Corporate legal teams, under the gun to cut costs and empowered by powerfully simple technology, are increasingly in-housing work that was once sent to outside counsel.
That’s the takeaway from the 2020 Law Firms in Transition report, recently published by Altman Weil. The survey, released every year since 2009, tracks how law firms are responding to industry challenges—often showing that law firm “transitions” are slow at best. For the latest report, conducted this March and April, the consulting firm surveyed managing partners and chairs at 182 firms with 50 or more attorneys, including over one quarter of the AmLaw 200.
In-House Legal Is the Leading Source of Nontraditional Law Firm Competition
The Altman Weil report begins with the assertion that “law firms in general have not demonstrated the will to change their legal service delivery model to increase the value being delivered to clients.”
It’s not as though clients have not been urging change, however. For years, clients, particularly larger corporate clients, have pressured law firms to increase efficiencies, reduce costs, and bring more predictability to their services—particularly when it comes to routine, commodifiable legal work. And over a decade of flat growth in the demand for legal services, most firms have responded to these demands not by improving service delivery, but by raising their rates. Indeed, rate increases have been one of the main drivers of firm revenue growth since the Great Recession—though they have also led to ever-decreasing realization rates as a result.
The irony isn’t lost on law firm leadership. From the Altman Weil survey:
In every year from 2013 to 2020, managing partners gave law firms mediocre marks (a median rating of 5 on a 10-point scale) in terms of their seriousness about changing the service model. The low marks are jarring when one considers that managing partners recognize that the market has changed substantially over the last ten years and that firms need to change to stay competitive.
Only 22% of respondent firms have sought to “systematically reengineer their work processes” to improve practice efficiencies, the report notes, and “only 31% have provided ongoing project management training and support to their attorneys.”
The result: “Less than 2% of firm leaders strongly agree that law firms have changed as much as was needed, which invited many clients to look for answers elsewhere.”
But where is elsewhere?
For many corporate clients, elsewhere is in-house. Corporate legal departments have increasingly realized that, with the right tools, a significant percentage of legal work can be performed in-house, with greater speed, lower cost, and more control than if it were entirely outsourced. As Katie Lynch, director of legal support at Veolia North America told Logikcull just a year ago, “The trend in the past was to go outside counsel and have a lean in-house team. Now companies are realizing that they can hire their own legal professionals and have those folks driving things.”
These shifts aren’t being articulated just by in-house teams, however. They’re being felt in nearly seven out of every ten law firms.
This is certainly true in the eDiscovery sphere, where Logikcull’s 2020 Corporate In-Housing Survey shows medium and large corporate legal teams handling two thirds of their discovery process entirely in-house currently—and that number is expected to nearly 75% in the coming five years. It’s true for teams like Lynch’s, who, with the use of powerfully simple technology like Logikcull, are able to handle terabyte-sized cases and cull through millions of documents before bringing in outside counsel.
But it’s also true outside the discovery context, where in-house legal teams are rapidly growing their internal expertise. As Lynch explains, “We’re focused on hiring qualified legal professionals in house. We’ve got great employment attorneys in house, we’ve got transactional attorneys who are able to do the work that would otherwise have to be done by outside counsel or outside vendors.”
The result is a different relationship with outside counsel. It’s one where, as Claire Dekar, Associate General Counsel at Maersk, describes it in the video below, in-house teams are “partners, as opposed to advisees.”
These shifts aren’t being articulated just by in-house teams, however. They’re being felt in nearly seven out of every ten law firms. When Altman Weil asked respondents who, aside from traditional law firm competitors, they were losing business to, 66% of firms with 250 or more lawyers and 69% of firms with under 250 lawyers cited law department in-sourcing.
66% of law firms with 250 or more lawyers are losing business to law department in-sourcing.
In terms of non-firm competition, no other source compares. Client use of technology, the second greatest source of nontraditional competition, was cited by just 28% of large firms and 32% of smaller ones. Alternative legal service providers, the Big Four, nontraditional firms, and independent lawyer networks—none of them came even close to the impact corporate in-housing is having.
What Corporate In-Housing Means for the Legal Industry
The Altman Weil survey confirms the impact of a trend that has been going on for years. For in-house teams, it’s outside proof that what they have been focusing on has been working. Beyond internal ROI calculations, which show only the benefits (or failings) of an individual approach, surveys like Altman Weil’s are proof that these trends are impacting the industry as a whole. But it’s those ROI calculations that have driven the changes being felt by law firms today, and that are driving an increased move towards in-housing in legal departments large and small. For more and more corporate legal teams, handling routine work is simply easier, faster, safer, and more cost-effective than outsourcing it.
For law firms, however, these results should be the catalyst for improvement. Losing business to corporate in-housing is not inevitable. Some firms are radically reshaping their approach to processes like eDiscovery in order to bring greater efficiency, cost-control, and predictability to their clients—solving the very problems that are driving clients to insource work in the first place.
Just yesterday, for example, Logikcull hosted a webinar with Baker Donelson, examining how this AmLaw 100 firm transformed its approach to eDiscovery to maximize client value. That transformation, according to Baker Donelson shareholder Clinton Sanko, has been “beyond our initial expectations and any projections we had.”
In the words of Tom Barnard, Baker Donelson shareholder and member of the firm’s government enforcement and investigations group, this innovative approach has “a value-add to the client relationship, instead of a sticking point.”
For innovative in-house teams, now is the time to take control over your processes, empower yourself with technology, and bring much-needed efficiency and cost reduction to routine legal work.
For innovative law firms, the same is true.