Do You Really Need the Expense of a Law Firm in an Inflationary Economy?
By Axiom Law
The question is not: Do you need a law firm? Of course you do. Elite law firms will always have a place in the legal resourcing ecosystem. The right question, instead, is: When do you really need that law firm? The answer may be: Not in this inflationary economy.
Per a report released January 12 by the U.S. Labor Department, inflation plowed ahead at its fastest 12-month pace in nearly 40 years during December. Commercial leaders, already dealing with a pandemic-induced volatile economy and a disrupted supply chain, are struggling to keep costs in check in order to maintain profit.
Legal leaders must also play a role in minimizing costs, but they have the added burden of ensuring that reducing costs does not come at the expense of risk mitigation – especially at a time when legal risks and workload are ballooning, not shrinking.
As we start the new year, legal leaders can play a role in hedging against the costs of inflation by rethinking the traditional legal paradigm.
What does that mean? It means taking a hard look at their approach to anticipating and identifying risks, and mapping related legal matters to the most appropriate legal resources.
Today many GCs are hiring firms for overflow work to support a resource-constrained legal team, to handle exceptional events, or when the in-house team lacks specialized expertise. Or they’re hiring full-time lawyers to handle emerging specialty needs, even though those needs may not be permanent or warrant the expense of fixed headcount.
Innovative GCs know that the right legal resource is no longer a binary choice between staffing up (internally) or sending out (to an external law firm). The right legal resource, particularly in an inflationary market where cost mitigation is paramount, is often agile legal talent.
What’s more, GCs who are particularly progressive and forward-looking are not just hiring one on-demand lawyer for overflow work. Instead, they’re building a virtual bench of “always-on” flexible talent that sits between the in-house team and the firm, combining Big Law–level expertise with in-house acumen. This agile bench helps the internal team achieve four critical objectives:
- Improve risk mitigation by matching legal matters to the right legal talent, in the moment, especially during market volatility
- Extend in-house expertise by limiting what needs to be sent to a law firm (and when)
- Decrease costs by minimizing law firm spend and permanent in-house hires as attrition continues to grow
- Reduce the burden on in-house counsel by providing practical, business-focused oversight to teams tasked with managing an increasing number of law firms
The ideal legal paradigm is a three-part model, consisting of a core, bench, and firm (CBF).
Part 1: The legal department
Part 2: A virtual bench
Part 3: The law firm
Instead of leveraging law firms because the in-house team is simply too busy, or not well-versed enough in the specialty, a CBF model funnels legal matters through a process that confines law firm engagement to exceptional events, like navigating during the pandemic and new benchmarking needs; or provides a mechanism for more finely focusing how and when, during the course of a legal matter, external firms get called upon for counsel. As inflation grows to unimaginable levels, the traditional law firm is just not a feasible option for many organizations.
This CBF approach to legal resourcing minimizes expensive law firm spend while simultaneously reducing the fixed costs of permanent headcount, especially as legal departments find themselves affected by an inflationary economy and more short-staffed than ever.
This doesn’t just control costs; it provides the legal department with better value for every budgeted dollar. Instead of expensive external outside counsel, an in-house generalist not well-versed in the matter, or an underutilized specialist, that bucket of legal spend can be re-deployed and divided among a curated bench of on-demand lawyers, based on needs and risks in the moment. Not only does it provide more value and managerial scale, but it also optimizes risk management by ensuring the right talent is matched to the right legal matter at the right time.
This bench is a true extension of the team, imbued with the required institutional knowledge of the enterprise, but without the fixed costs of full-time employees. For specific projects, that bench can displace law firms entirely.
To learn more about how GCs can remain agile and efficient during an inflationary market, read our full report: When Do You Really Need the Expense of a Law Firm?
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