ACC: AI and Budget Constraints: A Look at Corporate Legal Trends

In today’s fast-evolving legal landscape, corporate legal departments are navigating a challenging terrain marked by budgetary constraints and a growing need for cost containment. The Association of Corporate Counsel (ACC), in collaboration with Everlaw, a cloud-native litigation and investigation platform, has undertaken a comprehensive survey to illuminate the strategies, trends, and technologies employed by legal teams to tackle these pressing issues. The results, unveiled at the ACC 2023 Annual Meeting offer invaluable insights into how legal departments are reshaping their approaches. 

Titled “The State of Collaboration in Corporate Legal Departments” this report captures the insights of more than 370 chief legal officers, general counsel, in-house counsel, and legal operations professionals from U.S. corporate law departments. 

Budget Constraints Drive In-House Legal Transformation 

One of the prominent themes of the report is the budgetary pressures facing in-house legal teams. To address these constraints, corporate legal departments are considering various strategies aimed at cost containment, effectiveness, and collaboration. 

Bringing Work In-House on the Rise 

The report’s findings reveal that a significant trend among legal departments is bringing more legal matters in-house. In 2023, 66% of respondents indicated that they plan to internalize legal work as a cost-reduction strategy. This percentage marks a notable increase from the 59% recorded in 2022. The goal of this trend is to streamline legal operations and reduce costs. 

Shift Towards Smaller Firms 

In addition to bringing work in-house, 39% of respondents also plan to shift legal work from larger law firms to smaller ones. This shift reflects a growing preference for smaller, more agile firms that often offer competitive pricing and specialized expertise. 

The Ascendance of Artificial Intelligence 

One of the most remarkable findings is the increasing reliance on artificial intelligence (AI) to control costs. Compared to the previous year, where only 12% of respondents considered AI for cost control, this year saw a substantial surge to 33%. This nearly threefold increase underscores the legal industry’s growing recognition of AI as a valuable tool for efficiency and cost-effectiveness. 

Higher Expectations for Outside Counsel 

In-house legal teams expressed higher expectations for outside counsel regarding cost transparency and predictability. Only 42% of respondents reported satisfaction with cost transparency, while just 38% were content with cost predictability. These statistics indicate a need for law firms to enhance their clarity on billing and cost forecasts. 

Reducing the Number of Law Firms 

Approximately one in four respondents mentioned plans to reduce the number of law firms they work with in the coming year. The primary reason cited by 79% of respondents was to enhance cost-effectiveness. This trend indicates that in-house legal teams are keen to optimize their external legal partnerships. 

The Desire for Collaboration with Business Departments 

Many legal teams expressed their desire to collaborate more closely with other business departments across their organizations. Seventy percent identified better alignment with other business units as their primary goal. However, certain obstacles impede these collaborative efforts, such as the perception that legal departments slow down projects (58%) and exhibit excessive risk aversion (41%). 

Challenges in Providing Strategic Advice 

The report highlights that nearly half of the respondents (47%) feel they become involved after strategic decisions have been made, limiting their ability to provide strategic advice. This points to the need for legal teams to be included earlier in the decision-making process. 

Overcoming Obstacles to Collaboration 

Although 33% of respondents believed they required new technology for centralizing data and facilitating more efficient collaboration, the primary obstacle to stronger collaboration within organizations is the lack of bandwidth for process improvements, reported by 71% of participants. This highlights the need for resource allocation and workflow improvements within legal teams. 

Legal and IT Collaboration 

A significant theme is the need for closer alignment between the legal department and the Chief Information Officer (CIO). In 2022, 56% of participants expressed the need for stronger collaboration between legal and IT. However, in 2023, only 20% reported working closely with IT, while 32% expressed their desire to establish a closer alignment. This emphasizes the growing recognition of the synergy between legal and technology. 

“In-house counsel want to collaborate with other business departments but they feel hamstrung by a lack of automation,” said Chuck Kellner, strategic discovery advisor at Everlaw. “A true digital transformation of the legal department will get them through this last mile for greater parity with other departments. GenAI may become the killer app to drive the needed cost savings and create the efficiency improvements.” 

“In-house legal teams have made great strides to improve internal and external collaboration in their organisations, but there is clearly a long way to go,” said Blake Garcia, senior director of business intelligence at ACC. “Legal teams continue to be seen as roadblocks on projects and nearly half reported they are consulted too late in strategic corporate decisions. With legal teams’ responsibilities increasing, yet continually being asked to do more with less, technology adoption is likely the most efficient way teams can improve communications with every corner of the organisation.” 

In conclusion, the ACC and Everlaw report illuminates the evolving landscape of corporate legal departments in response to budgetary constraints. In-house legal teams are seeking to optimise their operations by bringing more work in-house, shifting to smaller law firms, embracing AI, and collaborating more closely with other business departments. These strategies aim to enhance efficiency, cost-effectiveness, and alignment with organisational goals. As the legal industry continues to evolve, in-house legal departments are at the forefront of change, striving to deliver optimal value to their organisations.