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In-house disruptors

In-house disruptors

Lawyers Weekly

In the first half of this two-part series, we’ll explore those in corporate counsel who are bucking the trends, shaking up their industries, and helping change the dynamic between in-house and private practice lawyers for the future.

The in-house legal sector is without a doubt going through a massive transformation period.

What was once seen as the final sign-off and not much else has now become a core business component, with in-house teams now responsible for looking beyond the legal functions and being part of the commercial aspirations of their organisation from the get-go.

The shake-up

While the in-house community has been seen as a bunch of generalists for quite a while, it’s becoming clearer that this is no longer the case with organisations across a number of industries demanding their legal teams to become specialists in their respective fields and consequently be more involved in the front and back-end processes than ever before.

“We are certainly seeing the resurgence of the in-house team, where their scope of responsibility is increasing to include non-legal functions,” says LOD – Lawyers on Demand legal director Jamie Prell and head of client solutions Paul Cowling.

“GCs are being asked to develop the strategy, and their teams require corporate governance and regulatory expertise as well as manage technology platforms. There is an awareness of the strategic value of GCs and how they add value to the board. They are being asked to do more with a reduced budget, so in-house teams are now looking for more innovative solutions than just having a panel of law firms to assist.

“With many alternatives for GCs in the purchasing of legal services, a significant global trend is that in-house teams have more buying power than ever.”

Both Mr Prell and Mr Cowling put part of the shake-up down to Australian GCs upping their game on the innovation front in a similar fashion to what’s being seen in the UK’s in-house legal sector.

“As a global company, we can see huge similarities in innovation in both Australia and the UK. Our businesses in Australia and the UK were born at relatively the same time because GCs wanted an alternative to traditional law firms,” the pair say.

In addition, Mr Prell and Mr Cowling both believe that Australian GCs are “unquestionably driving change” in the local legal market.

“Because of the evolving nature of their role and being guided by the board and organisational strategy, the loyalty they once perhaps have to one or two law firms doesn’t necessarily exist now,” they say.

“We have observed things like GCss embracing flexible secondment solutions to meet demands and providing internal opportunities to their lawyers to ensure retention of their best talent.

“We have also been involved with a major client’s specific alternative legal services panel, which is definitely unique and innovative.”

With all this in mind, does this suggest that the private practice model is flawed? Will lawyers in local, international and global firms have to change the way they view the role of corporate counsel and in turn how they work with them?

Responding to change

A recent report released by BDO, Law Firm Leaders Survey, profiled 50 national and international law firm leaders in an attempt to gain insights into what the private practice market believes are its biggest threats.

The fact that technology, changing client demands and generational change were among those highlighted came as no surprise, but what did catch some folks off-guard was that competition increasing between private practice and corporate counsel was drawn as a concern.

Across the board, those surveyed noted that they expect businesses to take more work in-house, “where automation is likely to reduce the need for external lawyers in routine and high-volume areas”.

Furthermore, an article in the Australian Financial Review earlier this year lamented that “in-house counsel were the biggest threat to law firms”.

“The most powerful corporate legal advisers in Australia and New Zealand, according to the General Counsel Powerlist by The Legal 500, say they are halving corporate expenditure on legal services by drawing more work in-house and turning to cheaper, quality providers that are stealing the traditional work of the major law firms,” the Fairfax Media article said.

“Firms are risking revenue if they continue to lag on innovation in terms of service offering and billing, as business-savvy in-house teams are outsourcing more and more to specialised boutiques, alternative legal services businesses and directly briefing barristers.”

So just how is private practice reacting to this change in dynamic?

According to Baker McKenzie national managing partner Christopher Freeland, there has been a defining shift in the relationship between in-house counsel and private practice firms in recent years largely due to cost constraints on in-house counsel, competition among commercial law firms, as well as market disruption through new technologies.

“I see a real push by in-house counsel to demand more innovation from private practice firms. Disruptive forces are growing, requiring new technologies, outsourcing of lower end work, and pushing for value-added services,” Mr Freeland says.

“In-house counsel don't want their legal advisers to sit on the fence and rather wish to be provided strategic advice that accounts for all the variable factors and delivers a real direction from which the company can make the right decision and move forward.

“I can also see a desire by in-house counsel to send work to legal service providers in a much more targeted way. Complex, high-end work needs to be done by the best in the market; lower end work needs to be offshored or worked on by the appropriate level of lawyer, rather than the expense of a partner's time.”

Mr Freeland notes that more so than ever, private practice lawyers have had to change the way they position themselves to adapt to the evolving nature of in-house teams.

“You have to be industry-focused and know everything there is to know about the client's business. The more technologically savvy, the better. And the ability to communicate regularly with the client is key to ensure the right path is taken and budgets are adhered to,” he says.

“There has always been a swinging pendulum between work undertaken by in-house teams or directed to commercial firms. The relationship will change based on new disruptive technologies, such as artificial intelligence, and further digitalisation, such as e-contracts and e-discovery software.

“Ultimately, I believe lawyers will be expected to become more industry-focused and specialised in the services they offer a client's business within a particular sector. I predict a continued flight to quality; and when the work is of a sophisticated and complex nature, we will continue to see in-house counsel draw on our services.”

Breaking down the barriers

It’s been stated that the concept of in-house lawyers has very much been thought of as a generalist role in the past. These guys were believed to be uninvolved in the significant day-to-day issues affecting their organisation, and instead purely required to be the “last-minute legal sign-off” in corporate transactions.

However, now more than ever, businesses are seeing their legal teams more as advisers, rather than just being there to close the deal at the end of the day.

They’re involved in the strategic planning and execution of deals in a way that has not been seen before.

As the roles in corporate counsel evolves, so does the responsibility that comes with a career in-house.

For Sunil Puranikmath, legal counsel at Telstra, in-house legal teams can no longer be made up of black letter lawyers, and instead must have a full grasp of their organisation’s key business objectives – and ultimately help to achieve them.

“I am a firm believer that legal teams can no longer just be black letter lawyers. Even in private practice, that is no longer cutting it. When you come in-house you're not just a lawyer, you become an expert in the company,” he says.

“You need to know the commercial drivers of what is moving your company forward, what their goals are, what the strategy is, and you're often asked as a lawyer to help build that strategy or help advance that strategy. And so what was previously just a black-letter-trained-mind is evolving into a
more strategy-based one, a more commercial mindset.

“I think half of our job is being lawyers for Telstra and half is being commercial advocates for Telstra.”

With that in mind, Mr Puranikmath says in-house lawyers are increasingly going out of their way to become specialists in their organisation, somewhat suggesting that this gives him a level playing field when dealing with private practice lawyers who have expertise in certain practice areas.

“When we're trying to be lawyers in a technology industry. It's not enough to draft an agreement for technology without understanding what you're actually selling. A lot of the lawyers in our team go out of our way to understand what it is we're doing. We often will take on extra work to learn more, and to be able to add value to our clients,” he says.

“For example, I do coding and data analytics as a hobby in the background. I picked that up when I came to Telstra because I did a lot of app development agreements and marketing around the way Netflix run and Stan run, and how all these apps talked to each other and how you can make money from the background of economics and advertising.

“[Prior to doing this], I didn’t know how any of that worked. I didn't know how to build an app, I didn't know how to create an app so how can I justify to the business that I'm the best person to draft an agreement, so they can maximise everything they can get out of an app developer?

“Given that technology was what we did, I thought coding and data analytics was a necessity for me to upskill in and that way I can show value to my clients. That also meant people were including me in the early conversations, not just as the last-minute legal sign-off. They brought me in and engaged me as a trusted adviser from the beginning.”

But Mr Puranikmath notes it’s not just the Telstra legal team who is doing this kind of work and disrupting the legal community as we know it.

“It may have been true that a decade ago, that when you go in-house you just become a generalist, commercial lawyer who does a bit of everything but is a specialist in really nothing. That has changed. You are becoming specialists in your industry,” he explains.

“My personal view is that the worst thing a legal team can be viewed as is like the audit team – that necessary legal eagle that you have to go through to get your deal done. We don't ever want to be seen like that; we want to be seen as that sidekick who helps get the deal done from the start.”

Claire Bibby, senior vice president legal and general counsel at Brookfield, agrees that in-house lawyers and legal teams are now more on top of their game in understanding their organisation’s commercial priorities, not just its legal responsibilities.

“In my view, a great in-house lawyer needs to be a “Jack of all trades”. It’s extremely important to stay relevant and current, and one of the best ways to achieve that is when you have a thirst for knowledge and innovation,” she says.

“We keep our eyes and ears open to what’s happening in the market – for a few years now, I have been watching the cyber insurance space and it’s looking like it’s possibly time for us to see if we want to now dip our toe into that water.

“Digital disruption is something we’ve also keenly followed for a number of years. We are currently working with a NewLaw provider and two other in-house legal teams on a potential digital product that could help us all work smarter rather than harder. Some may think it’s unusual for ‘competitors’ to collaborate, but in my mind, two heads (or in this instance three!) working together is likely to achieve more than one working alone.”

Kate Dryden, executive leader and general counsel at Veolia, says the trend of legal advisers becoming more like business advisers is also alive and well in her organisation.

“We do the majority of Veolia’s legal work in-house, reserving use of our external law firms for specialised and/or particularly high-risk issues for Veolia, working with them in those instances in partnership with the in-house team,” she says.

“We work very closely with the business that we support, ensuring that we understand the strategy and direction of the business to secure that the legal advice provided is aligned.

“The legal function does a lot more than advise on legal risk; the team is commercial in its approach, adding business value as well as legal value.”

Deciphering the dynamite

As both private practice and corporate counsel are going through a substantial shift in how they operate separately, how the two work together is also bound to change – if it hasn’t already.

“Quite a while ago, there was a case where companies would be loyal to one set of firms and they'd give them everything. That no longer exists,” according to Mr Puranikmath.

“In our state of being productive, everything we get we unbundle now. You may get a set of firms where one firm does all of your IP stuff, another firm does your consumer law stuff, another one does your litigation but there's no one firm now that will do everything.”

Mr Puranikmath puts this trend down to greater competition in the market. “We have competition, and we have firms that specialise with particular strengths. There's no one firm out there that has the best of everything. We have options in the market. We're not tied to one firm, so why would we stick to the one firm when there are better litigators at another firm?” he asks.

In saying this, however, Mr Puranikmath notes it’s paramount that the relationship building between in-house counsel and private practice lawyers should never be understated.

“One thing I think is important in the relationship between in-house lawyers and a firm is you can never discount the personal connection between an in-house client and a private practice lawyer,” he says.

“That can't be underestimated, and I think what you lose in companies unbundling work and separating work out to different law firms, you can salvage if you have a great personal relationship with a partner or with a certain group of lawyers in that firm, and what I'm finding is more and more so these days firms make their presence known. They'll offer more incentives, they'll come to you. They're not necessarily trying to schmooze you or trying to fish for work, they're building a relationship and it almost turns into friendship, and it’s that personal connection that makes a big difference.”

Ms Dryden echoes the sentiment that the in-house and private practice lawyer dynamic is changing, in particular the way deals are conducted from start to completion.

“In the past some firms expected a relationship whereby the in-house lawyer briefed the external lawyer, told them to liaise directly with the relevant contact within the business and didn’t hear back from him or her again until receipt of the bill at the end of the matter,” she says.

“This sometimes results in the external firm finding it difficult to obtain clear instructions, or not receiving them from the right level within the business, putting the ultimate strategy/advice in question potentially at odds with the broader strategy of the business and also potentially resulting in increased cost.

“[Now] there is a growing market for in-house lawyers, and firms have realised that the two teams need to work in parallel and not necessarily in competition.”

To find a happy medium between the two sides of the legal sector – and to decipher the dynamics – Ms Dryden recommends four strategies for private practice lawyers to implement, enabling them to best position themselves to adapt to evolving in-house teams.

“Move away from the hourly rate model and embrace fixed fee, risk-sharing and other innovative fee arrangements; be willing to offer sharp pricing for the less bespoke/more straight forward forms of documentation (eg standard forms of agreements); be prepared to work with all levels of the inhouse team (including opportunities for corporate counsel to network with their private practice peers; and be prepared to demonstrate real compliance with diversity and inclusion, equitable briefing, sustainability and other such policies.”

Ms Bibby says it has become much more integral for in-house lawyers and private practice lawyers to clearly define their roles when working together.

“It’s very important for roles to be clearly scoped at the beginning of a matter so that people understand the expectations and deliverables,” she explains.

“Then as brief changes or costs get blown out, those conversations that have early and nasty surprises are becoming few and far between.

“Open communication is critical to a relationship working – it takes a long time to build trust, but it can be destroyed in a moment.”

More disruption on the horizon

There’s been an obvious influx in the amount of private practice lawyers who are turning away from the traditional path to partnership and vying for an in-house role – that much has been covered extensively.

How this shift will impact the profession remains to be seen, although one thing that’s certain is it will continue to push the profession forward to more opportunities, with the percentage of in-house teams growing substantially in the Australian legal market and showing no signs of slowing down.

“I am seeing an increase in the size and number of in-house teams – last time I checked, we make up about 30 per cent of the profession and that is a decent chunk of the market in anyone’s terms. We have a voice that can be pretty loud, and we have enough market size to be able to use our considerable buying power to advance changes in the profession,” says Ms Bibby.

“I think what you're seeing is more of those seasoned legal professionals who are looking for a change in pace, a change in culture,” adds Mr Puranikmath.

“Firms are only becoming more and more competitive and being asked to make more, get more clients and work harder. You look at companies like Telstra, which is producing excellent legal work at the forefront of technology, but we still offer amazing flexible working arrangements. And so when you compare them both, you still get to do actual legal work but you also get to go home and have dinner with your family. And I think a lot of big companies are shifting that way.

“This also goes back to that mentality – you don't go to a law firm just to give up your specialty and become a generalist. You can still be a specialist in your area, in an in-house environment, because that's what your clients want. They want you to be a specialist. They want you to offer them that expertise.”

In conclusion, Ms Dryden says that the level of in-house disruption to the private practice model will continue in ways one has not seen before.

In regards to how the relationship between in-house and private practice lawyers will evolve in years to come, she simply says "there will be even less of s distinction between the two."

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