Cost-Cutting Clients Look To Bring More Work In-House Next Year

Law firms are, by and large, planning to make their numbers this year. No one will confuse 2023 with the gangbusters results of the last few years, but most firms avoided the financial devastation that triggered broad layoffs in select practice areas at some firms.

But while the inflation and the “recession that never was” fade into the rearview mirror, firms may find a looming structural challenge coming from their clients.

The Association of Corporate Counsel and Everlaw just put out a new report titled The State of Collaboration in Corporate Legal Departments, collecting the thoughts of “370 chief legal officers, general counsel, other in-house counsel and legal operations professionals from U.S. corporate law departments.”

And it turns out a whole lot of them intend to move more work off Biglaw plates in the coming year.

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In fairness, legal departments almost always signal that they’re bringing work in-house right before they crunch the numbers and remember that even high-priced Biglaw help is cheaper than hiring the cadre of full-time employees necessary for those tasks. But in 2022, only 59 percent expected to bring more in-house, so this is a troubling trend line. Adding in the 39 percent looking to shift to smaller firms and it’s a grim survey for Biglaw.

And what a difference a year makes for artificial intelligence, with almost triple the buy-in from last year’s survey conducted before ChatGPT delivered AI’s mainstream breakthrough. Artificial intelligence isn’t ready to match the hype for a variety of reasons, but it’s moving that direction and 33 percent acceptance today should get firms worried about 2024 and beyond.

Aside from taking work away from firms, in-house departments remain fixated on building better cohesion with other business units, with 70 percent of respondents citing improved alignment as their top goal. It’s a perennial concern, but also one that technology might just resolve:

“In-house counsel want to collaborate with other business departments but they feel hamstrung by a lack of automation,” said Chuck Kellner, strategic discovery advisor at Everlaw. “A true digital transformation of the legal department will get them through this last mile for greater parity with other departments. GenAI may become the killer app to drive the needed cost savings and create the efficiency improvements.”

But should firms really worry about losing work in 2024? While the survey looks alarming, it’s worth noting that clients have a vested interest in posturing like they’re about to walk out the door. Legal departments rarely respond, “Yes, we love Biglaw rates and, frankly, would love to pay more!” Not that anyone surveyed intended to offer a cynical response, but corporate legal departments embrace the we-could-easily-do-that-ourselves mindset harder than any population short of middle-aged dads hanging around a Lowe’s after watching an hour of HGTV.

And just like those folks, the effort tends to fizzle.

HeadshotJoe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.