Report: 45% of Australian GCs are forecasting a decrease in their 2019 legal spend – How is this going to be achieved?

The State of Australian Corporate Law Departments Report 2019 – a joint publication between Thomson Reuters and Acritas – was published earlier this month. With more than 2,000 telephone interviews conducted and 73 interviews with Senior Legal Counsel based in Australia taking place, the sample for this report is robust. And while the usual rhetoric around “more for less” is reflected throughout the Report, one of the standouts is that Australian GCs are forecasting 45% projected budget cuts (over 2018 we have to assume):-

budget cuts

To put that into context, that almost twice the global average.

In a time when we have Royal Commissions being announced almost weekly, and compliance issues are on the front pages of the papers daily, you have to wonder where and how these savings are going to be achieved.

As to the ‘where’, given how much ‘top-end’ reputational compliance work that’s happening in Australia at the moment, and how little cost savings can be made from the margins in low-end commoditised work, you’d have to assume the most likely area will be in the mid-level contract drafting/negotiation/management space [the space in which about 30 out of the top 40 firms in Australia play].

As to the ‘how’, having read the Report my take is that Australian GCs will look to achieve this through:

  • innovation
  • panels, and
  • the elephant in the room

Innovation

‘Innovation’ has been a buzzword in the Australian legal world for over a decade. And, as one of the first jurisdictions to legislation the incorporation of law firms, to many outside Australia our system has been one of envy.

But when you ask Australian GCs to rate the innovation of Australian law firms, only 35% feel they’re working with service providers they find modern and innovative.

innovation

From where I sit this means that 65% of Australian GCs don’t think you’re really doing all that much in the innovation space!

Legal Panels

Led by procurement, the dreaded ‘legal panel’s’ stated aim is to achieve:

  • cost efficiencies and predictability
  • relationship building (de facto another way of cost savings)
  • less administrative burden
  • quality [of work]
  • responsiveness
  • access to experts, and
  • value adds on offer

All great and noble aims if you are looking for a 45% cost saving year-on-year – until you take a closer look at the reality:-

panels

This chart is from the ‘GC Thought Leaders Experiment‘ and it clearly indicates that having a panel in place isn’t saving you anything! Add to that lateral hire movement over the past 5 years, and I very much doubt any of the metrics of having a panel are being met.

It’s worth noting here that swimming against the tide of rationalising panels to fragment legal spend is A Verona Dorch – Peabody’s Energy’s Chief Legal Officer who stated (on the issue of appointing panels) that:

Expanding the pool allowed me to insert a few more midsize and non-money center firms than I otherwise could have. And that’s been incredibly helpful—just a few months in, I’m noticing that those firms are extra eager to impress and put forth their top talent.

So maybe, just maybe, if you get it right there is something to be said for legal panels – only not in the form we currently have them.

The elephant in the room

And so we come to the elephant in the room, where a lot of these savings are likely to be found:

40% of Australian in-house buyers of legal services have used alternative legal service providers (“ALSP”) for support on legal matters, and over half of those who used an ALSP did so as they felt it was a more affordable option.

Private practice we are on notice.

As always though, interested in your thoughts/views/feedback.

rws_01

One comment

  1. Terrific insight as usual, Richard. Your findings align with an overarching theme of the Legal Marketing Association’s international conference in Atlanta last month, which was that smart law firms must adopt ALSPs into their businesses and client dealings fast. Every in-house lawyer I heard from personally, including those engaged to speak on panel topics other than alternative legal service providers were of the opinion that with ALSPs, less is more and more ‘more’ is what they demand from all their legal service entities who are expected to work with them as members of a team.

    Liked by 1 person

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