In-house legal departments are growing, which is significant.
Susan Hackett, the former senior VP and GC of the ACC was quoted a couple of years ago as saying that in her entire career working with in-house departments, this was the first time she had seen an absolute increase in the size of staff and budgets in legal departments, rather than just a growing number of legal departments. We saw Geoff Healy move from HSF to the BHP Billiton GC position, and within three years of doing so, he reduced external legal spend by 30% by bringing that work in-house. That’s worth $10Ms. He recruited 50-60 new lawyers into the in-house team, bringing the overall number to more than 100, and reduced the proportion of BHP’s legal budget external spend from 70% to 55% - with more to go! Legal services is one of the few service offerings that can be cheaper to insource rather than outsource by growing the in-house capability.
How can this be? How is it that law firms, with all their experience and resources, haven’t developed systems and processes to make their suite of services a no-brainer to outsource, when corporates’ core competencies don’t (or at least shouldn’t) include the running of large legal departments? Is it simply labour arbitrage, or is it a more fundamental paradigm shift? Whatever the reason, it’s a trend seemingly difficult to reverse. Corporates will inevitably improve, taking on more complex work in a way that is tailor made to their own unique challenges. And when they’re not able to, there is an increasing number of focused offerings to outsource that work.