Companies are setting up in-house legal functions for first time

Mahlab research shows the in-house market is flourishing with existing in-house corporate functions growing 10 per cent, ahead of most law firm growth. An increased regulatory burden and pressure to reduce spending on external advisors have seen many Australian companies expand their legal teams or go to market for the first time to establish a legal function.

The Mahlab Report 2018 is based on first-hand market intelligence gathered from clients and candidates of Mahlab executive search firm.

Law firms reported strong financial performance, although revenue growth remained modest amid challenging operating conditions. While many firms increased their fees this year, clients are pushing back and demanding more value and greater fee certainty, leading to a rise in alternative billing arrangements – billing per deal rather than hourly, subscription models, bulk discounts and reduced fees for standard work. The big four’s push into legal services is also eating into firms’ margins.

Increased use of contract lawyers

To flex with client demand and employee turnover, many firms are adapting their resourcing model by introducing more flexible solutions, such as temporary or fixed-term contracts. Recruitment of contract staff also increased in response to the Banking Royal Commission and the resulting demand for information and analysis.

Private practice firms looking for leverage with technology

In private practice, top-line revenue and profitability growth are driven by new strategies, with technology and innovation a key focus to gain margin and competitive advantage.

“Firms are collaborating with New Law competitors to develop new, efficient ways to deliver legal services,” commented Lisa Gazis, managing director of Mahlab’s New South Wales office.

Evidence indicates law firms’ technology spend will continue to rise, as they adopt artificial intelligence (AI) for greater analytics, improved reporting and to perform routine work. And while law firms remain more technologically advanced than corporates, similarly, more funds and resources than ever before are being directed to support in-house legal teams with new technology.

In-house implementing technology

“In-house lawyers are taking advantage of automation, AI and, for some teams, even building their own bespoke platforms,” said Katherine Sampson, managing director of Mahlab’s Victoria office.

In-house becoming more attractive for reasons of work-life balance – compounded by weak salary growth in private practice 

Ms Gazis and Ms Sampson agreed the lack of work-life balance in law firms remains a barrier to recruiting and retaining lawyers.

“We’ve seen more lawyers than the previous year leave law firms to pursue careers in-house or overseas and they are doing so earlier in their legal career,” Ms Sampson said.

“Working in-house is recognised as being a more sustainable career choice in terms of demands on time, varied workload, career paths and work-life balance. Good general counsel are aware of the motivation of lawyers leaving private practice for the corporate sector and work hard to ensure their expectations are met.”

The private practice focus on efficiency and cost-saving meant average salary increases nationally are around 2.5 per cent, sitting modestly above CPI figures (1.9 per cent).

In-house, remuneration has not increased markedly either, with most organisations applying around 2.6 per cent increases and rewarding their staff through short- and long-term incentives.

Mahlab also reported an increase in demand for legally qualified company secretaries and governance professionals, particularly in the ASX-listed space.

“We have seen a five per cent increase in legally qualified staff joining existing secretariats – a sizeable rise in what is traditionally a stable sector,” Ms Sampson concluded.