Managing Legal
The Point
What’s wrong with the corporate law function? For the last 40 to 50 years C-suites and boards have taken a hands-off posture on managing Legal, leaving lawyers in-house to manage lawyers in outside firms. Most of these lawyers are pretty good at law, but they’re bad at cost control.
Lacking the will to exert cost control on their fellow attorneys in firms — and free of accountability to the C-suite or board to do otherwise — general counsels passively continue to pay for the waste inherent in the billable hour business model. And fees to law firms have increased every year for the last twenty, except for two years during the Great Recession.
Meanwhile, from 1997 to 2017, law departments went on a hiring spree of in-house talent as an “economy move” — with in-house attorneys on corporate payrolls increasing by 203%.
This Matters to Your Business
With Legal’s costs out of control, relentless compliance demands pose a dilemma:
1. C-Suites and boards have faced skyrocketing legal and regulatory requirements for decades. Spiking markedly in recent years (see Parts I, II, and III of this series).
2. Despite this, the legal profession has not materially changed the way it does its work, or the way it charges for it, for decades — except to hire many more lawyers in-house. In the words of corporate lawyer and practice advisor Bruce MacEwan, attorneys in-house and in outside firms continue “responding to the growth of scale by throwing more lawyers at it”.
This is financially unsustainable, for two reasons.
First, simply “throwing more lawyers” at exponential increases in compliance demands does not amplify the needed response at scale.
Second, the waste embedded in lawyer charges remains undiminished: Thomson Reuters reported earlier in 2022 that “in excess of 80% of matters” in the U.S. and Canada were billed based on how much time an attorney took to do the work. With all of the inefficiencies that the billable hour business model rewards and incentivizes.
Something’s got to give
Because …
The corporate law function can’t afford to be run by amateur management any longer.
An at-scale response to exponential increases in legal and regulatory demands requires disciplined systems and processes. And implementation of those systems and processes is within the expertise of proven professional managers — not of general counsels or other attorneys whose work experience has been confined to practicing law.
These proven professional managers may be found within the enterprise’s other corporate functions or business units. And, in the last five years, another source of proven professional managers has appeared: the legal operations profession.
The legal and regulatory system is unremittingly unforgiving of carelessness. Compliance failures can be catastrophic. Yet without the resilience to respond nimbly to new demands, while streamlining existing compliance efforts for at-scale impact, the enterprise risks uncontrolled spending. The corporate law function is stumbling into a future that is neither operationally sound nor financially viable — and the answer to this dilemma is proven professional management.