A recent survey has found that those in corporate law departments are largely optimistic about the potential for generative AI and programs such as ChatGPT in performing both legal and non-legal work.

In total, 82% of respondents say generative AI can be applied to legal work, while 54% believe it should be applied to legal work, roughly the same rate as their law firm counterparts. Similarly, 70% believe these tools should be applied to non-legal work as well.

The survey, conducted in late April by the Thomson Reuters Institute, gathered insight from more than 580 respondent lawyers and legal professionals within corporate law departments in the United States, United Kingdom, and Canada. The survey forms the basis of a new report, ChatGPT and Generative AI within Corporate Law Departments, which takes a deep look at the evolving attitudes towards generative AI and ChatGPT within departments, measuring awareness and adoption of the technology as well as lawyers’ views on its potential risks.

The report — which pairs with an earlier report done by the Thomson Reuters Institute, ChatGPT and Generative AI within Law Firms — also reveals several key findings that show not only how corporate law departments are approaching their ChatGPT and generative AI plans, but how those plans differ from law firms, and what legal departments want out their law firm partners’ generative AI use. These findings include:

Higher awareness and willingness to apply — Corporate law department leaders surveyed generally had high awareness of ChatGPT and generative AI, with 95% of respondents saying they had either heard of or read about ChatGPT or generative AI. That is higher than the awareness among law firm leaders, of whom 91% said they had either heard of or read about ChatGPT or generative AI.

More comfort with using the technologies — Only a small number of corporate law departments (11%) said they are already using or planning to use ChatGPT and generative AI in their legal operations; however, this was again significantly higher compared to use or planned use by law firm respondents (5%). Among those respondents who said they’re already using or planning to use ChatGPT and generative AI in their operations, 19% of both corporate legal and law firm respondents say they are already using these technologies on a wide-scale basis.

Acknowledgement of the risks involved — Three-quarters of corporate law professionals say they have risk concerns surrounding use of ChatGPT and generative AI, mostly in areas of accuracy, privacy, confidentiality, and security. Further, about one-quarter of respondents said they have received warnings from their companies about ChatGPT and generative AI usage for their work, but only 10% reported ChatGPT and generative AI had been banned at their companies. Many of the objections over AI use in legal work acknowledged the importance of human touch and expertise in the legal profession, the uniqueness and complexity of legal issues, the need for supervision and review of AI-generated materials, as well as ethical considerations and the perception by some that the technology may not be fully ready yet for appropriate use in legal.

Even with the potential risks, general counsel and others are actively preparing for a potentially major change in how work is done. “We’re not shutting our eyes to this,” says one senior legal officer at a large corporation. “We’re working on a solution that would work for us.”

And awareness of generative AI’s potential is likely to spur acceptance and usage, even in the usually reticent legal profession. “Before ChatGPT, technological advancement in legal software has been pretty incremental, but now it appears poised to take big steps toward something significant,” says Gunter Eren, General Counsel in Research & Development at the Business Innovation Centre of Konica Minolta in the U.K.

You can download a copy of the Thomson Reuters Institute’s new report, ChatGPT & Generative AI within Corporate Law Departments, here.

Environmental, social & governance (ESG) issues represent one of the key areas of complexity in global regulatory landscape. Yet, when asked specifically about ESG, it was the third-most cited risk on the horizon, with one-in-five law departments seeing ESG as a major future risk.

Even more interesting is that data privacy and cybersecurity were also in the top 5 risks on the horizon, according to the survey. Clearly, GCs and CLOs would agree that these two risk concerns are important governance issues as part of the G in ESG. Indeed, looking at top 5 risks on the horizon cited in the survey, one could easily argue that ESG, when including data privacy and cyber-risk, is actually among the most important risks on the horizon.

If we agree that ESG encompasses data privacy and cybersecurity, then ESG rises to the top as one of the most popular risk on the horizon over the next three to five years by corporate legal departments across the world. And while the regional variations are also quite interesting, they send the same message: ESG, including data privacy and cyber-risks, is a key governance issue that is top of mind for many corporate law department leaders.

Taking action on these insights

More importantly, law firms can use this market intelligence to invest in their practices. For example, law firms with ESG practices should be ramping up in the regulatory & compliance areas because this has been cited as the most pressing current priority and one of critical importance in the future. In particular, in-house legal departments are challenged to keep abreast of regulatory changes — and because ESG is a major area of fluctuations in regulatory requirements — law firms would be wise to prioritize their analysis and forecasts of ESG regulations across jurisdictions and highlight new details of reporting requirements of existing regulations and show how clients can meet compliance obligations.

In addition, spotting issues in emerging ESG areas, such as biodiversity, is another consideration. For example, the Task force for Nature Related Financial Disclosures  just released its Beta v0.4 with recommended disclosures, which clients may find confusing and complex.

Decarbonization of their supply chains is another major challenge for companies, particularly for those with complex value chains. There are many components of this issue with which clients may need assistance, such as implications for vendor contracts and outlining new requirements for data reporting in contracts, such as greenhouse gas emissions and certification in forced labor regulations. At the same time, companies need to increase their ability to conduct due diligence of prospective suppliers on human rights and other denied-party screening.

Antitrust issues also are a growing area of concern for companies, in large part because of U..S lawmakers’ recent allegations that industry collaboration on ESG violates antitrust laws, specifically, firms could focus on the “rule of reason” test through the lens of market impact or market power,  as well as delineating business justifications in the U.S.

Finally, employee well-being continues to grow in interest among shareholders and investors, and ESG and diversity, equity & inclusion (DEI) was cited as a top-5 priority for in-house legal departments. This represents a tremendous opportunity for law firms’ labor & employment practices, especially as companies continue to struggle with varied preferences in work flexibility amid remote working frameworks. In addition, companies are consistently in need of updated and expanding HR policies across pay equity, learning & development, as well as DEI, among others.

The existing regulatory landscape is a tough challenge for many in-house lawyers. Moreover, the future remains murky is in this space, according to corporate law department leaders, and in-house lawyers will need the assistance of outside counsel to meet expectations. This leaves law firms with an abundance of business opportunities across ESG practices to seize upon.

Yet the growth rate shown in the most recent report still came as a bit of a surprise: a 20% compounded annual growth rate (CAGR) for the past two years, resulting in a current market size of $20.6 billion. In interviews with leaders from more than a dozen ALSPs, respondents said they expected standout growth in the sector to continue, and survey data from the client side supports these expectations. Among respondents from the largest law firms, 26% said they plan to increase spending on ALSPs, while only 3% said they expect their spending to fall. Within corporate law departments, 21% expect to be spending more on ALSPs in the future, with just 8% expecting spending to drop.

Interview respondents consistently referred to the ALSP market as “opening up” over the past two years, citing a variety of catalysts: changes wrought by the global pandemic, the impact of the Big Four auditing and accounting firms, and the shrinking size of many corporate legal departments, among others. ALSPs are taking advantage of those changes to greatly expand their service offerings; and while the industry is young, a number of ALSP leaders said they’re beginning to see a trend more commonly associated with mature industries: consolidation.

More growth ahead?

A sales director at a U.S.-based ALSP says that ALSPs have moved through the very early stages of the growth curve associated with any new innovation and are now poised for accelerated take-up. Among customers, the innovator and early adopter segments of that base have been using ALSPs for years, and their positive experiences are clearing the way for a wider mass market. “All of a sudden, people will say, ‘Okay, it’s safe now,’” the sales director says, “which will lead to even more expansion.”

He also pointed out that the traditional legal market leaves behind a lot of unmet demand. “Clients simply cannot afford all of the legal and regulatory advice they need to buy,” he says, especially if law firms remain wedded to the billable hour. “There’s this latent demand out there, and if you change your model, you can grab more market share, because [clients] just cannot afford to buy answers by the hour.”

The Big Four have also had a positive effect, says the founder and CEO of a U.S.-based ALSP, admitting that “this is going to sound strange.” The Big Four have convinced many general counsel, CFOs, and CEOs that business and law shouldn’t be so separate, the founder explains. “We found that the Big Four moving into the space has actually just opened up the top of the funnel — it’s so much larger now.”

ALSPs also get a boost from the fact that corporate law departments are shrinking — even though their workloads are not. A founder of an independent U.K.-based ALSP echoes that sentiment. “One of the things we see is that a bigger client doesn’t mean a bigger law department,” the founder says. “Inside legal counsel and inside legal operations are shrinking.” Meanwhile, he adds, inside teams have too much work, or work that isn’t a good fit for their capabilities. Legal departments are even bringing in procurement professionals — a relatively new part of the legal landscape — to try to close that gap in a cost-effective way.

Not surprisingly, the pandemic had an impact as well. “The stigma of offshore support has worn off,” says the vice-president of a U.S.-based ALSP. “We all ended up working from home, and we learned it doesn’t matter where the person is that you’re talking with.”

New opportunities

Together, these trends mean opportunities for ALSPs. The largest seems to be in regulatory & compliance work and advisory work, as well as in technology consulting. ALSPs are also looking to expand into specific service areas, such as labor & employment law, and into new geographies.

The impact of regulations such as the General Data Protection Regulation (GDPR) in the European Union and the California Consumer Privacy Act (CCPA) have produced “a huge focus” on privacy, says a U.S.-based ALSP leader. His firm is partnering with a technology company to provide faster and more focused data breach review. They’re also spending “a significant amount of time” helping clients update their contracts to reflect the new laws.

The new regulations are especially hard to navigate for those organizations that do business across countries and regions. “It’s increasingly complex to operate businesses in multiple jurisdictions and try to manage all of them,” explains the CEO of a law firm captive ALSP in the U.S. “For a lot of our clients, some of their biggest needs are just better use of some of the tools that exist that make it easier to have a good lens on the range of matters our clients have in different jurisdictions.”

Technology consulting, as mentioned in the ALSP 2023 Report, is also a growth area — one that overlaps significantly with legal operations. A partner at a law firm ALSP says his firm is regularly asked to weigh in on matters such as how to manage work, how many lawyers to hire, and where those lawyers should be located. On the technology side, his clients want advice about which technology solution to buy, how it should be implemented, and how it can be made to work best for them. The partner described a typical request as one in which clients say: “I bought some technology, and it’s crap, and it doesn’t work. Help me, because I’ve spent half a million pounds on it, and I can’t admit it doesn’t work.”

Growth through acquisition

As ALSPs grow, it’s not surprising that they become more attractive acquisition targets, fueling consolidation. “In the early stage of this industry we were trying to say, ‘Who do we acquire?’” says the co-founder of a U.S.-based ALSP. “There was nobody of any size to acquire. They were all tiny.” Another ALSP founder expects consolidation to continue, as companies that are strong in one service area — for example, discovery — look to buy a competitor that is strong in a complementary area, such as legal operations.

A partner at a law firm ALSP is already noticing that his competitive set is smaller. “Four or five years ago, I think there were 10-plus providers in the market. There might still be, but you certainly don’t see them. You probably see three or four at the most.” Now, he’s finding his clients are using ALSPs quite heavily, and hire just a handful of providers. His diagnosis of his market segment could just as well apply to the ALSP market as a whole: “It’s grown up,” he says. “It’s matured as a service offering.”

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I sat down with Andrea Harris, Group Chief Counsel at WPP, the multinational communication, advertising & technology company, to understand what advice she would give to her peers as they determine how best to maximize support for their organization’s ESG strategy.

“ESG is complex, and responsibility for a company’s sustainability and climate change agenda often sits across many functions, which makes this an opportunity for GCs,” Harris says. “While there are many stakeholders already involved — and even though Legal is taking on an ever-increasing workload — my experience is GCs and their teams can successfully navigate this and create impact at scale in their organizations.”

Harris is also a participant in Lawyer for Net Zero’s Leaders Programme and like the other GCs in the program, gains peer-to-peer insight and support to influence their companies’ sustainability initiatives.

Understand the businesses’ approach to sustainability

Companies are seeing their employees increasingly keen to be part of its sustainability agenda. This enthusiasm is to be applauded, but it needs focus to help deliver effective and large-scale impact.

For Harris, a crucial step that GCs and their teams can undertake is to really understand the business’ sustainability aims and strategy, how those link with the wider corporate strategy, and then focus on linking this with the legal team’s day-to-day work. GCs need to think about the impact of climate change across the whole value chain, from the suppliers to clients, Harris says, adding that GCs need to “think about how different business functions are impacted and how Legal is currently supporting these areas.”

Build cross-functional relationships

Another successful tactic used by Harris and that she suggests to her peers is building effective internal cross-functional partnerships. Because GCs are usually part of the executive leadership team and their teams are embedded within all reaches and levels of the company’s structure, they are in a unique position to do this.

Sustainability and ESG teams often have less resources and in the early days of their creation, could have fewer established relationships. This is an opportunity for Legal to partner with the Sustainability Team. GCs and their teams can help them push their ESG agenda out into the organization and support the ESG team with their ambitions. “With its connections Legal can play a key role in being a champion for its sustainability colleagues. You can be their eyes and ears, heart and soul out in the business,” she explains.

By fostering connections and partnerships within the business and facilitating shared learnings, Harris says she believes that legal teams can also limit ESG activities being siloed within the business. To support the silo-breaking, she urges making connections.

“The more GCs and their teams can network and share learnings between different parts of the business, the less chance there is of everyone having their own well-intentioned but small projects in silo and the greater the scale and impact they can create,” Harris says.

Support board and senior management

Many corporate boards now understand that sustainability is not simply a nice-to-have component but is actually a business-critical element. Indeed, Harris notes that WPP is very alive to this agenda. “The sustainability agenda is an issue the board has to think about, in the same we think about how our figures are doing, or our people,” she says, adding that the company’s CEO and executive management are driving the agenda and ensuring the right caliber of people are in place to achieve the organization’s goals.

In turn, Harris has been supporting the CEO and senior management by ensuring the correct governance structures are in place and that sustainability and climate change are standing agenda items at the corporate board level.

By keeping corporate directors up-to-date and putting in effective accountability and committee reporting structures, GCs can ensure ESG is embedded within the company’s thinking and focus.

Collaborate with peers

Finally, Harris advises GCs to join like-minded peers to stay fresh on current ESG trends and to find ways to maximize effectiveness in the corporate legal function’s advocacy for the enterprise ESG strategy.

For example, Lawyers for Net Zero’s program, which supports Harris and other global GCs in organizations such as Rolls Royce, Specsavers, National Grid, and Centrica in creating an impact on their company’s sustainability goals, is one such way to stay abreast of ESG developments.

“GCs and their teams are busy, and sustainability can get pushed slightly to the side as other priorities take over,” she says. “The Leadership Programme keeps you on track of what you were trying to deliver and helps you best support your sustainability colleagues.”

Another key benefit of gathering with GC colleagues across different industries who are facing similar challenges is knowledge-sharing. “Learning from my peers can be incredibly powerful as you not only see that it can be done but how it’s been done,” Harris states.

ESG will only increase in importance in the coming years, of course. And as Harris points out, there will be many opportunities for GCs to help to increase the effectiveness of their companies’ ESG strategies. Indeed, momentum begets momentum.

In a recent interview, Tasha Grinnell, head legal and sustainability officer at The Container Store, underscored the importance of these issues for the company’s own ESG journey. Grinnell, who joined the company in early 2022 with a multitude of in-house legal experience across a number of industries, took responsibility for the packaging retailer’s ESG strategy later than year.

Three key drivers contributed to the decision to place ESG under The Container Store’s corporate legal function, Grinnell says. The legal team already was providing regulatory compliance for financial data, advising on product liability and safety, and had become central to ensuring the company’s ESG compliance to internal standards for new stores and the stores’ suppliers.

Key governance moves

The ESG program at The Container Store is still in its early days, Grinnell explains, with the strategy officially starting in 2021 with its initial ESG commitments reported in its first sustainability report in 2022. During that year, the company conducted a materiality assessment, which identified and prioritized areas of risk and opportunities across ESG topics important to the business.

One of Grinnell’s top priorities when assuming responsibility for the enterprise ESG strategy was to ensure the governance of the program was set up for success. At The Container Store, the ESG steering committee is the approving body of the company’s strategy set-up and execution. All of the voices of internal and external stakeholders — employees, investors, suppliers, and others — are represented to ensure full stakeholder feedback is considered on every initiative. “Our ESG leadership council is integral in The Container Store’s governance structure and is responsible for strategy execution,” Grinnell says. “Our leadership council consists of subject matter stakeholders from all areas of the business, including our leadership team, our associates, our suppliers, key business partnerships, our investors, customers, nongovernmental organizations, and our SG [social and governance] evaluators.”

The next priority areas for Grinnell that are currently underway, is memorializing comprehensive policies and programs that outline the environmental and social responsibilities for the company. For example, one of the recently updated key policies and procedures involves calculations of the baseline greenhouse gas (GHG) emissions for Scope 1 and 2 of the company’s stores, utilizing the Greenhouse Gas Protocol to calculate emissions. The policy execution also includes the company’s efforts to offset power usage of its stores, as well as its distribution and support centers, which derive 100% renewable energy from wind.

Coping with big challenges

No matter where companies are in their ESG journey, managing big challenges with a small team is almost universal. The Container Store’s ESG team is another example of the corporate adage that “1 equals 3” — the idea that one great employee is three-times as productive as a single good employee. Grinnell made it clear that the positive trajectory would not be possible without the everyday contributions of Ivet Taneva, the company’s Senior Director of ESG, and Ann Cunningham, a Senior Paralegal working as the internal ESG Project Manager. Both report directly to Grinnell.

Data volume and lack of automation slow progress — One of the biggest challenges for Grinnell and her 1½-person ESG team is the volume of data and lack of automation. Grinnell and Taneva now are in search of an enterprise solution that can capture all of the company’s ESG metrics. “Currently, we must work with several tools to streamline our key performance indicators — our aspiration is to move to digital when it comes to ESG,” she adds.

The team is using automation for efficiency in visualization and modeling around emissions and waste reduction reporting. To make sure the tool continues to meet the needs of the ESG strategy at The Container Store, a member of Grinnell’s team sits on the customer board of the company’s software partner to ensure the product fits its needs and external standards.

Employee education key to earn buy-in — Another challenge that The Container Store is prioritizing is employee education from the top of the organization down to local management of stores. “One of biggest hurdles is making sure those who have responsibility to report ESG information at the local level understand the purpose and value of the information that we are requesting, so that we’re receiving material information back from the business units in a timely manner,” Grinnell explains.

A key mechanism to strengthen the commitment and messaging to employees is the chief merchandising officer’s participation on the sustainability committee. The corporate merchandising division oversees a separate sustainability committee that the ESG team reinstated. The sustainability committee ensures that a good portion of The Container Store’s stock falls into the sustainable category. Having the chief merchandising officer on this committee is a critical tie-in to the corporate ESG strategy and helps ensure that products are sustainably sourced and that employees know about and understand the value and importance of sustainability.

Looking ahead, The Container Store is committed to meeting and exceeding benchmarks and standards that have been set by U.S. regulators, once they are finalized. Grinnell is confident in the team’s ability to execute, largely because of the intentional and strategic nature in which the ESG strategy and function was founded.

“The Container Store recognizes the importance of our impact on people, the planet, and the communities in which we operate, and we believe that it’s imperative to the success of our business to continue learning, proving, and advancing our vision in that area,” she says. “One way we’ve done that is by placing the ESG strategy into the legal department so that we can really implement and execute a strong, legally sound, and thoughtful strategy.”

Tanja Podinic, advisor to corporate legal departments and law firms through her firm Digital Legal Ventures and former Global Director of Innovation Programs at Dentons, says she has seen the same issue from the client side. At one general counsel conference she spoke at in March, she explains, only about one-in-five GCs said law firms approached them for feedback following an unsuccessful panel appointment.

Clearly, feedback is something that law firms require, and corporate legal departments would like to receive better service that could arise from feedback. So where is the disconnect?

Understanding the value

Podinic notes that oftentimes, the onus is on the law firms to initiate feedback mechanisms. But in many cases, before law firms have anything to solicit, legal departments themselves need to think more critically about the value they want their law firms to provide first.

“General Counsel are now expected to be strategic business partners to their organization, they have a key role in helping their organization execute on strategy and meet goals. As a result, GCs would benefit from law firms being their strategic business partners in a similar way.” Podinic says. “In order to place that expectation on law firms however, GCs need to be more open about their business priorities to enable law firms to collaborate and deliver value more effectively. This lack of stakeholder alignment results in missed opportunities for both, law firms and their clients.”

She gave an example of a GC looking to appoint a panel of law firms for their corporate litigation matters. Firms focus on what they think is of value to the client — offering discounted legal fees, use of technology, client secondments, etc.

There is a rarely a conversation to establish what the client would value most, what would result in the greatest impact for the client. The GC may need to deliver internal data privacy and cyber security training, could the law firm offer to do this training as a ‘value add’ in exchange for a slightly lower discount on fees? Alternatively, could a law firm leverage its own legal project management team to assist the GC to roll out an internal operations project more effectively? Such creativity requires transparency from both sides, and this is not the norm.

Feedback is another powerful tool that is often not used for fear of criticism. When engaging in feedback, it’s important to pinpoint exactly what expertise the law firm is expected to provide in a matter — both from the law firm perspective and the corporate perspective. “The thing is most law firms don’t really promote themselves in this particular way because it’s not what they are used to and they fear that the result may be negative,” Podinic adds.

“When you receive feedback and the feedback isn’t necessarily positive, you are almost forced to actually change something that you’re doing in order to be able to be successful in the future, or to actually not lose a client.”

Indeed, Podinic explains that while law firms are often asked to be proactive in asking for feedback from their clients, there’s nothing stopping legal departments or general counsel from providing feedback themselves and speaking more clearly about what they desire out of an engagement.

“More beneficial for the GC would be: We complete a really big matter, let’s do a quick assessment of how the law firm did. Whether or not they met our requirements, how were they to deal with? Were they pleasant or did they respond in a timely fashion? These are really basic metrics that can influence whether or not that particular firm is reappointed.”

The benefits of an open conversation

The mutual benefit to both parties is knowing exactly where the relationship stands. If the client experience was a positive one, then both sides will want that to continue. On the other hand, negative feedback from a client to law firm can also provide a necessary impetus for change, Podinic says.

“A GC is unlikely to remove a firm from their panel based on negative feedback, but it could strongly encourage the client relationship partner to improve the service to the client to ensure the relationship continues.”

“I think this may be one of the reasons why law firms are slow to change, there’s no formal feedback loop.”

A formal feedback loop doesn’t necessarily mean a data-heavy feedback loop, although that can certainly be part of the ultimate plan. Podinic notes, however, that especially for law firms first initiating feedback with a particular client, it’s near impossible to develop key performance indicators (KPIs) because the firm doesn’t understand that value the client wants them to bring. As a result, she cautions: “Let’s start small and then get to the specific metrics and the detailed data later.”

And the other key suggestion that Podinic had for beginning a feedback conversation: Be brave.

“Law firms, particularly partners have a hesitancy to ask difficult questions of GCs, and understandably so, they’ve likely fostered this relationship for many years,” she says. “But I think the reality is that open and honest conversations will lead to more satisfied clients, who will retain their existing law firm relationships.”

Reticent law firms may just find their clients are more receptive to having the conversation than they might have believed.

“I don’t think many GCs would make decisions to remove firms from their panel as a result of negative feedback,’” Podinic adds. “It’s less about disruption, and more about stakeholder alignment. Law firms need to get comfortable with the idea that being a client’s strategic business partner may mean they need to change how (and in some cases what) they deliver to their clients. The key is to support clients to achieve their priorities and goals as a business. At the same point in time, GCs also need to be open to this shift. Creativity and transparency, along with meaningful collaboration could unlock value for both, clients, and law firms.”

First, while this is a metric we have reported for some time, the NSA nomenclature has only recently been standardized. Notably, the methodology behind its calculation hasn’t changed: it is calculated by asking a relatively simple question and then denoting the gap between positive and negative responses.

During interviews with corporate general counsel, we ask them whether, within the next 12 months, they expect their legal spending to increase, decrease, or stay the same. The NSA chart below shows the percentage of those who answered the question in the positive (41% anticipate their legal spend to increase over the next 12 months), and those who answered in the negative (20% anticipate spend would decrease). The actual NSA metric is then calculated by subtracting the anticipated decrease percentage from the anticipated increase percentage. For the most recent quarter, the responses give us an NSA figure of 21, up slightly from the prior quarter.

For much of the time we have been reporting this metric, we did so without a formal name for it. When we decided to formalize it, our first attempt was using the name net spend optimism, which seemed appropriate as the metric generally tends to show legal spend increasing over time — which often is unsurprising and can cause a general sense of optimism on the part of providers of legal services, as there will likely be an increasing amount of wallet to capture.

However, as we heard feedback from many general counsel, much of it fell along the lines of “I may be anticipating an increase, that doesn’t necessarily mean I’m optimistic about it” — a fair assessment.

As the State of the Corporate Law Department report highlights, cost control is among the top five strategic priority areas for GCs around the world — and it’s number one in the United States. Increasing legal spend potentially runs contrary to this strategic priority and may even invite greater levels of budgetary scrutiny for many GCs, something they would definitely prefer to mitigate.

So, we adopted their vernacular: they’re anticipating an increase in their legal spend.

Drivers of legal spending

In an era of growing cost pressures, what is driving the potential for increasing legal spend? There are likely several factors. First, as the report discusses at length, regulatory compliance is an increasing challenge for GCs, and each layer of regulatory complexity adds with it an increasing level of cost of compliance.

At the same time, certain legal practice areas such as litigation are incessantly more expensive. Given that litigation lawyers cost more, and the high costs associated with eDiscovery are almost unavoidable, the resulting increased costs of litigation undoubtedly factor into the anticipation of higher legal spend. And last but not least, as reported in last year’s Legal Department Operations Index, 65% of corporate law departments are experiencing an increase in their overall matter volume. With all this in mind, it’s unsurprising that many GCs anticipate their spend to increase.

That raises the question, however, whether these anticipated spend increases a good thing or not? While, to a great extent, they are likely unavoidable, as businesses of all sorts face continued economic uncertainty, it is quite understandable that GCs would be apprehensive. So, what can be done?

For some time, law firms have been reporting rising pressure from their clients around rates and fees. Yet, we see a continuing pattern of ever-higher rate increases.

For many GCs, turning to technology to help automate workflows and increase efficiencies in their operations has become a primary way to increase departmental productivity. Some 71% of legal operations professionals see using technology to simplify workflows as a high priority. And they are also looking for help from the outside.

For some time, law firms have been reporting rising pressure from their clients around rates and fees. Yet, we see a continuing pattern of ever-higher rate increases. For those law firms looking to maximize the likelihood of a client agreeing to a rate increase, capturing a greater share of a client’s spend, increasing the firm’s market share, or minimizing the amount of business potentially under threat as clients look to optimize their outside counsel panels, the focus needs to be on how value is delivered to the client and how that value is communicated.

At a recent event I attended with a large number of GCs, the discussion inevitably turned to law firm rates. Surprisingly, many of those in attendance said that they actually paid little attention to the top-line rate the firm charged, but instead were much more attuned to what the business received in exchange for that rate.

For example, one GC shared that she paid nearly double the hourly rate to one firm for the private equity work she needed, but she was more than happy with that firm — which she named specifically to a room full of GCs — because they consistently delivered expert, timely advice that met the goals of her business, doing it in one-half to one-third of the time it took other firms. What a great testimonial for that firm. The factors the GC valued — quality, timeliness, commercial soundness — were all things this law firm delivered routinely. As a result, she agreed to their rate increases, she paid the firm’s bills quickly (and fully), and she was actively promoting them to other GCs who might be in need of similar services.

In an era where GCs know they will likely have to spend more money and don’t necessarily love the idea, law firms would be well advised to follow such a model for the benefits it can deliver to both their clients and the firm itself.

During a roundtable session at Reuters’ recent Legal Leaders USA event, a large contingent of corporate legal leaders — general counsel, assistant GCs, and legal operations professionals — discussed what they are looking for in terms of new efficiencies and technological solutions within their departments and how more advanced tech tools like ChatGPT and generative artificial intelligence (AI) will impact corporate law.

Indeed, in the Thomson Reuters Institute’s recently published 2023 State of the Corporate Law Department report, corporate law department leaders said their main priorities fall into four categories:

• • • • safeguarding their company from risk;
      • driving the overall success of the business;
      • delivering sound legal advice; and
      • making the best use of limited resources.

While many corporate law departments are experiencing a shift from a focus on efficiency to a focus on protecting the business, the search for efficiencies and the manner in which they can be achieved is still top of mind for many of those in attendance at the Legal Leaders event.

In fact, much of the discussion centered on the latest innovations and technological solutions that are being used across the board. Attendees really wanted to hear from their peers about what tools, processes, or new technologies they were using, why they had chosen those solutions, and — most importantly — what was working as envisioned for the law department?

That achieving greater efficiency was a top priority was not surprising, given that many attendees self-identified as being newer to their roles, with many of them joining as part of their company’s dedicated ramp-up in legal operations. In fact, many of them said they had either just been hired into legal ops within the last year or were themselves creating a legal ops team. In most cases, they had been given a mandate to look for ways to create greater efficiency within the legal function, including identifying ways to automate the department and employ the right legal technology to move the ball forward.

Interestingly, one of the tech solutions most discussed by the group was Contract Lifecycle Management (CLM) systems, a wide-ranging platform that can cover everything from contract automation to intake and process management. Many attendees said it was important to identify what problems your department is trying to solve before trying to implement a CLM system, because the tool isn’t a one-size-fits-all solution, and there’s a lot of functionality that falls under the CLM umbrella.

First, some advised, you need to identify your greatest need; or determine what would be a good challenge to tackle first. Indeed, one participant said their CLM allowed them to move from automating the contract in-take process to then allowing them to serve their internal clients more quickly and track how they were spending their time more effectively. Their CLM system also allowed end-users to delve into a lot of data about what the law department was doing and how it was doing it, ultimately helping them refine their processes.

Adoption & implementation are key

From there, not surprisingly, the group talked about the critical issues of adoption and implementation of new technology and, most importantly, how difficult (or not) it was to drive that change.

One attendee discussed how their team sought to make the department’s new in-take site more user-friendly so internal clients would have an easier time with it. The department also had to make sure that people were aware of this new solution. In fact, showing potential users the clear advantages that the new solution has over the previous way of doing things can make all the difference, the attendee said.

Another participant noted that once the team showed users company-wide that they could click on a pull-down on the CLM platform to access a self-serve non-disclosure agreement form and that they didn’t have to wait three days in queue for one, it became a huge selling point that got people across the company engaged in using the platform.

Once users became aware of the ease-of-use of the new platform, several attendees said it was their experience that people around the company started joining in with other tasks that they found they could now more easily complete. Importantly, attendees agreed, department leaders need to work internally to help any new tech adoption from its onset by demonstrating what’s in it for the end-user and — even more critically — by making the value pitch to management. Both of these strategies are key factors in terms of getting to a point where the new technology is being utilized much more regularly across the company.

The future of legal tech

Not surprisingly, the group also was eager to discuss the impact that ChatGPT and generative AI on legal and what role those advanced tech tools may have in the industry. For instance, recent headlines suggested that 40% of legal jobs could go away because of such technology, and while that seemed to worry many attendees, some were quick to point out that they’ve heard that before. Indeed, several said that other past technologies — such as online legal research, for example — were supposed to have a similar effect on the legal world, but instead, the profession just adapted to these innovations and found they could work faster and more effectively by using them.

Other participants stressed that the human element is still a critical component in legal services. While online legal research made lawyers more efficient at finding primary information, for example, the task still required the application of human judgment and interpretation of what was being viewed.

New technology always allows the industry to take a step forward, many agreed, but often, especially when you’re talking about all things legal, it opens up new questions that need to be answered by experts. And certainly, with generative AI and ChatGPT, there will be all kinds of legal ramifications that need to be contemplated and will impact everything from regulations to corporate policy, leaving lawyers at the forefront to navigate many of those challenges.

Finally, when the group took up the question of what the legal landscape would look like in five years, one legal specialist noted an old saying that holds, “If you can think of it, then it will happen sooner than you think.”

To many discussion participants, that meant that change is coming to the legal profession at a more rapid pace than many industry experts may predict — and legal leaders are going to need to be prepared for it. As one attending legal leader quipped: “Buckle up, because it’s gonna happen!”

This growing trend was highlighted recently published Alternative Legal Services Providers 2023 Report, a data-driven report produced every two years by the Thomson Reuters Institute in partnership with The Center on Ethics and the Legal Profession at Georgetown Law and the Saïd Business School at the University of Oxford.

And the growth message wasn’t lost on the report’s survey respondents. As one U.S.-based CEO and co-founder of an independent ALSP says: “We’re probably at literally 10 times the number of conversations from a year ago about, how do you mature your legal department? How do you adopt the next tech? How do you do a three-year tech plan? How do you do the organizational change? How do you transform your services?”

Interviews with more than a dozen additional ALSP leaders found that more strategic considerations are becoming a routine part of ALSP discussions across multiple service areas. For example, concerning using ALSPs to fill secondment arrangements, one partner in a law firm ALSP explains: “It has become much less of an emergency service — it always used to be, ‘Someone’s left, we’ve got a gap.’ Now it has become built into the way that large clients manage talent.”

You can download a copy of the Thomson Reuters Institute’s Alternative Legal Services Providers 2023 Report here.

In other service areas, this ALSP leader says client requests “are far less ad hoc in their nature, and clients are increasingly looking to explore how they can do things differently.” Once clients use the ALSP’s services in one area, they’re quick to see the ALSP’s applicability to others, and they’re putting their other partners on notice. “Some of them are very clear,” notes one survey respondent. “They are preparing the market and their suppliers. They are saying, ‘This is coming. We are going to shift work and we want it delivered in a different, more cost-effective way, and you need to start getting ready for that.’”

Data strategy is another opportunity for both ALSPs and their clients. “I’ve met with a few [General Counsel] (GCs) over the years and one of my questions was, ‘Tell me about your data strategy’ — and five, six years ago, they looked at you funny,” says the chief innovation officer of a U.S.-based law firm ALSP. “Now they understand they’re sitting on a mountain of data.”

Indeed, some ALSPs are helping clients with work related to the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA). Others are giving GCs better visibility into the activities of their teams, both internal and external. “It’s a one-pane-of-glass view for a general counsel of what’s going on in their organization which, believe it or not, a lot of general counsels don’t have,” says the sales director of an independent U.S.-based ALSP.

The influence of procurement & legal operations teams

This newfound reliance on ALSPs as both business and legal partners has several causes, according to the interviews. First is the maturation of the ALSP market itself. As ALSPs have grown, law firms and corporate GCs see them as more stable partners, less likely to run out of funding or be bought by a bigger player that may not be a good fit. Corporate clients are increasingly requesting that their law firms perform more efficiently, and ALSPs can present a good long-term solution to that request.

However, larger factors in the rise of ALSPs seem to be the increasing importance of legal operations and procurement teams within corporate law departments themselves, as well as ALSPs’ standing as experts in legal technology and processes.

No longer does a GC rely only on relationships to find outside legal partners. With procurement and legal operations teams joining in the decision-making, efficiency and cost become more important. The result, says one founder of a U.S.-based independent ALSP, is that “now we’re able to sit down at the table with them and talk about utilization of contract lawyers as a strategy — not to replace your outside counsel.”

“We’re probably at literally 10 times the number of conversations from a year ago about…”

More tech-forward ALSPs use similar meetings “to help customers design what their strategy should be, their target operating model, their technology strategy, their key performance indicators (KPIs), their sourcing, their spending, and their supply management,” says the founder, chairman, and CEO of a U.S.-based independent ALSP.

In these cases, ALSPs benefit from offering a more integrated solution. “We’re definitely past the part of the movie where the CIO or CFO buys discrete parts for the IP management group and the litigation group and the commercial and contracting group and the antitrust and legal ops group,” says the CEO and co-founder of an independent U.S.-based ALSP.

Instead, corporate clients and law firms are looking for a holistic solution with a true partner that has both business and legal expertise — and in an increasing number of cases that means an ALSP.

In fact, law firms that use ALSPs are doing so for more than 40% of their intellectual property management work and more than 20% of their legal drafting and legal research, according to the Thomson Reuters Institute’s recently published ALSP 2023 Report. Corporate law departments that use ALSPs, meanwhile, are tapping them for more than one-third of their regulatory risk & compliance matters and contract management tasks.

Yet, despite ALSPs’ rising prominence, the report also reveals that law firms and corporate law departments alike don’t yet fully trust ALSPs. Almost two-thirds (62%) of law firms indicated that concerns about quality affects their willingness to use ALSPs; and 46% of corporate clients said the same. Meanwhile, more than half of law firms had concerns about turning over confidential client information to ALSPs, and firms also felt their traditional business model was challenged by ALSPs’ use of technology. Further, 38% of corporate law departments indicated they would rather have their outside law firms deal with ALSPs rather than deal with ALSPs directly themselves.

So where is the disconnect? At a recent Legalweek session, Changing Nature of Legal Practice: Impact of ALSPs, Tech Companies, and the Big 4, panelists explored not only how ALSPs are increasingly entering legal matters, but what they will need to do to keep their place at the table. No surprisingly, it all starts with the relationship, said panelist Vedika Mehera, Director of Orrick Labs at Orrick, Herrington & Sutcliffe. “We can’t overemphasize how important trust is, and it begins with constant communication,” Mehera said, adding that many view this as constant communication of problems.

“We don’t get to fail more than once [in the legal industry],” she explained, noting that there is a flip side to that — proactively explaining how ALSPs can help. “When you have a success, share it. When you have a challenge that you’re running up against, communicate it. …I think that really helps build trust.”

Showing clients the value

Of course, this can mean communicating positive return-on-investment for a matter as well. However, as panelist David O’Hara, Director of Legal Business Solutions at Big 4 firm PwC, added: “It’s not just about the dollars and cents.”

O’Hara noted that PwC has worked to bring in diverse teams to matters, in some cases pairing legal experts with IT, bringing in regulatory experts into a cross-border matter, or even identifying internal skills “that helps us build trust with clients, to say we have a world of resources” to tackle different jobs.

“The more [we] can ease that [concern] and create different ways of working for them, that’s the intangible value we always need to remember,” he noted.

Of course, this can be easier said than done. Often, clients may not even know the different jobs that an ALSP can do. Indeed, 33% of global corporations within the ALSP Report said that not being aware of services or where to find them was a factor in not using ALSPs.

To help solve for this, O’Hara recommended approaching the problem with more than just a technology solution. “Attorneys are going to forever be skeptical of technology, and that’s good,” he explained, adding that by centering the human and casting the ALSP’s offerings as part of a wider team’s efforts, ALSPs can help ease client fears of trying something new.

“We can’t overemphasize how important trust is, and it begins with constant communication.”

“As we integrate all of these different elements, that’s where I’ve seen the most success,” O’Hara said. “I’ve seen that be the best delivery of the best combination and use case for how to leverage these teams.”

Mehera added that identifying the client’s culture is important when approaching those conversations — as is reflecting how a team with diverse skills can supplement that culture. For example, some corporate law departments may be more tech-savvy than others. “All of these clients are using AI in their business. Can we be reflective of that as well?” Mehera asked.

Finally, O’Hara noted that it’s important to be realistic when talking about what an ALSP can do. “We realize that driving a lot of these changes takes an investment. We’re pragmatic” and not guaranteeing immediate return-on-investment if it’s a long-term project, he explained.

O’Hara also said that rather than looking for new tools, lawyers often take the mentality that “we need more hammers to break more rocks.” However, for those that take the plunge to try a new path, ALSPs can supercharge a matter — a value that law firms and corporate law departments alike are beginning to see. More than two-thirds of law firms (69%), in fact, believed that using ALSPs can help them scale and expand their own business.

“I think there’s all sorts of different ways that you can partner with vendors and providers in the industry to accomplish what you need to,” Mehera added. “I think it’s in our best interest that everyone succeeds. If you succeed, we succeed.”