Over the weekend I heard a veteran of a Silicon Valley-based, Fortune 100 tech company say this:
“When I started, the legal department was 200 people … by the time I left it was 1500 people.”
When its workload increases, the corporate law function has one primary, go-to move: add people to the team. But raising headcount does not create economies of scale.
When demands exceed budget, Legal’s standard response — “Bring more work in-house” — replaces high-cost specialists in law firms with lower-cost generalists on the corporate legal staff. But either way, it’s about adding people.
And that’s a big problem as the legal system’s demands on business continue to proliferate.
1. The corporate law function’s workload is increasing.
According to the 2021 EY Law Survey, conducted with the Harvard Law School Center on the Legal Profession:
- 75% of law departments report that growth in workloads will outpace budgets,
- 76% find it challenging to manage current workloads, and
- Over the next 3 years, law departments expect workloads to increase by 25%.
2. But headcount won’t increase much.
No more than 3% over the next 3 years, according to that same 2021 EY Law Survey.
Law departments report that they can’t get budget approvals for all the additional attorneys they want to hire.
3. More law function leaders polled name “technology”, over all other cost-reduction measures, as the best tool to cut legal costs.
59% say that it offers “significant” or “very significant” potential for cost savings, far ahead of any other opportunities (2021 EY Law Survey).
4. However, actual, tangible support for legal tech investments within those companies is lacking:
- Only half of legal departments report that they’ve increased use of technology over the past 12 months (Association of Corporate Counsel Chief Legal Officer Report 2020),
- 70% of in-house counsel report that they lack adequate technology (2021 EY Law Survey), and
- 97% say they are struggling to obtain investment in legal technology (2021 EY Law Survey).
5. Finally, let’s not lose sight of three other basic measures toward economies of scale in Legal.
- Demanding outside counsel fees based on value and rejecting hourly billing — a practice which needlessly adds headcount to law firm teams to inflate fees (see my treatment of that issue here),
- Using “alternative legal service providers” (ALSPs) where they can be substituted for more expensive lawyer-intensive solutions, and
- Systematically prevent legal problems from arising in the first place. (here and here).
Just adding people to teams won’t suffice to meet increased workloads. Yet whatever lip service corporate law functions give to technology for economies of scale, they’re not funding and adopting it to any material extent. CFOs or other businesspeople need to impose spending discipline on lawyers in-house and in law firms to do-more-with-less in Legal.