Sophie Gould announces the findings of new research by LexisNexis and the Judge Business School on the relationship between in-house legal teams and large law firms, and the practical lessons to take away.

It is no surprise that as in-house legal teams continue to look at the way they work with their external suppliers, law firm relationships remain under the spotlight. Amidst unprecedented choice in terms of legal service providers, in-house teams are increasingly applying price pressure, switching providers more frequently, bringing a larger proportion of work back in-house, and engaging with non-traditional players.

From their side, the top-50 law firms in the UK continue to face strong headwinds, with technology and new entrants creating challenges.

Building on previous research, LexisNexis has partnered with Judge Business School (JBS), University of Cambridge to explore the dynamics of the relationship between in-house legal teams and their law firms, in our latest report, ‘Trust and Transparency between in-house legal teams and their law firms’.

A deep disconnect

Our research from last year showed that in-house legal teams often view their law firm relationships differently from the law firms themselves, with a significant disconnect between what in-house teams want and what law firms deliver. This can range from the ability to deliver commercial solutions in a timely manner, to gaining more certainty and predictability on the work being undertaken, costs incurred, and timelines.

In fact, 40 per cent of general counsel we interviewed said that senior partners in their panel law firms lacked more than a basic knowledge of the GCs’ business.

We found that an important factor in this disconnect was a perceived lack of transparency in the actions of law firms by in-house teams. This perception was seen to damage the trust that underpins meaningful relationships, leading to a deterioration over time.

Our report explored the role of trust in deepening or damaging these relationships.

Rather than being a ‘soft’ concept that is intangible and difficult to measure, our findings revealed three practical steps to consider taking.

1. A deliberate, focused approach

Our research investigated the law firm-client interactions across all four stages of engagement, from pre-instruction, through instruction, execution and evaluation of outcomes.

Common patterns of engagement that are repeated consistently were identified, albeit with variations, revealing three ‘archetypes of interactions’ that develop from a transactional approach to a strategic partnership.

A key learning point is that having a robust methodology and structured approach, particularly at the instruction phase, enables joint exploration of the context behind the instruction earlier in the process. This increases transparency, trust and, in turn, the value attributed to the outcome.

Surprisingly, the research revealed that 40 per cent of large law firms lack the experience and knowledge to structure joint exploration at instruction stage. This directly impacted the value attributed by the in-house legal team to work delivered by the law firm.

‘If there is one thing that someone should take away, [it] is that there is a deliberate structure and mechanism by which law firms and in-house legal teams need to interact,’ says Dr Kishore Sengupta from the JBS.

What the research also makes clear is that it is important to understand all three archetypes of engagement, and when to employ which to best effect. As such, a more sophisticated, thoughtful approach is likely to deliver the best results for both parties.

2. Promote visibility

Research has shown that transparency is key to fair process in social exchanges. A lack of transparency creates ambiguity, which can lead one side to perceive a lack of reciprocity from the other. This leads to suspicion, and reduces trust.

Our findings show that 80 per cent of the time, the exploration stage is conducted by the in-house legal team without the involvement of the law firm.

We held breakfast briefings over two days to launch the research. A live ‘trust simulation’ at the briefings demonstrated to powerful effect just how important transparency is between the in-house legal department and law firm.

Attendees were seated at roundtables in group of six and given one of two scenarios. The scenarios were the same except that in scenario (a) when the organisation had previously undergone a major change, it had not been a good experience; and in scenario (b) it had been a good experience. The outcome was the same, but the perception was good or bad depending on how transparent the organisation had been about the change happening. The task for attendees was, having read scenario (a) or (b), whether they suggested another change be progressed in the organisation and whether they wanted to be involved. For those with scenario (a), almost all said they thought more consideration was needed and they did not want to be involved. In scenario (b), almost all said the change should be done and they wanted to be involved. 

Another key recommendation from our report is that in-house legal teams need to explain their underlying business problems to their law firms, from investing in joint problem identifying to providing visibility on actions during the period of engagement that could affect law firm work and renegotiate active scoping of the instruction.

The impact of increasing transparency at all stages of engagement is summed up by Dr Sengupta: ‘The cycle of transparency needs an extra bit of effort. That extra bit of effort may seem a little bit superfluous…but in the long run, that piece of work done in a structured way pays very rich dividends in creating a virtuous cycle of fair process.’

3. Drive continuous improvement

Our research found that in only 20 per cent of cases, a substantive part of the evaluation of the outcome of the specific instruction is done in conjunction with members of the law firm team that worked on the instruction. For the rest, reviews were mainly internal or with the law firm partners only.

What’s more, further in-depth investigation found that in completed evaluations, there was little reference to issues such as lessons learned, sharing of best practice etc. In fact, there was hardly any sign of intentional relationship-building.

As such, it is in this final step that the most progress is needed. It is also the step where the legal sector lags behind its peers in other professional services.

Our other recommendations from the research include: promoting greater involvement of the law firm in evaluations; a focus on the process, not just the outcome; considering joint third party appraisals for select engagements; and an emphasis on after-action reviews.

Moving toward a more robust evaluation process will require significant effort on the part of both the in-house team and law firm. Nonetheless, the benefits should outweigh the investment.

Conclusion

Dr Sengupta best captures the overall findings from our report: ‘There is a cycle of fair process that underpins trust and transparency. The cycle is highly structured – it needs work and it needs visibility at all stages of the cycle.’

It is encouraging to know that there are definitive steps that can be taken by both in-house legal teams and their law firms to bridge the disconnect.

After all, an open, mutually beneficial, collaborative relationship between client and law firm is often a key driver of success to ensure expectations are aligned, a consistent service is delivered, and commercial efficiencies are measurable.

Read the full research report here, including a checklist of the recommended actions for both law firms and in-house legal teams across all four stages of engagement.

Sophie Gould is head of PSL In-house at LexisNexis.