The corporate world has never moved faster. According to a study published in the Harvard Business Review, one-in-three companies will be delisted in the next five years. Companies need to constantly reinvent themselves, their products and their markets if they want to sustainably grow. But what does this world of rapid change mean for in-house legal departments?
Trends Impacting In-House Legal Departments
It's impossible to outline the full extent of changes impacting corporations—there are just too many. But there are a few trends that have dramatic consequences for how legal departments will need to transform in the years ahead.
- (1) Increasing Corporate Demand for Legal Services. As the volume of M&A increases, regulatory changes promulgate and a greater percentage of corporate wealth depends on a legal basis (e.g., intellectual property), the demand for legal services will only increase. We estimate that demand will increase 85 percent between 2016 and 2020, putting pressure on in-house legal departments to increase provision of cost-efficient legal services to the company.
- (2) Changing Client Consumption Patterns. As executives face an increasing array of decisions to be made, they need confidence that they are receiving the right set of information (or have the right way to distill information). In this world, legal departments need to "productize" their expertise so it can be consumed at the time when executives are making a decision. This means the way legal guidance is delivered to business clients must change. Increasingly, legal departments need to apply the user-centered design to their "customers" and embed guidance and self-service capabilities into workflows at the right decision points. This is the only way that legal can keep pace with and streamline enterprise decision-making and failing to do so may result in a firm-level drag on productivity.
- (3) Corporate Digitization and Artificial Intelligence (AI). Legal departments have not been bastions of innovation. Historical legal technologies have saved lawyers time by better organizing department work (e.g., matter management, e-billing), but they have never replaced the time-consuming effort of forming legal judgments. The advent of machine learning will change this dynamic. For the first time, it will be possible to "download" legally trained minds and bring them to scale. Legal's adoption of this technology will be important, as "analog" functions will become an increasing drag on corporate speed. Going forward, legal department productivity will depend on defining and codifying the algorithm of legal judgement.
- (4) Cybersecurity and Privacy. As the value of information increases, so too does its potential risks. In-house legal departments will find themselves on the front lines of cybersecurity and privacy concerns, interpreting regulatory mandates, consumer sentiment and working with Information Security. General Counsel, in conjunction with other corporate executives, will need to develop information governance policies and corporate data strategies for their companies. The organizations that can protect privacy and sensitive corporate information while simultaneously providing the business with strategic freedom and simple processes to confidently use data will gain a competitive advantage.
Legal in 2020
Taken together, these trends will push legal departments to provide more support faster and within regular workflows. To do this, Legal's operating model will need to change.
So what will the legal departments of the future look like? How can legal leaders reconcile these trends in corporate need, end-user behavior, and technology? There are three core shifts that legal departments must embrace in order to operate in this new environment.
#1: Focus on Comparative Advantage
As demand for legal work increases, legal departments must intelligently rationalize their service portfolios while ensuring that the business can still efficiently execute its priorities. But rationalizing the work that in-house teams take on is easier said than done.
To do it successfully, legal departments must figure out what they are best positioned to own—their comparative advantage—and identify the best-fit provider for other legal services. Legal departments must:
- Create clear decision principles to determine what services the legal department should provide by identifying the work that the legal department is uniquely positioned to manage; and
- Gain support from business leaders on a formal legal service level policy by giving the business a voice in its creation and clarifying the impact of service-level trade-offs.
#2: Enable Business Ownership
Even if Legal doesn't own all "legal work," the organization will still need support to make decisions. To do this with minimal interaction from the legal team, legal judgment must be codified and rules and/or self-service tools must be embedded within workflows and at the points of decision-making. This will routinize legal work and help the business access critical legal knowledge.
To make this change, legal departments must:
- Identify the right opportunities to create scalable legal guidance;
- Re-orient the legal team's focus and create incentives for knowledge sharing; and
- Partner in-house lawyers with line-level employees and establish a constant feedback loop to drive legal tool implementation in the business.
These steps will require Legal to translate legal thinking into repeatable algorithms that can either be executed by non-legal staff or automated. This is already being done in a number of areas, including discovery, contract review and contract creation.
#3: Build a Cost Effective Provider Network
With 56 percent of total legal spend going to outside counsel, it's clear legal departments are still reliant on external support. But new technologies will enable legal departments to break this reliance and build a more cost-effective network of legal providers.
To do this, legal departments should:
- Establish a method for testing the quality of non-law firm providers' work;
- Direct new providers to develop their own playbooks for managing discrete standardizable legal workflows; and
- Invest department time in onboarding algorithms (e.g., application of machine learning to contract review) to produce high-quality and readily usable outputs.
In total, these three shifts represent a fundamental change in legal departments' current operating model. By 2020, success will be measured by the speed with which a legal department transforms new conditions—i.e., changing laws, regulations and interpretations—into standardized guidance embedded in operations to increase the company's capacity to make better decisions. It is only by making this transition that legal departments will be able to support business at necessary speed, reduce friction in operations and enable increases in corporate productivity.