D. Casey Flaherty, legal technology consultancy LexFusion’s Chief Strategy Officer, released an important essay earlier this month. Along with colleagues, he conferred with 435 corporate law departments and 250 law firms in 2022. And with 327 corporate law departments and 240 law firms in 2021. His conclusions:
1. For most companies, the legal system’s demands on corporate Legal exceed that business function’s capabilities to respond. And the gap between those demands and those capabilities have relentlessly widened. So some tasks vital to a company’s legal safety go begging, exposing those companies to potentially catastrophic litigation and regulatory exposure.
2. Meanwhile, corporate Legal has been overwhelmed meeting current needs so that it can’t take the time and money to invest in better ways to do its work. Preoccupied with urgent tactical matters, Legal drops the ball on important long-term strategic needs. So it fails to increase its capabilities at scale, directing almost all of its resources to putting out fires.
3. Despite this precarious mismatch between resources and needs, corporate Legal’s leaders say that they intend, by a large majority, to reduce the budget of their function. Without explaining how they intend to scale capacity to keep pace with law’s relentless, increasing requirements. This is, as Flaherty puts it, “bonkers”.
This Matters to Your Business
1. Flaherty elaborates as follows on Legal’s requirements-to-capabilities gap — and the danger it poses to companies:
“This is not to dismiss many worthwhile achievements in legal and operational excellence, especially outstanding individual contributions and elegant, [Legal] department-level innovations in service delivery. But it is to say, bluntly, that most of what exists at the enterprise level is painfully insufficient [emphasis supplied by Mr. Flaherty].
“The delta between the business demands on law departments and the capacity for law departments to meet those demands is only increasing, as are the consequences thereof.
” … Most law departments are poorly calibrated to meet current needs of their business at scale or pace. Most … are even more ill-prepared for the wars to come ….”
2. Flaherty observes the following about legal demands on the business, requiring Legal to do strategic, at-scale building of its capabilities simply to keep up:
” … The complexity of the external operating environment continues to explode … in a rapidly globalizing world, every unit of economic growth carries with it an ever larger burden of legal complexity. Thus, over time, assessing the benefits and protections of law becomes correspondingly more expensive.
“Our law-thick world thickens by the day, and to the extent we failed to invest in new systems to keep pace with the growing cost and complexity of properly managing our legal affairs, operational risks accumulate.”
3. In the context of this dilemma, Mr. Flaherty expresses bafflement at what chief legal officers are saying:
“The 2021 EY Law Survey found that 88% of general counsel are planning to reduce the overall cost of the legal function over the next three years, with 50% saying that those reductions will be 20% or more. (This is, in short, bonkers ….) And this was before recessionary fears took hold.”
First, Flaherty’s description of the stark mismatch between Legal’s capabilities and the legal system’s demands on business is based on solid evidence. Companies are exposed to danger because of it.
Second, the gap between what Legal provides, and the protection the enterprise needs from Legal is a management problem. Chief legal officers, general counsel, and others in the legal profession are trained in legal analysis and representation, but they are not good at managing (a point I’ve made elsewhere in these posts).
This management problem calls for professional, proven management talent to solve it. We should leave legal and analysis and representation to those who are trained and experienced in those disciplines: licensed attorneys. And we assign the problem of Legal budgeting, organizing, and development of systems to those who are skilled in those things: experienced, proven business managers.