The rise of in-house counsel: What does this mean for law firms?

A trend towards the consolidation and growth of in-house legal teams is sweeping across the Australasian legal sector, but why is this and what does it mean for external firms?

In-house counsel teams across Australasia are consolidating and growing bigger amidst a market that is more focused on risk and liability, and the consequences of this result in a change in the type of work law firms are seeing.

Jackie Solakovski, the head of Australian firm Lander & Rogers' corporate practice, told NZ Lawyer’s sister publication Australasian Lawyer that there are a number of reasons behind the rapid growth of in-house teams.

“One of the big ones is towards companies being more focused on risk and liability, and seeing lawyers as part of business teams and available on the ground. The other component is the company is seeing an increased value of legal input in terms of decision making,” she says. “We certainly encourage clients to call us and bounce issues off us as well, but if you have someone in the business the inclination to do that will happen more often.”

But the consequences of this trend have flow on effects to both external law firms, and the way that business is done.

Solakovski says that in-house teams are certainly feeling the pressure of being a cost centre in the business and are becoming increasingly price conscious.

“We’re seeing far more negotiations…As law firms if we indicate a fee, they will go back and say ‘this is what it costs’ and they’re not expected to depart from it,” she says. “That’s something we need to be very aware of as lawyers, and that we’re managing these relationships.”

The good news is that Solakovski says the role of external law firms won’t go extinct: The type of work they take on will simply change.

Because in-house teams are and will continue to be stretched, there is a growing role for external firms to play in larger commercial matters and specific areas of expertise.

“Certainly a lot of general commercial work will be done in-house now. What we are seeing is that we tend to be used for bigger matters where they do not have the internal resources or the expertise,” she says.
But what of law firms losing their best private practise lawyers to in-house positions?

Katherine Sampson, the managing director of Australian legal recruitment agency Mahlab Recruitment, previously told Australasian Lawyer that market trends have seen this issue of retention in the legal space emerge.

“It’s not necessarily that they’re going to a competitor firm, but they are going in house… Then from a corporate perspective what you’ve got happening in the in-house industry is that more senior lawyers are going into an in-house role, so there’s a bottle neck at the top.”

But Lander & Rogers' Solakovski says while this will always be a struggle because a selling point of corporate lawyers is their transferable skills, there are also positive ways to view the problem.

“They can be good ambassadors for the firms anyway. They know the firms and the people – you can turn it into a positive, as much as we don’t like seeing people go.”

And on our side of the ditch, Simpson Grierson’s marketing and business development director Tim Orsman told NZ Lawyer that he sees the same trends taking place in New Zealand.

Like Solakovski, he says in-house clients are having to manage with tight budgets and demonstrate value to their organisations.

“This means that they are thinking really carefully about the most efficient ways to resource particular types of work.  And this is a key driver of the growth of in-house teams,” he says.But increasingly, as the legal market evolves and new entrants come in, clients will have different types of resourcing options.”

Orsman’s observation is that the in-house counsel he talks to are busy and getting busier because they have to manage significant and changing legal and regulatory risks.

As a result, he says it’s important for Simpson Grierson to  understand the business of its in-house clients, provide advice that is commercial and facilitates business decisions being made, and keep them up-to-date with the legislative and regulatory issues that impact on their organisations.

“The consistent message from clients is that whilst they value instructing senior legal advisers on high value matters, where there is significant risk, they expect business-as-usual work to be priced and resourced accordingly,” he says.  “This is putting pressure on firms to think about their business models.  We are really conscious of the need to provide services that match with our clients' value expectations.”  

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