Demands on corporate Legal functions increasingly exceed their budgets, driven by proliferating regulatory and litigation pressures, and due to persistent needs for contracting, compliance, and day-to-day advice (see here and here). Meanwhile, survey data show that 88% of general counsel plan to reduce the overall cost of Legal over the next three years, with 50% reporting that those reductions will come to 20% or more.
Something’s got to give.
Without capable professional management, Legal will continue to overpay for inefficient use of its resources, risking two likely results:
1. Busted budgets in the Legal function, and
2. Lapses in protection from liability and regulatory exposure.
This Matters to Your Business
Performance in corporate functions like finance, IT, operations, and HR depends on sound management of their business processes. In the Year 2023 that means that they do much of their recurring work in systems.
But corporate Legal, for the most part, de-emphasizes systems. With minor exceptions, Legal’s efforts in-house and in law firms largely center on throwing lawyer headcount at problems. The more problems, the more headcount — in-house or outside — is needed.
The in-house law function came into its own over the past three or four decades. Instead of assigning law firm attorneys to do the work on billed hours, full-time salaried attorneys do the work. What leading former general counsel Jeff Carr has called “labor arbitrage”, or “charging lower-cost hours to solve legal problems”.
What’s so bad about that?
Nothing’s bad about it for work that calls for individual lawyers to analyze the law or appear in court. In my career as a practicing attorney both in law firms and in-house — and as a general manager at Whirlpool and an M&A executive at GE — I found that most lawyers in firms and in-house were well-qualified for such tasks.
The problem comes up where routine, recurring operations are so complex, and their actions so numerous, that they call for business processes in order to perform them at scale. Only a tiny few general counsel have ever managed to a P&L. So when demands on Legal increase, they revert to what they know: raising headcount instead of creating disciplined systems.
While the vast majority of attorneys working in-house and in law firms are pretty good at traditional legal functions, very few of them are experienced managers. After careers where they’ve consistently responded to increased demand with increased headcount, few are any good at business process management.
From a recent article by Liam Brown and Steve Harmon of Elevate, a company focused on managing Legal, what insiders call “legal operations”:
” … Proficiency in legal operations is as critical as legal acumen for modern general counsel and their law department colleagues … Historically, the legal profession has not shared this view … Many — perhaps most — corporate counsel do not have the depth of knowledge necessary to ensure that their law department operates so proactively.”
In the next article I will take up Liam Brown’s and Steve Harmon’s view of how to bring management discipline into the corporate Legal function.