Anticipating the 2018 CLOC Institute: Grading Legal Ops Progress...

The following article appears in Corporate Counsel magazine, posted April 20, 2018; since this is behind the firewall for some of you, it's reprinted below. For those with access to law.com, you can find it online here:

Anticipating the 2018 CLOC Institute and Grading Legal Ops Progress Since CLOC’s 2017 Event: “Nevertheless, We Persist…”

About a year ago, I wrote two articles for Corporate Counsel magazine about the 2017 CLOC conference – one article appeared in advance of the meeting to discuss what registrants might expect; the other was published after the conference ended to offer up some concluding thoughts and explore top takeaways. Since the 2018 Institute starts on Sunday, April 22, I thought I’d revisit the ideas and energy of last year’s event and take a look at the promise and deliverables anticipated for this year’s meeting.

A quick introduction for those of you who don’t know about CLOC: CLOC is the Corporate Legal Operations Consortium – a volunteer-driven group made up of legal ops professionals (both lawyers and professional staff) who carry the full-time and multidisciplinary responsibilities of law practice management in legal departments; there’s also a robust group of interested parties that orbit around the CLOC membership community – ALSPs (alternative legal service providers) and law firms, consultants, legal tech innovators, and managed service companies; the collective group that many CLOC-ers, led by co-founder Connie Brenton, refer to as their partnering “ecosystem.”

The 2018 Institute returns to Las Vegas on April 22-25, and will once again be the largest gathering of the legal operations “ecosphere” in the world. CLOC hosted its first large-scale conference of this kind in 2016 and surpassed even their own expectations with the 2017 show and participant engagement; anticipation for 2018 must be both thrilling and daunting for the leadership. The recognition paid to the sophistication and accomplishments of the legal ops community, the growth in sheer numbers and status of the ops function in the last few years, and the rising importance of networks like CLOC (which can actually sway legal leadership thinking and put legal tech, product and service vendors on the map), continues to grow at a breathtaking pace that is unusual for any market, but is especially notable in the normally glacial change environment of the legal profession.

So the question is whether CLOC and its members can keep the energy alive and continue to drive the market toward even higher performance and improved results, given the grinding drag of a legal profession that is loathe to change?

Those attending will remember that the 2017 conference ended on a high note with a call to action from CLOC co-founder Mary O’Carroll of Google, promising that the mission going forward included a commitment to support both CLOC’s members in legal departments who are exploring and driving the hard work of change, as well as the larger professional ecosphere of law firms, legal service providers and law schools looking for ways be more valuable to their corporate clients who are demanding improved performance, accountability, and value from their extended CLOC family. Those attending will also remember CLOC leader Jeff Franke’s push to create a “Magna Carta” for legal ops leadership, designed to codify the principles that will define the changes needed in the legal industry and the path required to reform it.

As the leadership calls this year’s meeting to order, I offer the following thoughts, which represent my take on some of what’s been percolating over the course of the last year that has and continues to impact on CLOC’s ability to deliver on those goals. Where possible, I’m offering my opinions on what’s been accomplished and what’s yet to be done. I look forward to hashing over these issues and the many more I can’t address in a single article with colleagues at the meeting.

Last year: Unbridled Growth, Unabashed Excitement, and Overflowing Optimism for the Future

This year: Legal Ops growth may be peaking, optimism may be losing some of its shine, and some gains made be lost as the legal services market adjusts, especially in larger departments; nevertheless, CLOC persists … and by doing so, shows its emerging maturity and determination to be in the game for the long haul.

Large law departments generate a lot of attention – we examine their practices and solicit their perspectives … and I get why we do that. But the fact that a law department is large and has significant resources or a large portfolio of important work is not a guarantee of the efficiency of its legal operations or the sophistication of its preferred business model. Many of the top legal ops functions reside in larger departments, but many of the largest law departments have no (or no meaningful) operations functions or leadership. CLOC’s website, as of this article’s publication, notes only 151 members who hail from Fortune 500 companies out of the 676 companies represented by their 1,335 members. And if you look at the registration list for this upcoming meeting, you’ll see relatively few large departments represented amongst the many hundreds of companies that CLOC attendees represent.

That doesn’t mean that what large law department teams are doing isn’t terrific; it means that you need to look past the largest legal departments by size, both on the CLOC reg list and in the profession at large, to see many of the more interesting, creative, scalable and sustainable practices hiding in plain sight in smaller and medium-sized legal departments. They don’t get the press, but they are the ones that are pulling the weight in this industry, to my mind, and will be the wave of the future change marketplace. Their projects may not be as news-worthy as a Fortune 10 announcing a change-up of its outside counsel lineup or the decision to automate or offshore a formerly lawyer-intensive process, but most of what small- to mid-size departments are doing – even if not sexy – is focusing on sound improvements to their business and operational management practices (which I’d suggest will have a longer term impact on improving the health and value of the corporate legal profession than any single behemoth company’s decision to re-order or discount the cost of work for its portfolio of AmLaw 25 firms.

In addition, it’s important to remember that having a small- and mid-size law department does not necessarily mean that the client is a small or mid-size company. Many of these smaller legal teams work for large and high-brand recognition companies, proving again what the demographics of law departments have shown for years: that many of the largest companies have small legal teams because they live by the values of a more carefully-sourced service management philosophy for cost centers in the company.

Why is that important to this discussion? In the last several years, pretty much every survey out there – including CLOC’s own 2018 State of Corporate Law Departments survey (with Thomson Reuters and Acritas) – has shown a pretty dramatic increase in law department hiring, salaries, and size of department relative to the size of the company for the last several years. Even though a majority of most legal budget is still spent on outsourced services, most departments surveyed have shown an increase in internal headcount and/or the plan to add more team members and more budget again this year – often paired with the growth of their client organizations. While CLOC can rightly demonstrate that their corporate members represent the more profitable than average corporate clients, suggesting that the rise of the legal ops movement corresponds and is a support for improved corporate performance and profitability, it’s important to take a look at what the numbers are telling us about all this growth and its impact in the larger marketplace.

Interesting research from my friends at ALM Intelligence suggests that the last few years of surging growth within legal departments – in terms of staff numbers, salary size, and budget as a percent of corporate gross revenues – may have peaked, and in the way of all things cyclical, the economics of the marketplace might soon lead to what might be described as a “natural market correction.” See, to this point, Hugh Simons’ and Gina Passarella’s February 2018 Corporate Counsel article on “The Rise (and Fall?) of In-House Counsel.”

Patrick Fuller, Vice President for Legal Intelligence at ALM notes the following:

The data suggests that the percentage of U.S. private sector attorneys working in-house has increased over the past two decades from roughly 7% to 21% total. While this seems to suggest that a regression to the mean is imminent, the increasing use of artificial intelligence & similar automation tools, along with increased use of alternative service providers, makes it much more difficult to predict the future, both for law firms and legal departments. …The one prediction I will make is that this continued confluence of technology, business, and law will further entrench legal operations professionals as a core element of law departments.

While in-house growth has cycled up and down over the years as is typical of most industries’ pendulum swings between insourcing and outsourcing, our most recent growth surge (over the last 7-10 years) was uncommonly large and fast-paced, with the result that some law departments suddenly find themselves too expensive for the work they currently perform (based on the market value of the work) and others may find themselves too ungainly to be agile in responding to market service offerings (where they previously could have insourced or outsourced work based on emerging and shifting needs).

As Patrick notes, this is especially true in a market that is for the first time open to an active marketplace of rising ALSPs (alternative legal service providers). Many ALSPs offer services formerly provided only by law departments or law firms, that help clients solve legal and business problems “better/faster/cheaper” than law departments and firms; they specialize in developing legal technologies/automation, staffing inexpensive and swift cost centers to perform routinize-able tasks, and offering sophisticated expertise to deliver solutions via managed service offerings that can solve client problems or help advance their clients’ businesses: all for a fraction of the cost and with a quantifiable level of consistency and competence. So it’s no surprise that a recent and significant survey co-sponsored by Georgetown University Law School and Thompson Reuters provides data suggesting that as ALSPs’ market share goes up, it’s not only law firms who will see their previous workload shifting to ALSPs … it’s also law departments. A prime example of this advent is the recent decision by DXC and its general counsel Bill Deckelman to join with ALSP UnitedLex to restructure and “re-badge” its in-house team and deploy over 250 United Lex senior level professionals, in what the two companies label “the largest-ever managed services transaction in the legal industry.”

So what does this mean for CLOC and its members, who are the vanguards for encouraging their clients to push for greater efficiency, deploy better business practices and service models, and pursue relationships with ALSPs that drive better results for the corporate client for certain portfolios of work or department functions? Does it mean that legal ops leaders will become the leaders of an in-house downsizing movement in legal departments? Not necessarily. I think it more likely means that legal ops success will ultimately have to be pinned on something more valuable and sustainable than the argument that ops functions help law departments deliver better results by driving ROI based on increased staff and budget. The new wave of success practices will need to focus on those clever, successful and effective operations successes that arise in the tighter resourced/closer knit collaborative teams in mid- and smaller-sized departments.

Thus, it’s no surprise that at this year’s meeting, it looks to my eye like CLOC is presenting a program line-up that looks more closely at what those small-to-mid-sized teams are doing. While many large departments look to legal ops teams for efficiency and ideas for doing more with in-sourced resources that cost less money than law firms, that’s a strategy that places their teams in direct competition with ALSPs, which can effectively demonstrate to executive ma