Increasing production line approach to legal work by general counsels

New research from Mari Sako, a professor at the University of Oxford’s Saïd Business School, with interviews with 52 general counsel in the US and the UK from a range of major businesses – such as Tesco, Barclays, Yahoo, Goldman Sachs, Shell, HSBC and Sony Ericsson – about their views on outside counsel and non-traditional legal-service providers, have found some considering a radical move to legal services “production lines”.

The study is analyzed in the legalfutures article General counsel eyeing legal services “production line”, Oxford research finds”: “The research found that companies are reviewing external advisers more closely and often turning to more cost-effective solutions, such as legal process outsourcers. Professor Sako added that “multi-sourcing”, the idea of deploying different legal service providers on different elements of a legal matter, will also increase.

She argued that whilst law firm relations will continue to be important, corporations now have a diverse set of options. These include offshoring a captive in-house legal department, relying on law firms to set up a captive low-cost centre, sourcing from contract lawyers on a project-by-project basis and going direct to new legal services providers that have a global presence.”

In an afterword to this report Professor Richard Susskind has made some predictions on the relationship between large law firms and general counsel, which are summarised in the follow-up article by legalfutures “Susskind: five years until legal market reaches “endgame”: “The relationship between large law firms and general counsel (GCs) is likely to evolve in three phases, with the “endgame” around five years away, Professor Richard Susskind has predicted.” Professor Susskind said we are currently in the first stage of the evolution, in which most law firms and GCs will seek to maintain the status quo. “GCs will resist fundamental change of their own departments and try to meet the ‘more for less’ challenge by inviting law firms to charge much less. In turn, law firms will be similarly reluctant to change radically and so will propose alternative fee arrangements.”

However, these deals will not provide GCs with the savings they need, meaning the second phase – from about 2013 to 2016 – will involve GCs “dramatically” re-engineering their legal functions, while “law firms will move from pricing differently to working differently”.

He continued: “Both will embrace legal process outsourcing, off-shoring, de-lawyering and agency lawyers.”

But the academic said the endgame will not be about labour arbitrage: “I predict that the third phase, from 2016 onwards, will involve great uptake of information technology across the profession, such as automated production of documents and intelligent e-discovery systems – these are applications that will be staggeringly less costly than even the lowest-paid lawyers.”

Professor Susskind said the history of industry and commerce indicated that it should be the service provider who drives changes, rather than the client.

Law firms have generally always been reluctant to change, he wrote. “But, of course, the providers in the legal market are no longer just the law firms. As this report shows, there are new players in the legal game, not least the legal process outsourcers. I believe we will also see the resurgence into the legal sector of the large accounting firms, as well as alternative business structures fuelled by private equity.

“These providers tend to have much greater appetite for rethinking legal services than conventional law firms. The competition is stiffening. In the end, then, the agents of change may not be lawyers.”