New Lawyer's Study: GCs Have Brought The Majority Of Work In-House

Clients have figured out they don't need lawyers. We're all doomed.

More bad news for outside counsel.

Every quarter we report on the growing gap between the elite Biglaw firms and the rest of the Am Law 200. The outlook for law firms generally remains tepid, but the cream of the crop seem to keep chugging along while the rest increasingly stagnate. Well, if you’ve been looking to connect the dots, that persistent slowing of demand for legal services, here’s your culprit:

51% of in-house legal teams report that more than half of their legal activities are now conducted internally. The biggest challenge in-house legal teams are trying to solve by bringing more legal services in-house is controlling costs, followed by completing tasks efficiently.

The 2017 In-House Legal Benchmarking Report from Exterro polled a number of in-house legal personnel about their business and found that everyone’s bringing more and more under the company tent as we’ve suspected for some time. And they’re doing it for the most obvious reason of all:

When asked why they brought more work in-house, they most frequently responded that it was because they could (they had built or expanded internal capacity and now were using it), to save money, or because better software had become available.

Because I can! Perhaps this could be phrased better than invoking the go to excuse of a toddlercaught reaching into a cookie jar, but this is a serious reason that spells trouble for Biglaw. While lawyers worry about AI building robot lawyers to displace attorneys — a fear that’s mostly overblown — the real technological threat to Biglaw is in easing once formidable legal processes to the point that in-house departments present a more cost-effective option than outsourcing. Legal holds and other document preservation tasks can be handled cheaper and more cost-effectively than ever by clients with the right tools. With clients reporting that they’ll be investing in more software solutions going forward, this inward flow of work shows no signs of stopping.

Where does that leave the outside counsel landscape?

And we suspect the likely outside winners will fit into two broad categories: those who can deliver standardized services efficiently, effectively, and at a very low cost, or at least lower than can be achieved internally; and those who deliver custom and specialized services — bespoke services — that only the rare corporation is likely to invest in developing itself.

Exactly what we’ve been seeing. The bigger, badder behemoths that can churn out work product and the elite brands that boast unique legal talent (or at least that clients believe to be unmatched) are winning the day. That obviously means that the top Am Law 200 firms see steady success, but it also presents a tremendous opportunity for small law firms, especially niche boutique firms, that can offer the bespoke services clients want without wasting money on the assembly line tasks that technology can move in-house. All the while, the rest of Biglaw starts to lose out on the grunt work that once covered the overhead.

At least there’s some good news for Biglaw:

Even though corporations seem to be bringing more work inside, they report moderate to strong satisfaction with the quality of outsourced legal work done for them. Twenty-one percent of respondents replied that they were “very satisfied” and another 48% said they were “somewhat satisfied.” Only 7% reporting being “somewhat dissatisfied,” and a slim 1% answered that they were “very dissatisfied.” When asked how providers of outsourced legal services could improve, corporations’ most frequent comments were that they could be less expensive and more responsive.

Well that’s nice. But somehow I think that 21 percent of satisfaction isn’t going to pay the bills for very long.