The evolving structure of in-house legal departments

Meg LewisWednesday 2 March 2022

In-House Perspective tracks some of the key changes to the in-house operating model over the past few years – and the reasons behind them, from Covid-19 to budget cuts.

According to the Law Society’s latest Annual Statistics Report, in the UK alone ‘there are an estimated 31,000 registered in-house solicitors – a figure that has almost tripled over the last 20 years’.

Given this meteoric rise in the number of in-house lawyers, which has taken place alongside unprecedented challenges to working life and legal practice, the traditional operating model of the internal legal department has been forced to adapt.

A central role

For Katherine Woods, Deputy General Counsel at facilities management and professional services company Mitie Group, one of the key changes to affect the structure of in-house departments in the past five to ten years is the recognition by the wider business of its central – and strategic – business function.

‘Companies now recognise the need for a strong in-house team that deeply understands the needs of the business and acts as a strategic partner. At Mitie, having a strong in-house team embedded within the business but with central oversight has transformed the way the legal team supports our business,’ she says.

Woods says that, as a result, ‘there’s been a shift to embed lawyers in the business but still ensure all reporting lines feed into the General Counsel. This way, we make sure there is central oversight of legal, regulatory and commercial risk but at the same time have lawyers who understand the commercial and operational needs of the business.’

Technology take-up

The volume of work involved can, in some instances, be tackled with the right technology. But, while solutions such as eSignature and eBilling have been widely implemented by legal departments, the embedding of more advanced automation across many industries is happening at a slower rate.

This is despite automation and advanced technology consistently being named a top priority by in-house counsel.

As Allen & Overy’s Innovation Playbook for the future-fit legal function argues, ‘most in-house functions are at the beginning of the innovation curve, focusing their attention on strategic planning and capability building. Few have yet implemented transformative innovation across the entire legal function.’

This has been the experience for Kate Smith (not her real name), an in-house lawyer at a bank in London. ‘While in-house lawyers get lots of training for coding and data analysis, there’s not really a practical application of that automation on our side of the business,’ she says.

‘There is an appetite for automated technology to absorb repetitive processes,’ she says. ‘The issue is that any standardising or codifying process would have to be done by in-house lawyers who have experience using those types of agreements. So, if they don’t have the time to dedicate to it, it won’t be done.’

And, with greater reliance on tech, comes great exposure to cyber threats – which the in-house team would be largely responsible for managing.

‘As you get more agile, the risks also go up,’ says Harpreet Sidhu, Publications Officer for the IBA Corporate Counsel Forum and General Counsel at Canada-based tech company, Pethealth.

‘While I’m constantly focused on security and encryption, PCI [payment card industry standards] and GDPR [EU General Data Protection Regulation] compliance, when it comes to even more advanced technology like AI [artificial intelligence], there’s arguably a need for the businesses to employ a senior counsel privacy expert, who has the language and knowledge to work with the internal IT teams to keep the business safe.’

“There’s arguably a need for the businesses to employ a senior counsel privacy expert, who has the language and knowledge to work with the internal IT teams to keep the business safe

Harpreet Sidhu, Publications Officer, IBA Corporate Counsel Forum

The role of non-lawyers

This, of course, comes at a price. With businesses still weighing up the associated costs of embedding automated solutions, reliance on non-lawyers is high across in-house teams for standardised work.

Smith says that, in the financial industry, ‘typically, there are more non-lawyers supporting than lawyers instructing. It’s been heavily relied upon in recent years, and I see that only increasing.’

Yet, there’s a limit to the kind of work non-lawyers can support on. Smith says frequent developments in industry standards or regulations make it difficult to pass technical work to non-lawyer support teams.

She believes resources such as standardised playbooks and training for non-lawyers are key, but with in-house lawyers already feeling the squeeze on capacity, this process will take ‘a number of years to implement’.

External support

In the meantime, many in-house teams are outsourcing more technical work to external counsel than ever before in a bid to cope with their increasing workload.

According to the Corporate Legal Operations Consortium’s State of the Industry Report – which examined responses from 200 organisations across 21 countries – in-house departments’ external spend nearly doubled in 2021 compared with 2020.

Stephen Revell is Co Vice-Chair of the IBA Law Firm Management Committee. He spent more than 40 years in private practice and remains a consultant at Freshfields Bruckhaus Deringer’s Singapore office. He has also established a law firm consultancy, Making Change Happen.

Revell has observed a marked rise in instructions from corporate legal teams over the past five to ten years, when measured by revenue, and says ‘clients are still using law firms!’

‘Particularly through the past few years of Covid-19, many law firms have had their best years ever in virtually every jurisdiction,’ he explains.

According to Revell, there are many factors influencing this rise in instructions: the emergence of new areas of law, such as data protection and environmental, social and governance (ESG), as well as a steep rise in M&A activity, warrant specialist support from experienced law firms.

‘This is somewhat exacerbated by the pressure many general counsel are under to reduce head count to manage costs,’ he says.

Sidhu agrees. ‘Five or ten years ago, as a general counsel your work was limited to contracts, employment, IP [intellectual property] and corporate risk. You went to outside counsel if you had litigation. Now, departments have shrunk due to [cost cutting], but all the while areas of law are expanding, so smaller teams have to do more. As a result, they need more help from outside counsel.’

Abhijit Mukhopadhyay is Committee Liaison Officer for the IBA Corporate Counsel Forum and President (Legal) & General Counsel at Hinduja Group in London. He highlights that while internal teams are outsourcing increasing amounts of work to external counsel, general counsels’ expectations of their private practice partners have also increased.

‘We’re becoming very demanding in terms of cost, quality and time,’ he says. ‘The kind of fees we negotiate these days were unthinkable ten, 15 years ago. Today, we ask our legal counsel about their fixed fees, success fees and discounted fees. All over the world private practice are recognising that in-house teams are no longer willing to pay an hourly fee.’

Alternative providers

With billions being spent on external legal advice, in-house departments are gradually turning to alternative legal service providers (ALSPs) to carry out certain tasks.

According to a 2021 study by Thomson Reuters, ALSPs ‘have accelerated their growth to a nearly $14 billion market share globally and are quickly becoming a mainstream segment of the legal market’.

Figures show 71 per cent of corporations now use ALSPs, with the expectation that utilisation will double over the next five years.  

Revell has witnessed this shift. ‘Clients are being smarter about how they get their legal work done,’ he says. ‘Many are looking as to how they can get more commodity legal services at a cheaper price.’

“[Companies] are being smarter about how they get their legal work done. Many are looking as to how they can get more commodity legal services at a cheaper price

Stephen Revell, Co Vice-Chair, IBA Law Firm Management Committee

Mukhopadhyay says that for any corporate, as long as three parameters are met – deliverable quality, time and cost – then there’s ‘no reason we can’t use them’.

‘In-house teams all over the world are adapting to a more flexible model, so ALSPs are a great asset to us,’ he says. ‘There are some more traditional ALSPs, like accounting firms with a legal arm, which we continue to use, and we’re open to new service providers coming onto the market as long as they’re meeting expectations on quality and quantity, etc.’

For Woods, improved access to temporary resource and legal talent on demand has been a marked change. ALSPs ‘represent alternative ways of supporting in-house legal resource and can be flexible to meet demand,’ she says.

Internal offering

In an expanding legal market, companies must also turn inwards, to ensure their internal legal offering remains attractive and competitive to lawyers and non-lawyers alike.

At the Bank of England, the focus over the past decade has been on building balanced teams made up of colleagues with a range of backgrounds and levels of experience, according to the Bank’s Deputy General Counsel Rob Price.

‘This has enabled us to provide a range of opportunities for colleagues, with the clear aim that there should be a development path that would allow somebody who joins us as a paralegal to one day progress to General Counsel,’ he says.

Variety, career development and protected downtime are also key areas where corporate lawyers are demanding more from their employers than in years past.

‘We are keen to support those colleagues who wish to build a diverse portfolio of experience across the wide range of work we undertake,’ says Price. ‘This includes building flexibility and a focus on personal development into the way teams allocate work, as well as promoting moves between teams, either on a short or longer-term basis.’

Smith, who made the move to in-house from private practice in the last two years, has seen the finance sector’s focus on retaining in-house colleagues increase significantly since her appointment, especially as the ‘Great Resignation’ – the phenomenon observed since 2021 whereby large numbers of employees have left their jobs or are looking to move – ramps up competition to attract the best talent.

‘Management recognise the need to retain those who’ve been trained up, to keep them motivated and open up career paths,’ she says. ‘Lawyers are demanding greater variety in their role, as well as setting strict boundaries between work and downtime.’

Sidhu agrees there is a pushback against increasing hours. ‘A few years ago, one of the main reasons why women in particular went in-house was because of the more regular hours, but with Covid, work-life balance was being eroded.’

For her, the ‘right to disconnect’ provision, which comes into effect in Canada in June and is already in place across some European countries, is an important step. Although the details vary by jurisdiction, generally speaking this provision places an obligation on employers not to contact employees out of hours. ‘Colleagues will be able to legally switch off after 5pm,’ says Sidhu.

Flexible working

With the accepted narrative of in-house providing a better work-life balance coming under threat around the world, might we see a change in the direction of travel, with in-house lawyers returning to private practice? Revell believes this is unlikely.

‘Overall, the traffic will remain predominantly in the same direction, from private practice to in-house, not least because that’s generally how the system works,’ he says. ‘While a few legal departments are geared up to take on a graduate, most want a fully trained lawyer, and the source of that is private practice.’

Revell says there is ‘quite a bit of myth’ around the idea that the typical in-house role is nine to five. ‘It’s massively overstated. Factors driving lawyers to consider in-house are generally about wanting a more organised and predictable work style.’

However, part-time work or flexible arrangements are becoming more common.

‘Since Covid, there has definitely been greater flexibility around the hours you do, as long as you get your job done,’ says Smith. ‘This can be accommodated much more easily than in private practice.’

Price has been working part time since the birth of his second child in 2007. ‘The ability to work flexibly has long been a particular strength at the Bank of England and the level of formal part-time working in the legal team has remained high, but relatively constant,’ he says. 

However, there’s potentially still some way to go to close the gender divide when it comes to formalising part-time arrangements or parental leave.

‘Formal part time working by male colleagues is not as rare as it was when I started working four days a week,’ says Price. ‘The option to take parental leave has been taken by an ever-increasing number of male colleagues, with around a third of colleagues taking parent leave in the past year being male.’

Encouraging diversity

One area that consistently ranks as a top priority in the structure of in-house legal teams is improving the diversity of recruits to boost the recruitment and retention of women, LGBTQ+ and disabled lawyers, as well as those from underrepresented racial and ethnic backgrounds.

For Sidhu, one area of diversity which is not being given the attention it demands is education and work background. ‘Certain companies continue to only consider lawyers who graduated from top universities or trained exclusively at Magic Circle firms,’ she says.

In London, Smith has observed a real push at her place of work for new hires to be from a more diverse background.

‘Management are very conscious about hiring a diverse pool of talent, but there is still work to be done internally when it comes to progression to senior roles,’ she says. ‘There’s a noticeable difference, for example, in how many female leaders there are in the department compared to male.’

‘Promoting genuine ethnic diversity and inclusion in the legal profession will require focus on multiple areas,’ says Price, citing the ‘disproportionate underrepresentation in large commercial law firms and other City institutions of black men from less socially mobile backgrounds.’

Published in 2020, Legally Disabled? The Career Experiences of Disabled People in the Legal Profession in England & Wales was the first comprehensive study of its kind in the UK. Lead researcher Professor Debbie Foster, of Cardiff University, says that of the in-house disabled legal professionals interviewed, the majority were in larger organisations, and often in the public sector.  

‘What struck us when we began our research was that, in a profession that has become increasingly aware that it needs to address a representation gap, which has meant that some groups have historically been underrepresented in the shaping and practice of law, little attention has been paid to disabled people,’ she says.

Foster believes hybrid working is potentially exciting and inclusive, as it provides ‘unlimited opportunities for job re-design’.

‘We need to see hybrid working as an opportunity for new thinking on inclusion. We all have strengths and making the best of human resources should be about playing to these. If we think of re-designing jobs around the people we employ, we can start thinking differently about disability and reasonable adjustments,’ explains Professor Foster.

Ready for tomorrow

Over the past ten years, businesses have increasingly recognised the value of a strong, visible internal team.  

‘Even as recently as 15 years ago, there wasn’t much conversation around the need for corporations to have general counsel. Now, there is a strong realisation in the legal fraternity that a knowledgeable, strong and effective legal team is needed for business to grow,’ says Mukhopadhyay.

“There is a strong realisation in the legal fraternity that a knowledgeable, strong and effective legal team is needed for business to grow

Abhijit Mukhopadhyay, Committee Liaison Officer, IBA Corporate Counsel Forum

Yet there’s still work to be done to create a resilient operating model fit for the times. General counsel and their teams will continue to play a vital role in preparing their business to face the challenges of tomorrow. And while some of these issues are predictable – Covid-19, climate litigation, cyber security, for example – others are less so.

‘For example, Canada just legalised marijuana, so now in-house counsel must consider legislation around marijuana in the workplace,’ says Sidhu. ‘As general counsel, you are also a business partner, corporate secretary and keeper-of-the-keys to the business. You’re the most logical person to keep on top of all these challenges – but the frameworks around us need to be strong enough to facilitate this.’