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Gartner reveals top ways to cut in-house legal costs

25 / 09 / 2019

Do you want to reduce the cost of your in-house legal department? If so, spend more on training your staff. That's the upshot of new research from advisory firm Gartner, following a global survey of companies.

The organisation discovered that cost-effective in-house legal teams allocate twice as much budget towards training programmes as their peers with higher expenses. After examining businesses across multiple geographies, industries, portfolios and workloads, Gartner noted the most cost-efficient legal divisions were committed to continuous improvement of their staff's capabilities.

"Legal departments have a tendency to hand off complex work to outside counsel, but organisations can achieve significant cost savings by bringing this work in-house," said Michael Mayfield, Research Director in Gartner's Legal and Compliance practice.

"The rate for an in-house attorney is likely going to be significantly less than what outside counsel will bill."

Gartner figures revealed a staggering 93.5% of in-house departments' external spend goes towards law firm bills. This will hardly be news to most organisations; a recent study showed 76% of in-house legal teams cited 'controlling outside counsel costs' as their biggest priority.

Driving performance within in-house legal teams

It's easy to see how in-house legal departments can save money by moving more work in-house. A separate study from Gartner showed the implied billing rate for projects completed in-house was just 59% of a law firm's Associate billing rate and 40% of a Partner's billing rate.

In other words, paying a Partner to perform legal tasks costs 2.5 times more than doing the work internally. However, training staff isn't the only option open to in-house legal teams that are looking to cut costs.

Gartner highlighted several other approaches:

  • Improve standardisation: Nearly two-thirds (63%) of in-house legal work can be considered 'routine'. Templatising routine matters, creating self-service tools for business clients and implementing standard decision rules where appropriate can maximise efficiency and reduce costs.
  • Consolidate external service providers: Using fewer law firms reduces overheads with regards to the management of external services. This also enables in-house legal departments to negotiate lower hourly fees or alternative fee arrangements by offering higher volumes of work.
  • Hire dedicated legal operations specialists: Legal operations roles are becoming increasingly common. More than a third (34%) of legal departments currently have one and those that do spend 30% less, according to Gartner. Of the companies that recruit legal operations staff, 70% have more than one.

Overall, cost-effective in-house departments allocate nearly 8% more of their total budget towards line items such as staff salaries, training, IT and software.

Focus on training, development and hiring

The main finding of the research is that businesses could be doing more to cut costs in their departments, while simultaneously driving efficiency, upskilling staff and future-proofing the organisation. Specifically, hiring and training top talent should be made a priority.

These trends come at a time when a growing number of lawyers are choosing in-house careers. The latest Law Society statistics showed more than 22% of the UK's practising certificate holders in 2017 were employed within corporate or public sector legal departments. The proportion of in-house lawyers has also grown between 2 and 3 percentage points every five years since 2002.

Marie Oh Huber, eBay's general counsel, believes many more lawyers now aspire to in-house roles, rather than plotting private practice career paths.

"Being an in-house lawyer has become harder and more fun," she told the Financial Times earlier this year. "We are in the hot seat more … We don't have the luxury of having colleagues down the hall from [us] with whom to confer at any given moment."

However, Ms Huber advised businesses to take a personalised approach to learning and development if they want to receive the best results from training.

"Make it a priority to really get to know the individual goals, strengths and areas of development and, assuming the desire is there, help that person stretch and grow," she added.

Kelly Walker, general counsel at US military shipbuilder Huntington Ingalls Industries, suggests that developing and retaining a strong in-house team requires rigour during the hiring process.

"Prospects have to be good stewards with the right skill level to provide the business with maximum value. Hiring people who fit the company and who will buy into its goals is key to keeping talent," she explained.

Navigating the in-house recruitment landscape

With a growing number of lawyers moving in-house, now seems to be a good time for legal departments to bolster their ranks, particularly as half of legal departments currently feel under-resourced.

Meanwhile, 50% of in-house lawyers who switched jobs in 2018 did so for career development opportunities. This compared with just 30% who said the same the previous year. Salary increases have also become less important, with 20% of professionals citing this as their primary reason for moving jobs, down from 32% in 2017.

We understand that companies expect the best when hiring for in-house legal positions. According to our research, 45% of employers said finding candidates with the right technical skills was their greatest recruitment challenge last year.

However, in a competitive recruitment market, in-house legal teams should consider the future potential of applicants, as well as their cultural fit and enthusiasm for upskilling. By developing strong training and development programmes, in-house departments may discover they are not only improving performance, but also decreasing their reliance on external providers and cutting costs at the same time.

If you need help building your in-house legal department to face the challenges of tomorrow, please contact me on 020 7936 2601 or via email at djc@barclaysimpson.com

Our 2019 Market Report combines our review of the prevailing conditions in the in-house legal recruitment market with the results of our latest employer and candidate surveys.

Image credit: Campaign Creators via Unsplash

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