Unbundle corporate legal services to unlock value

Unbundle corporate legal services to unlock value

Traditionally, big law firms and corporate legal departments have enjoyed a close relationship that is based on both trust and regulation.

Clients rely on firms to discern legal boundaries and the risks associated with misjudging them; counsel are under a professional obligation to identify and raise potential problems and handle them competently and thoroughly. Most corporate legal work in the US is outsourced, because it’s not cost-effective to employ enough in-house lawyers to meet companies’ diverse needs. And work is allocated by in-house lawyers, most of whom started their careers and were trained at law firms.

That close relationship is being disrupted. Company executives are much less patient with the status quo than they used to be; there’s a general sense that lawyers and their fees are out of control. Executives feel they have little influence over what they spend and what they get for it – and that the accountability seems to be much less than what most other business services provide.

Executives now have more choices: they can use technology to support pre-trial discovery and automate some basic tasks, bring in high-end temporary lawyers to manage major projects, and send routine processing work overseas. These and other dramatic changes are affecting the practice and business of law across the globe – particularly in the United States and the UK, where most of the world’s largest law firms are based.

Corporate legal departments are in danger of missing an important opportunity. Far too many of them are looking for relatively small, short-term savings and doing so in a way that could critically damage key relationships. This is a once-in-a-lifetime chance to do four significant things:

1. Assign legal work to the providers best suited to a particular task, rather than paying a premium for one-stop shopping.

2. Lower legal costs without sacrificing quality.

3. Create greater transparency and accountability.

4. Derive greater value from in-house counsel.

When your company needs outside legal assistance, you tend to lose control over who is put on the assignment, how long it will take, and what the outcome and the ultimate cost will be. It’s difficult to argue that cost savings should be the top priority at “bet the company” moments, but most legal matters are more routine than that. And even large, complex issues can be divided into discrete tasks, many of which don’t require senior-level attention. Why, then, have companies been slow to embrace change?

Three factors seem to hold them back.

Sticky relationships: Companies develop enduring relationships with law firms on the basis of personal and institutional trust.

Professional responsibility: Many chief legal officers believe that their most important responsibility is to choose whom to trust to help the company manage various kinds of risk and exposure. The rules of professional responsibility under which both in-house and outside counsel must operate place a significant burden on them to represent clients with zeal and to exercise due care when delegating any work.

An adversarial system: The legal systems of the United States and the U.K. are founded on the premise that a contest between two parties will produce truth. In such a system, where everyone expects to see winners and losers, the latter derives little comfort from saying, “Well, I didn’t hire the best lawyers, but I did save some money.”

What’s changing?

At least temporarily, the bargaining power in the lawyer-client relationship has shifted in a way that can lead to a genuine realignment in legal services.

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