Opinione | 18-05-20

Going In-house: Macro Considerations

Based on the article, Going In-house: A Changing Marketplace, first published in Legal Business World - 2020 here.

SSQ’s expert APAC Senior Adviser Kenneth Tung explores the dynamic in-house market in the second of a series of articles. First article here. 

 

When one digs deeper, one can see beyond stories of GCs trying to dictate terms to law firms with tools like alternative fee arrangements (AFAs), AI tools for scrutinizing law firm bills [1], legal process outsourcing (LPOs), alternative legal service providers in the midst of innovative offerings from law firms [2], and myriad PR on LegalTech.

 

The legal sector is witnessing a shift, and not a blip resulting from the global financial crisis since 2008. But what is behind this market shift? A scan of recent articles [3] has long made clear the lay of the land in the legal sector.  Below are some observations that are worth bearing in mind for lawyers navigating between private practice and in-house legal departments.

 

A. Supply & Demand

 

In short, the story goes like this in the U.S., and to a certain extent in other markets: in pursuing lucrative tuitions, universities inadvertently propelled unsustainable growth in the number of lawyers, lifted even higher by student loans.  A rise in the supply level of lawyers drives a downward shift in the “clearing price” in the market for legal services.  The market value per-lawyer eventually made economic sense for more corporations to hire more in-house lawyers.  In 2010, somewhat of a tipping point, the market started seeing both a period of growth of in-house lawyers and decline in law school enrollment.

 

The abundance of lawyers has been adding fuel to a full blown a client revolt beyond price haggling.

 

B. From Opacity to Translucence

 

Similar to procuring external services such as business consulting, marketing PR and IT, in legal matters, companies used to rely on outside counsel to assess the legal situation, determine the type and level of legal services they need, and ensure the quality of the legal services they received.  However, the increasingly deep bench in corporate legal departments now:

  • adopt a more activist role in selecting and managing the resources assigned to their projects,
  • integrate with the needs of client’s business and organization and develop sophistication that leads to disaggregation of services and tasks, and
  • raise confidence about the question to be asked and the work to be done, reducing reliance on traditional big provider brands.

 

Complementing the movement in-house, a myriad of burgeoning disruptive movements also channels legal work to:

  • a restructured ecosystem of external providers beyond traditional law firms (e.g., legal outsourcing companies, alternative legal services providers), and
  • unbundling of work across the people-process-technology spectrum, modularization of work and legal tech.

 

The unbundling of specialized work from commodity work, results in the “right-sourcing” of legal work based on associated price and quality arbitrage. Beyond the democratization of knowledge and the clients’ realization that they are paying too much for no added-value, businesses want greater speed, responsiveness and control.  In the legal function, this means less spinning its own wheels and more integration into the organization; becoming a key and valued asset to the wider business and not simply one department.

 

 

[1] How Does Bodhala Disrupt The Half Trillion Dollar Business Of Law Firms And Corporate Counsel?, B. Auerbach, Forbes, Nov. 30, 2017.

[2] But see On Law Firm Marketing Bullshit, C. Flaherty, 3 Geeks And a Law Blog, Sep. 10, 2017.

[3] The industrialization of law and rise of in-house counsel, J. Côté, Lexis-Nexis-The Lawyer Daily, Oct. 01, 2019; The Trust Revolution, D. Currell, Dec. 22, 2019; Consulting on the Cusp of Disruption; C. Christensen, D. Wang & D. van Bever, Harvard Business Review, Oct. 2013; Points of Law: Unbundling Corporate Legal Services to Unlock Value, D. Ertel & M. Gordon, Harvard Business Review, Jul.-Aug. 2012.