GC’s Have the Power

Professor Mari Sako, a fellow of the Novak Druce Centre for Professional Service Firms at the University of Oxford’s Saïd Business School published a very interesting paper titled General Counsel With Power? From May 2010 to January 2011, Sako interviewed 52 GCs in the US and UK with the aim of analyzing what is happening in the in­house legal departments of major corporations and financial institutions. Interviews explored various areas including the changing relationships with law firms; the extent to which work has become disaggregated; and how multi-sourcing (i.e. the use of multiple sources of legal service delivery, including outsourcing and offshoring) decisions are made.

Two agents of change, according to Sako, are transforming legal practice. These agents of change are in-house legal functions and new entrants in the global legal services market (including legal process outsourcing providers).

It should come as no surprise that in-house legal functions are transforming legal practice and in particular the nature of the relationship between corporations and law firms. The 2008 financial crisis seems to have intensified the drive for optimization of legal resources (internally and externally), cost effectiveness and efficiency. If the state of the current global economy is anything to go by, this trend is going to continue. ‘In one case,’ wrote Sako, ‘the GC of a divisionalised company stated, “Our legal department is a planned economy”, and pointed to a performance “dashboard” that the legal department at each operating business unit was required to submit on a monthly basis. At another company, the GC introduced a central approval system for legal fees above a certain sum. This led in-house lawyers to think twice about the necessity of putting work out to external lawyers.’

The work of lawyers today may be on the verge of transformation due to technology, globalization and new entrants. Cost pressures have led many GCs to consider (and implement) a production-line approach – involving disaggregation of work, standardization, process management and project management. Although some GCs have not adopted this approach, other GCs have taken the lead and have made significant efficiency gains.

Once legal work has been disaggregated, the in-house legal department must consider efficient ways of servicing each task. Historically, law firms have been the primary means of servicing an in-house legal department’s work. Corporations today have more options and in the last several years, the number of possible sources of legal service has expanded – ranging from offshoring to onshoring. How much work will migrate from corporations and law firms to other parts of the value chain is anyone’s guess at this stage; however, it is probably fair to assume that multi-sourcing (the use of multiple sources of legal service delivery) is likely to increase.