Does the Rise of Legal COOs Spell Trouble for Law Firms?

Traditionally, law firms have focused their client relationship and business development activities on the corporate in-house GC or Chief Legal Officer (CLO) and his or her immediate reports. While c-suite executives may act as influencers when hiring an external law firm, chances are that the final decision will be made by the GC/CLO, with input from their key legal team reports.

But is that about to change? The last few years have seen the emergence of the Legal Chief Operations Officer (COO) – a role that has developed to essentially drive efficiency and oversee the overall performance of the legal function. Until recently, in-house legal teams have largely been immune to the scrutiny and pressure to improve efficiency that other parts of the business have experienced in recent years. But that is changing. The rapid onset of new technology, new legal providers and new processes has led to GCs and CLOs in some of the larger organisations seeing the overall direction of travel and they have responded by creating the legal COO role, recognising the need for a different business management skillset within the in-house legal department.  

Why is that a potential problem for law firms? To begin with, a legal COO has a completely different remit, and a different purpose. Their focus is to drive the performance of the in-house legal team by developing operational best practice, improve efficiency and to ultimately drive down cost. Consequently, the skills they will need to bring to the table are varied and go well beyond legal acumen. Financial management and planning, project management, strategic planning, vendor assessment and management, knowledge management and the increasingly important area of legal technology and support are simply some of the activities that are likely to fall within their scope of influence. Very few of these specialised areas are taught at law school. Some are acquired through years of experience, but legal COOs tend to have varied backgrounds, possibly from within the legal profession, but also backgrounds in finance, banking, consulting, technology, project management, and legal or business administration are not uncommon.

Does any of that matter? I believe it does. If legal COOs become a gatekeeper to your firm’s relationship with the GC or CLO, then you will need to engage with them. Central to that engagement will be the delivery of information and data that most law firms are notoriously bad at keeping, let alone reporting back to clients. According to a recent survey of corporate counsel by Thompson Hine, entitled Closing the Innovation Gap, a staggering 45% of in-house counsel never receive detailed plans, budgets, or useful financial analysis from their chosen law firms. Or put another way, only 15% of corporate counsel say they actually get that information from their external law firms.

 My response to that is to ask why? The answer in part lies with external lawyers and their law firms not being geared up in terms of systems and process to provide that information. However, I suspect more to the point, clients have not demanded it. That is about to change. The very nature of the legal COO’s role is that they will want this information readily available, on demand, and will not accept firms failing to deliver it. The conversation will no longer be; “Wasn’t that a great piece of work we did for you?” It will be much more along the lines of, “We successfully completed that engagement for you. Here’s a complete breakdown of our costs against the fee we quoted, the people who worked on the matter, exactly what they did for you in terms of time and deliverables and what we believe are the next steps you should be considering, together with a projected timescale and potential cost.”

As such expectations become standard, the nature of the conversation with clients will fundamentally shift, and with that, law firms need to ask themselves who within the firm is best positioned to lead that conversation. It may no longer be the client service/relationship partner.

Delivering results in themselves will not be enough. Legal COOs will want a detailed understanding of how they were delivered and at what cost to his/her firm. If you’re unable to produce that data, than it compromises the ability of the COO to perform their role of achieving operational excellence. So guess what? They will look for law firms that can. There will always be exceptions to any generalisation, which clearly this is. But COOs are unlikely to have brand loyalty to a particular law firm, which may have existed prior to their arrival. They will have their own set of criteria for selecting and maintaining relationships, not just with law firms, but with any provider of legal services that meets their operational requirements. 

In percentage terms, it is still a relatively small number of organisations that have a legal COO, but most few industry commentators see that as a trend heading in only one direction - up. Virtually every survey of corporate counsel indicates that in-house teams are faced with the challenge of doing more with less. The two pain points are invariably increasing workloads and tighter budgets. That points to the need to improve operational efficiency and reduce costs, and hence the need for a COO role.

We are seeing the vanguard of an important new buyer and operational manager of legal services within in-house legal team. Law firms will need to significantly alter their approach in order to work with legal COOs, and quickly, or they will find the business going elsewhere.