This article was originally published in Corporate Counsel.
Corporate legal departments and law firms must have tools and processes in place so teams can work efficiently despite being distributed geographically.
The impact of the novel coronavirus cannot be overstated. There’s been tremendous discussion about the myriad ways COVID-19 is changing the world economy, and I suspect that impact will extend to the legal industry in a long-standing way. To be fair, COVID-19 accelerated some trends we were already seeing, but this increased speed could cause several fundamental changes in the way law is practiced.
One of the largest impacts will be increased interest in benchmarking. I’ve been beating this drum for a while now, writing about the benefits of benchmarking and the importance of standardizing legal data to improve the quality of that benchmarking. But with an economy in recession, corporate legal departments (CLDs) must get more sophisticated with regard to how they manage rates, AFAs, and selection of outside counsel. Even though CLD decisions along these lines are rarely second-guessed, CLDs should shoot to be able to produce the kind of objective, statistical data, including benchmarking data, that would assure a skeptical third-party auditor that the department was run like a business. That is the best way for CLDs to demonstrate they are achieving what internal business clients are asking for, which is not only legal expertise but excellence in the business aspect of what they do.
Let’s take a look at a few other trends COVID-19 is likely to spark:
Uncoupling of expertise and location: Historically speaking, if you wanted the “best attorneys,” you had to go to the big cities: New York, Los Angeles, San Francisco. These areas were home to “aristocratic” lawyers. They charged the highest fees and were fed the highest-profile work, which further reinforced their aristocracy. There have long been law firms who maintain headquarters in those top-tier cities to reinforce their image, while sending a lot of work to excellent attorneys in noncoastal areas where rates are lower, often passing those savings onto the client. Those firms proved that attorneys don’t have to be located in Manhattan in order to practice at the top of their license. Now, the rapid shift to telework could make this tactic more common.
Greater emphasis on processes: The pandemic is also highlighting the importance of having better ways for teams to work together. Many CLDs have hit the point of diminishing returns on how much money they can save through “labor arbitrage”: moving work from higher-cost to lower-cost providers. To go further, they have to revamp the way the work is done, not just who does it. This is especially true in contract management. Manually hunting for documents in your email and worrying they might be permanently lost or deleted is unacceptable. If you can only find a document after a fire drill or if it takes a month to approve a one-page contract, this is exactly the kind of embarrassing service that translates into the perception that legal departments are wasteful and inefficient.
Convergence and the rise of insourcing: Many clients of my company—Wolters Kluwer’s ELM Solutions—are initiating “convergence” efforts. By converging a larger amount of work into fewer outside providers, these CLDs expect a number of benefits, including volume discounts and having firms that are better aligned with the client organization. In tough financial times, many CLDs that are doing business with hundreds of firms could lower that number to as few as 15 for 80% of the work. As this convergence takes place, I also expect many CLDs to bring increased discipline to the decision of whether to outsource at all versus handling things internally, which at this point usually happens only informally, if at all.
Insourcing isn’t new, but it has led to significant change as to how legal business gets done over the past several years. While insourcing may not spike immediately as many CLDs are evaluating existing headcount, I do expect that with the analysis done, in the long term they will likely insource more. Not only does it save money, but it gives law departments more direct control over and communication with the people working for them.
The future of corporate legal: The COVID-19 virus is already transforming the way legal work is done. The question is whether or when things will go back to “normal”—and what that normal will look like. The current economic recession is projected to be worse than the 2008 financial crash. CLDs and law firms will likely have no choice but to engage in many of the measures outlined here, from benchmarking to insourcing. At the same time, they must have tools and processes in place so teams can work efficiently despite being distributed geographically, a trend that itself may have a long-lasting impact on rates.