Wednesday, 08 Sep 2010
Related News
Most Read
Survey: Is bigger better?
02 February 2009
A common response to cost pressures among general counsel is to grow the size of the legal department and retain more work in-house. Research by Legal Week magazine in the UK has found that, on average, the proportion of legal work retained in-house has grown from 42% to 51% over the past five years, and the results of Strategic Legal Advisor's survey suggest that this figure will continue to rise. Twenty-two percent of respondents say that the size of their departments will grow (11% say significantly so), compared with just 4% who expect a decline in head
count. See graph
The growth in the proportion of work handled in-house is, in part, due to technology allowing this to happen by enhancing departments' ability to project manage internally and to store and access the required know-how. See graph
This, however, is not generally regarded as a panacea to high external legal fees and could even prove to be counter-productive. “People often try to get more in-house resource in order to replace external counsel – but that is a short-term fix,” says Mark Prebble, of Lawyers in Business. “A number of in-house teams have been recruiting specialists in order to save on hourly costs, but it is a bit crude and can cause problems further down the line if the specialist work dries up. It can also play havoc with internal remuneration because specialists usually have to be paid more than generalists and they can get itchy feet more quickly in a downturn if cutbacks are in the offing.
“Just keeping work in-house doesn't solve the problem – the legal team grows as a cost centre and the pressure grows to cut your budget, even though it is cheaper than external spend. You need to maintain a good balance between keeping work inside and sending it out. It is important to ask: is growing the in-house team sustainable?”
If in-house teams are to remain sustainable, then in many instances it is extremely important that the in-house team improves its influence and visibility within the organisation it serves. This is still not the case in many companies and improving the influence of the legal department is the second-biggest concern of respondents to the survey, being cited by more than half (56%) of those departments surveyed. Meanwhile, a significant minority (26%) said that defending their department from cutbacks was one of their three leading concerns for 2009. See graph.
“The emphasis has to be on showing some value, so that defending the in-house team’s existence becomes less onerous,” says Prebble. “Once the department is valued, then there is less opportunity for cutbacks. The legal team is part of a complicated jigsaw – you need regular feedback about what can be improved. However, it can be quite a sensitive area when you step outside your area of expertise. It is all about regular dialogue with the recipients of the service by asking for feedback.”
A common theme among experienced in-house consultants is that departments need to re-assess what they do and where they add value – making time and freeing up resources by looking at what the department does and consider whether it could be done more effectively elsewhere.
“Other parts of the business should do 20%-30% of department activity,” says Prebble. “Too many legal departments take on activities that belong elsewhere in the business – that creates a resource crunch that needs to be constructively addressed. For example, is raising a contract fundamentally a business issue or a legal issue? It should be a business activity, but it gets dismissed as ‘small print’. That has got worse in recent years as companies involved the legal department in more and more issues.”
Getting bogged down in unnecessary day-to-day work makes it more difficult still for heads of legal to be taken seriously at board level, according to Paul Gilbert, director of Lawbook Consulting and former head of legal at Cheltenham & Gloucester.
“General counsel need to find a way to develop a strategic brief if they are not to remain undervalued.” he says. “Most teams are hopelessly under-resourced for the output that they try to deliver. Therefore, they don't have the time for the strategic activity they need to do – therefore, they go unnoticed by the senior executives. Middle management think you're great, but the top table don't see you. It is a real chicken and egg situation, but I believe that they have the wherewithal to do it. Legal teams need to step back and determine which of their work is valuable, and which parts of the work could be managed away.”
This is also an area in which law firms could help. Another reason for many general counsel remaining outside the loop at their companies is their apparent failure to control costs or to provide budgetary certainty. There is a clear opportunity for some law firms to steal a march on their rivals here.
“The importance of growing the role and influence of the legal department is a reflection of the fact that we are seeing a generational change among GCs,” says Tony Williams, principal at Jomati Consultants. "The role they see for themselves has changed from being 'managing partner' of an internal law firm to being part of the executive team with a strategic role. That's a fundamental change that I don't think many law firms have caught up with yet.”
And one way they could achieve this is to fundamentally rethink how they value and charge for legal services. The organisation, career structure and reward system of law firms are not very well suited to a fixed or value-based fee world, but if clients really do push the envelope on abolishing the billable hour, then it may force some very radical restructuring onto the profession.
The recession may well continue into 2010/2011 when the Legal Services Act comes into force, enabling law firms – and others – to provide legal services from different structures and in different ways to now. There are already surprisingly high levels of enthusiasm for using alternative sources of legal advice such as Legal Process Outsourcers (LPOs), which SLA will look at in more detail next month.
By the time the upturn comes, the legal services landscape is very likely to have changed forever.
As Ted Burke, chief executive at Freshfields Bruckhaus Deringer, told the FT in January: “We could be facing a true paradigm shift.”
For survey demographics, please click on graph 1 and graph 2.
count. See graphThe growth in the proportion of work handled in-house is, in part, due to technology allowing this to happen by enhancing departments' ability to project manage internally and to store and access the required know-how. See graph
This, however, is not generally regarded as a panacea to high external legal fees and could even prove to be counter-productive. “People often try to get more in-house resource in order to replace external counsel – but that is a short-term fix,” says Mark Prebble, of Lawyers in Business. “A number of in-house teams have been recruiting specialists in order to save on hourly costs, but it is a bit crude and can cause problems further down the line if the specialist work dries up. It can also play havoc with internal remuneration because specialists usually have to be paid more than generalists and they can get itchy feet more quickly in a downturn if cutbacks are in the offing.
“Just keeping work in-house doesn't solve the problem – the legal team grows as a cost centre and the pressure grows to cut your budget, even though it is cheaper than external spend. You need to maintain a good balance between keeping work inside and sending it out. It is important to ask: is growing the in-house team sustainable?”
If in-house teams are to remain sustainable, then in many instances it is extremely important that the in-house team improves its influence and visibility within the organisation it serves. This is still not the case in many companies and improving the influence of the legal department is the second-biggest concern of respondents to the survey, being cited by more than half (56%) of those departments surveyed. Meanwhile, a significant minority (26%) said that defending their department from cutbacks was one of their three leading concerns for 2009. See graph.
“The emphasis has to be on showing some value, so that defending the in-house team’s existence becomes less onerous,” says Prebble. “Once the department is valued, then there is less opportunity for cutbacks. The legal team is part of a complicated jigsaw – you need regular feedback about what can be improved. However, it can be quite a sensitive area when you step outside your area of expertise. It is all about regular dialogue with the recipients of the service by asking for feedback.”
A common theme among experienced in-house consultants is that departments need to re-assess what they do and where they add value – making time and freeing up resources by looking at what the department does and consider whether it could be done more effectively elsewhere.
“Other parts of the business should do 20%-30% of department activity,” says Prebble. “Too many legal departments take on activities that belong elsewhere in the business – that creates a resource crunch that needs to be constructively addressed. For example, is raising a contract fundamentally a business issue or a legal issue? It should be a business activity, but it gets dismissed as ‘small print’. That has got worse in recent years as companies involved the legal department in more and more issues.”
Getting bogged down in unnecessary day-to-day work makes it more difficult still for heads of legal to be taken seriously at board level, according to Paul Gilbert, director of Lawbook Consulting and former head of legal at Cheltenham & Gloucester.
“General counsel need to find a way to develop a strategic brief if they are not to remain undervalued.” he says. “Most teams are hopelessly under-resourced for the output that they try to deliver. Therefore, they don't have the time for the strategic activity they need to do – therefore, they go unnoticed by the senior executives. Middle management think you're great, but the top table don't see you. It is a real chicken and egg situation, but I believe that they have the wherewithal to do it. Legal teams need to step back and determine which of their work is valuable, and which parts of the work could be managed away.”
This is also an area in which law firms could help. Another reason for many general counsel remaining outside the loop at their companies is their apparent failure to control costs or to provide budgetary certainty. There is a clear opportunity for some law firms to steal a march on their rivals here.
“The importance of growing the role and influence of the legal department is a reflection of the fact that we are seeing a generational change among GCs,” says Tony Williams, principal at Jomati Consultants. "The role they see for themselves has changed from being 'managing partner' of an internal law firm to being part of the executive team with a strategic role. That's a fundamental change that I don't think many law firms have caught up with yet.”
And one way they could achieve this is to fundamentally rethink how they value and charge for legal services. The organisation, career structure and reward system of law firms are not very well suited to a fixed or value-based fee world, but if clients really do push the envelope on abolishing the billable hour, then it may force some very radical restructuring onto the profession.
The recession may well continue into 2010/2011 when the Legal Services Act comes into force, enabling law firms – and others – to provide legal services from different structures and in different ways to now. There are already surprisingly high levels of enthusiasm for using alternative sources of legal advice such as Legal Process Outsourcers (LPOs), which SLA will look at in more detail next month.
By the time the upturn comes, the legal services landscape is very likely to have changed forever.
As Ted Burke, chief executive at Freshfields Bruckhaus Deringer, told the FT in January: “We could be facing a true paradigm shift.”
For survey demographics, please click on graph 1 and graph 2.
