The legal industry's new reality
The time is ripe for corporate counsel to capitalize on data, says Sandeep Sacheti in the first of three articles.
There was a time when in-house legal departments were treated differently to other business teams, somewhat protected from commercial pressures and board scrutiny. Their expertise was something no one else had, and that meant there weren’t a lot of questions about their business operations or spend.
No longer. While legal expertise is still highly valued, legal teams today and, by extension, law firms are experiencing unprecedented pressure, forcing them to evolve quickly from old ways of working. The challenges are endless, but they can be grouped into three main categories – each with significant implications for legal departments and their outside counsel.
Global regulatory uncertainty and change
Legal departments are charged with complying with increased and ever-evolving regulations and legislative changes, especially in financial services. And, they must keep up and comply as quickly, and cost-effectively, as possible. Regulatory authorities are not only more stringent post-recession, but there are more of them. In the UK, for example, the FSA has been replaced by two new bodies – the FCA and the PRA – and the Bank of England has been given more power. In the US, there is another regulatory agency to contend with, the CFPB, plus new legislation aimed at tightening financial stability – the Dodd Frank Act.
As new laws and regulations are introduced, they need to be interpreted by legal teams, creating a chain reaction of increased workload. Importantly, these regulations are making CEOs, CFOs and General Counsels personally accountable and liability for any errors. This is raising the stakes, putting even more pressure on legal teams and outside firms. They can’t afford to get it wrong.
There’s an added twist to this challenge of increased workload and scrutiny: less money to pay for it. I know lawyers aren’t the first in the queue for austerity sympathy, but there’s no doubt they are under increasing pressure to do more with less.
Legal professionals are now required to manage their departments like business professionals, looking for ways to reduce costs without compromising risk. This inevitably puts the relationship with law firms under stress, especially as they too are being asked to share the pain and bear more of the associated risk. Corporate legal departments are not only seeking alternative fee arrangements, but also being more selective about the work being sent to outside counsel, so as to keep costs down without degrading quality. As a result, law firms are re-examining their business models to better demonstrate their price for value.
Observers are increasingly talking about the business model of the law firm being in crisis. But I don’t see it that way. It is about working in a new way, becoming more transparent about costs and becoming forensic in evaluating the effectiveness of legal spend and value of the expertise. The key to this is data - and that leads me to the third challenge facing the industry.
The proliferation of data and mobile devices – like the explosion in regulation – creates increased risk for corporations and a significantly greater workload for legal professionals. Data is measured in terabytes now. But there are significant upsides too. The Big Data revolution has much to offer legal teams, with more tools available that allow them to evaluate their spend and keep it in check according to external benchmarks. Data tools can provide reassurance that they are not paying over the odds, and help them negotiate better deals with firms. Business Intelligence tools also allow forecasting of legal spend under various scenarios enabling General Counsels to partner better with their CFOs and CEOs in setting expectations and budgeting.
This sounds great for in-house teams, but not so good for the law firms. Right? Wrong. It’s true that data is lifting the lid on law firms’ fee structures, but it also presents the more progressive firms with a great opportunity. Now is the time for firms to use data to their advantage, showing how they can be different, more transparent and cost-effective than the competition. The time is ripe for firms to use data intelligence as a unique selling point, and the most forward-thinking are already doing so.
Sandeep Sacheti is VP, Customer Insights & Operational Excellence, Wolters Kluwer Corporate Legal Services.