The Next Target

Previously I posted on some knowledge gained at the Bridgeway Conference in Nashville. I wanted to add one more item to the list.

Jeff Paquin, who now works with Bridgeway, gave a presentation called Legal Department 2050. He started by looking back at the evolution of legal departments and then projected forward on what the future might hold for them. In looking back he noted that since the mid 80's, legal departments have grown substantially. Back then about 5% of the legal budget went to pay the in-house team. A recent report shows this number is now approaching 50%. Quite a bit of this growth has occurred recently with legal departments pulling more work away from outside counsel.

Numerous reports and posts have shown that in-house legal departments have become one of the biggest competitors for outside counsel. This is not news to law firms since they are hiring these people directly from those firms. Later at the conference I had one client comment to me on the challenges they are having maintaining relationships with law firms, since they keep hiring their primary relationship lawyers away from the firms.

Jeff then took this concept and projected it forward. He runs a group called the Legal Futurists Society. Based on the collective thinking for this group, they see this growth peaking in the next 10 years.

Jeff posed a question to the audience. He asked what we saw resulting from this trend. A hand shot up quickly followed by, "Scrutiny." Everyone agreed that as legal departments' personnel came to represent greater portions of the budget, cost concerns would shift from law firms to the legal departments.

Here are my follow-on thoughts:

#1 - My reaction beyond 'scrutiny' was that legal departments are just becoming law firms. This means they will now be burdened with all the same problems a firm has in terms of infrastructure. What do they have for document management? What about KM and all of the other tools firms have in place? This will be a significant challenge for them, since law firms are still trying to figure all of this out and they are years ahead of legal departments.

Which leads to my second thought ...

#2 - In-sourcing doesn't appear to be changing the model much. Legal departments don't seem to be 'doing law' much differently. They are just doing it with lower cost resources. So the cost savings realized will only be marginal. And it won't take long for corporate leadership to realize that limitation - and to notice the size of the department has grown considerably.

So I think Jeff and the group are right. A lot more scrutiny will come to bear on legal departments. As they grow in size and cost, the cost saving target will shift from law firms' to their backs.

What's good for the goose ...?

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Ken Grady said...

I have been arguing for some time that law departments are simply doing labor arbitrage. They can hire lawyers in-house, pay them less than the cost to use them in law firms, and quickly reduce the total law department cost. But, like most labor arbitrage situations, this is a short fix. Companies used China as a labor arbitrage, but now wages are rising in China and work is moving elsewhere (even to the US). Over the next decade, mundane and routine work will move to technology, and work better suited to other professionals (e.g., project management) will move to them. Lawyers will have to re-focus on where they add value and that means we will need fewer lawyers overall as lawyers go from doing it all to doing those things most suited to lawyers.


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