80 Percent of Businesses are Planning on Reducing Their Legal Spending
Eighty-two percent of companies plan to reduce their legal function costs over the next two years, with 42% of respondents planning on doing so by more than 10%, according to a new report released today by EY. Reimagining the Legal Function Report 2019 surveyed more than 1,000 senior legal practitioners across 25 jurisdictions and found that, on average, companies plan to reduce their legal function costs by 11%, with the current average legal spend equating to US$172m for internal and US$169m for external.
Across regions, the anticipated reduction in spend is greatest in North America, where reductions of 13% are planned, with Europe and Asia-Pacific expecting the least impactful reductions at an average of 9%.
Cornelius Grossmann, EY Global Law Leader, says:
“In the face of heightened demand from the business for legal support in a rapidly changing regulatory environment, the findings support the generally acknowledged position that legal functions are increasingly being challenged to do more with less. New operating models will need to evolve to address these challenges. Courageous innovation will enable legal functions to drive true value in company-wide transformation initiatives.”
Challenges in talent and innovation
The survey highlights difficulty in attracting and deploying talent. Nearly three out of five businesses (59%) reported challenges in attracting and retaining the appropriate talent needed for today’s legal function. Deployment is also a challenge; legal functions find they exhaust considerable time and effort on routine tasks, with 67% of respondents spending 20% of their time on routine compliance and “low value” tasks.
The survey also highlights that legal functions are in danger of falling behind when it comes to innovation. Sixty-four percent of respondents felt that the legal function has not benefitted from innovation as much as other functions, such as HR, IT and finance. Respondents cite “ongoing business-as-usual pressures” as the greatest barrier to innovation over the next 12 months at 36%, followed by “budget constraints” at 32% and “lack of management skill/interest” at 28%.
A need to re-evaluate operating models
Looking to the future, key trends identified include the increased adoption of outsourcing: 74% of organizations are either outsourcing already or would consider doing so for functions including contract management, document retention, due diligence, employment law, and entity and document management.
Procurement models are also shifting, with increased consideration now being given to alternative legal service providers (ALSPs) in order to drive value. Although the trend is visible across businesses of all sizes, it is particularly prevalent among smaller legal functions, with 60% of those with a headcount lower than 1,000 considering ALSPs and legal process outsourcers, a rise of 17% compared with the previous year.
“Many legal functions have been resilient in dealing with changes over time, but we see momentum for change. Finding the right balance of technical expertise, work allocation and efficient technology utilization will remain the paramount challenges of this critical transformation process.”