Financial Services Firms’ Legal Departments Grappling with Rapid Change

July 20, 2017

BankruptcyAs legal departments within financial services firms continue to rapidly evolve, department leaders are grappling with several issues, including the creation of new legal roles within legal departments, the need for collaboration with all market participants, and the crucial question of adapting to changing legal technology.

These themes were front of mind at a recent roundtable working session, hosted by Thomson Reuters in Singapore, that brought together several senior leaders from financial services institutions to discuss the evolution of the industry’s legal department. “The financial services industry is massively underestimating the speed of change within the legal sector and the impact it will have on the current processes of today,” said one attending general counsel, in a comment that summed up much of what was discussed.

New Roles Within the Legal Department

Many of the attendees agreed that innovation within the legal department is crucial for engaging a new generation of lawyers and retaining the best talent, but that legal departments need to be acutely aware that this innovation is creating complex and vital new roles within the department, such as head of innovation and head of commercial management, as well as numerous roles to handle more demanding legal operations and process management duties.

In fact, one participating legal officer pointed out that one area of growth within most legal departments is across legal operations, and that some of these roles are being filled by non-lawyers. “The in-house legal department of the future is likely to be much smaller, leaner and have as many non-lawyers within the team as lawyers,” he said.

Looking into the future, some participants suggested that other skills, such as process and project management and even computer coding, would be necessary for future lawyers or non-lawyers working within a legal department. They also mentioned the important work that the Corporate Legal Operations Consortium (CLOC) is doing in this space. “CLOC is creating a big movement to focus on many of these things,” offered one attendee.

Collaboration is Key

Today’s legal environment has renewed its focus on cost and value, and legal departments need to place a high priority on collaboration, both internally with business departments and externally with outside law firms and vendors, to ensure that the best quality and highest value legal work is being delivered, attendees noted.

“Collaboration is a key to ensuring innovation is successful,” said one participant, adding that means seeking collaboration between all market participants — law firms, alternative legal service providers (ALSPs), vendors and legal technology companies. “Do not limit your department to just collaborating within your organization.” Instead, relationships between in-house legal departments and their outside firms and vendors should be structured as partnerships that highlight a commitment to help identify future solutions and include equal investment in helping to shape those solutions.

“There needs to be a willingness to try and test new ideas,” one participant noted. “This avoids waste and ensures good ideas can become great products.” Internally, in-house legal teams need to find ways to work with their business units that will improve the perception of the legal department within the company — trying to be seen as “facilitators” as opposed to the current view, which often sees the legal department as a road block to business ideas, participants agreed.

Adopting the Right Technology

The rapidly-changing landscape for legal technology was an oft-mentioned subject at the work session with attendees agreeing that legal departments within financial service firms can be overwhelmed by the amount of new tech available, but should resist the urge to chase the latest gadget as a solution to their innovation problems.

“Technology is not always the solution,” said one attending legal officer, adding that it was just as important for legal departments to make the required investment in legal process, breaking down each part of the process, and finding ways to measure results and make improvements. “You have to identify and target an end-result in order to gauge success and add value.”

Most participants agreed that the whole practice of identifying, acquiring and integrating the right technology for your legal department’s needs requires a huge amount of investment both in terms of time, effort and supervision, as well as money. It’s critical that top management makes this type of investment a key priority in order to get the right amount of focus on the initiative, they add. In fact, people within the industry often underestimate the importance of ensuring the correct support structure is in place to support innovation and the amount of “babysitting and hand-holding” required in the early stages, one attendee noted.

Adapting to Change & Staying Relevant

Near the end of the session, a question was thrown out to attendees: Given the impact of legal technology and the ascendance of ALSPs, where does the next generation of law firm superstars come from?

Answers discussed included:
• the desperate need to change the current training model for new lawyers, beginning in law school;
• the necessity to create roles for top legal talent, even if the numbers of associates and trainees decline; and
• the willingness to look for the next generation of law firm partners in non-traditional areas, such as partners from the Big Four accounting firms or leaders at ALSPs or other corporate general counsel.

By and large, many large banks and financial service companies are operating more like technology companies, and their outside law firms need to consider how best to support them in the future as clients, several participants noted, adding that legal departments and others need to adapt to this evolution. “All players need to embrace change, be adaptable and be able to advise clients on the changing environment in order to remain relevant and continue to provide added value for clients.”

A great starting point to overcoming some of the ongoing regulatory-compliance and cost-management challenges discussed at the event is to consider identifying a strategic legal services provider(s) that can grow with your organization’s evolving needs. Areas of consideration for you to think about when evaluating vendors can be found in the practical advice highlighted in the Top 10 Things for Financial Institutions to Consider When Outsourcing Master Agreements white paper.