As more corporate law departments seek to bring more work in-house, outside law firms eager for business may have to make a stronger value proposition
More than two-thirds (69%) of General Counsel report they are under moderate to significant cost pressures from their business leaders. At the same time, heightened regulatory scrutiny and organic company growth are keeping legal needs on the rise. This means corporate law departments will be on the hunt to reassess how they are managing legal work to best find the balance between company protection and cost control.
In Thomson Reuters Market Insight’s latest research with General Counsel and corporate law department leaders, 68% said they were looking to bring work in-house over the next 12 months. This puts in-sourcing second only to process efficiency as the top tactic that GCs said they would be employing to control costs throughout 2023.
Even as spend optimism remains positive, buyers are under substantial pressure from their business leaders to contain costs.
The mobility of work—work buyers are willing to take on themselves, move to a lower cost provider, or move to an ALSP—is a trend law firms can either view as an opportunity or threat. Partnering with clients on efficiency and better management of legal matters can position a firm to win a larger share of a client’s legal work.
This shift to bring work in-house isn’t necessarily a new tactic; however, in the last 12 months, there has been a significant shift in legal budget allocations. Less than 60% of corporate legal budgets are currently allocated to external providers — a new low over the last five years.
The level of legal spend among corporate law departments
Clients aren’t only talking about moving work in-house, it’s a process that is already underway.
How law firms can leverage their advantages
It’s undisputed that outside law firms bring high-quality expertise and regulatory know-how to the table. That said, many clients are quick to point out a few qualities in which their own internal teams prove to be more advanced than the lawyers at the outside firms that clients use most.
When it comes to business savviness and efficiency, many GCs say their own internal teams are more advanced — ratcheting the pressure on law firms to up their game in these areas in order to stay in step with their clients.
It’s undisputed that outside counsel bring high-quality expertise and regulatory know-how to the table. That said, buyers are quick to point out a few qualities where their own internal teams are more advanced than the lawyers at the firms that they use most.
When it comes to business savviness and efficiency, General Counsel say their own internal teams are more advanced — putting the pressure on law firms to up their game in these areas in order to stay in step with their clients.
Business savviness is a perennial topic in our research with General Counsel. It’s one of the strongest drivers of client satisfaction, yet is an area where many law firms are — at best — inconsistent in their delivery. On average, legal services buyers rate the firm they use the most an 8.4 out of 10 in terms of their business understanding. Not a tragic score, but still one containing plenty of room for improvement, especially given the fact that more than half of GCs say their internal teams have the advantage when it comes to business savviness.
As one GC in the technology/media/telecom industry replied when asked about what they wanted to see from their outside law firms:
“Ensuring that the advice provided to the in-house counsel was easy-made, business facing. Quite often you will get back in-house advice and you have to translate it to the business, so making advice more business facing so the business understands it.”
Another GC, in government services, advised outside counsel to “talk more widely about our business plans and ambitions, and then to use that as a platform to explore things they could do to help me achieve them.”
Not only does business savviness help provide more actionable advice for clients, it also has an impact on perceptions of efficiency.
“They [outside counsel] should be a bit more commercial at times rather than showing off. I say this because they have a tendency to over-comment on drafting points which have no impact on the legal documents,” noted one legal leader in the banking sector. “In other words, they need to think about what the client wants to achieve efficiency and focus their comments more on legal points rather than drafting points, unless it has an impact on the legal documents.”
Finally, a law department leader in the energy industry said: “I think they could be more cost efficient. Sometimes they do well on matters that really didn’t require that much attention. So, I just it’s a commercial element of paying attention to what really matters for the client.”
Efficiency — on its own — fares worse when it comes to how clients rate the law firms that they use the most. On average, firms receive an 8.2 out of 10; which, given the push for efficiency on the minds of corporate law department leaders, is potentially a deal-killer to being hired.
With budgets under scrutiny and many GCs willing and able to move their legal work, law firms need to remember that one competitor with which they often have to contend is in fact, the client itself. That said, those outside law firms that are able to demonstrate a more efficient approach to managing legal work and are able to help corporate law departments become more streamlined in their own operations will be better positioned to win the work that does remain with outside counsel.
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