in-house

Which kinds of businesses are most threatening to your firm’s future?

The December/January edition of Briefing magazine includes a supplementary report looking at the Legal IT Landscapes 2019. It’s a very enjoyable read, and includes the following graphic (answering the question from which the title of this blog is taken):

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What this indicates is that despite my having blogged about this issue as far back as September 2017 (‘Do you know who your competitors are?‘) senior managers of law firms still hold that other law firms like theirs are the greatest threat to their ongoing commercial success (at 26%).

As I wrote back then,

With the level of work that clients are now taking back in-house, or not bothering to do at all, they are without doubt the “overwhelming competitive threat” to the current law firm business model. And, this is not cyclical but structural.

Crucially, understanding this is of paramount importance if firms wish to survive the next 5, 10, 15 years. Because it reshapes everything we do. How we try and win work. The type of work we are trying to win. And even the nature of the relationship we have with our client.

In the long term it will determine the way we measure and reward. It will dictate how we charge, and it will determine whether we succeed or fail.

and I still hold now, this view is misplaced at best, and out and out wrong at worst.

As the following quote taken directly from the National Profile of Solicitors 2016 report (most recent I could find) published by the Law Society of New South Wales, in Australia the seriousness of the threat that in-house legal teams have on  the viability of your firm’s future success should not be underestimated:

Legal employment sectors are shifting. The great majority of Australian solicitors continue to work in private practice, with 69% employed in a law firm. However, the proportion of solicitors working in private practice has dropped from 75% to 69% over the last five years. This is due to a significant growth in the number of solicitors working in the corporate sector and government.

Between 2011 and 2016, there was a 59% increase in the number of solicitors working in the corporate sector, compared to a 17% increase working in the private sector.

Let that sink in for a second: a 59% increase in the number of solicitors working in the corporate sector [in Australia] over a 5 year period post the GFC.

Even coming from a relatively low baseline, that’s a staggering shift (indeed, some may even argue seismic)!

But ask senior management of law firms and only 10% will tell you that “in-house/client” is a business that is most threatening to their firm’s business.

Misguided pershaps?

As always, would be interested in your thoughts, views, feedback.

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BTI’s The Mad Clientist: New Business for the Taking: Corporate Counsel Shift Work Back to Law Firms

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In private practice and looking for a good news story to read this weekend? Then BTI Consulting Group’s The Mad Clientist may well just have it.

According to his latest blog post,

“After 4 years of feverishly bringing work in-house [following the GFC] corporate counsel are reversing course.”

Is that cries of joy I hear ring out?!? If so, the news only gets better. Because not only are in-house counsel shifting work back to law firms, but the type of work they are sending out is the sweet spot big ticket matters. Indeed, according to BTI’s study of 322 corporate counsel, “Chief Legal Officers expect a tripling of bet-the-company litigation, increases in class actions, and substantially more securities litigation.

But before you go clambering over your other partners to get on the phone to your in-house counsel contacts, keep in mind that (1) the study was done in the USA, and (2) BTI is of the opinion that:

“The big winners will present themselves to clients as strategists and discuss risks and exposures before the matters ever start. The bigger winners will discuss prevention, potential settlement postures and learn about the business risks posed by the new matters.”

Putting that aside for a second though, we can but hope that the tide is turning here and that the pendulum has once again swung back in favour of private practice. But in order to be best placed to take advantage of this development, you need to be working through your client plans (including engagement and communication actions) now so that you can be ready to take full advantage of whatever 2016 throws at you!

Until then, “have a great weekend!”

A conversation with Lucy Fato, General Counsel at McGraw Hill Financial

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Last week Bloomberg’s new Big Law Business website published a two-part extract [It’s All About Relationships and ‘Gut Checks’ Are Better than AFAs] from a recent interview Bloomberg had with Lucy Fato, General Counsel of McGraw Hill Financial (among others, parent company of Standard & Poor’s).

Transcripts from the interview make for interesting reading. While not agreeing with all Ms Fato has to say, her take on the following issues run close to how a number of in-house counsel feel here in Australia:

On the role of in-house counsel:

But my view is that the role of in house counsel is, in many ways, to be the face of the company in these situations. Outside counsel can never really have perfect information about what a board or a CEO is thinking. They can never really step into the shoes of in-house counsel.

That’s how in-house lawyers really add value. They can connect all the dots. I think, historically, general counsel deferred more to outside counsel than what you see today. It’s a process that has evolved.

On the role secondments can play in developing personal relationships with in-house counsel:

Secondments are a great way for a firm to build a relationships. The associate is actually here, in our building, getting to know our people, getting to learn our business, and when they go back to the firm, they bring all of that knowledge with them. It’s especially effective when a firm is new to the company.

On the developments going on in in-house departments:

In-house departments have become much smarter about how we manage our departments and how we manage our legal expenses. In-house departments are becoming bigger, more global, and many companies, including ours, spend a lot of money on outside counsel. Getting a handle on that is extremely important.”

On the role data plays on the modern relationship between in-house and external legal:

I’m very big on data and having a lot of information to work with…

E-billing gives you enormous visibility into how law firms make money.

On alternative fee arrangements:

Getting better control over who we’re spending money with, how they are staffing deals, how much time is being spent on matters — taking a hard look at those types of questions is more effective over the longer term than trying to do alternative fee arrangements.

On hourly rates:

But I will say it’s gotten a little out of control. It’s eye popping even for me, and I’ve been doing this a long time, when I see an hourly rate that’s over $1,000 an hour. I look at that and think, “Really?”

Ms Fato makes a number of other good observations and comments, both about the evolving role of in-house counsel and the relationship between in-house departments and their external legal advisers, but I wanted to finish this post with probably my favourite:

Firms have to be mindful that their client is not just the lawyer. It’s also the business person.

Absolutely.