Many legal functions are in a state of continuous transformation. The reason for this is simple: The environment they operate in is constantly evolving. Pressure from the C-suite to manage cost is ongoing, the regulatory and legislative environment is ever-changing, and there is a perpetual need to capitalize on new technologies and new service delivery models.
As noted in research from EY, published in the new report “Realizing the benefits of legal managed services.” C-suites across the corporate world have asked general counsel to put efficiency and resilience at the forefront of their agendas.
Significant global events can often accelerate the desire or need for transformation. The 2008 global financial crisis (GFC) was one of such events for corporations and, more specifically, for legal functions. The economic fallout from the GFC and the new regulations that resulted from it created ripples that were felt long after the crisis abated.
Progressive law departments responded to these challenges by transforming their operations—developing new, efficient ways of working, and rethinking the way they bought legal services from outside vendors.
Now, as the world finds itself in the grips of the global Covid-19 pandemic, the C-suite is presented with legal challenges across its organization. As businesses begin to emerge into a post-Covid-19 pandemic world, those challenges may keep coming in waves.
Human resources departments may be faced with ongoing labor and employment issues. Procurement teams and sales teams may have to rewrite contracts to reflect new risks. Finance and tax teams may have to restructure their organizations to reflect changes in supply chains, buying patterns and revenue streams. Law departments may be involved in helping resolve all of these challenges as well as dealing with day-to-day questions, requests and crises.
How organizations in general and law departments in particular deal with the issues will highlight operational strengths and weaknesses and pose a number of questions, such as:
- How flexible and adaptable is the law department—will it be able to change work processes in the short term to meet the “new normal?”
- Will those short-term changes be future-facing, so that they don’t just solve immediate challenges but, more importantly, improve operations in the longer term?
- Will departments be able to deal efficiently with the high volume of work that is destined to come down the pipeline?
The answers to these questions may ultimately determine how resilient law departments and the businesses they serve are now and moving forward. There are two prominent considerations in this conversation. First, what legal services will businesses perform themselves and what will be performed, under the law department’s direction, by external providers.
The second consideration is related. What partnerships will businesses form with external legal providers. Data in the report on the use of legal managed service (LMS) suggests the answer to this question will be crucially important.
The Move to Legal Managed Services
The report shows that there has already been a significant shift towards the use of legal managed services by large and medium-sized organizations. Progressive law departments who are increasingly using managed services are gaining significant benefits that go beyond cost-savings.
It reveals that there are three clearly defined groups of law departments based on their sourcing strategies, which it labels as:
- Pioneers: This group, which makes up 37% of law departments, have already migrated many law services to non-law firm providers and are actively looking to expand their use of legal managed services.
- Explorers: The majority of this group (35% of law departments) have tried outsourcing but not on a widespread basis. These firms are actively considering expanding their use of legal managed services.
- Observers: This group (28% of law departments) are not considering using managed services currently even if they are aware of the benefits anecdotally.
The report highlights that the forces driving greater use of legal managed services are complex and varied and go beyond simple cost reduction. They include the need to optimize internal processes due to rising volumes of work, the importance of adopting new tech-enabled delivery models, and the increasing quality of benchmarking information on the productivity of internal and external resources.
When considering the growing use of legal managed services, it is worth noting that the pioneers adoption of these new delivery models has, in some cases, been a decade long journey. Departments which choose to transform early have already realized many of the benefits that new service delivery models provide. This has likely put pioneers in a better position to handle the issues arising from the Covid-19 pandemic.
They have already built in flexibility, agility and the capacity to handle large volumes of work through internal optimization and the use of legal managed services. Their use of technology-enabled external providers is important as these providers bring considerable expertise to the table, which is critical in times of crisis and change.
Benefits of Using Legal Managed Services
Prior to the release of the report, many of the benefits of using non-law firm legal service providers were widely recognized. The challenge for legal managed services proponents, however, was that the evidence backing these benefits was largely anecdotal. The report, which is supported by input from over 1,000 law departments, adds empirical evidence to many of anecdotal stories.
Importantly, particularly in light of the Covid-19 pandemic, the data reveals that the benefits of new delivery models are not only felt in the short term but have ongoing positive impacts, including on efficiency, technology, human resources, and resilience.
This report shows that law departments that use legal managed services most widely are not only more cost-effective in service delivery today, they are more confident about improving efficiency in the future.
It has long been recognized that law departments are spending a disproportionate amount of time on high-volume, routine tasks. This focus not only lowers morale and has a negative impact on recruitment and retention, it also diverts energy and resources away from the tasks that matter the most. Significantly, the report shows that using external providers gives law departments the ability to shift focus to the most important tasks.
As the report reveals, pioneers are able to focus on the key issues that their corporations face. They report being significantly more confident in managing complex risks, including new privacy and disposition rules, investigations, and major regulatory events like IBOR and BEPS.
As pioneers have shifted high-volume work to legal managed services providers, in-house counsel are able to focus on higher-value work. This appears to have a positive impact on these law departments’ ability to recruit and retain talent, as it improves morale and the attractiveness of the business to future hires. Notably, the data shows that pioneers are the only group where a majority of respondents report that recruitment and retention is not a challenge.
Additionally, the use of legal managed services also has benefits on law departments’ ability to invest in new capabilities. Pioneers are twice as confident that they have the appropriate non-legal competencies as the other groups. They are also twice as likely to report they have the necessary technology and process-automation skills.
It’s worth viewing these points together. The law departments that are using legal managed services are confident that they can handle complex risks, have the right people in the right place, and have the right competencies and tech in place. This can be the fundamental difference between those departments that are able to move swiftly and resolutely both during and after a crisis, and those that aren’t.
Large corporations and the law departments which serve them should be prepared to flex and adapt to a whole manner of events—some of which can be seen from a distance, and some of which are more likely to be categorized as “black swans.” As such, those law departments that are resilient and focused on managing transformation proactively are the ones that will be better prepared for whatever comes down the pipeline, big or small.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Cornelius Grossman is the Global Law leader at EY with currently over 3,500 lawyers in 86 jurisdictions. His professional experience includes large domestic and international reorganizations, post-merger integration and financial and operational management. With more than 20 years of experience in providing business advisory services, he has been the lead legal counsel in numerous large cross-border projects.
Nicholas Bruch leads EY’s Global Tax and Legal Analyst team. He has written extensively on the legal market and is regularly featured in leading industry news outlets and is also a regular speaker at major industry events.