The current legal and regulatory environment is burdensome. General counsel and their legal teams are under ever increasing pressure to reduce legal spend whilst delivering more legal and regulatory compliance. These conflicting demands are unsustainable and 2018 could see the tipping point where GCs increasingly turn to alternative legal services delivery models in order to meet these demands. The trends and reasons behind the pressures facing in-house legal functions are numerous. On a macro geopolitical and economic level we are living in an age of disruption. Seismic and unexpected events such as Brexit and the US presidential election, rapid advancement and breakthroughs in key technologies (such as artificial intelligence), fundamental shifts in global economic power and opportunities and demographic and social change, are all factors which are contributing to the ever changing and increasingly confused and crowded legal and regulatory landscape. These factors, amongst others, are the root cause of some of the key challenges facing GCs in 2018 and beyond.
Increasing regulatory and compliance burdens
How to cope with the significant and growing regulatory and compliance burden ranks as the number one challenge for many GCs. 2018 promises to be a fascinating and in many ways pivotal period for organisations both in the UK and globally who have been grappling for some time with how to properly adapt their businesses for certain key upcoming regulatory changes (from GDPR and Solvency II through to regulation coming out of the Paris Climate Change Agreement and the as yet unknown changes to regulation that will result from Brexit). With regulators, in many instances, being handed powers under the relevant legislation and regulation to impose unprecedented levels of fines and other severe sanctions, every organisation must take seriously the implications of failing to implement proper systems and procedures to ensure compliance.
Managing the risks associated with technological change
Technological advancement and breakthroughs on the one hand allow businesses to operate ever more quickly and efficiently. However, technology also means additional risks to manage with such burden inevitably landing on the desk of the GC and their legal teams. Cutting edge technology means added cyber security and privacy risks and increased and more complex international regulatory and compliance obligations.
The current landscape begs the question as to how GCs can reconcile the seemingly impossible task of delivering more for less in order to meet their legal and regulatory obligations and satisfy their boards and other key stakeholders. The traditional law firm staple of the billable hour charging model has long been under pressure and, if it isn't already, will very soon be a thing of the past. Discounted, fixed and contingent fees have steadily replaced the billable hour. In the current environment however, even heavily discounted and / or contingent fees are still not sufficient for in-house legal teams to deliver their legal, regulatory and compliance obligations on time and on budget.
This acute budgetary pressure has driven GCs and their teams to look at even more innovative and cost effective solutions and into the arms of the alternative legal services providers (‘ALSPs’). The ALSPs employ a mixture of technology, outsourcing and flexible staffing solutions to deliver a range of services including, large scale document review, contract management, regulatory investigation and litigation support, discovery and electronic discovery, contract lawyers and staffing, legal research and management of IP portfolios.
The ALSPs market is now sufficiently developed that GCs are demonstrating increased trust by using ALSPs for the delivery of certain tasks as a matter of course. There is a mature and trusted legal contractor market which GCs will turn to for support where additional in-house resource is required (eg to cover extended absence of team members, abnormal spikes in workload and / or for support on specific projects (eg M&A activity or regulatory investigations or litigation)). GCs are also looking at outsourced managed legal service models to further strip cost out of processes such as high volume standardised contract work. Such managed legal services are also increasingly using new technologies to add further efficiencies and costs savings.
Is 2018 a time for change?
The shift from billable hour to fixed, discounted and contingent fees and onto ALSPs solutions has been in train for some time. The pace until now has been steady and the progression gradual. The weight of regulatory burden and pace of technological advancement will not diminish anytime soon. As a result the demands on GCs and their legal teams to deliver even more for even less seems set to continue. This all serves as a strong indicator that the trend towards the increasing use of ALSPs for certain tasks and support will continue and perhaps it will only take one more macro geo-political or economic Brexit-like shock to cause a ‘big-bang’ moment for the use of ALSPs in 2018.
Peter Workman is a partner and managing director of Flexible Legal Resources at PwC.