A challenging economic climate is pushing legal operations chiefs to enforce more discipline on corporate legal departments, opening the door for conflicts with rank-and-file attorneys.
The dilemma that many leaders of legal operations face is the pressure to cut spending across legal functions as they anticipate higher costs for outside counsel and other mission-critical operations.
Legal operations chiefs are typically responsible for the modernization of a legal department’s workflow technology, including billing systems and policies that guide outside counsel spending.
Additional oversight mechanisms might cause friction with in-house lawyers who are accustomed to making their own decisions about work carried out by outside legal firms, analysts and companies say.
Brad Blickstein, a principal at consulting firm the Blickstein Group, suggests a wider mandate to keep costs in line – the result of economic circumstances – might give legal operations leaders new levers to advance efficiency initiatives, including the ways legal departments contract and source outside services.
“In-house counsel often push back, but will be less able to do so in tough economic times,” Blickstein told Legal Dive. “In terms of reducing costs from outside counsel, legal operations professionals have not been pulling the levers they have.”
Efficiency mandate
A December 2022 survey of legal operations professionals by the Blickstein Group, in collaboration with Deloitte, found that 63% of legal operations chiefs expect their costs to go up and 80% expect their outside law firms to increase rates.
In addition, nearly two-thirds of 107 legal departments that participated in a survey carried out by Thomson Reuters in September and October 2022 indicated that the volume of work handled by their teams had increased in the last year, while nearly 60% said their budgets had either stayed the same or decreased.
The onus, therefore, is on legal operations chiefs to help companies deliver on both legal and business outcomes while implementing more efficient technology-enabled working.
Cultural shifts
Outside counsel costs have long been a significant part of legal departments’ budgets. Annual spending on outside legal counsel “far exceeds spending on in-house legal technology, alternative legal service providers or internal staff costs,” according to the Thomson Reuters Survey.
Among survey respondents, 28% reported that outside counsel spend ranged from $1 million to $5 million, while 44% said it cost them more than $10 million.
The transition to new ways of working spearheaded by legal operations chiefs could result in some short-term tension with in-house lawyers and others during the adaptation period, said Brad Rogers, senior vice president of strategy and growth at legal workflow and business automation software firm Onit.
“There’s been a massive tooling up in the capabilities of technology in legal departments in the past 10 years,” he said. “There are tasks in the contract process and the discovery process that can be done quite readily by technology.”
One source of tension could be in billing. A key lever to control expenses are automated billing systems that set rules around outside counsel spending. “The system itself will identify when [the law firm is] out of compliance,” said Blickstein.
That has implications for the relationship between the in-house lawyers who work with the firms and the operations chief that’s reading the software reports.
Oversight on outside counsel spending
Companies might also establish lists of preferred outside counsel as a cost-control measure, but adoption could get challenged when in-house lawyers prefer to make those decisions based on established relationships.
“When you have long-standing relationships with law firms and relationship partners and they know and understand your business deeply, it’s very reasonable and strategic to want to continue to work with them despite rate increases or despite changing business conditions,” said Kelly Mickelson, head of legal operations at Thomson Reuters.
Thomson Reuters, she said, aims to explain the goals of the preferred-panel strategy instead of imposing roadblocks on all outside-counsel transactions that appear to be noncompliant.
“We actually chose not to overrule anyone or play hardball unnecessarily,” said Mickelson, who noted that in these cases, legal operations teams would typically enter into a discussion with the lawyer to understand the rationale behind their decisions.
Mandates gain more weight
As economic pressures continue to bear on legal departments, the need to impose more operational oversight and cost controls – a mandate advanced by legal operations teams and the broader organization, usually from the standpoint of the CFO – is gaining more weight, said Blickstein. Legal operations teams that are successful are those that can get buy-in from the general counsel, he noted.
“The legal operations people that succeed are the ones that have the habit of speaking with the voice of the general counsel,” he said. “Ultimately, law departments are working in more professional ways, and law firms and lawyers are focusing on doing legal work and not as much on the process.”
Becoming more efficient, however, doesn’t necessarily mean doing more with less. Technology, coupled with capabilities to outsource some tasks to alternative legal services providers, and in some cases even offshore legal services providers, means the process architecture around each task could be reimagined, suggested Onit’s Rogers.
“There's a lot of opportunity here to look at your outside counsel spend and I wouldn't say minimize it, I would say optimize it, because in some cases, you should be outsourcing more to outside counsel,” he said. “Thoughtfully understanding the nature and trends of your business – with the data delivered by technologies – is where legal operations can shine.”
