As big law firms and corporate law departments adjust to a new era marked by more competition among firms, and widespread belt-tightening by their clients, many firms are making strides toward greater profitability.
In the years since the financial crisis, law departments have been shifting some work in-house and also asking for more efficient service. These factors have driven firms to adapt to a new operating environment, with many becoming more attuned to pricing pressures and implementing cost control measures, in accordance with their clients’ wishes.
The key to finding the common ground, and to creating healthier client-firm relationships, lies in the professionalization of legal operations. Hiring skilled staff expressly focused on making law departments and firms operate as more efficient businesses makes legal services more effective and delivers greater value, with lower risk, to legal buyers, without eating into firms’ profitability. In fact, if done right, this will improve a firm’s profitability.
Having both watched and contributed to the early stages of this shift, we can attest to the mutual benefits that firms and clients derive from optimizing their operations. We can also attest to the wisdom of pushing further, and investing more, in the legal operations realm.
For law departments, the obvious benefits are reduced legal spend and lower exposure to the financial risks associated with open-ended legal work. But there are less apparent benefits as well. Aon’s global law department has seen enormous upside from sitting down with every firm with which it does business to talk about how they can work together to make the relationship and matter outcome work for both sides.
Success fees tied to transactional work help predict costs and give incentive to outside counsel to do everything they can to get work done – even beyond billing. An unexpected benefit is that we’ve even seen improved engagement and satisfaction among in-house lawyers, as well as improvements in diversity among outside counsel.
That’s because introducing professional managers into the law department allows the lawyers to focus on what they do best: practicing law. The same goes for firms. Few outside counsel enjoy the administrative work of billing, structuring pricing agreements or thinking about contract-management systems. So when companies and firms hand those tasks to professional managers, everybody wins.
And to be clear, the drive toward more efficient delivery of legal services doesn’t mean firms take a haircut on fees. In fact, we’ve seen it work the opposite way. Firms may be billing fewer hours, but with intelligent alternative fee arrangements, right incentives, and professionalization of the non-legal work that supports lawyering, they can be more productive themselves. That means they spend less time on each matter, they collect payment faster and they too have more engaged, satisfied attorneys – a crucial advantage in today’s war for talent. So the lawyers do the same work, but they do it smarter, and the firm delivers it more efficiently – making it more profitable. More importantly, they develop long-term relationships and thus repeat business with their clients.
Firms that can bring professional operations experts to the table are also more likely to win business from law departments that are run by people with similar expertise. Judging by the rapid growth of organizations like the Association of Corporate Counsel Legal Operations section and the Corporate Legal Operations Consortium, it’s safe to say there will soon be far more law departments like those – tracking metrics and implementing best practices in hiring and retaining counsel.
Just as law departments are evolving, firms must as well. To be sure, there is a distance to go. Lawyers and professionals on both sides of client-firm partnerships acknowledge that firms need to invest more in operations, including technology to help them capture data about their performance in order to demonstrate the value they bring.
Firms would be well-served to meet with their corporate clients – including operations leaders – at least once per year to review performance, evaluate the success of the relationship and jointly discuss ideas for strengthening it. We believe it’s only a matter of years before those meetings become standard practice. Firms may also evolve to become more assertive and prolific with secondments and with technology for performing tasks like discovery.
Lawyers have always been incredibly adept at adapting to new developments, twists and turns in the law. Their creativity and ingenuity in the practice of law have fueled the growth of their industry and shaped the way our society functions. Meanwhile, however, the legal business itself has remained largely sheltered from the disruptive innovation that has swept through nearly every other corner of the economy.
We believe that’s about to change. In fact, it’s happening right before our eyes.