This article was originally published in Legaltech News.
The current pandemic is forcing many corporate legal departments (CLDs) to tighten their purse strings, but there’s a silver lining: The opportunity to give sourcing decisions a second look. Insourcing was already a trend; in-house legal department employment has tripled and many believe over 50% of legal work is now done in-house. Now, COVID has created a good time to re-evaluate insourcing/outsourcing decisions in ways that fit better with the new normal.
Based on talks I’ve had with legal ops directors, most of them don’t see further insourcing as a viable option, as they don’t have budget for additional headcount. However, insourcing doesn’t have to involve hiring more warm bodies, it can be accomplished by re-imagining processes and workflows. Even if it did require additional hires, studies say that legal insourcing can result in a reduction of around 41 to 60% in staffing costs. Thus, I am not convinced the resistance to insourcing is wholly financial. Rather, I suspect many organizations simply don’t want to change during an already-painful time.
Nevertheless, organizations that don’t seize this opportunity to re-evaluate the insourcing/outsourcing question may multiply their pain in the mid- to long- run. They do this by falling into outdated patterns that no longer apply given changes in the last couple of decades.
In the past, outsourcing was the norm because companies were smaller and had a low volume of legal matters. Many never ran across the same legal problem twice, and never became expert in any particular legal area. Back then, general counsel’s job was to provide basic legal advice and farm the tricky work out to firms. Companies are much bigger today, and they run into the same legal problems over and over. Additionally, technology makes it possible to automate or semi-automate work done in-house, making that option more attractive. Thus, insourcing makes more sense than it did in the past.
Let’s dig into some benefits and considerations for CLDs who may pursue insourcing, now and in years to come:
No Need to “Get Up to Speed”: One of the biggest complaints CLDs have about outside counsel is that they don’t understand their client’s business. To compensate, CLDs pay a high hourly rate for outside counsel to ask basic questions—questions that insourced teams can skip because they work in the same organization and already know most of the answers. In addition to saving time and money, this reduces frustration by not having to bother business folks with questions and (expensive) meetings those folks view as unnecessary distractions from making money.
Better Alignment: Insourced teams are also better aligned with the priorities of the business, including risk tolerance. Many outside counsel substitute their own risk tolerance for that of their client, then forward the invoice. Inside counsel, although conscious of the need to manage risk, don’t get paid by the hour and basically never get sued for malpractice, meaning they don’t necessarily feel the pressure to minimize risk at the expense of other priorities. This allows them to shift the focus towards things like business facilitation. For instance, instead of waiting for clients to have an idea and then telling them it is too risky, they can proactively scan for regulatory changes that make it possible to create new products, enter new markets, or optimize the tax treatment of company activity.
Better Processes: Insourcing doesn’t have to involve hiring. Rather, it can center around process improvement. Inefficient processes may need to be redesigned from the ground up to suit an environment where the goal is to get the job done with as little drain on human attention as possible.
On a prior consulting gig, I worked with a very junior in-house attorney whose job literally involved nothing except drafting NDAs. He would draft NDAs in a required PDF format, which he then was required to “lock” before emailing them out. This meant that the parties could not make corrections themselves, but had to email him back, wait for him to read the email, make the changes, and then send out the revised document. Needless to say, this document sometimes generated further requests for changes. I had to have about a dozen NDAs go through him, and it took over a week, delaying important work and frustrating everyone involved. Ninety percent of it could have been automated.
Organizations that understand how to do insourcing right wouldn’t have a full FTE handle this process. Instead of thinking like business people, this company was still thinking like lawyers, and not in a good way.
The Bottom Line
CLDs must take the pandemic as a wake-up call to reevaluate insourcing decisions in order to reap the benefits outlined above. Insourcing can actually make you better at outsourcing too, as they’re two sides of the same coin. To be blunt, you can’t really be good at outsourcing if you are not also good at insourcing. This isn’t a perspective the legal industry necessarily gets.
For instance, a recent report showed law departments think they’re good at managing outsourced work. However, the same survey also indicated that CLDs do not believe they are particularly good at managing work done in-house. To me, this says they aren’t in touch enough with their own internal operations to do the “make” part of a “make vs. buy” analysis and can’t compare insourcing to outside options in an apples-to-apples way. This calls their entire outside counsel management program into question. Successful organizations of the future will recognize that insourced work has to be approached with the same rigor as outside counsel management programs to truly flourish.