Is the Independence of Outside Counsel Threatened?

Friday, March 3rd, 2017 at 9:30 am, by Nadia Odai-Afotey

At a time when companies are challenging the status quo in how they procure, use, and interact with legal service providers, it prompts the question: what does the future look like for traditional law firms?  

After the financial crisis in 2008, general counsel’s primary objective has been to drive down and control the cost of outside counsel. This has led to the growth of in-house capacity, use of multiple law firms, rise of mediation and arbitration as dispute resolution processes, and reliance on non-lawyer and other legal alternatives.

Although the demand for legal services remains unchanged, in house counsel’s quest for flexibility and value for less, has also led to introduction of creative internal solutions.

Just recently Microsoft redesigned their “preferred provider program” its internal system that determines which outside law firms the company commonly uses. This new system will prioritize firms with expertise in specific practice areas and will create direct lines of communication between female and minority associates at law firms with Microsoft’s junior attorneys, shaking up the traditional relationship once enjoyed by partners and senior associates and attorneys.

GE has also created a version of “Yelp” for its lawyers called GE Select Connect, an internal website that allows its in house lawyers to search through a list of previously used outside counsel and learn about their track record with the company. Some of the information available includes: hourly rates, discounts previously received, and feedback from GE Counsel that worked with the firm. GE lawyers are then able to rate the firm and this information is made available to other GE lawyers for review.  

Additionally, JPMorgan has leveraged technology and developed a program titled COIN (Contract Intelligence) that has the ability to interpret commercial loan agreements, which at one time consumed 360,000 hours of work each year by lawyers, in a matter of seconds. The less error prone program cuts into work formerly performed by counsel.    

In 2014, Allen & Overy conducted independent research into the changing world of legal service delivery by interviewing more than 200 senior buyers of legal services at companies with a collective legal budget of 3.5 billion dollars. Interviewees acknowledged that although traditional law firms will always have a place in the legal delivery model, for less complex legal matters, alternative service providers have become increasingly appealing. The allure of alternative service suppliers stems from their ability to handle certain types of high volume work more efficiently and at much lower costs than traditional law firms. Over 50% of respondents surveyed use alternative service providers.

Types of Alternative Legal Services

Contract Lawyers- independent lawyers engaged for a fixed period of time to provide project support or fill a temporary vacancy.  

Document Review Services- outsourced organizations that review documents for due diligence or litigation matters at a low cost. Work may be done by non-legal personnel.

Managed Legal Services- contracting out the function of internal counsel to an independent legal provider  

Online Legal Services- legal advice available online, most likely through a subscription service  

Legal Consultancy- independent consultants who advise on management of legal department and projects

Accounting Firms- as legal work becomes increasingly process driven, accounting firms provide value through efficiency, standardization, technology, and cheaper cost centers. Accounting firms are primarily focusing on legal areas such as tax, compliance, and due diligence that complement their own practices.

Hybrid Solutions- combination of one or more of the processes aforementioned

Additionally, insourcing has increased as a majority of legal work is covered by in house counsel for 8 out of 11 practice areas.

General counsel has also pushed for a change in the makeup of their legal teams encouraging their employees to seek out diverse legal counsel. Associate general counsel at Walmart, Yoon Chang, has fired outside legal suppliers who did not take their legal department’s diversity program seriously. MetLife Inc. has also followed suit by mandating that at least one member of outside counsel’s legal team have a minority or female member. For firms who do not comply, Ricardo Anzaldua, general counsel at MetLife is willing, “to terminate relationships with firms, even mid-project if necessary and possible.”

Conclusion

Although the future for traditional law firms is not yet certain, what is certain is that in house counsel is looking to break with the past and reexamine how they interact with their outside counsel, the make-up of their legal teams, and how they procure legal services in general. While it is no secret that the legal profession is slow to change, it would be a mistake to ignore the clear shift that is taking place in the market for legal services. To remain integral in the legal delivery model, traditional law firms must look internally and diversify their staff, embrace technology, and look to create efficiency and value for their clients.