Throughout the changes of 2020, different groups sought to understand what challenges legal departments faced as companies cut costs, adapted to new work environments and made sudden changes to how they did business.
Several groups produce information on the concerns of law department operations and their legal officers. Across the reports that sought to define the impacts of 2020, a picture emerges of restrained impact from the pandemic, the increases and challenges of tech and new costs of doing business.
COVID-19
Some might have thought the strategic priorities of 2019 were thrown “out the window” by the pandemic, but Thomson Reuters’ Acritas 2020 State of the Corporate Law Department survey reports that’s not exactly the case. In speaking with general counsel since the start of the pandemic, many departments report that core strategic priorities remain as described — and “may even be more important at the current time.”
“The current crisis only underscores the previous environment in which in-house legal teams face pressure on a multitude of fronts,” the Reuters report states. Corporate leaders want these teams to provide protection against growing risks but also facilitate growth of the company.
However, Blickstein Group’s Law Department Operations Survey found that the pandemic isn’t necessarily at top of legal officers’ minds. In a list of concerns, COVID items were behind cost containment, managing a budget, service providers and performance. The only reported COVID issues were budget cuts, noted by 11% of respondents, expense pressures and work from home or return to work concerns.
However, a pool of chief legal officers reported that their organization’s revenue was down in the past year in response to COVID, according to Altman Weil’s 2020 CLO Survey. Still, over three-quarters of respondents reported their law department workload was up over the same time.
Regardless of the financial impact of the pandemic on individual offices, the pandemic did change some things across the board — the Blickstein survey notes working from home opportunities and cultural acceptance of remote work as significant impacts of the pandemic. Other respondents reported that legal operations were playing a larger role in their organization than before.
Altman Weil respondents reported both lawyer and non-lawyer staff decreases due to COVID, which perhaps creates a new urgency and focus on staffing choices, efficiency and resource allocations.
TECH
In 2019, many law departments told Thomson Reuters they were looking to improve efficiency via technology. In 2020, Thomson Reuters predicted that technologies facilitating communication, document sharing and collaboration — both internally and externally — were even more important for running effective law departments.
And 70% of Blickstein survey respondents said the pandemic accelerated the movement toward automation and digital transformation. In some cases, this was part of a long-term vision for law departments, and being able to focus on those initiatives for extended periods could help some departments catch up with other business units.
However, the Thomson Reuters survey notes that some tech projects could’ve actually been delayed by the pandemic and the subsequent remote work norm. And the Altman Weil survey stated that some reductions in staff in 2020 were likely cuts that that could have been made in prior years due to process improvements and increased reliance on tech.
The 2020 Association of Corporate Counsel CLO Survey found that just under 70% of CLOs expected the use of artificial intelligence in legal tech application to grow, and only 7% believe it’s only a temporary trend.
COSTS
Across legal departments and across surveys, financial concerns are some of the biggest issues. In terms of cost, 60.3% of Blickstein respondents reported their current top challenge was cost containment and managing budgets. According to the ACC survey, at least one-third of respondents anticipated sending more work to law firms in 2021, despite pressure on corporate legal departments to do more with less.
While many organizations are facing financial challenges, Thomson Reuters found that legal departments are looking to outside firms for suggestions on cost containment and billing flexibility. While half of all CLO respondents put delivering value to customers as their top priority over the coming five years, maximizing profits came in second with 35%, according to the ACC survey.
The Blickstein survey noted that a key metric of the industry during economic downturns is the impact on law firm hourly rates. Only 9% of respondents expected rates to decrease in 2021, while 46% expected to pay more this year.
Altman Weil’s survey found that 43% of departments increased their total spending in 2020, but 40% decreased it — which closely tracks the 2019 levels. The survey stated this was a reflection of many CLOs’ caution , who a year previous believed that an economic recession was on the horizon.
For 2021, 44% of CLOs reported to Altman Weil that their total budgets will decrease, while 39% expected increases. If that were to be the case, it will be the first time in 10 years that more department budgets are shrinking instead of growing.
Allocations for spending throughout 2020 were steady in personnel and operations, outside counsel and non-firm vendor portions of department budgets, according to Altman Weil respondents.
COUNSEL
Half of all Thomson Reuters respondents said they were focused on reducing external legal spending. In total, 90% of respondents using the company’s Legal Tracker, a legal operations management software, reported that controlling outside cost was a high priority.
In total, 41% said bringing more work in-house was a focus.
The Blickstein study reported that a big fear coming from law firms at the start of the pandemic was a push from clients for discounts. However, LDO professionals didn’t appear to ask for them at any increased rate, or they didn’t get them.
Altman Weil’s survey asked what actions outside law firms offered to assist departments during the COVID crisis and how valuable that effort was. A total of 90% of law firms offered their clients general information on pandemic issues, 46% advised on available benefits and 27% “stepped it up a level” with specific COVID-related advice customized to clients.
Approximately two-thirds of respondents are receiving discounts on over half of bills, according to Blickstein, and other cost saving measures have barely been impacted.
In terms of outside counsel spending, more departments reported decreased spending in 2020 compared to those who made increases, according to Altman Weil. Over the previous 10 years, typically twice as many departments reported increasing internal spend annually compared to those making decreases.
However, in 2020 the differential changed to a decade low, according to Altman Weil. Around 40% of departments made increases, while 32% made decreases.
In addition, 64% of Thomson Reuters respondents reported that they planned to increase the amount of work being brought in-house, and 63% reported they were not taking on additional attorneys or were reducing headcount.
FUTURE
As for the future? The Altman Weil survey noted that it is now a “waiting game,” and that corporate law departments are well positioned to sustain throughout the remainder of the crisis period and emerge stronger and leaner organizations.
Thomson Reuters found that for many respondents, data privacy and cybersecurity are emerging risks and a topic of concern for many departments — otherwise avoiding litigation generally through minimization of risk exposure was a “strong theme.”
Looking ahead, the Blickstein survey notes that the 2020 survey showed how over the past 13 years law departments had striven toward innovation and collaboration, and that going forward they hope that trend will continue as law firms and departments work to develop the same goals and strategies.
— Avery Martinez