Will the insourcing trend in legal departments continue?

By Sharon Golec on Thursday, December 5th 2019
Management des Directions Juridiques

Between 2010 and 2017, U.S. legal departments increased their size by 40%, while reducing the amount of legal work outsourced to law firms.  The same trend can be observed in France, although the percentage of increase in law department size is less than in the U.S.
In our recruitment activity, we observe a long-term trend: in-house legal departments now hire expert lawyers in highly-technical specialties such as competition law, corporate governance and securities law (droit boursier, droit des sociétés cotées), and financing, as well as M&A specialists.  Not so long ago, this type of legal work was routinely outsourced to law firms. 
A provocative article by Nicholas Bruch on www.law.com (“The Trend to Watch: Forecasting the Future Direction of the Legal Market”, September 18, 2019) questions whether this trend will continue.  He points out that the insourcing practiced by legal departments goes against the general outsourcing trend, observed for several decades in many industries.   Companies generally prefer not to increase headcount.  If they chose to internalize, it was because of two main factors: firstly, the cost of an in-house lawyer (roughly one-third the cost of hiring an outside resource for the same work); and secondly and most importantly, companies’ lack of options.  In other words, companies had an either / or choice: a law firm, or an in-house lawyer.  Will the insourcing trend continue at the same pace, now that alternative service providers (ASP) are developing so quickly, and especially, that they are moving into more technical types of legal work?
One need only observe the massive investments being made in legal tech and the Big 4s’ acquisitions of ASPs to conclude that many are betting on the development of new options for providing legal services…that will perhaps reverse the in-sourcing trend at some point.  However, ASP and legal techs are not yet close to replacing the high value added expertise of experienced lawyers in the areas of specialization mentioned above…

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