Removing the ‘A’ from ALSPs

Guest post by Daniel Hayter, managing director for Europe at Axiom

Hayter: Reaching a tipping point

Today’s legal landscape is in flux. Having weathered both the Covid-19 pandemic and the transition period following Brexit, the industry is adjusting to new realities.

The rise of artificial intelligence and emerging technologies continues to impact the way lawyers work, and the roll out of the Solicitors Qualifying Examination will impact the demographics of practising lawyers.

On the other side of the legal equation, geopolitical issues and a looming recession will impact the way in-house leaders organise their teams and reconcile their budgets in a cost-constrained environment.

We believe this new landscape will mainstream what was once considered ‘alternative’. Here’s why.

The traditional legal resourcing model is binary: there is the in-house team and the law firm. The in-house team is critical because there will always be a steady stream of ‘core’ enterprise legal work that requires some level of institutional knowledge.

The problem with the in-house construct is that it comes at a fixed cost. Staffing up means hiring full-time employees, thereby incurring permanent expenses for needs that may be only temporary in nature (and that assumes there aren’t any hiring freezes on the horizon, something we’re already seeing).

External law firms are the other piece of the traditional legal resourcing model. They are critical for large-scale litigation and exceptional matters that are beyond the abilities and scale of even the most robust internal team. Yet they are often also used to handle overflow core work.

In addition, they’re expensive and only getting prohibitively more so, with rate increases at 5% per year.

Given the economic issues with the old staff-up or send-out approach, legal leaders operating in a new cost-controlled environment must find alternative solutions that offer better value for their legal spend, without increasing risk – and that is a kind of alternative legal service provider (ALSP) known as flexible talent providers.

We’re not talking about temp lawyers to cover maternity leave. We’re talking about using flexible legal talent as an effective bridge between the in-house team and the external law firm in a way that helps general counsel achieve four critical objectives:

  • Improve risk mitigation: match legal matters to the right legal talent at the right time.
  • Extend in-house expertise: limit what needs to be sent to a law firm.
  • Decrease costs: minimise law firm spend and permanent in-house hires.
  • Reduce the burden on in-house counsel: provide practical, business-focused oversight to teams tasked with managing an increasing number of law firms

The use of ALSPs is, of course, nothing new. According to a report published by Thomson Reuters, Georgetown Law and the Saïd Business School, the last six years have marked significant growth for the ALSP market, which, as of February 2021, was valued at nearly $14bn globally.

But their use, thus far, represents a relatively small drop in the broader enterprise legal budget bucket. We believe that current economic volatility will be the tipping point for legal departments – drawn by ALSPs’ lower rates, specialisation and efficiencies, they will increasingly adopt the alternative as the new traditional.

While we believe this is relevant for all legal departments, the mainstreaming of ALSPs is especially timely for small- to medium-sized businesses and non-financial services sectors.

Following the seismic shifts caused by the pandemic and Brexit, these sectors need increasing legal support. There is a rising demand for both generalist and specialised lawyers as remote work and the EU-UK trade cooperation agreement increases enquiries surrounding insolvency, restructuring, data protection and cyber-security as well as passporting rights and regulation.

Of course, mainstreaming ALSPs is not only about the needs of the commercial legal department. ALSPs are only able to succeed if they are fed by a steady, high-calibre talent pool.

The good news is that ALSPs are increasingly attracting this talent. According to recent Axiom research, around half of corporate lawyers in the UK (48%) are actively looking for a new position or are planning to exit their current role in the next one to two years (51%).

No matter where they are in their career journey, a clear majority (72%) say they are considering joining a flexible legal talent provider/ALSP.

These lawyers are looking for a new life in the law. The research uncovered a growing desire among UK-based legal professionals to gain more control and autonomy over their careers and build personalised paths that align to their interests and individual aspirations.

Given current economic contraction, the demand for efficiencies in terms of cost will only increase. New world realities, along with the interest in working for flexible talent providers will only accelerate. Those two forces combined is why we believe 2023 will be the year that officially removes the ‘A’ from ALSPs.

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