Late last year, CLOC, the Corporate Legal Operations Consortium, released the results of its first annual State of the Industry Survey, looking at such metrics as legal spend; legal department and legal ops headcounts; commonly used e-billing vendors, contract management systems and alternative service providers; and law firm evaluation priorities.
The respondents represented 156 companies in 32 industries, spanning 30 U.S. states and 11 countries. With a median company revenue of $7 billion, they claimed an average external spend of $60 million per company.
Shortly after the findings were released, CCBJ Publisher Kristin Calve sat down with CLOC CEO Connie Brenton, whose day job is chief of staff, director of legal operations at NetApp, and Jeff Franke, a member of the CLOC leadership team and Yahoo’s chief of staff and assistant GC, legal operations, for a wideranging conversation on the industry trends underlying the survey results, many of which are presented in this article. Their discussion is excerpted below.
The accompanying charts are drawn from CLOC’s 2017 State of the Industry Survey, which can be downloaded at www.CLOC.org.
On a Common Language
Connie Brenton: Going into 2018, we would be hopeful that there will be end-to-end technology solutions so that both in-house and outside counsel can leverage the same technology, or at least have them integrate so we are not dealing with completely different sets of providers, data sets, etc. There is an opportunity to create some efficiency just by speaking the same language in terms of our technology.
Of course, that goes hand in hand with speaking the same language in terms of what metrics we’re capturing and what data we’re leveraging.
Jeff Franke: One of the things we’d like to start seeing is a common language around legal operations. This industry is not like financial services or any other mature industry where people have been leveraging the same concepts, metrics, benchmarks, etc., all of which have been vetted and are generally understood to be the correct approach. CLOC’s creation of the 12 Core Competencies (view them here) is one of a few such baselines.
Brenton: Not only is this need for a common language applied to terminology, it also applies to standards. We need to focus on creating at least some standard so that we are not re-creating the wheel. This coincides with continuing to collaborate across the ecosystem.
On the State of Legal Ops
Franke: Anecdotally, I would estimate that most corporations in this industry, 60 percent or so, are at the foundational level in terms of building out their operations function. About 35 percent are at an advanced level. They’ve done some really good things, but they’ve got much room to improve. Only about 5 percent are at what we would consider a mature level, and even those have some significant areas left for improvement.
Brenton: Prior to operations, we had been solutioning in silos, and we have evidence that that doesn’t work. It might look good on paper, but when you go to implement, it just doesn’t work.
On Embracing Technology
Franke: When we look at the CLOC operations maturity model, a lot of companies have implemented or started to implement the basics. But if you look at a competency like dashboards and data analytics, a competency found in somewhat more mature ops functions, we see that this is an area that’s still beyond the grasp of many companies. So, while a percentage of companies may be moving down the path to operational maturity a bit quicker and may be a bit further along, in some cases having adopted a lot of tools and AI, many other companies are still near ground zero. Even a technology like contracts management has only been implemented by maybe 50 percent of corporations, and most don’t have robust implementations with comprehensive processes to support their tool.
Brenton: I think the tech companies have been much more collaborative and willing to share because we’re not regulated and have a culture that is different in terms of sharing information about processes.
On Billing Methods – and Market Forces
Franke: It’s not so much about getting away from the billable hour as it is about what things should cost. When you hire a contractor to do work on your house, they fix their bid based on the different resources that they have to bring to the table – plumbers, electricians – and what that’s going to cost them. There’s an underlying hourly rate there, but they know how many hours it’s going to take to install a new faucet or sink. They don’t try to figure it out for every job.
Law firms, however, start from scratch every time they do an M&A deal or a tech transaction or an employment contract. Good contractors know how to do a remodel and when to use tools rather than manual labor, and they know how to staff a job.
That’s not been the case with law firms. We’re getting away from that – firms are gathering data, figuring out optimal staffing models, determining when to outsource, etc. That allows them to offer AFAs that are win-win.
Brenton: Because we now have the ability to capture data, we have a better sense of what a particular matter should cost. Data is driving the providers of services to work differently. That means they’re having to mix up how they use technology and how they source their personnel.
Franke: It’s not always visible to the law firms what other firms are charging.
Brenton: They’re looking to things like surveys, such as Gartner, to find that out. This gives them good information, but it doesn’t tell them how other firms manage to be, say, a third less expensive.
Franke: One firm looking at this type of situation realized that the only way they could make radical shifts in pricing would be to leverage technology, look at staffing completely differently, implement LPM and ultimately work with the client to figure out a different engagement model.
Ultimately, market forces caused them to say, “You know what, we need to look at things differently. We’re losing business doing things the same way we’ve done them for decades.” That’s kind of the story here. It’s running legal like a business.
On Law Schools
Franke: We’re starting to see some law schools address the inability of law students to graduate with the core skill sets needed to practice law right away. Law schools have seen a significant decline in enrollment in recent years, and they are facing pressure by students to prove that they will be able to get a job when they graduate. The law schools have not been able to offer enough evidence to convince some of the best and brightest that they should go into debt to the tune of $150,000 or more when the prospect for getting a job is unclear. So now some schools are changing their curriculum and approaches to teaching to offer courses that address CLOC’s 12 Core Competencies, as well as other basic law practice skills. We’re now reaching a point where, between market forces and the marketplace, there’s some pressure and momentum on changing at least the curriculum. CLOC is looking forward to working with a number of law firms, some other players and the law schools to push law schools forward faster – not only to change the curriculum, but also the way in which we qualify students. The Bar passage rate in California last year was 35 percent. The answer to that is not, as the deans of California’s law schools suggested, lowering the passing scores. It’s to reset the entire process.