When Abhay Nadipuram wanted to reduce his outside spend, the legal chief kept more work in-house, sent other work to non-lawyers and created a panel of firms to replace the single law firm his company had traditionally relied on. Today, Care Initiatives, for which Nadipuram was chief legal officer until he moved to another organization at the end of last year, spends 60% less on its operations than it did two years ago.
“My preference was to reduce legal spend by negotiating rates and bringing in-house a lot of functions that were outsourced and then, frankly, reducing a lot of the work that was being sent out to outside counsel unnecessarily,” Nadipuram told Legal Dive.
For many legal chiefs, that kind of hard-nosed change could be necessary as they try to steer their department through what’s likely to be a difficult 2023.
With inflation expected to persist at a minimum 5% and many companies laying off workers as they respond to lower business demand and possibly a recession, legal departments are under pressure to do more work internally without adding more lawyers to do it.
“In-house lawyers have had to juggle a lot,” said Susanna McDonald, vice president and chief legal officer at the Association of Corporate Counsel (ACC).
Virtually all in-house attorneys in an Axiom survey late last year reported that both the volume and complexity of the legal matters they’re dealing with have increased, leading almost 80% of them to say they’re burned out and nearly 60% that they’re looking for a new job.
“Attrition will continue to worsen as lawyers who work for legal departments … consider getting out before it gets worse,” the Axiom report said.
Against this backdrop, expect legal chiefs to seek increased use of alternative fee arrangements this year to help lower their highest cost area – outside counsel spend – and make it more predictable.
They’re also likely to tap the expertise of a legal operations partner, if they don’t already have one, to implement process and technology initiatives to make the department more efficient and a value-add part of the organization.
Mike Haven, head of legal ops at Intel and president of the Corporate Legal Operations Consortium (CLOC), told Legal Dive today’s economic environment is a “sweet spot” for legal ops teams, because the downturn offers up an opportunity for them to take “smart risks” for the benefit of their organization.
Nor will change-averse legal leaders be in a good position to say no to legal ops initiatives, including those related to law firm fees, if the broader organization in which they work expects them to become more lean.
“In-house counsel often push back but they will be less able to do so in tough economic times,” said Brad Blickstein, principal at consulting firm the Blickstein Group. “In terms of reducing costs from outside counsel, legal operations professionals have not been pulling the levers they have.”
More with less
For legal chiefs who already have one to help them, a legal operations partner can do a lot to ramp up efficiency while lowering costs.
“This role is highly strategic, and when done correctly will transform your legal department,” said Mary O’Carroll, former legal ops chief at Google and chief community officer at legal software company Ironclad.
Legal ops can standardize the way law firms are onboarded, for example, making these costs more predictable and more disciplined on the billing side – and even helping on the legal quality side.
Daniel Michalek, legal operations manager at Branch, a mobile app marketing company, said he’s seen a difference after he standardized onboarding at his company. “You … get better value and more collaboration, and therefore, the result is a much better work product,” he said.
A legal ops partner can also help the general counsel or CLO get more firms to accept an alternative fee structure like a retainer or blended rate, since one the biggest roadblocks to both sides agreeing to a change like that is settling on the pricing.
Legal leaders are concerned that, if they get the pricing wrong and they end up paying more than they otherwise would have, it will reflect poorly on their judgment, according to Alan Guy, managing director for underwriting and value optimization at Kobre & Kim.
“They sort of revert back to what they’re familiar with,” Guy said.
Legal ops can help solve that problem by connecting the GC or CLO to a specialist who can tailor pricing in a way both the in-house and outside counsel sides can accept.
“What's increasingly happening is that those [fee-setting] discussions are happening directly between pricing professionals as opposed to between the general counsel and the partner,” Guy said.
Although adoption of alternative fees remains slow, it’s happening.
About a third of the work that law firms do now for in-house teams is paid using some kind of alternative fee arrangement, according to data from the Association of Corporate Counsel and Major, Lindsey & Africa. That’s up from about 29% in 2021.
The biggest growth has been in the use of retainers, which jumped about 21% between 2021 and 2022, the ACC data showed. The use of blended hourly rates also increased.
That trend could continue at an even faster pace this year as law firms try to position themselves more competitively.
Technology is the other half of the efficiency equation. At Care Initiatives, it wasn’t just changes Nadipuram made to the company’s relationship with outside counsel that helped him hit that 60% reduction in costs; it was his introduction of automated tools as well.
His first action after taking the job was to adopt a contract lifecycle management (CLM) system with the help of a paralegal and later a newly hired legal operations manager.
“I was starting from ground zero,” he said.
Nadipuram said he looked at five products before deciding on one that was assisted by artificial intelligence to pull out data from scanned contracts to create a database. Now all of the substantive information in the contracts can be organized, searched, analyzed, used in other contracts and automatically pulled up as terms come due, saving time and money.
GCs and CLOs say they’re well aware of the efficiencies of CLM and other tools, particularly after shifting operations to remote work during the pandemic, making it unlikely adoption of new tools will slow much, if at all, in 2023.
Even amid expectations of layoffs and hiring freezes, 44% of more than 450 recently surveyed legal professionals said they expect to add technology to increase efficiency, according to a report from contract management provider Lexion.
Survey respondents indicated that e-signature (31.3%), contract repository (29.4%) and contract reviewing (27.6%) are their priority acquisitions in the next six months.
“Respondents are bullish on leveraging technology as a resource to help reduce the workload when there’s growth in legal work but no increase in headcount or outside counsel spend,” Lexion’s report said.
Legal ops and tech
But for adoption to happen smoothly and the technology to do what it’s intended, legal ops staff are crucial, because they’re the ones best positioned to help the GC or CLO pick the best solution for the team and implement it in such a way that it actually gets used in the way it’s intended.
A survey late last year by the Thomson Reuters Institute and the Legal Value Network found that one of the legal ops professionals’ biggest complaints with technology is that in-house lawyers don’t take the time to use it in a way that maximizes its benefits.
There’s a “sense of frustration among legal department operations professionals concerning the pace of change around technology,” the report says.
That means legal ops staff must add soft skills to the business-discipline side of their job description if they want to bring lawyers on board.
Ashley Adams, legal ops chief at content management company Contentful, said it can be a delicate task getting tech buy-in from in-house lawyers but with patience and empathy, even hold-outs can be brought around.
“If I was meeting resistance from somebody, I tried to dig into the why,” she said in an Inside Voices podcast. “It’s not me vs. you; [instead, it’s] let’s figure out how we can work together and dig into the why.”
About 60% of legal departments have at least one legal ops specialist today, up from something closer to 45% a few years earlier, an ACC survey found. For 2023, look for this number to climb as tech adoption becomes a principal way legal departments transform into more efficient operations to meet the more difficult economic environment expected this year.