) substituting data, results, and meaningful metrics for pedigree, hearsay, and inertia as the bases for gauging law firm effectiveness and to improve the client/provider relationship; and (4) willingness to share data to create a better market. The experiment will be conducted over an 18-month period and will no doubt provide useful benchmarks, insights, and “lessons learned” for participants. The goal is to enable consortium members to make more informed decisions about firm selection and engagement.
This is a great first step to ‘improve the legal market ’—even if it is initiated by buyers, not sellers. Still, the “Experiment” is premised on the assumption that the relationship between corporate legal departments and traditional partnership model law firms is one worth preserving and improving. GC’s might ask themselves, ‘Is the traditional partnership model sustainable and do we need firms when we can access individual partners?’
A Suggestion to GC Thought Leaders: Take a Portfolio View of What Would Work
The real ‘Experiment’ for GC’s would be to approach the company’s legal needs from a blank slate—analyzing when, how, and on what terms to use in-house resources, service providers, firms, and/or other professional service organizations (e.g. the Big Four accounting firms). This is not a ‘one size fits all’ exercise. It requires participants to take a fresh approach to legal delivery. For starters, they should jettison some familiar legal industry terms and constructs– the ‘in-house’/firm distinction; the law firm/service provider one, and, most importantly, appreciate that legal delivery is now comprised of legal practice and the business of law. Also, they should view their legal portfolio in relation to corporate objectives rather as a legal silo. ‘Legal’ resources should be deployed—as they are in a handful of forward-thinking corporate legal departments—to play defense and offense. That means that whatever combination of resources performs a company’s ‘legal’ work, it has two missions: (1) to defend the client; and (2) to act as a business partner to advance enterprise objectives within risk parameters and legal boundaries. The Experiment should also identify ways that legal practice—the core tasks that lawyers should do—is leveraged by legal delivery—the business of providing legal services. That means having an open mind about the most effective way to acquire and deploy legal expertise, technology, process and project management, and other professionals and paraprofessionals.
Legal consumers no longer regard law firms as their default provider because of a three overarching developments: advances in technology, globalization, and post-financial crisis belt synching. Law firms have been slow to adapt to the new buy/sell dynamic that has been created by the confluence of those factors. Legal consumers have responded to law firm stasis by taking steps to effect change in legal delivery. They have new expectations of their providers—in-house or outsourced. This is not simply a matter of ‘more for less;’ it is a paradigmatic shift in how, when, and from what structures legal services are most effectively delivered. It is about lawyers being more closely aligned with their clients; that requires that legal providers have a deeper knowledge of the client’s business and take a more holistic role in advancing its goals. That requires lawyers—and others in legal delivery— to serve a dual role: defend and advance client interests. It also means that effective legal service should forestall litigation, investigations, and other costly, brand-damaging events. There’s great value in successfully defending company interests. But proactive measures designed to minimize risk can be even more significant. Consider, for example, if United’s Legal Department had detected the operations glitch that resulted in the ticket-holding passenger from being hauled off the plane. Risk mitigation should be front and center in the discussion of effective legal delivery. And so too should metrics be put in place to measure the legal service team’s impact on advancing corporate business objectives. These are all important gauges of effective legal delivery that go way beyond adherence to a legal budget.
Legal delivery is undergoing a period of unprecedented change. Consumers have more options than ever. The smart money—and lots of it—is investing in technology that constricts legal practice and expands legal delivery. Technology is transforming legal delivery from a ‘brute force,’ labor intensive industry to a tech and process-enabled one.
GC’s willing to invest time and resources can create significant business impact. This requires that they jettison traditional distinctions between corporate departments and outsourced legal service providers. Instead, they examine their goals to determine what resources are required to defend the enterprise while simultaneously partnering with it to advance business objectives. The reconfiguration exercise will require commitment, creativity, and abandoning traditional conceptions of provider sources. It will be a challenging task, but the rewards are great and the resources are available to make it a success. It’s a true ‘GC Thought Leaders Experiment’ with a huge ROI and an opportunity to ‘improve the legal market’ in an impactful way.
This post was originally published on Forbes.com.