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.

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.

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.”

For public legal departments — like the offices of district attorneys, public defenders, or city and county attorneys — that meant holding online meetings and virtual hearings. Beyond that, it meant that much more work was being done remotely using technology that may have been new to many government agency leaders. And now, as the worst of the pandemic ebbs in many regions of the country and the rest of the world, government agency law departments have had to adapt to the new reality again, deciding which innovations to keep and which to jettison in favor of more traditional ways of conducting business.

To examine these developments further, the Thomson Reuters Institute has published the new 2023 Government Law Agency Report, which summarize the findings of recent Government Trends Survey, conducted in 2022 by Thomson Reuters’ Market Research and Competitive Insights team with attorneys in public agencies at the Federal, State, and County/Municipal level. The objective of this survey is to gain some insight into the opportunities and challenges that legal professionals at public law departments are facing.

You can download a copy of the Thomson Reuters Institute’s new “2023 Government Law Agency Report” here.

In the report, we identify where the main challenges now are for government law agencies, what their current work processes involve (especially around technology use and outsourcing), how they are managing staffing issues, and what has been the ongoing impact of the pandemic.

Indeed, the report reveals that while many government law departments were resilient in handling a myriad of challenges, they were still vexed by some long-standing issues that were evident even before the onset of the pandemic, such as staffing and succession. Beyond staffing issues, many of the challenges government law agency leaders cited fell into several major areas of concern, including the growing complexity of the legal work they see, the ongoing challenges of remote working, problems of technology adoptions, and security fears.

How the leaders of government law agencies and other legal departments navigate their teams through these challenges will likely determine how effective and efficient their legal organizations will remain now and in the future.

Other important insights in the report include:

• • • Staffing issues were the top challenges cited for government agencies, while recruiting new talent (64%) and loss of institutional knowledge due to retiring staff (60%) increased dramatically as top concerns.
    • While 49% of respondents say tech investment within their agency has increased in the past two years, 59% say their technology resources lag behind the private sector. Worse yet, only 23% say they are confident that they have the necessary tools to do their job effectively.
    • On average, government law agencies report that more than one-third (37%) of their legal research issues are complex, and that there is less time to thoroughly research complex items. In fact, almost two-thirds of respondents said they have seen increases in the complexity of the legal issues they face, and 59% saw an increase in the variety of issues. However, only 17% said they have seen an increase in the amount of resources provided to address these needs, and hiring of outside counsel remains low.
    • Most respondents said their work environment contains either hybrid or remote arrangements, indicating that many of the changes made during the pandemic have remained.
    • At least 28% of government law departments or legal agencies have experienced security breaches or malware infections.

Even as government law departments and government legal agencies continue to adapt to the many changes and challenges brought by the pandemic, they look to forge a new future in which they can take the best of the new technology and innovative work processes they used during the crisis — such as virtual meetings and remote working, for example — to make themselves even more effective and efficient.

Yet, staffing issues, security concerns, and the growing complexity of their own work has made the jobs of many government legal professionals more difficult as easy solutions continue to be elusive.

That means, of course, that public investment in these agencies is necessary in order to give agencies the tools, technicians, and highly trained legal staff these teams will need to work to their maximum abilities on behalf of the American public.

Since 2019, compliance has seen a noticeable upward shift among corporate law departments’ strategic focus. While roughly 15% of respondents listed compliance as an area of strategic focus in 2019, that number increased to 22% by the end 2022.

Law departments realize that this shift in mindset does not come without cost. More than one-third (36%) of corporate law departments surveyed for the report say they anticipate increasing their legal spend on regulatory matters in the coming year, compared to just 8% that expect their spend to decrease in that area. The report also details a metric called net spend anticipation (NSA), which reflects the number of respondents expecting a decrease subtracted from those expecting an increase. Regulatory matters saw the highest NSA of any practice reported this year, 10 points higher than the NSA for labor & employment, the next closest practice.

All this suggests that there is a potential boom in regulatory work upon which law firms could capitalize. However, it is very much an open question as to whether law firms are positioned effectively to take advantage of this potential opportunity — or whether corporate clients are even really considering law firms for the work at all.

According to the Alternative Legal Services Providers 2023 report, regulatory risk and compliance services are the top use case that have corporate law departments turning to alternative legal services providers (ALSPs), funneling that work to ALSPs rather than traditional law firms. One-half of corporations surveyed for the ALSP report indicated that they used an ALSP for regulatory risk and compliance services. Indeed, across the globe, use of ALSPs for risk and compliance services was high and seen as likely to grow over the next five years.

Corporate clients are quite clear on why they are choosing ALSPs for regulatory risk and compliance services. A majority of respondents (57%) cited access to specialized expertise as one of the key reasons they use an ALSP for risk and compliance. Clients also look to ALSPs to help drive greater efficiencies and to help free up internal legal teams to work on higher value, more strategic work.

This is not a new finding either, corporate law departments have been citing risk and compliance as a key use case for ALSPs for as long as the report has been produced. Going back to the original ALSP report in 2017, risk and compliance was the top use case for corporate law departments using ALSPs. It has been clear for some time that when it comes to regulatory risk and compliance needs, corporate law departments have a preference for ALSPs.

This creates a potential problem for law firms that are looking to capitalize on any impending surge in regulatory work within corporate law departments. Beyond those corporate clients that already use an ALSP for regulatory work, another 24% expect to be using one within the next five years.

Some law firms are looking to bridge this gap through partnerships with risk and compliance ALSPs, with 52% of law firms reporting that they have created such partnerships. This can certainly help to round out the service offerings a law firm can make to clients, but it necessarily creates a revenue-sharing arrangement that can negatively impact law firm profitability. On the other hand, for law firms that have carefully considered the question, such arrangements may well be the outcome of a calculation that trying to spin up a separate, wholly owned ALSP offering from within the firm would be more difficult and less profitable, so the partnership creates the best potential outcome going forward.

The evidence from the research demonstrates a persistent gap between clients’ desires to use ALSP services for regulatory risk and compliance needs, and law firms’ willingness to create captive ALSP affiliate offerings to address this need.

Even with this being the case, however, relatively few law firms appear poised to take the step to create their own risk and compliance ALSPs as a captive unit. While 21% of law firms responding to the 2023 survey said it was “somewhat likely” that they would create an affiliate risk and compliance offering, only 4% said they “definitely will.” Looking back historically, this number is basically unchanged from the 4% of law firms that said they would likely set up a regulatory risk and compliance ALSP affiliate within the next five years in 2017.

The evidence from the research demonstrates a persistent gap between clients’ desires to use ALSP services for regulatory risk and compliance needs, and law firms’ willingness to create captive ALSP affiliate offerings to address this need — a problem present for half a decade now. Law firm captive ALSPs have been among the fastest growing segments of the ALSPs market for several years; according to the 2023 report, it was the fastest growing segment. The issue is not that law firms do not know how to create profitable captive ALSP offerings with high-growth potential; nor is the issue a lack of demand for ALSP services around risk and compliance. Rather, it appears that law firms are instead choosing to focus their captive ALSP efforts elsewhere, such as in eDiscovery, litigation support, and legal research services.

In a legal marketplace where demand appears to be tightening once again, and where law firms will need to be increasingly competitive in order to capture shifting market share, regulatory risk and compliance is one area where law firms may want to reconsider their go-to-market approach. Despite a high degree of demand, regulatory risk and compliance remains a playing field upon which relatively few law firm competitors aggressively have entered.