A new survey by Big Four firm, EY, has found that inhouse lawyers face an incredible set of challenges, namely: 78% do not track contractual obligations, which raises their exposure to legal risks, and hence need tech tools to help, but 97% say they find it hard to get budget to invest in legal tech. To make it worse, 88% of GCs said that they would be reducing the overall cost of their teams to the business in the near future.
And, there’s more: plenty believe inhouse workloads will rise over the next three years.
I.e. less total budget for your legal team and yet more work; it’s hard to get money to spend on legal tech to help; and at the same time there is a problem with companies not tracking what is actually in their contracts; and that increases the risk of financial damage to the business as a whole.
All in all this can only be described as a ‘perfect storm’, to refer to the famous book of the same name.
Artificial Lawyer spoke to John Knox, Partner, Global Legal Managed Services Leader at EY, about the situation and the survey, which received around 2,000 responses, half from inhouse lawyers, and half from others across various roles in corporates. Harvard Law School also played a key role in the survey.
‘I think what we will see is more business owners driving a self-serve strategy (for producing basic legal docs),’ said Knox, referring to the huge pressures inside corporates now in relation to contracting processes.
‘They will also have to get more tech enabled if the inhouse teams have less budget,’ he added.
Although, as noted above, how is that possible when getting budget for legal tech is hard? One answer is to speak the language of dollars and cents, i.e. talk to the C-suite in terms of how much money is at risk if things don’t change.
As Knox explained, if you don’t have a good handle on your contract obligations then companies ‘will get fines and penalties’. Also, if they don’t invest in improving their contracting process then ‘it will slow down the business’ – something that marketing and business development people in the survey said they already noticed.
So, do we have a solution? Just raise the risk issue with the CFO? Not quite. The other challenge, as Knox notes, is that inside inhouse legal teams ‘there is a lack of skill sets to build business cases’.
I.e. can you turn these ideas into a compelling business-orientated presentation that will win over the CFO who will then invest in real change?
‘If you look at other departments, they’ve had 20 to 30 years of experience now in setting out business cases as to why they need technology,’ he explained.
And, indeed one cannot imagine the sales team getting told to just keep using the same old tech stack when they explain to the CFO how they can boost company profits with a new approach to CRM.
Interestingly, Knox noted that EY’s LMS team is also often brought in now to help inhouse teams to build such business cases.
And here’s another point. For a long time, the total number of inhouse lawyers has been increasing. The EY survey suggests that this may be topping out, in that if budgets are rolling back then presumably the total team size cannot keep growing.
But, if you don’t hire more inhouse lawyers, and you avoid sending that BAU work to the traditional hourly-billing parts of big law firms, then where does the work go? EY would – understandably – argue that the work has to go to an ‘ALSP’, or LMS group like they have.
That would be an interesting macro trend that would certainly play into the strategic plans of the Big Four.
Finally, are inhouse legal teams, especially with the growth of legal ops professionals, getting more confident with legal tech as a whole – or at least when their companies have budget for it? After all, one can certainly see how contract obligation tracking is going to push up the demand for CLM systems, and in turn demand a growth in the skill sets needed to get the most out of such software.
The short answer is: not really. Or at least not for all.
‘One of the things that jumped out to me [in the survey] is that 83% say they lack skills to automate processes,’ Knox noted.
This really matters, he said, because inhouse legal teams ‘need process redesign‘. And to do that ‘you need people with the skills to automate those processes’.
Overall, the picture is challenging. Of course, the irony here is that during the pandemic many companies have been in crisis mode and their wallets have been wide open for high value, complex advisory input. This has meant that some law firms have made more profit in the last 12 months than ever before. Seemingly all of the above discussion about budgets and economics are not present there.
What these two contrasting stories tell us is that there is a bifurcation in legal spending. For a crisis matter companies appear willing to pay more than ever, but when it comes to BAU and everyday contracting they are also more focused on reducing the legal costs around that than at any time previously.
The challenge for GCs is therefore going to be all about addressing these two different needs and finding the right balance.
The full survey is here.