Economic Preparedness: 2025's Mandate for In-House Legal Teams

As 2025 begins, the legal industry finds itself at a crossroads of economic uncertainty, as the potential for an economic downturn hovers over the U.S. In these environments, companies and in-house legal departments are being pressured to cut costs across the board. It’s no surprise that recent times witnessed hiring freezes and cuts in many legal departments, and 2025 seems to be no different. In fact, nearly 67% of in-house counsel surveyed expect to either reduce or hold their in-house headcount steady. 

The increasing emphasis on cost containment is having a profound impact on the priorities of in-house legal department leadership. Nearly 79% of legal departments experienced an increase in workloads over the past year, but most have not expanded staffing to meet the demand, creating challenges for general counsel looking to manage expanding caseloads efficiently.

The challenge of increased workload comes at a time when outside counsel billing rates have continued to climb—up 6.5% on average through mid-2024. The need to balance rising work with limited budgets is driving many legal departments to explore more cost-efficient solutions. Regardless of whether a downturn materializes, it's prudent for these departments to strategize in advance. Economic downturns, or even minor economic fluctuations, typically affect all business sectors to some degree. However, by taking preemptive steps, legal departments can mitigate the severity of challenges they might face during tougher economic times.

Importantly, the strategies implemented for a downturn preparation can yield long-term benefits, regardless of the economic outcome. Measures aimed at enhancing efficiency and cutting costs will prove advantageous even in the absence of a recession. Adopting such strategies not only prepares legal departments for potential economic hardship but also positions them for greater operational effectiveness in the long run.

Doing More with Less: How Smart In-House Legal Teams Operate

Perform an Audit of Legal Expenditures

Understanding and managing your legal expenditures is a crucial aspect of efficient business operations, particularly for organizations dealing with substantial annual spends on external legal counsel. This often involves scrutinizing whether significant payments to Big Law firms are always justifiable based on the complexity and risk of the tasks at hand.

Key Areas of Focus in Staffing and Expenditure Analysis

• People Assessment: This involves evaluating who is doing what work, both internally and externally. It's vital to identify tasks currently handled by legal professionals that could potentially be managed by non-legal staff or other resources more efficiently. Also, assess which tasks, especially those with lower risk or complexity, can be transitioned from larger law firms to smaller specialized firms, temporary workers, or alternative legal service providers (ALSPs).

• Process Evaluation: Understanding the existing workflow processes is crucial. Question the rationale behind current practices: Are they followed because they are optimal or simply due to tradition? Additionally, identify and implement success metrics to measure the efficiency and effectiveness of these processes. Putting in place or reviewing adherence to billing guidelines can often be a quick win. 

• Technology Utilization: Technology can clarify roles and responsibilities and integrate advanced tools like self-service resources, workflow automation or even AI. Evaluate whether certain tasks can be streamlined or automated with technological solutions.

A data-driven approach is essential. Metrics should be tailored to your legal department's specific challenges and objectives. This could include analyzing specific practice areas driving outside counsel spend, identifying seasonal trends in expenditures and benchmarking in-house compensation. Legal.io’s free Salary Insights tool, for example, allows in-house hiring managers to gain insight into market-based salary data to ensure they’re delivering optimized compensation packages. Similarly, the Budget & Savings Calculator empowers senior in-house leaders with the data needed to develop a cost-effective outside counsel hiring strategy.

Implementing changes in the realms of people, process, and technology offers numerous opportunities for cost reduction. However, effective change management is challenging. Successful departments meticulously evaluate data, prioritize initiatives based on impact, and continuously measure outcomes. This not only enhances the likelihood of success but also substantiates the business case for decisions made, demonstrating tangible cost savings.

Leveraging Technology & Automation

The strategic implementation of technology and automation is not just a luxury but a necessity, especially in the face of budget constraints shrinking resources. Leveraging legal technology can enhance efficiency and productivity by automating standard tasks and minimizing manual work, resulting in notable cost reductions. It also guarantees accuracy and improved decisions based on data, while promoting improved collaboration with business partners within the company.

Despite these advantages, the legal industry still faces a significant technology gap. The 2021 Legal Technology Report by the Association of Corporate Counsel reveals that under half of legal departments use basic technologies like e-billing (47.2%) and contract management (50.6%). Overcoming hesitations to initial workflow disruptions and resistance to change will be key to your in-house legal department’s ability to realize these upsides.

Some tools in the legal stack to consider:

• Contract Management Software: Store, manage, and automate the creation and maintenance of legal contracts and workflows with Contract Lifecycle Management (CLM) software. Standard capabilities of these tools include document storage, tracking terms, renewal notifications, and compliance management.

• eBilling: eBilling and matter management software can streamline the billing process, improve invoice accuracy, and enhance the management of legal matters. These tools often include features for time tracking, budget management, electronic invoice processing, and analytics to provide insights into legal spending. 

• Intellectual Property Management Software: Software that assists in the management and protection of intellectual property assets such as patents, trademarks, copyrights, and trade secrets, can help optimize the IP portfolio, identify areas for cost reduction and license-based revenue generation.

To effectively integrate legal technology, it's crucial to identify specific problems and find tailored solutions. Don't be swayed by the allure of the latest software; it must address a tangible issue in your department. Making data-driven decisions is key—understand where time and money are spent, identify pain points, and consider potential solutions backed by data. Implementing legal technology like e-billing or RFP tools can aid in better reporting and tracking of key performance indicators (KPIs), offering both cost-saving benefits and improved data measurement.

Build and Expand a Legal Operations Function

A Legal Operations team, often referred to as “legal ops”, can significantly transform the dynamics of in-house legal departments. These teams specialize in streamlining processes, maximizing resources, and boosting the overall effectiveness of the department. Ultimately, these efforts result in considerable cost savings, with a recent Garner survey finding that in-house legal departments without legal operations capabilities spend 30% more than those with legal operations capabilities.

Despite these advantages, many corporations have yet to establish a legal operations function. According to a survey by the Association of Corporate Counsel, nearly 46% of legal departments do not have a dedicated Legal Operations staff member, while approximately 25% of the departments surveyed have just one legal ops professional on board.

The legal operations function brings efficiency and enhanced productivity across a spectrum of functions, including:

• Operations: Legal operations streamline and optimize everyday legal processes so in-house attorney’s. This includes tasks such as staffing and resource management, data analytics, managing attorney licensing, and efficient contract management.

• Strategy: Legal operations collaborate closely with the general counsel to implement their strategic vision for the company. This involves establishing annual objectives and key performance indicators (KPIs), overseeing succession planning, formulating strategic plans, and guiding the operations of the department.

• Finance: Legal operations plays a key role in overseeing the financial aspects of the department. This includes the utilization of e-billing systems, handling budgets, conducting financial reporting and forecasting, exploring alternative fee arrangements, and managing other financial specifics.

• Technology: Legal operations plays a pivotal role in integrating and leveraging technological solutions within the legal department. This involves identifying and deploying appropriate legal tech tools such as case management software, document automation, AI-based analytics, and e-discovery platforms.

Establishing metrics that measure performance and improvement also allow in-house legal leaders to converse in data and numbers that can be understood by other business departments. This provides much needed visibility to the larger organization, and creates the opportunity to build advocacy for additional resources if needed – useful in times of resource constraints.

Says Tom Stephenson, Legal.io’s VP of Community & Legal Operations, “Cost efficient in-house legal departments focus on maximizing cost savings by enhancing their team's capabilities and refining work processes. Given studies have shown that 63% of the tasks handled in-house are routine or can be standardized, there’s a significant opportunity for legal operations to make a substantial impact, particularly with limited resources.”

Implement Collaborative Cost Management

Given today’s uncertainty, effective cost management has become a critical priority for in-house legal departments. This approach goes beyond mere cost reduction; it's about aligning legal services with the broader objectives of the company through collaborative efforts.

A fundamental element of this strategy is cross-departmental engagement. Legal teams need to maintain regular interactions and open lines of communication with other departments. For example, aligning with the finance department can provide legal teams with insights into the company’s financial priorities, informing more strategic legal expenditure decisions.

Redefining the value of legal services is also crucial. This means shifting the focus from traditional metrics like billable hours to outcomes and impacts. In contract negotiations, for instance, success could be gauged by the efficiency of deal closure and risk mitigation rather than just the time spent.

Technology can be a key facilitator in this collaborative approach. Especially for larger enterprises, tools that enhance project management, transparency, and data analysis can streamline the interaction between the legal department and other parts of the organization. Enterprise Legal Management (ELM) software for tracking legal spend and outcomes, for instance, can offer valuable insights for joint decision-making.

This collaborative approach also extends to relationships with external partners such as law firms and service providers. Adapting fee arrangements to more outcome-based models can help align external counsel with the company’s financial and strategic objectives.

Overall, collaborative cost management is about fostering a cooperative and integrated approach between the legal department and other organizational sectors. This strategy is not just about reducing expenses but adding efficiency and enhancing decision-making across departments. By adopting this approach, legal teams can make a meaningful contribution to their companies’ stability and efficiency in these challenging economic times.

Strategic Utilization of Flexible Legal Talent

The capability to align resources swiftly with a rapidly changing environment enhances risk management and optimizes legal expenditure. This involves employing contract attorneys, temporary legal staff, or engaging with legal process outsourcing (LPO) providers. 

Instead of a constant workload that justifies permanent hires, emerging risks often present irregular and unforeseeable demands. Rather than committing to the fixed costs of a full-time employee (FTE) whose long-term need is uncertain, in-house legal departments can adopt a more flexible approach by utilizing on-demand legal talent on platforms like Legal.io. This strategy allows for a variable spending model. On-demand lawyers can be swiftly assimilated into the team, working full-time or part-time, for short or extended periods, thereby minimizing the financial commitment to underutilized permanent staff and reducing reliance on more expensive law firm resources.

Flexible legal talent comes with a host of benefits, including: 

• Cost-Effectiveness: Utilizing flexible legal talent allows for control over legal spending. Organizations can engage experts only when needed, significantly reducing overhead costs associated with full-time hires.

• Scalability and Agility: Flexible legal resources can be quickly scaled up or down based on the organization’s immediate needs. This agility is crucial in navigating unpredictable economic climates, allowing legal departments to remain responsive and efficient.

• Access to Specialized Expertise: Engaging flexible legal talent provides access to a broader range of specialized skills on a project basis. This approach ensures that legal departments have the right expertise at the right time without the long-term commitment of hiring an FTE.

• Focus on Core Business Activities: By outsourcing certain legal functions to flexible legal talent, in-house teams can focus on core business activities and strategic initiatives. This can lead to improved overall performance and productivity of the legal department.

Flexible talent represents more than just an alternative to FTEs and traditional law firms; it serves as a strategic instrument. Particularly during periods of headcount freezes, this approach allows for a meaningful reallocation of spending, enhancing value and empowering in-house legal departments to frequently reassess their budgets in response to shifting needs and priorities. This dynamic strategy enables legal departments to adapt and optimize their resource allocation, ensuring efficient and effective legal support even amidst changing economic landscapes.

Adapting and Innovating to Prepare for a Downturn

Given the uncertain economic climate, in-house legal departments must continually evolve in order to drive productivity and efficiency with shrinking budgets and headcounts. The strategies and insights shared here are not merely responses to immediate resource constraints, but stepping stones to fostering a more agile and strategically focused legal function. By embracing change, focusing on collaboration, and leveraging innovation, in-house legal teams can not only withstand the pressures of economic fluctuations but also emerge stronger, more efficient, and more aligned with the broader business objectives. This journey, though challenging, is ripe with opportunities for growth and reinvention, paving the way for a future where in-house legal departments are not just supportive functions, but key drivers of organizational success.