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Insourcing vs outsourcing: How will in-house legal approach 2019?

We are barely a week into 2019 and it’s already shaping up to be a busy year for in-house legal professionals. Regulatory headwinds continue to buffet their departments and UK organisations across the board were recently warned to ramp up no-deal Brexit preparations.

 

Amid an uncertain economic and political landscape, companies expect more than ever before from their in-house legal teams. But budgetary restraints often mean lawyers are handling greater workloads with fewer resources. Indeed, our latest Legal Market Report, which will be published next month, revealed 50% of departments feel inadequately resourced.

 

Early indications suggest in-house departments are already evolving to improve efficiency, reduce costs and lower reliance on third-party suppliers. So, how do in-house teams plan to provide legal services in 2019? And will increased expectations on the function affect the balance of insourced versus outsourced tasks?

The in-house shift

A recent survey from Exterro and ACEDS found the percentage of organisations that perform all core litigation services in-house more than doubled between 2017 and 2018.

Last year, one-fifth of functions said 100% of activities such as legal holds, data collection and processing, depositions, budget management and matter intake were handled by the organisation’s own lawyers. This was up from 8% the previous year. Overall, the proportion of businesses completing at least 75% of workloads in-house jumped from 25% to 49% over the one-year period.

Mary Mack, Executive Director of ACEDS, admitted the results were a surprise, especially given that a greater number of smaller organisations participated in the research last year.

“The message was clear. You don’t need a large team to provide litigation services effectively,” she added. “For us, the question then became, ‘How are these smaller

in-house legal teams able to do this?'”

 

Litigation is also just one of a number of legal activities that organisations have brought in-house. Barclay Simpson’s research shows companies insource multiple services, ranging from corporate and regulatory matters (77% and 69% of firms, respectively) to data protection (62%), financial crime (35%) and debt finance (31%).

LPM and technology driving departmental efficiency

The current trend of in-house departments increasingly handling legal services doesn’t appear to be a fluke. ACEDS and Exterro’s 2016 survey revealed 77% of in-house lawyers expected their organisation to insource more legal services over the coming two years, a prediction that appears to have borne out.

 

A combination of LPM (legal project management) improvements and innovative technology remain at the heart of this shift. According to the 2018 report, nearly two-thirds of in-house teams feel their LPM model is either optimised, managed or structured.

  • Optimised (7%): Executive teams prioritise matters and provide significant budgets. Departments use business intelligence and other metrics to inform and improve processes.
  • Managed (19%): LPM is well defined and supported by dedicated resources and executive level buy-in.
  • Structured (39%): Formal projects have designated roles and a budget, along with management level buy-in.

In-house teams also leverage multiple software tools to increase effectiveness, with firms deploying 3.5 platforms on average. Document management and legal hold technologies were the most popular; 60% and 53% of departments, respectively, invested in these tools.

 

Our own research has shown overwhelming support for disruptive technologies. Nearly 9 in 10 (89%) organisations and 81% of in-house lawyers believe data science, artificial intelligence and the cloud help maximise efficiency.

What challenges do in-house teams face in 2019?

Businesses may be exhibiting a desire to forgo external providers this year, but that may be easier said than done. More than half (55%) of departments said rising private practice salaries led to more difficulties recruiting in 2018, according to our figures.

 

Major US and UK law firms have significantly increased base salaries for junior associates over the last two years. The trend has been dubbed the ‘Cravath Effect’ after Cravath, Swaine & Moore was the first firm to break ranks and inflate remuneration in 2016, with others quickly following suit.

 

Many lawyers are therefore choosing to stay in private practice for a few more years to take advantage of lucrative salary rises before moving in-house. This leaves in-house departments trying to recruit from a much shallower talent pool than previously.

 

The Cravath Effect and increasing regulatory burdens are also fuelling a technical skills shortage, with 45% of our clients citing this as their greatest recruitment challenge in 2018. These problems are likely to continue this year, as organisations prepare for the Senior Managers & Certification Regime, Brexit, the Central Securities Depositories Regulation and a multitude of other reforms.

Hit the ground running this year

There is no doubt the search for top talent has intensified. In-house departments face the unenviable task of delivering more legal services internally at a time when fewer candidates are available.

 

Businesses may need to emphasise other aspects of in-house positions, such as career development and flexible working opportunities. Of the lawyers we polled, 53% said career development would be the most likely reason to look for another job or attend an interview. Meanwhile, 74% of respondents confirmed they would like more flexible working options.

 

The right partner who understands the market can help organisations navigate an increasingly complex in-house legal landscape. If you’d like to discuss your recruitment intentions in 2019, please contact me on 020 7936 2601 or via email at djc@barclaysimpson.com.