The Covid-19 pandemic has rapidly transformed the legal industry. With the start of 2022 approaching, in-house legal departments can expect to see the continuation of many pandemic-era trends, including the growth of legal operations, the transition of in-house legal departments from legal advisers to strategic business partners, the accelerated use of legal technology, and the importance of managing outside counsel and legal spend.
The Growth and Strategic Importance of Legal Ops
Bloomberg Law defines “legal operations” as a multidisciplinary approach to managing a legal organization or department that aims to improve its efficiency, productivity, and profitability. In practice, this translates to managing the operations of the in-house legal department to improve workflows, automate processes, standardize interactions with outside counsel, and improve the in-house legal department overall.
Although the roles and responsibilities can vary, legal operations professionals are increasingly being integrated into an organization’s strategy and business objectives. In fact, according to the Association of Corporate Counsel’s 2021 survey of chief legal officers (CLO), 38% of CLOs reported that their department’s most important strategic initiative fell within the area of legal operations, almost triple the percentage who selected any other area.
Beyond this strategic importance, legal department lawyers in Bloomberg Law’s 2021 Legal Operations survey most often reported the ability to improve attorney efficiency, reduce costs, and improve workflows as primary considerations when deciding which legal operations practices to implement. The ability to ease implementation, reduce human error, and improve attorney health and well-being were also selected as primary considerations.
The 2021 ACC CLO survey results also reflect the rapid growth of legal operations. More than six out of 10 legal departments (61%) reported that they employed at least one legal operations professional in 2021—and that figure has nearly tripled since 2015. The survey further reported that 21% of legal departments employed at least four legal operations employees, and 13% of CLOs said they plan on hiring legal operations staff in the year ahead.
This increase is similarly reflected in the Corporate Legal Operations Consortium’s 2021 “State of the Industry” report, which, for the second year in a row, reported that 40% of respondents have increased the number of full-time legal operations professionals.
From Legal Adviser to Strategic Business Partner
In-house legal departments have evolved from a narrowly focused, reactive legal adviser and risk manager to a robust strategic adviser, proactively participating in overall business operations and decision-making. In-house departments are increasingly involved in advising executive and board leadership on issues such as revenue-generating initiatives, labor and employment matters, corporate social responsibility, and regulatory compliance.
Results from the 2021 ACC CLO survey confirm this evolution. CLOs reported that although they spend, on average, 28% of their time providing legal advice, they also spend a sizeable amount of time on board matters and governance issues, contributing to strategy developments, and advising other executives on non-legal issues.
Seven out of 10 CLOs also reported that they are almost always asked by executive leadership for input on business decisions.
With this transition in progress, in-house legal departments can expect to focus more of their resources on those issues—according to the survey—that are most important to the business overall (cybersecurity, regulation/compliance, and data privacy) or that are likely to cause the biggest challenges for their organizations (industry-specific regulations, data protection privacy rules, political changes, and mergers and acquisitions).
Moving forward as strategic partners, in-house legal departments will also be expected to prioritize diversity, equity, and inclusion (DEI) programs and environmental, social, and governance (ESG) initiatives, as these issues are becoming of critical importance to organizations.
The Accelerated Use of Legal Technology
The Covid-19 pandemic and associated shift to a remote or hybrid work environment greatly accelerated the need for legal technology, with video conferencing, virtual hearings, electronic document sharing, and e-filings becoming the norm. And, from the looks of it, this digital transformation is here to stay, with in-house departments planning to invest in new legal technology solutions. Indeed, according to Gartner, Inc., legal technology budgets for in-house legal departments will increase threefold, to approximately 12%, by 2025.
Legal technology that automates manual and time-consuming legal processes and facilitates remote interactions is expected to be a top priority in the coming year for in-house legal departments. Recent surveys, including the Bloomberg Law 2021 Legal Technology Survey and the 2021 ACC CLO survey report that in-house departments are planning to invest most heavily in contract management, matter management, records management, document management, e-signature, and e-billing software.
Managing Legal Spend and Outside Legal Counsel
Like other business units, in-house legal departments are often judged on their financial performance, and many are under increasing pressure to find ways to manage their spending more judiciously and use performance metrics and bill review measures to manage outside legal counsel spend.
Bloomberg Law’s 2021 Legal Operations Survey confirms the focus on metrics to better manage legal spend. Bloomberg Law surveyed more than 150 in-house lawyers, and 65% reported that their organization has implemented or is planning to implement metrics to measure vendor or outside activities, while 70% reported the same for metrics to measure efficiency. The top three metrics (selected by more than 80% of the respondents) were: spend in the aggregate (total monthly, annually, year over year), vendor/attorney billing rate (on average), and spending by project/matter/task.
The importance of metrics was echoed in the 2021 “State of the Industry” report, in which 27% of participating legal departments reported that they formally review outside counsel performance, and an additional 47% reported that they want to implement such formal review processes.
In-house legal departments are also expected to cut unnecessary costs by implementing alternative fee arrangements (AFAs). According to Bloomberg Law’s 2021 Legal Operations Survey, in-house legal department respondents reported that 21% of their legal work, on average, is performed under an AFA, and that cost savings, cost/revenue certainty, and general efficiency were the main drivers in their use of AFAs.
Outsourcing of legal work to Alternative Legal Service Providers (ALSP) and shifting more legal work in-house (to both in-house attorneys and legal operations employees) likewise are expected to continue as in-house legal departments tighten their financial belts and look for lower costs and efficiencies.
This change in the balance of work between outside counsel and in-house attorneys/ALSPs is evidenced in the 2021 “State of the Industry” report. In this report, 21% of respondents reported that they shifted more work to ALSPs (vs outside law firms) in 2020 than in 2019. Thirty-nine percent of respondents also reported that they moved more legal work in-house in 2020 than in 2019.
Access additional analyses from our Bloomberg Law 2022 series here, including pieces covering trends in Litigation, Regulatory & Compliance, Transactions & Contracts, and the Future of the Legal Industry.
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