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Traditional law firms: adapt or die?

A quiet shift appears to be taking place in the legal sector. Large companies working in a range of sectors seem to be forming—or expanding—in-house legal teams at the expense of the private sector.

According to The Law Society’s ‘Trends in the solicitors’ profession Annual Statistics Report 2017’, as of 31 July 2017 there were 139,624 solicitors with practising certificates. One-quarter of all lawyers, nearly 35,000, are now employed in-house by organisations ranging from FTSE and private companies to local authorities. The biggest rise of in-house lawyers has been in the past decade.

Are we witnessing the slow death of the traditional law firm? The answer is complicated.

Some businesses need legal teams with highly developed specialisms—newspapers such as the Guardian require lawyers well-versed in libel, whereas manufacturers such as Dyson, which has an office of over 40 lawyers, need experts in intellectual property. However, everyone is agreed that the overriding reason for building in-house teams has been financial.

“Businesses have chosen to keep costs down by expanding the size of their teams”, explains Stuart Little, partner at Shoosmiths. “Three or four years ago they were recruiting commercial lawyers and we lost staff to clients, then in the last few years it was litigators”.

According to The Lawyer’s December 2016 FTSE100 report, HSBC boasts the largest team, with 1,109 lawyers globally across its offices; Barclays has 750; GlaxoSmithKline, 650; Shell, 600; and, Vodafone, 500. The UK branch of Arla Foods, the Danish owner of the Cravendale and Anchor brands, is among the most recent examples of a company setting up an in-house team.

Karen Ngo, Director of In-house at Thomson Reuters, identifies a second factor in the growth as “an increasingly complex legislative and regulatory landscape, whatever the industry. To have an in-house lawyer is to have a very valuable partner, and it adds real value to the good management of a business”.

For individuals making the switch, there are a number of incentives: better work-life balance, with shorter hours and more holiday; improved salaries, especially for those lower down the chain; and, the opportunity to see a tangible effect of your work. In some cases, legal teams are actively identifying and sourcing new business.

“Lawyers want to shape a business. That’s one reason they move in-house rather than advise from afar”, says Ngo.

Senior legal staff are now enjoying an enhanced role in decision making, with more than a third of key organisations appointing a senior lawyer, usually a general counsel (GC), to the board, according to the Solicitors Regulation Authority. As a result of this upheaval, private firms have to adapt.

“The way [firms] give value is changing”, says Ngo. “There’s a whole range of options out there from specialists to boutique services, low-cost centres, temporary GCs and a range of fee arrangements. The old relationships are disappearing, because there’s the ability to pick and choose. It’s a buyer’s market, and that puts pressure on private firms to consider where their value is added and what distinguishes them from the competition”.

Shoosmiths’ solution has been to contact its key clients to reappraise their needs and come up with new approaches to the business model.

“You regularly come across the phrase ‘an extension of your legal team’ in private practices now, which signifies they are looking to bolt services on or find new ways to package services”, says Little. “Big projects such as outsourcing IT projects still tend to go out-of-house and that work is still there. It’s the standard stuff that has been kept in-house. So, we are packaging our services in different ways, what we call ‘resource solutions’, in which you buy a chunk of time—say, a hundred hours—at a competitive price that you can dip into over the year. That way, the company has a fixed cost in its budget, to pull down as and when it’s needed during peaks and troughs”.

Technology is increasingly shaping the legal sector, as it has the financial sector. Private legal startups are finding digital solutions to take the day-to-day pain out of in-house work. Even when it’s not possible for in-house teams to cope with a project or workload, the traditional external solutions are being challenged.

Lexoo is bringing Uberisation to corporate law. The London-based company, founded in 2014, has built a roster of specialist lawyers around the globe, and can harness them for anything from contract reviews to mergers and acquisitions.

“We do all the admin, the coordination and the sourcing of the lawyers, and they deliver the work”, says founder and CEO Daniel van Binsbergen. “We offer the flexibility and expertise of a global law firm, but at 50 percent of the cost”.

Binsbergen maintains we are just at the beginning of a new phase in the way law companies operate. “In-house leaders buying legal services are increasingly more tech-savvy and aware of the different ways to run their departments more efficiently, and that’s driving change. The legal scene is very far behind other markets in efficiency compared to fintech”, says Van Binsbergen.

“The frustrations with traditional law firms have been there for years, but alternatives weren’t available. It would make sense for them to react and turn to technological solutions, but that just hasn’t happened as much as you would expect because of their billing models”. Private law firms, it seems, will survive. But to do so they’ll need to continually adapt to the multiple challenges posed by regulation, financial propriety and technology.

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