The Contrarian: The revolution has been delayed
Consultant Rees Morrison on how the client-law firm power relationship hasn’t changed. And law departments everywhere are facing a talent shortage.
Rees Morrison knows just about everybody. Of course, that’s an exaggeration, but he’s been a consultant to in-house legal department for decades. A principal now at the consultancy Altman Weill Inc., Morrison has had a long career helping legal departments sort through their issues, at his current position, as an independent consultant, and as the right hand of pioneering in-house guru Brad Hildebrandt.
A lawyer by training, and a critic by nature, Morrison has a unique vantage point to see how the corporate legal department is progressing. And after the economic crisis of 2008, which was supposed to change everything, empowering clients and giving them leverage over Big Law, he’s disheartened to find that most clients and their outside firms have gone back to their old comfortable ways. This, after whole associate classes were wiped off Big Law rosters, so much so that law schools in the United States showed a 25 percent decline in admissions between 2010 and 2017. MAG talked to Morrison about the state of the in-house department and the big problem that nearly every department is about to face.
How healthy are large corporate legal departments today?
I think that they’re in pretty robust shape because the economy is in pretty good shape. Companies are generally thriving, and legal departments tend to be the tail on the company dog.
For years, legal publications wrote stories that the economic crisis was supposed to change everything—the whole power dynamic between inhouse lawyers and outside counsel. That they were going to change the fee structure, and how they do work with them and supervise them. They were going to have partnerships. It seems to be that it was a quick burst of propaganda, and then things settled to mostly the old ways. Except at the edges. Is that true?
I think you’re right. It’s an unexciting, un-journalistic statement, but at least with the middle- sized lawyer departments of three to 20 lawyers hardly anything has changed. Except with a little more contract or temp lawyer/paralegal involvement, and certainly, the e-discovery rate crest has ebbed. But you’re right. I don’t think it ever changed that much. It just got talked about by pundits.
The fact is no one has come up with anything better than billable hours. Most law departments are pretty content with their law firms. They like them, need them, so there isn’t the attrition anyone wanted.
What about General Electric? It got together with UnitedLex and put their lawyers on UL’s payroll? Is that panning out or happening?
Exception proven wrong. The notable big names like Microsoft grumble and everybody shakes. But I’m looking at the vast bulk of American legal departments and they’re the same. And with good reason. The fact is no one has come up with anything better than billable hours. Most law departments are pretty content with their law firms. They like them, need them, so there isn’t the attrition anyone wanted.
Is there anything exciting that law departments are doing? Maybe not with outside counsel but internally in how they work?
Excitement or not, they’ve had to deal with succession planning, because experienced 20-year veterans are retiring. What are you going to do with Joe’s spot, when Joe knew everything about the company? It’s a difficult issue, because when you’re running leanly, you can’t have a bench.
I think below the surface general counsel may be more concerned about the loss of institutional knowledge than they are about relationships with law firms. I know that’s going on almost everywhere, with these 60-year-old people who are close to retirement.
When we at another publication did annual quality of life surveys, younger lawyers complained about not having a clear career path in the department. I think that’s why there’s a lot of churning, with mid-career people moving around a lot.
I don’t sense churning. Law firms are more volatile than legal departments. There are expectations about billable hours, etc. Working at a law department is more of a job. So, the personality types that go in-house are not likely to jump into another department. I haven’t seen statistics but that’s my sense.
The career path issue is intractable. There’s only one general counsel, and there is only a handful of reports to the general counsel. So people don’t move very much. People are basically in place for three, five years at a time. And they want to be promoted, to get more money or a different title or to feel that they are progressing, but it can’t happen in smallish law departments, which are 80 percent of the law departments in America.
You’re Mr. Data, and with the rise of legal ops. I can see how the big departments need operations pros, otherwise they’d go crazy. Is there a certain limit, or a size that a department should be before they start delving into data and analytics? Or is it good for everyone?
I was just thinking that four or five years ago we were predicting that offshoring—having legal-type work done in India, etc.—was gaining momentum. But my sense is that it hasn’t really come about. I think it’s because there’s only so much commodity work. And also because there’s a sense that sending sensitive work overseas isn’t great.
As you asked me the question, somewhere at the 10 lawyer-level, most departments have some sort of administrator. So coming back again at my curve, 60-70 percent of legal departments are below that level. There’s no way at all that they could do analytics.
My answer then is you need 10 lawyers to have an infrastructure where you can have someone doing finance and technology and data analytics.
UnitedLex is not eating Cravath’s lunch. Metaphorically. …I have a feeling their chest-pounding far exceeds their actual impact.
The revolution has been postponed?
That’s not the headline you want. I am speaking realistically, but disappointingly. I’m just trying to think about the question and answer honestly, rather than coming up with an answer that would help consultants.
The futurists were talking about the UnitedLexes of the world, sort of doing legal work but merging with tech and new software about what it could do. And some of the boosters say they’ve eaten into what law firms do. Have they made that big an impact, or is it at the margins? And brand names still matter the most?
No doubt at the high end, the existential end…let’s put it this way: UnitedLex is not eating Cravath’s lunch. Metaphorically. The U.S. legal market is in the $200 billion range. What is the revenue of UnitedLex? I’d give it a couple hundred million. Is that really materially eating into the market? I have a feeling their chest-pounding far exceeds their actual impact. Elevate talks a good game, but I have a feeling that it’s still pimples on elephants.
What do you think the biggest challenge for legal departments now and for the next few years is?
I asked 100 GCs. I don’t think it’s technology. I suspect it’s, at some level, talent, loss of talent, and replacing talent. And it’s the old hoary chestnut of showing value to the company and not being seen primarily as a cost. If business people had their way, there would be no legal problems and lawyers wouldn’t be needed at all.