This essay is part of a series exploring the concept of Integrated Law, a new category in the legal industry that addresses a critical challenge facing in-house counsel: Complex Legal Work at Scale. Today, we look at the historical evolution that brought us to this position and the contemporary developments that necessitate a new approach.
As Carl Sagan said, "You have to know the past to understand the present." And If we've learned anything from the history of the legal industry, it is that change has not been a smooth, linear progression. Rather it has been characterized by a series of turning points where, in response to sufficiently compelling circumstances, altogether new service categories have emerged.
In this piece, we'll look at three major turning points where circumstances have led to a meaningful shift: those leading to the origins of the large law firm, the rise of in-house law, and the development of new law. We then argue that the convergence of trends in the legal market is driving us towards a fourth major shift. These trends are
Before the turn of the 20th century, businesses were relatively simple, as were their legal needs. We see this reflected in the practice of law at this time, with most firms in the 19th century being solo practitioners. In fact, there were only 15 firms in the whole of the US in 1872 that had more than four lawyers. By the early 1900s, it was over 1,000.
In that intervening period, we saw corporations start to get big and complex. The scale of resulting work and the variety of knowledge these changes called for meant that the old approach of the small firm was no longer practical as they couldn't handle the volume or diversity of resulting legal work. With this, what we recognize as the modern, large law firm began to emerge, with firms significantly growing their ranks.
Companies had long employed in-house counsel, but the expectations on this function began to accelerate as organizations became even more extensive as the mergers and acquisitions of the 1960s, '70s, and '80s saw the rise of giant multinational conglomerates. The expanded scope of activities in these businesses increased internal complexity and generated vast amounts of routine legal work. This meant these businesses required increasing understanding from their counsel about their day-to-day workings, something an external advisor was not well placed to provide.
This caused a dramatic shift in the nature of in-house law. With this, we see superstar lawyers coming in-house to lead the increased integration of the knowledge of the law with the company's business. The archetypal example of this is GE. When Jack Welch brought Ben Heineman over from Sidley Austin in 1987, he started building a team that could manage the internal complexity of the company. What began as a team of 33 lawyers (30 of which Heineman immediately replaced for not meeting his exacting standards) ended in 2006 when he left GE as a 1,000-lawyer behemoth, the equivalent of a top 20 size firm at that time.
The most recent shift in the nature of the practice of law also came about mainly due to the changing nature of in-house requirements. As in-house law came closer and closer to the business, it was called on to adopt more of the practices of its peers in other departments and become significantly more rigorous regarding cost and efficiencies.
Here neither the large law firms with their focus on expertise nor growing in-house teams with their focus on business integration had the competencies required to harness technology and process to drive efficiency. Instead, much as other parts of the business already had for years, legal was called on to unbundle and outsource 'non-core' or lower value work. Solutions to provide for this started to emerge in the early 00s, most notably in the form of offshore litigation discovery companies.
These underlying trends accelerated with the 2008 financial crisis as all parts of the business were called upon to find further efficiencies and jettison more non-differentiating activities to external providers.
When we look today at the solutions we have and the scenarios that led to their creation, we can see that the current stressors on in-house and the unsuitability of existing solutions to address these suggest the need for a fourth epoch.
Specifically, we see three factors that suggest this need: the never-ending demand of 'more for less', the ever-rising cost of external counsel, and the mental health epidemic among legal professionals (or, put more simply, the fact that so many in-house lawyers are suffering from burnout or worse). Added to this, we see a new force that threatens to be that final stressor that will tip the whole system over: the increased expectation of velocity. As this puts more and more pressure on in-house departments, rationing of service kicks in and often the urgent (today's important contract or transaction) wins out over the important (this quarter or this year's most strategic advisory requirement or risk mitigation practice that keeps the company off the front page). In short, the volume, intensity and urgency of transactional work keep in-house legal from its highest calling as a strategic legal advisor to the business.
The first factor is the constant squeeze that in-house legal teams are under to do more for less. This has become particularly pronounced recently. In fact, over the next three years, 88% of general counsels are expecting to have to make budget cuts while at the same time predicting a 25% greater workload. That's before we even account for the impact of a potential economic downturn over the next year, which would put further pressure on in-house budgets.
As demands to find savings limit in-house teams' ability to expand to handle their ever-growing portfolio of work, so too the ever-increasing costs of external counsel prevent them from using law firms as a release valve to control excess work. For years, the hourly billing rates of law firms have been steadily increasing, with newly qualified lawyers now billing hourly what a partner did ten years ago.
Ultimately, if in-house legal teams face expanding workloads alongside a stasis in their ability to expand capacity internally or externally, more work will land on the same desks making for long hours and more tactical, less fulfilling work.
This is fuelling the mental health crisis we see in the legal industry, with research showing that almost three out of every four lawyers have reported experiencing anxiety, depression or other mental health challenges.
For anyone who has been in the legal sector for some time, these challenges will not sound new. They are the same ones that have been hobbling in-house teams for years. So, what's changed that makes the need for a new category so urgent? One word: velocity.
Whereas we've long seen "more for less" as the underlying demand behind these challenges, we're seeing this transform to "more for less, more quickly". As Jason Barnwell from Microsoft points out, the impacts of businesses operating in areas of increasing complexity (which we will explore further in a later essay) are a trifecta of "increasing work volume (number of units), increasing complexity (unit cost) and increasing velocity (unit clearing time)".
This new demand for increased velocity is driving the system to its breaking point, and as we reach that point, we see that rationing sets in. When this happens, the urgent wins out over the strategic. As the world becomes more complicated for businesses, advisory is becoming more critical, but legal teams are stuck in the weeds of day-to-day transactional work.
We call this resulting challenge Complex Legal Work at Scale. Work that is valuable but too voluminous to send cost-effectively to law firms, too complex for New Law and too distracting from in-house's core vocation as strategic advisory. This is the underlying challenge we need to address.
In the next essay in this series, we will explore the underlying reason that legal innovation has failed to address Complex Legal Work at Scale, based on the misunderstanding of the nature of complexity.