By Veta T. Richardson / Association of Corporate Counsel (ACC)
Veta T. Richardson is the president and CEO of the Association of Corporate Counsel, based in Washington, D.C. Beginning in 2000, ACC has conducted extensive surveys of chief legal officers (which include law department leaders with various titles, including general counsel). Not long after the latest survey of 1,100 chief legal officers from 42 countries was released, she agreed to discuss what she reads in the results. The interview has been edited for style and length.
MCC: Looking at the 2016-2017 survey, what do you consider the most important takeaways?
Richardson: I would say that the most notable findings are about geopolitical impact. The findings show how general counsel must quickly but thoroughly advise their companies on issues of global importance, and how businesses will analyze political and global situations in order to respond to world events. It’s because no business operates in a vacuum, so obviously what goes on in the political, in the legislative world, has a significant impact. And there have been profound shifts going on globally, starting with Brexit.
MCC: So the way you read this, do you think the United Kingdom’s exit from the European Union had a real impact on the thinking of CLOs this year?
Richardson: I think Brexit just opens everyone’s eyes to the fact that a number of countries were potentially becoming a lot more nationally focused, and obviously that has potentially far-reaching ramifications for any business that markets in that established environment.
MCC: All right, looking at some of the nitty-gritty results that caught my attention, I see that law firms are getting back e-discovery work in a pretty big way. What do you think is going on there?
Richardson: It’s interesting, we found this year that 61 percent of CLOs and GCs outsourced their e-discovery work to law firms. This was an increase from 45 percent who reported that they outsourced this type of work, per last year’s survey. This is notable. It’s a 16 percentage point increase in law firms handling e-discovery, and it corresponds with a 14 percent decrease in legal process outsourcing firms (LPOs) and legal service providers (LSPs) handling e-discovery work.
So it seems that after a few years of legal departments seeming to prefer to send their discovery work to LSPs, they are now switching back to law firms. I believe this is probably the result of law firms seeing that prior trend, wanting to reverse it and therefore thinking about how to become more competitive for this business. And it suggests in-house departments prefer to send their discovery work to a single provider, in this case likely a law firm handling other aspects of the litigation.
MCC: When you use the word “competitive,” you’re thinking that the pricing model has changed and they discovered that they were losing a lot of business to other providers – to outside providers – and they adjusted by changing their pricing scheme? Do you think that’s part of it?
Richardson: It’s probably a combination of pricing and service, but definitely law firms thought that they did not want to continue to see that work going to LPOs and LSPs, and some corrective action needed to be taken to gain additional market share. As a result, they’ve become more competitive and secured more of that business.
MCC: I saw that even more of the patent work that had been outsourced came back. As a percentage, that number was really eye-popping.
Richardson: Yes, that’s true. Before I get to that point, there’s one additional thing that I think you may want to highlight on e-discovery. Despite the fact that we saw growth in the amount of e-discovery work that went to law firms, in-house departments reported adding e-discovery jobs in-house. About 4 percent of the CLOs said their department added a legal position that focused on e-discovery. That was up from 1 percent the previous year, and I consider that noteworthy too. Some departments have insourced their e-discovery, bypassing outside providers altogether.
MCC: OK.
Richardson: Now, on to your question about law firms and patent work, you asked me if I had any insights there. What I would say is yes, we tracked a 20 percentage point increase in work being sent to law firms. It was 63 percent last year as opposed to 83 percent of CLOs who reported outsourcing their patent work to law firms this year. This increase also corresponds with a drastic drop in the patent work that was being outsourced to LPOs. In fact, it was a 24 percentage point drop for 2016 as compared to 2015. What we think is going on there is that departments are likely deciding to keep their internal patent workloads about the same, but they’re making choices about where they send their additional patent work. And here again, law firms secured a higher share.
MCC: It’s got to be pretty bad news for LPOs, because that kind of drop in one year suggests loss of confidence in a big way.
Richardson: You know, I’m not sure whether it’s lack of confidence or just the full service that a law firm can provide. It may be the result of companies reacting to a few years of increased attention from patent trolls. While 17 percent of worldwide CLOs said their company had been targeted by a patent troll this year, 19 percent answered affirmatively last year and 24 percent the prior year. So it may be that companies are responding to the patent troll issue, and that’s affecting their choices regarding where to send the workload.
MCC: Law departments also seem to be terminating law firms pretty regularly, according to the survey results. Are there lessons that firms should be picking up on?
Richardson: Yes, definitely. First, you are correct. Nearly one in three general counsel reported that they fired at least one law firm in the past year, and nearly half said that they definitely or may fire a law firm in 2017. Our data also indicated that CLOs are not necessarily eliminating law firms altogether, but they are changing firms and open to doing so.
I think the good news for some law firms will be that there is more potential opportunity to secure work that others have lost. And what will be critical is the ability to demonstrate that their law firm can provide greater value. I believe that this focus on value should be the greatest lesson to law firms: that today’s CLO is very business-oriented and business-savvy and has a greater focus on limiting or decreasing costs. They’re also interested in receiving additional value through their service providers, which includes their law firms, and they’re looking for the highest value proposition that they can negotiate.
We also heard – and we think that this is important for law firms to focus on – that 81 percent of CLOs use at least one type of value-based staffing practice or approach internally. There is a large focus on generating value across the board, and with this mindset, CLOs are a lot quicker to evaluate and notice when law firms aren’t achieving their objectives. They have better internal controls and processes in place.
MCC: On the positive side, it appears that health care companies and telecoms have managed to stem the onslaught of data breaches. Have they managed to get a handle on prevention?
Richardson: You know, you’re definitely right that CLOs in the health care and telecommunication sectors were less likely to report data breaches than they were maybe a year or two years ago. Although the percentage of companies that reported data breaches has started to drop, we still see an elevated area of concern about breaches overall. It’s still a top-of-mind issue for general counsel and chief legal officers, and I believe that it’s because the stakes are so high. There are so many examples of how companies’ bottom lines and brands and reputations can be badly impacted.
Two-thirds of the CLOs we surveyed said that data breaches are extremely or very top of mind for them. Data breaches ranked fourth overall on the list of concerns, coming after ethics and compliance, where 74 percent rated this as their chief concern, regulatory and governmental changes (71 percent), and information privacy (68 percent).
Without knowing all the specifics about what caused the drop in reported data breaches from last year, we can say that knowledge about breaches and shared approaches toward prevention – being proactive, being involved with the business units, with your IT departments – helps do all that you can to try to prevent or stem it. There’s been a lot more knowledge sharing in recent years, so I believe that has helped raise the game for everyone, and the result has been modest improvements.
MCC: OK, let’s talk about in-house salaries for a minute. I’m not sure that they’re falling entirely, but your survey results say that more lawyers are in the lowest pay category. Is there a glut of lawyers looking to move in-house? Would that explain it?
Richardson: I don’t think that there’s a glut of lawyers wanting to move in-house. This year it was a little bit flat, but we’ve certainly seen steady increases in terms of the number of companies taking more work in-house. But if you think about what is going on in the marketplace, we’ve seen big shifts in the demographics of our membership. I think what you see is that a lot of highly experienced lawyers, people who may have been in-house at the general counsel level for decades perhaps – are retiring. As a result, the open positions are likely being filled by people whose experience level is appropriately less. So that may be impacting it. We did see that a majority of CLOs make an annual base salary between $150,000 and $299,999, with the largest category, 32 percent, falling in that $200,000 to $299,999 sector, and that’s not the lowest salary category.
MCC: Now the gender pay gap. There’s been a lot written about that. It hasn’t really eroded at all, despite all the attention. Are companies really under pressure to do something about that pay disparity, and does ACC have a position on this subject?
Richardson: I don’t think you’ll find any organization that wouldn’t object to pay disparity. ACC’s position is that pay disparity is a significant issue, and that organizations need to take steps in order to make sure that there is equal pay for equal work.
MCC: Were you surprised that you didn’t see any changes this year?
Richardson: No, I wasn’t surprised. And the reason is that just like every other industry, equal pay for equal work continues to be a problem in the United States and virtually every other nation of the world. There is a gender pay disparity, and in-house lawyers are not immune from it. It certainly would also be the case if you look at CEOs or any other C-suite executive.
MCC: Alternative fee arrangements: I was surprised to see that the U.S. is far behind the rest of the world in the use of AFAs. Our largest law departments seem to be using them as frequently as they’re used in other countries, but overall it’s a different story. What do you attribute this to, and I’m wondering if it may be a reflection of the power of U.S. law firms?
Richardson: The U.S. has a very well-developed legal market, so making change to established norms can be harder than in less established legal markets. The Middle East, Asia and Latin America lead the world in terms of use of AFAs, so the hourly billing approaches were perhaps not as ingrained there.
The billable hour has been the model in the United States and fueled law firm growth for quite some time, and we know that law is a profession that is less comfortable with change. I can say, though, that legal departments in the United States, at least among our members, have had a much stronger focus on insourcing. I believe that when a company decides to insource, that represents a rejection of other outsource models, which includes placing the work with law firms. That is something for law firms to pay attention to.
MCC: Now, what do we know about legal operations professionals? Do we know how common they are and where you see them most often?
Richardson: First of all, we’ve seen this position really growing in terms of prevalence and stature, so that’s the first finding about legal ops professionals. There are a number of different types and titles, but in any case, their focus is on running the law department. This allows the chief legal officer to take off one of the many hats he or she wears and to focus more on the counseling role and the business strategist role, as opposed to the legal operations and management of the department role.
Legal operations is really a burgeoning function in corporate law departments. ACC even took the step of creating a section of our membership base, the ACC Legal Operations, in March 2015, and the group just continues to grow. The number of individual legal operations members has grown by 51 percent since the inaugural launch of ACC Legal Operations in March 2015.
What we’re seeing is that sometimes these professionals are lawyers, may have practiced at the company and evolved to a new level of responsibility, or they may have more experience on the business side. They may even have MBAs or be CPAs, and they focus principally on budgets, staffing, driving value, metrics, employing technology and helping the general counsel to capture and be able to report value or benchmarking in those areas. This year we saw that 43 percent of chief legal officers have at least one designated legal operations professional on their team. It’s similar to the level that we saw last year, so we didn’t see a substantial uptick, but it’s interesting that just two years ago the figure was only about 20 percent. So it’s more than doubled in a very short period of time.
Frankly, I have to say that I think ACC has had an impact on that, because we have worked with an inaugural group of legal operations professionals to put together really practical aids to help other people evaluate whether the position would be helpful to them. We’ve gone the extra step of providing sample job descriptions and assisting with analyses of when might be a good time for a law department to invest in this sort of role. A lot’s been written about it by our members and by these professionals themselves, in terms of the value that the position offers.
What we see overall is that companies with larger revenue and companies with law departments that have larger, sometimes more complex budgets, are more likely to turn to a legal operations professional to really step up and have responsibility in those areas. If we look at it in terms of revenue cuts, those companies with revenue in excess of $4 billion had at least three and a half full-time employees as legal operations professionals on average. Those with revenues under $2 billion had one and a half or fewer, and even departments with budgets under $1 million averaged a little less than one full time employee handling legal operations.
While it’s certainly the case that companies with larger revenues are more likely to have legal operations professionals, we are tracking that small- and mid-sized companies are also beginning to invest in the role for their legal departments.
MCC: What is your definition of administrative staff? Maybe you could clarify who you’re calling a legal operations professional and who you’re calling an administrative staff.
Richardson: Legal operations professionals are not administrators. Their level of responsibility touches budgets, operations, management decision-making, and they have executive-level skill. Administrative staff I would define more as people who are administrative assistants. They support staff who are in other roles within the department, like perhaps a legal assistant. A legal operations professional is more likely to have an administrative staff person or assistant reporting to him or her, for example. When we talk about the legal ops professional, we are excluding an administrative assistant or legal assistant from that definition.
Veta T. Richardson is president and CEO of the Association of Corporate Counsel (ACC), the largest global legal association serving in-house counsel. Her priorities as CEO are to expand ACC’s global footprint and solidify ACC’s position as the pre-eminent voice for in-house counsel worldwide. Prior to her current role, Richardson held executive-level positions in the nonprofit association realm and served as in-house counsel at Sunoco, Inc., where she was responsible for corporate governance, securities disclosure, financings and M&A transactions. She can be reached at richardson@acc.com.