2019 state of corporate law departments

In order to create a high-performing legal function, corporate law departments must deliver quality legal solutions that maximize their organization’s success and provide long-term shareholder value. Much of the recent focus of law departments, however, has been to drive down the cost of their legal spend through greater efficiency and lower cost services. This still remains the number-one focus of improvements law departments want to see in their external law firms. However, Acritas research over the last decade has uncovered specific levers that enable law departments to offer a more business-optimizing service, creating even greater value than trimming away at cost can provide.

This report suggests that departments that focus on improving the legal solutions they deliver, in addition to remaining vigilant on cost efficiency, are likely to offer significantly more value to their organizations and ultimate shareholders.

This report highlights five levers which, when leveraged correctly, enable corporate law departments to reach higher levels of performance and provide significantly higher value.

Improvement lever 1: Create high-performing teams with diverse skillsets

Within Acritas research, we see time and time again that bringing together diverse experience and skillsets delivers an uplift in performance. This goes beyond just different areas of legal expertise and experience and into the broader skillsets that legal teams need to draw on.

Through analyzing the qualities recognized in more than 10,000 standout lawyers, we were able to identify 23 distinct skills. These skills clustered around three different lawyer types — the “specialist expert” lawyer, the “practical service” lawyer, and the “business relationship” lawyer.

Business relationship lawyers are effective at working with internal clients. They build rapport, work hard to understand the organization’s business goals, are proactive, and deliver solutions.

Practical service lawyers are effective project managers. They ensure matters are appropriately resourced, are responsive, and ensure a fast turnaround.

Specialist expert lawyers focus more on the legal work itself, bringing to bear their specialist knowledge and superior legal capability as well as their business sense.

While it is rare to find an individual lawyer who can deliver all three skill types, the highest-performing teams brought together the three different lawyer types and allowed them to work together in a complementary way.

It is worth considering how other professionals can complement these legal teams. For example, legal operations professionals, professional project managers, account managers, and technology/data experts could be enlisted to support the legal team. While many lawyers have learned these broader skills, they aren’t always the most skilled or cost-effective resource to meet the need.

Improvement lever 2: Develop professional project management skills

41% of outside lawyers felt their clients could benefit from effective project management training.

High-performing law departments appear to be doing one thing in particular better than the rest — project management.

Project management incorporates a range of activities and skills; notably, internal organization, coordination, and efficiency — which, not incidentally, are the qualities most frequently cited by private practice lawyers of clients they regard as “standout.” Other strong features of great project management include active engagement with the work, proactivity, and appropriate focus throughout. Project management at the initial engagement stage should focus on clarity of communication. Indeed, standout clients provide their law firms with comprehensive briefings that include clear objectives, including scope, and establish expectations.

Improvement lever 3: Build collaborative partnerships with external legal suppliers

Most legal functions rely on external legal support to deliver services, either to access additional capacity or provide special expertise. The way external and internal teams work together has a dramatic effect on the quality of the final legal outcome.

After analyzing thousands of interviews from both in-house and private practice lawyers, Acritas found that there is room for improvement on both sides. If the in-house counsel does not manage their external counsel effectively, they are unlikely to get the best outcome. Through working together in a respectful, collaborative partnership, where objectives and incentives are aligned, the outcome is likely to be optimized. This research identified a number of areas that are critical to get right in order to manage external counsel effectively, including attitude, skills, and taking action.

Law departments striving to get the most out of their external advisors need to ensure that their internal teams are built around these attributes and establish working practices that best demonstrate these attributes. This starts with ensuring a suitable balance of commercial and legal experience across the department. In areas of work that require external support, the focus of the internal team should perhaps be more on the commercial side because, according to our research, external lawyers feel at least half of the time that they are not given adequate background information and clarity on the client’s goals.

High-performing law departments take the lead in connecting external advisors to the organization, through such venues as vendor conferences or vendor orientations that include items like sharing the organization’s priorities and goals, reviewing internal language and acronyms, and connecting external advisors to the organizational leadership. When external advisors know the business they are serving, they deliver stronger outcomes.

Creating a successful panel

Law departments are increasingly seeking out external advisors who proactively show their value. A recent CLOC pulse survey showed that 50 percent of law departments have a preferred provider program, resulting in an average 23 percent cost saving. And yet only 12 percent of law departments gave all their work to those preferred providers.

Panels, in theory, should be the perfect foundation for implementing business partner relationships between in-house and external lawyers to deliver optimal value. In reality, the mismanagement of panels results in weaker relationships in one-third of cases. External lawyers are willing to put in the effort to apply for panels, but it is frustrating if insufficient work comes in return. Often there is little transparency around how work is distributed; and at worst, panels are used as a tool to keep procurement teams happy. Indeed, this frustration can grow when external legal teams see most of the work going to firms that aren’t even in the panel and aren’t making the same investment in the relationship. To get the best from a panel, law departments need to be open, fair, and transparent, treating the external lawyers as part of the same team.

The more sophisticated law departments are able to optimize the outcomes on legal matters and ensure panel success with a highly collaborative relationship between in-house attorneys, external lawyers, and legal operations professionals. Sharing scorecards on law firm performance and collaborating for improvement ensures realization of greater value.

Improvement lever 4: Gender diversity enhances the quality of a legal function

After reviewing thousands of performance scores that rated legal teams, Acritas found that gender-diverse teams achieved significantly higher performance ratings. And yet, both law firms and in-house teams continue to lose female talent at the most senior levels.

There are many reasons why women leave the legal profession. Recent research by the IBA found that half of women lawyers had been bullied and one-third had been sexually harassed, both significantly higher ratios than for their male counterparts. Findings were similar both in-house and in private practice. Most often these incidents were ongoing rather than one-off events and were rarely reported. In addition to the hostile work environment, many women feel a lack of fairness in terms of opportunity, reward, and career progression — factors, unfortunately, which are borne out with statistics. Less than 20 percent of law firm equity partners are women and only 25 percent of general counsel are women. And for those women who do get to the top, there is a significant pay gap, both at in-house departments and law firms.

Acritas research has found that male in-house counsel are biased in favor of selecting male external advisors, and pick women as lead partner in just 17 percent of cases. In-house counsel can play an important role in increasing diversity at their outside law firms as well as on their own teams. Requesting diverse teams on the law firm side, looking to female lead partners in at least one in every three matters, and ensuring equal pay and promotional opportunity within their own teams are important ways to start. Many law firms are adhering to the “Mansfield Rule” as a public declaration of their commitment to achieving higher levels of diversity. 

Named after the first women admitted to a US bar, the Mansfield Rule asks law firms to consider women and minority lawyers for at least 30 percent of their candidate pool for leadership and governance roles, equity partner promotions, and lateral hiring. More than 50 law departments — including 3M, Workday, PNC, PepsiCo, Gap, Target, VMware, Facebook, Abercrombie & Fitch, Mastercard, American Express, Ford Motor Company, BASF, Salesforce, Google, Hewlett Packard Enterprise, and Charles Schwab — have agreed to support the law firms that meet or exceed the Mansfield Rule requirements by meeting and getting to know their newly promoted diverse partners.

Overall, only 29 percent of law departments require diversity information from their law firms; however, for law departments with annual legal spending in excess of $50 million, that percentage grows to 62 percent that require diversity information. High-performing law departments don’t just ask for law firm demographics but demand diverse staffing on legal matters, measure the work being performed at the timekeeper level, and award bonuses based on diversity performance. 

The research clearly shows that increasing diversity both on your own teams and among your external providers is significantly more likely to result in higher performance. A recent CLOC pulse survey showed that only 29 percent of law departments had a formal diversity program. Law departments could consider joining efforts with their broader organization’s diversity programs, too.

Improvement lever 5: Create an environment for successful innovation

Law departments that embrace innovation are seen as 10 percent more effective by external lawyers; and similarly, in-house counsel who recognize their law firms as innovative also awarded 5 percent higher ratings across all key performance areas.

Examples of innovation given by in-house counsel mostly focused on technology. Other examples included alternative pricing models, new ways of resourcing such as contract attorneys or legal managed services, and value-added services such as training and sharing knowledge. What is innovative to one department is fully established to another. 

Thomson Reuters research showed that both small and large law departments alike are increasing their use of legal technology.

Two inhibitors of innovation are lack of time and a risk-averse mindset. Most in-house lawyers are very time-strapped and risk-averse by nature. Creating a role on the team for someone who can be given the time and budget to create and pilot innovative solutions is likely to deliver real dividends. It is not surprising that we now see 50 percent of law departments with legal operations professionals. Many legal ops roles carry the responsibility for driving innovation in the legal function, and larger organizations are starting to have legal technology managers within legal operations looking to automate manual processes with technology.

Figure 8 uses the Rogers, Everett M. (1962) Diffusion of Innovations Model and overlays the recent findings of Acritas research with in-house legal regarding adoption of legal technology. The chart shows that most of the legal tech tested has reached the “early majority” stage in terms of market penetration (15 percent to 50 percent implementation).

Most law firms also now have specialists who are responsible for driving innovation within the firm. By engaging in dialogue with those people at your external law firms, you can see what the firm has to offer and how you can benefit as a client. Learn from the firm and its other clients. 

Alongside the legal issues confronting companies, in-house teams continued to deal with the challenges of providing legal services while measuring and then demonstrating the value of the legal department to the organization at large. Educating internal stakeholders to the value of the contribution of the legal team remained one of the top frustrations cited by respondents in the 2018 Thomson Reuters Efficiency Survey.

As high-performing law departments are making decisions using data, analytics, and benchmarking — all optimized by the professional lens of legal operations — law departments can share this information to build greater credibility internally with sourcing, finance, and other key divisions.

When it comes to use of data and performance analytics, legal is often looked at as behind other divisions of the organization. However, high-performing law departments effectively use data alongside the delivery of legal services — improving law firm value and delivering higher quality outcomes.

By implementing data-driven solutions that are technology enabled, law departments are better able to show value and demonstrate how efficiency and effectiveness are helping to not only minimize risk but maximize commercial gain.

It is also worth considering using surveys to collect feedback from stakeholders that really matter, including your internal business clients, your in-house team, and your external partners. Indeed, the use of these survey tools and rating scales can then be shown as an independent and objective exercise, which in itself acts as a vehicle to direct efforts and track progress.

Creating metrics that measure quality as well as cost

Returning to the legal function goals outlined at the start of this report, we can see that only one area relates to cost, whereas most law departments focus purely on cost-related metrics. Cost metrics are critical to measure, of course, but much of that data should stay within the department or be shared with external providers rather than being shared upwards to the C-suite. The higher-level metrics that more closely relate to higher-level strategic goals — although more difficult to measure — should be shared upwards. Some examples are shown in Figure 9.

It is important to make sure that your reporting is framed with business-friendly language, reinforcing the idea that the law department is accessible and aligned to the organization’s corporate objectives.

Cybersecurity and data privacy are two growing areas of great concern for inhouse counsel. Protecting internal and client information has long been an in-house priority, given the substantial repercussions of a data breach or data privacy lapse. As threats evolve and companies look to mitigate risks as much as possible, “in-house counsel is facing growing responsibility to minimize damage to the corporate reputation, loss of key data, and legal and regulatory penalties.”

According to the Thomson Reuters Survey on Data Privacy Compliance, many organizations are struggling to comply and stay current with the data privacy regulations that are both in effect and evolving wherever they operate around the globe. The US showed the highest level of failure in meeting data privacy regulations among the countries surveyed.

Developing the hallmarks of a modern legal department

The modern corporate law department faces complex challenges in 2019, and is under growing pressure to demonstrate clear contribution to shareholder value. We predict that the law departments most successful in delivering on this as we move into the next decade will be those that relentlessly focus on forward momentum in four key areas as shown in Figure 11.

And it does makes sense to address each of these areas in the order they have been laid out – starting with the internal team, then the external partnerships, and then getting systems in place before measuring. In reality, we observe that many law departments have focused their modernization efforts in a different order. Whichever the order, however, a balance of initiatives across all four areas ultimately will generate the synergistic impact needed to deliver optimal return on effort.

Let’s assume, for example, you are experiencing frustrations in getting commercially practical advice from your external lawyers and need to drive better value from them. Ensuring your internal team combines all key skill sets is a great start, which enables you to leverage the skills of individuals with collaborative and communication strengths to manage external law firm relationships more effectively. Support this with fit-for-purpose project management technology, training and incentivizing all parties ato use it, and you will also benefit from efficiency gains and reduced scope for error. Finally, measure and report your enhanced outcomes to gain organizational support for further improvement and resources. In this way, you’ve effectively shifted the focus of your law department from reducing cost to improving the impact of the legal services provided.

The above framework for developing your department can be applied to a host of other challenges. For example, if you are struggling to keep up with fast-paced regulatory changes, then draw on strong relationships with external law firms and online compliance resources. If you need to reduce costs on commoditized work, then consider whether you need to develop relationships with alternative legal service providers and who on your team should manage these new relationships. And when under pressure to further reduce internal costs, you can demonstrate value with robust, benchmarked data.

While this report provides an optimal model to aim for in the long term, there are a multitude of quick wins available to all law departments, regardless of size or budget, including:

• Draw on the diverse skills of your colleagues in other business units.
• Take a more organized approach to project management.
• Invest time in getting the most out of the existing technologies you already have in place.
• Spend the time to make open and honest communication a two-way street with your external advisors.

Most importantly, remember that collaboration is most successful when everyone is rowing in the same direction.

Final note

The contributors to this report – Acritas, Thomson Reuters, CLOC and the IBA – all provide support to law departments in the form of conferences, best practice guides, research services, consulting, and legal technologies. Please get in touch to find out more. 

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The Thomson Reuters Legal Executive Institute brings together people from across the legal industry to ignite conversation and debate, make sense of the latest events and trends, and provide guidance as you confront the opportunities and challenges that these changes present.

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For more information, please go to legalexecutiveinstitute.com

Acritas is the world’s leading provider of global legal market intelligence. We know that your success depends on the quality of your decisions. Empirical data provides the best foundation for informed decision-making and successful strategy development. That is why our experts only make recommendations to clients based on the most robust research insights. With Acritas you can be sure to find the information you need to improve business performance and sharpen your competitive edge.

For more information, go to www.acritas.com

International Bar Association (IBA) The International Bar Association (IBA), established in 1947, is the world’s leading international organization of legal practitioners, bar associations, law societies and law firms. The IBA influences the development of international law reform and shapes the future of the legal profession throughout the world. It has a membership of more than 80,000 lawyers, 190 bar associations and law societies and 200 group member law firms spanning over 170 countries. The IBA is headquartered in London, with offices in São Paulo, Seoul, The Hague and Washington DC.

The IBA’s Legal Policy & Research Unit (LPRU) undertakes research and develops initiatives that are relevant to the rule of law, the legal profession and the broader global community. The LPRU engages with legal professionals, law firms, law societies and bar associations, governments, non-government organizations and international institutions to ensure innovative, collaborative and effective outcomes.

Corporate Legal Operations Consortium (CLOC) is a 501(c)6 non-profit professional association. CLOC’s mission is to help legal operations professionals and other core corporate legal industry players (such as tech providers, law firms, LPOs, law schools, and others) optimize the legal service delivery models needed to support the needs of small, medium, and large legal departments.

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