Consequently, many corporate law departments (CLDs) will remember these past 12 months as the great pricing reset in which law firms required significantly higher hourly rate increases over and above anything the legal marketplace has seen in at least a decade.

The new year finds both the buyers and sellers of legal services having to grapple with the economic reality of high inflation, increasing labor and infrastructure costs, attrition, labor arbitrage, and major shifts in market demand — all of which will in some way or another impact the cost of legal services into 2023 and beyond.

Using cost control counter-measures

With this reality, many CLDs are not looking forward to a repeat of last year’s rate hikes; however, that is not necessarily a fait accompli for corporate clients. Yet, there are counter-measures that can be deployed to help them mitigate, control, and even create cost savings in the face of such pricing uncertainty.

There are many familiar options that CLDs have at their disposal — such as tiering, RFPs, volume discounts, panel convergence, budget structuring, and in-sourcing — although these approaches, while important considerations for every CLD looking to control their costs, may take time to mitigate the impact of proposed rate increases.

Instead, let’s focus on a few things that might help CLDs achieve tactical and immediate results.

Rebates

Similar to, but distinct from, volume discounts, most rebates exist with those law firms that enjoy large volumes of billing. Rebates are typically negotiated at the start of a calendar year and are contingent on a firm achieving a certain dollar threshold or tier of billings in that year.

Rebates are a good tool for CLDs to utilize during any rate negotiations and especially on large matters or a portfolio of work where a CLD is looking to reduce its legal spend, offset the cost of future work, or simply to mitigate the impact of future rate increases.

Value-added services

Not all clients have sufficient scale with a law firm to entitle them to ancillary benefits with the firm. However, value-added services — such as free legal advice, secondments, market research, access to proprietary technology, education, and training sessions — can be separately negotiated.

If a CLD must accept higher rates, then perhaps trying to negotiate or tie some level of complimentary ancillary services to those rates may help offset the CLD’s legal costs in other areas.

Rate management policy

While many CLDs have billing guidelines in place with their law firms, far fewer have any language in their guidelines that talks specifically about rate management and prescriptive requirements related to how a law firm is to address any proposed rate increases. Consequently, the process becomes much more ad hoc.

A proper rate management policy should address criteria such as when a firm can make a rate increase request, the frequency of a request (e.g., one increase per year rather than two incremental increases), permissible rate increase caps for specific professional groups, and the permissible criteria or reasons that qualify for a rate increase (e.g., merit vs. market pressures). All of these criteria are fundamental to managing expectations up front for both the firm and the CLD and for providing predictability and transparency around rate management.

ALSPs

ALSPs offer CLDs an opportunity to leverage less expensive providers than traditional bricks-and-mortar law firms. Tiering transactional matters or components of a matter away from expensive firms to ALSPs provides CLDs with cost saving and convergence opportunities.

Contingent worker ALSPs are a good example of legal work that typically has been sourced to traditional (and more expensive) law firms. Now, however, CLDs have the option to utilize virtual and less expensive service providers for components of legal matters or other resource needs.

Staffing ratios

As part of rate negotiations, CLDs should consider imposing staffing ratios on firms requiring them to assign a greater percentage of their work to lower cost mid-level associates, rather than expensive partners, thereby offering up potential cost savings for the CLD.

Disbursements & cost recovery

Legal e-billing systems are great for implementing quantifiable rules around non-reimbursable expenses on invoices. However, there are many charges or billing practices that cannot be quantified and corelated to an automated e-billing rule that rejects the proposed expense. Further, there are also other expenses that may be subjective in nature and require more powerful tools to review.

Diving into law firm disbursement data offers a CLD an opportunity to: i) find patterns of billing that are non-compliant with a CLDs billing guidelines; and ii) use the exercise to close any compliance gaps and save money; .

Quick-pay discounts

The importance of timely payment is not lost on a law firm’s management team as tracking outstanding accounts receivable balances is instrumental in measuring productivity and effectiveness of lawyers or identifying servicing issues.

A CLD can utilize quick-pay discounts as a solution to a firm’s balance challenges by providing an incentive for the law firm to lower its rates or offer a discount in exchange for the CLD’s commitment to paying the law firms invoices within a specific time frame.

Alternative fee arrangements (AFAs)

AFAs (e.g., fixed fees, flat fees, contingency, volume discounts, risk collars, etc.) are often touted as the great pricing panacea to hourly rates; however, before accepting any AFA proposal, CLDs should consider asking the law firm to provide quantifiable proof as to the value of the AFA and what if any determination was made to validate that the AFA is a better pricing option for the client. Without any such empirical validation, CLDs risk making costly assumptions around cost savings, when in fact the opposite may be true.

Getting ready to negotiate

Before engaging any law firms in discussions of the above strategies, CLDs need to address two key components that must underlie any of their efforts — billing data and communications.

Billing data — When leveraged correctly, CLD billing data offers a plethora of opportunities to save money in a runaway market that has pivoted in favor of legal service providers. By mining timekeeper data (e.g., rates, year of call, geographic locations), disbursement charges, invoice line item detail, time allocation, staffing ratios, and more, CLDs may uncover opportunities for savings when comparing billing data between multiple firms and ALSPs.

Communications — Having an open and honest dialogue with their law firms on budget constraints or their companies’ cost saving targets may allow CLDs to obtain voluntary law firm rate freezes or even rate reductions in the interest of building stronger and lasting relationships.

Indeed, holding these candid discussions at an opportune time when a lot of companies are facing financial challenges, may remind law firms that many CLDs are committed to growing lasting partnerships with those firms that understand the client’s budgetary pressures and are willing to help clients meet their cost-saving targets for the greater good of the relationship.

This process then kicked off a volley of communications — internal and external — and necessitated forwarding emails, PDF letters, and spreadsheets for analysis and follow-up. The legal operations team provided some central support, but this was often challenging because data limitations made it difficult to account for past rate increases and freezes across different firms. Overall, the efforts felt somewhat ad hoc and very time-consuming.

“It has always been important to us to get this right,” says Antony Klapper, Deputy General Counsel in Product Liability & Regulatory at VWGoA. “We want to be fair to our law firms, whom we view as trusted partners. At the same time, we must manage our company’s finances responsibly — and execute all of this efficiently with a leanly-staffed team.”

Trisha Fletcher, Legal Operations Specialist at VWGoA, emphasizes these points as well. “Collectively, our team had a strong desire to find a better way to do this.”

Taking a new approach

The VWGoA team launched a new initiative to process rate increase requests more effectively for 2022 and beyond — one that would ultimately win them an ACC Value Champion Award.

The first step, the team decided, was to establish a more centralized, uniform approach. This would be managed by legal operations with strategic guidance from legal leadership. Of course, there would still be coordination with in-house counsel, but in a more efficient way — built around a centralized process, featuring stronger use of data analytics, benchmarking, and core decision governance from leadership.

The next step then, was to improve the in-take process. Outside law firms were asked to submit their rate increases within a designated window of time and through a common portal. This allowed the team to consider them all together, performing side-by-side comparisons of similar firms to ensure more consistent treatment under then-current market conditions. This commonality also enabled the use of greater analytics capabilities to assess past rate increase history, as well as internal and external benchmarking comparisons.

Within this framework, the team also began examining firms’ compound annual growth rate (CAGR). A law firm’s billing rate CAGR shows a multi-year view of the firm’s rate increase history, accounting for past increases and rate freezes. Standardizing the figures this way enabled better side-by-side comparisons across the portfolio, and showed which law firms were high or low outliers based on their multi-year rate history.

The VWGoA team also found it very helpful to use data to model the dollar impact of the requested increases per timekeeper for the coming year. This was instrumental in identifying the most impactful requests in order to focus on managing costs.

Seeing the benefits

Through this new approach, VWGoA legal leadership and legal operations were able to implement more effective governance and decision logic to streamline the rate decisions in light of portfolio metrics and company financial considerations. By streamlining and consolidating the process, they freed up considerable hours that their staff had previously spent responding to rate increase requests as they came in, managing them all through one common workflow. They saved further time be setting auto-approval thresholds for certain rate increase increments.

In the end, the projected savings for the coming year were significant, with rate increases for various timekeepers, for example, trimmed to about one-half of the increment originally sought. The VWGoA team devoted particular attention to adjusting high outliers and managing the impact on budget in a sustainable way.

Beyond time and money savings, the team built a process that leveraged better data to drive better decisions. The result is a strong business case showing how those in legal can use technology and data more effectively to increase productivity and execute against business metrics.

From law firms’ perspective, understanding the data that informs a client’s financial position is a helpful way to focus their rate increase conversations onto a productive end for both sides.

“We recognize that, in this economy, many clients are facing challenging headwinds,” says Susan Vargas, Partner at King and Spalding. “As trusted partners, we are glad to talk about goals and metrics to strengthen our relationship in mutually beneficial ways — and we welcome informative data to help us do that.”

These preferences can be attributed to generational or gender differences, personal style or cultural preferences, individual reluctance to stray from their comfort zone, or feeling for better work/life balance.

If it was not clear before, the conditions and restriction placed upon workplaces during the global pandemic exposed the truth that the mindset of only one way — no options — is neither fair nor ultimately workable. Leaders need the ability to manage people with unique identities and from different generations and holding different performance capabilities. Then, leaders need to customize their interactions to each person’s uniqueness.

In the past, workplace norms were changed most quickly when clients demanded it, such as having women in firms on client teams and in leadership roles, or more recently, for flexible work arrangements. In general, with notable exceptions, clients have tended to be more open to flexibility on how and where professionals work and to diversity and inclusion factors, including generational preferences, than have their outside firms.

Carefully thought out approaches by practice leaders, managers, and the direct supervisors of matter and engagement teams within law and tax & accounting firms can help fuel the feeling that each individual belongs in the organization.

Working through the hybrid challenges

Not surprisingly, hybrid work adds complexity to internal relationships, especially those meant to serve and build connections with clients. Physical limitations — such as not being seen in the room and less opportunity for casual and spontaneous conversations — will decrease some professionals’ opportunities if not proactively dealt with by management. In particular, limits on physical proximity can lead to “familiarity bias” and “proximity bias,” which can lead to an out-of-sight, out-of-mind attitude from firm leadership when assigning work.

Those professionals working virtually also can have fewer opportunities to share their perspectives. That means that intentional effort must be made by managers to ask for their feedback during team and group meetings.

Norms around professional standards can also get murky over time, especially if there is no intentional scheduling of coaching, training, mentoring, and apprenticeship for business development. Without these career advancing practices, employee expectations and any desired upskilling can suffer because employees have fewer informal opportunities to develop relationships internally at the firm and with clients.

Actions for leaders & aspiring leaders

How leaders and managers can resolve the tendency to push employees back to pre-pandemic norms and mindsets that no longer serve personnel and firm goals is a necessary question with complex answers and a variety of related concerns over where and how work gets done. Some differences can raise strong emotions, including: the differing needs and desires among parents and non-parents; and among those workers who enjoy the camaraderie and nurturing relationships of an in-person workplace and those who don’t care about that as much.

Of course, the question of how those employees who are new to the firm, especially newly minted lawyers, can acquire the needed orienting and mentoring is vital, as is how they can make themselves and their skills known to the more seasoned lawyers. For many, it’s not a generational issue as much as it’s being driven by external motivations and the other factors.

To create better outcomes, law firms and tax & accounting firms need to increase their investment in developing managers at all levels. Daily actions of supervisors, such as using team norms for engagement, seeking multiple viewpoints during group settings, and ensuring team members are accountable all should be daily behaviors. Consistently practices, these behaviors can go a long way to establish productive connections and effective micro-cultures of collaboration and respect among their team members.

Tips for leaders and managers

There are several actions and changes in behavior that leaders and managers can undertake now to gauge the work preferences of their employees, including:

• • • ask questions to establish a more accurate view of preferences and needs without assuming that one size fits all;
    • conduct internal research on the expectations and wants of each generational cohort and level of hierarchy through one-on-one conversations or short surveys if possible;
    • encourage cross-generational discussion because the time spent will pay off in many essential ways;
    • assemble a multigenerational group of leaders and high potential professionals to have candid discussions in an environment of psychological safety; and
    • agree on a short list of desired leader attributes.

Importantly, law firms and tax & accounting firms need to realize that their leadership is situational and revisiting the needed leadership attributes and policies every few years (if not more frequently) is a good idea.

While the impacts of the still on-going pandemic are still being felt, adjusting to living with these changes long-term requires a mindset from all generations. Simply demanding that everyone returns to the office full time is not a workable strategy that will allow firms to retain their most desirable talent. Instead, showing an openness to changing needs is most likely to produce the kind of work environment that sustains and retains valued talent and is productive and profitable long-term.

Looking over the past year, three key themes — around client feedback, talent management, and law firm business development — strongly resonated in our columns and throughout the legal industry.

Leveraging client feedback

Learning what clients are thinking by way of formal client listening programs or feedback opportunities was an especially potent manner in which law firms sought to improve their client relationships and demonstrate their value to clients over the past year.

Whether gathering feedback at the client interview stage or in post-pitch discussions, receiving feedback from clients around what the firm and its lawyers did right or wrong, how the firm’s client service could improve, and even what competitors were doing it better may lead to some uncomfortable questions, but such client insight can prove extremely valuable to the firm’s performance going forward.

Further, a two-part series of columns on client listening programs showed how valuable those can be to a law firm’s own bottom line, detailing how clients spend twice as much with those law firms that ask them for formal feedback than with those that don’t. The series also discussed the typical barriers that exist to establishing client listening programs, most significantly, of course, trying to engage firm partners in the process.

Talent & retention

Not surprisingly, finding ways to keep key legal talent was quite possibly the top concern among law firms and other professional services firms throughout 2022 — and our Custom & Advisory columns certainly reflected that.

Indeed, it became clear as the year went on that legal talent had become extremely mobile, and many lawyers, especially younger associates, were switching law firms with increasing frequency in order to find a good fit that met their needs. Interestingly, while the legal industry initially thought throwing more money at these associates would solve their retention problems, it seemed there was much more at stake in the minds of these associates.

Numerous industry surveys showed that among associates, compensation ranked lower as a reason to stay at their current firm. Much more important in their minds was the firm’s culture and leadership, according to our research.

This meant that law firms needed to look for incentives beyond compensation to retain their top legal talent, such as improving how fairly associates are treated and how much they are shown respect by their current firms — both of which ranked very high on the list of reasons why an associate would choose to leave or stay at their current firm.

In our surveys, associates also noted that they are most likely to leave a firm if they perceive a lack of opportunities for career growth. This insight was extremely valuable to those law firms that were concerned about lawyer retention because it gave them one clear area to address by offering more career development, networking, mentoring, and training opportunities. In fact, all of these factors contributed greatly to an enhanced sense of well-being among lawyers, something too that law firms would be wise to promote in order to keep top talent from leaving the firm.

Business development strategy

As the legal industry (and the rest of the world) moved past the worst of the global pandemic throughout 2022, those law firms that embraced remote and hybrid working environments were now confronted with managing clients that had done the same, dramatically changing how lawyers and clients were interacting.

For example, during the pandemic and now going forward, it became clear that videoconferencing was far superior to phone calls with clients, allowing lawyers to better establish rapport more rapidly and greatly enhance the client relationship.

Another Custom & Advisory column picked up on the theme of improved client relationships by suggesting that a business development strategy that’s lodged in how the firm’s value is demonstrated to clients can be a way for firms to differentiate themselves from the competition. Clearly, all firms lay claim to having client-centric service, but only those that make that claim come to life by demonstrating at every touch point within the client experience will truly differentiate themselves, the column noted.

Like with many strong themes that emerged through our Custom & Advisory columns, embedding the demonstration of value within the client experience was not just a good-to-have mantra of today, but rather a necessary component for law firms if they were to continue forward successfully in the current environment.

Clearly, business development doesn’t just begin and end with finding additional ways to serve current clients. Law firms should be constantly on the look-out for new practice areas or service offerings that can help them add business from current clients and attract new ones. For example, the area of environmental, social & governance (ESG) has become a potentially lucrative vein of new business in compliance, corporate work, and risk management matters for those law firms that are early adopters.

As reflected in our Custom & Advisory columns published throughout 2022, the themes of client feedback, talent management, and business development greatly influence firm leaders’ focus over the past year. Moreover, these themes — and others that will be chronicles here — are likely to continue weighing on law firms leaders’ minds into the next year and beyond.

If you’re interested in learning more about some of the research used in our monthly Custom & Advisory column, and how this data can be applied to your firm, please visit here.

Indeed, as global economies moved away from the worst of the pandemic, it seemed early on that 2022 could provide a sense of normalcy, if not a return to traditional business practices. However, the rocky shoals of the war and global economic turmoil soon put an end to that sunny thinking. Yet many professional service firms and their corporate counterparts in the US and around the world found ways to remain profitable, resilient, and forward-thinking enough to allow some positive direction as we all head into 2023.

The Thomson Reuters Institute, through its blog posts, podcasts, market reports, and in-depth analysis, has chronicled many of the changes that swept through the last year, offering insights into how many organizations are adapting and what solutions are being successfully utilized.

If there were trends to discern in this very busy year, it was that twin issues of talent and technology implementation were impacting corporate departments and professional service firms to a greater degree as the year went on. And some of the most-read pieces on the blog site reflected that. For example, one piece that was very widely received described the different power skills that allow employees to flourish in new hybrid work environments; also, the changing regulatory stance toward the practice of law, especially around whether non-lawyers can own law firms, was of keen interest to our readers.

Further, many law firms, government agencies, tax & accounting firms, and corporate departments were beginning to grasp that the technology needed to meet the growing demands of the digital economy was of paramount importance. Indeed, as we moved toward the end of 2022, it was clear that technology adoption and maximizing its use simultaneously was among the biggest challenges and most promising opportunities that organizations are facing going forward.

Key market reports & in-depth podcasts

Throughout the year, it was the goal of the Thomson Reuters Institute to bring together people from across the legal, corporate, tax & accounting, and government communities and ignite conversation and debate in order to shed some insight on the newest industry developments and the most critical opportunities and challenges market participants are experiencing.

You can explore our top trending Thomson Reuters Institute insights that shaped 2022, or you can relive some of our highlights from this year here. And for further coverage of the legal, tax & accounting, corporate, and government sectors, visit the Thomson Reuters Institute.

We did this in part by providing coverage of these topics on the Thomson Reuters Institute blog site — such as podcasts, videos, and key market reports — and by hosting world-class events, which kicked off in Amelia Island at our 29th Annual Marketing Partner Forum, which brought together global law firm leaders and the best strategic thinkers from around the world to discuss the steep challenges facing firms in the legal market; and continued in New York City with our 21st Annual Law Firm COO & CFO Forum, along with many more in-person and virtual events throughout 2022.

As our reach expanded over the year — the Thomson Reuters Institute blog site reached more than 1 million annual page views this year for the first time in its history — our coverage expanded as well. We created two new resource centers on the site, to accompany those dedicated to covering the legal, tax & accounting, corporate, and government areas. Our new resource centers — Environmental, Social & Governance (ESG) and Technology & Innovation — allow us to offer readers dedicated content and insight into those areas.

Throughout the year, the blog site offered a steady stream of analysis and market insight reports that shed light on what participants in the legal, tax & accounting, and corporate fields were experiencing in their respective marketplaces in today’s economy. For example, in the 2022 Report on the State of the Legal Market, we saw that the legal market has remained resilient, even though numerous key challenges remain for many law firms, including a hot market for legal talent that has driven up costs. Even so, the report showed that many law firms have managed the difficult market with a good level of success last year.

On the other side of the table, our reports on corporate law departments and corporate tax departments shed further light on the immense pressure these departments were under from their corporations to transform the way they operate, with special emphasis on working more efficiently and cost-effectively. Indeed, coming out of the pandemic, it appears the dramatic changes undertaken by corporations during that time — especially around talent management and adopting new technology — may only be the beginning.

Also, our series of twice-monthly Insights podcasts offered in-depth discussions throughout the year on topics ranging from the viability of the new cryptocurrency economy to the most common misconceptions in the legal industry around artificial intelligence, and from how financial institutions were managing Russian sanctions to how organizations can benefit from client feedback programs.

Now, as we move into 2023, the Thomson Reuters Institute will continue offering insight into the latest events and trends, bringing leaders together, and mapping out the opportunities and challenges facing corporations and professional service firms going forward.

To that end, the Thomson Reuters Institute, along with key market partners, have published a series of in-depth State of the Markets reports over the last year that examine several different aspects of these markets and offer insights into how many organizations are adapting and what solutions are being successfully utilized. The idea behind these State of the Markets reports was to provide readers with an understanding of how their peers in law firms and corporations are implementing transformational change within their own organizations, suggesting ways that other firms and department leaders could innovate in order to best prepare for the future.

Legal

In the legal market, our flagship Report on the State of the Legal Market, published each January in partnership with the Center on Ethics and the Legal Profession at Georgetown University Law Center reviews the performance of U.S. law firms, breaks down the factors that drive firms to take a longer-range, more strategic view of their market positions. In the 2022 Report on the State of the Legal Market, we saw that the legal market has remained resilient, even though numerous key challenges remain for many law firms, such as a hot market for legal talent that has driven up costs.

Yet, the report showed that many law firms have managed the difficult market with a good level of success last year. For example, demand for legal services soared in 2021, and even exceeded pre-pandemic demand levels in some practice areas. Law firms also sought to boost profitability by raising their billing rates aggressively, which helped to secure another year of strong profits for many law firms.

When we break the legal market down, either by size or region, we can offer readers even more valuable insights into how many law firms are managing their challenges.

Our 2022 Report on the State of the Midsize Legal Market, for example, detailed how the midsize law firm segment, while not immune to the volatility experienced broadly in the overall legal market over the past several years, seemed to have staked a position going into the latter half of 2022 that finds them better positioned relative to the rest of the market, including their larger competitors.

One way they’ve been able to fare better — especially in terms of talent retention — was by leveraging their firms as being a desirable place for attorneys to work, even if the pay scale is less than at larger firms. The strategy paid off, and attorney attrition in midsize firms was less than in other sectors, demonstrating that, at least for some lawyers, a good working environment is about more than just money.

You can explore our top trending Thomson Reuters Institute insights that shaped 2022, or you can relive some of our highlights from this year here. And for further coverage of the legal, tax & accounting, corporate, and government sectors, visit the Thomson Reuters Institute.

Similarly, in the small law firm and solo practitioner segment, leaders voiced a general sense of optimism and expectations of future growth, despite an uneasy economic picture, according to the 2022 Report on the State of US Small Law Firms, published this month.

Interestingly, when we looked at other legal markets around the globe, we saw many of the same trends and challenges as in the U.S. market, but with a different emphasis. For example, the State of the UK Legal Market 2022, published in April, detailed how strong client-driven pressure was forcing law firms there to address issues ranging from demonstrating their value to offering tech-savvy solutions. And in the Australian legal market, the 2022 Australia: State of the Legal Market Report illustrated that some of the same downward pressure on legal demand experienced there was now being felt in the U.S. market in the latter part of this year.

Corporates

The Thomson Reuters Institute State of the Markets reports also look at the other side of the table, examining what corporations are doing to better manage their internal law and tax departments.

We found both departments facing immense pressure from their parent company to transform the way they operate, with special emphasis on working more efficiently and cost-effectively. Indeed, coming out of the COVID-19 pandemic, it appears the dramatic shifts in workflow processes that corporations undertook during that time – especially in working environments – may only be the beginning.

For instance, in the 2022 State of Corporate Law Departments Report we looked at how the dramatic shifts that law departments endured during the pandemic could kick off a larger transformation. The corporate response to the COVID-19 pandemic of embracing to a large degree what they saw as unavoidable change has left companies with a desire to capitalize on those changes and make them a permanent part of their daily business.

In the report, corporate law department leaders surveyed looked to be getting the message, ranking conducting operations efficiently and delivering legal work more effectively among their top priorities going forward. The report showed that the most successful law departments will be those that leverage the momentum of the change forced on them over the past two years, both in how they integrate and operate within their organization.

Similarly, the 2022 State of the Corporate Tax Department Report showed how the twin trends of technology and the war for talent are impacting how corporate tax departments are operating. Specifically, the report examined the strong tension between corporate tax departments seeking greater effectiveness and efficiency through technology, and tax professionals in those departments who are constantly being asked to do more, while working faster and with fewer resources.

Corporate tax departments were far from alone in facing this challenge. Many law firms and corporate law departments began to grasp that the technology needed to meet the growing demands of the digital economy is pulling them in several directions at once, making technology adoption and its use simultaneously one of the biggest challenges and most promising opportunities organizations are facing.

Indeed, in a spot poll of roughly 30 in-house lawyers in the San Francisco Bay Area in September, all of them indicated that their companies and teams were either fully remote or hybrid.

Yet, despite the prevalence of remote or hybrid workplaces, the potential biases that can impact staff members who are working mostly remote or hybrid still remains. The types of biases include: i) implicit bias, which is a form of bias that occurs automatically and unintentionally and affects judgments, decisions, and behaviors; ii) proximity bias, which is the tendency to favor people who are closer in time and space; and iii) affinity bias, an unconscious bias that causes people to gravitate toward others who appear to be like them.

For those employees who are negatively impacted by these biases in a hybrid setting, management’s poor behavior can be experienced as microaggressions. This can be keenly felt during remote of hybrid meetings, especially if those running the meetings ignore remote attendees, don’t invite the more introverted or junior people to contribute, avoid eye contact, or allow extroverts to consistently dominate the conversation.

Management should also be careful not to ignore virtual meeting invites or consistently reschedule remote meetings because ignoring emails, video call invites, recurring meetings, and more — especially when done by key partners — is a form of bias that can prevent people from doing their jobs well in a remote-first world.

Forging partnerships with other corporate functions

Chief legal officers (CLOs) have an influential role to play in mitigating this bias not just within their team as a manager, but more importantly across their company through the creation of policies, norms and behaviors. Here are some of the ways CLOs are attacking bias at the company level:

• • Setting expectations that human resources (HR) need to work closely with the law department — This includes not only forging an organically strong relationship, but establishing a top-down expectation that HR should look to the company’s law department as a key input and decision-maker for company policies and approach. This should be a priority, given the important role of the department in mitigating biases company-wide, suggests Megan Niedermeyer, General Counsel & Corporate Secretary at Fivetran, who joined the software company during the pandemic as its first legal leader.
  • Focusing on policies and practices that can help reduce bias — These exercises include pay equity audits, which analyze median compensation for each level by department, location, function, and team to understand if those employees with underrepresented identities are receiving lower salaries. Niedermeyer says this was one of the first tasks she tackled with outside employment counsel when coming to Fivetran. In addition to pay equity audits, in-house counsel should be adequately involved in the performance review calibration process, reviewing both median timing to promotion and pay increases for each level by team. In this way, the law department can determine if bias is creeping in and can use this information for sensitive conversations if this is occurring, she says.
  • Leveraging technology to build a culture of feedback — Similarly, CLOs as the chief risk officers of their companies by default, can impact how a return-to-office policy is going, especially when some corporations have had a policy that they’ve had to review or roll back. Niedermeyer explains how she used a strong partnership with HR and a technology platform to increase employee feedback on how the return-to-office process was going, as well as allowing anonymous reporting of incidents to obtain better data on potential negative cultural hot spots. Indeed, workplace harassment in the digital realm, which can be as high as 40% of those who experience work-related harassment, is an unfortunate side effect of more remote working.

Modeling inclusion as an aspect of C-level culture

CLOs, through their conduct and leadership style, can be a model cultural promoter for demonstrating inclusion, which proactively can create a feeling of psychological safety and this, mitigate biases. Alexa Summer, CLO of Rho, suggests ways this could be accomplished, such as:

• • Tailoring management style — Summer customizes her engagement approach with each person she works with, including her peers, direct reports, members of the company’s law department. Specifically, Summer says she seeks to understand what the motivations, goals, and preferences for communication are by asking questions to create a give-and-take, flexible atmosphere that offers a joint approach to problem solving.
  • Repeating expectations of work performance — To increase and maintain trust and transparency, Summer says she often reinforces expectations of performance in hybrid work situations through one-on-one meetings with her direct reports. This ensures that she and her employees maintain a consistent understanding of work requirements and performance goals, especially in a dynamic remote working world where everything evolves quickly.

The management behaviors that advance a culture of trust, respect, and inclusion while mitigating bias in remote and hybrid work are pretty much the same as those that comprise a great leader. Most of the time, this just requires adapting these behaviors to a different paradigm — in this case, one of a remote-first mindset.

From there, Schwerdtfeger spoke on technologies of the future, from blockchain to Web 3.0, from solar batteries to the metaverse. Just about every industry is changing in some radical way, he explained, and legal is no exception.

However, there was one crucial detail that he may have forgotten: Schwerdtfeger was speaking to a room filled with veterans of the legal industry. The legal industry is built on precedent mixed with a healthy dose of risk aversion, after all, and the industry has received a well-earned reputation over the years of never even trying to explore use cases for next-generation technologies. So, of course, it’s reasonable to believe that the legal industry would be dragged kicking and screaming into the third generation of web technologies like the metaverse and blockchain, rather than trying to capitalize on those opportunities.

Some innovators in legal have envisioned blockchain as a way to explore more business-oriented applications of distributed ledger technology.

Along the way, however, a funny thing has happened. In recent years: Law firms and corporate law departments alike have gotten more intelligent about both being a part of the conversation surrounding these technologies’ development, and exploring novel ways to separate themselves from their peers. In doing so, many within the legal industry have started to take a proactive stance on innovations like blockchain and metaverse, with not only technologists but leading attorneys themselves jumping on board. Here’s what the ILTA conference revealed about how today’s legal industry is taking a practical approach to next-gen technology.

Blockchain by blockchain

Blockchain has received a lot of attention for being the underlying technology behind digital assets such as cryptocurrency and non-fungible tokens (NFTs). Some innovators in legal have envisioned blockchain as a way to explore more business-oriented applications of distributed ledger technology.

Law firm Hogan Lovells, for instance, sees blockchain technology as an opportunity to reform its real estate processes. The firm has developed DriveChain, a collaboration between the firm, banking company BNP Paribas and blockchain technology provider Integra Ledger, to automate parts of the real estate process. DriveChain looks to eliminate manual data entry or multiple layers of approvals by automatically coding deal details such as parties, sale price or amount for rent, and more into the document, which generates a unique deal ID. The data is then given a unique code called a hash, through which all parties are notified if any details of the deal are changed, with an automatically generated ledger of all changes and approvals for the document living on the blockchain.

“What we are doing with blockchain is validat[ing] that the document they received, that the metadata within the document, is still validated,” said Bob Shaeffer, senior manager of architecture and integrations at Hogan Lovells, during a panel on the use of blockchain in professional services firms.

Shaeffer was quick to add that DriveChain is not a piece of blockchain technology itself, but rather the name for the new real estate-centric workflow. Blockchain technology simply functions as a piece of the overall puzzle, and only the hash and the unique ID for the data actually sit within the blockchain architecture. This way, the firm still holds crucial deal details inside its own walls for the protection of clients, but still utilizes the new technology to cut time out of the process for approvals.

“The primary focus on DriveChain is not the blockchain, but the blockchain is an integral part of what we’re doing,” Shaeffer explained.

It’s this type of practical application that more and more firms are exploring on the blockchain, added Joseph Raczynski, a technologist and futurist with Thomson Reuters and author of the website JoeTechnologist.com. At a separate ILTACON session, Raczynski explored a number of business use cases for blockchain technology, from “smart” contracts that are automatically executed once specifically coded parameters are hit, to decentralized finance (DeFi) marketplaces that are increasingly becoming a hub for business transactions. He even pointed to one firm, Rose Law Group, that executed a legal wedding online, with both a prenuptial agreement and a marriage license coded as a legally binding NFT.

“They moved down the road of taking documents that are unique and making them an NFT, which is what we’re going to see in the not too distant future,” Raczynski explained.

Into the Metaverse

However, it’s not just business applications that have those in the legal industry excited about future technologies. Some see tech innovations, such as the metaverse and blockchain, as the platforms around which daily life will soon be centered – and thus, around which legal practices will also be centered.

Alejandro Vallellanes, knowledge services manager at law firm Baker McKenzie, has seen a lot of confusion about what the metaverse actually is, leading some to discount it entirely. Vallellanes, who spoke on a panel about the use of the metaverse in legal, said not to think of the metaverse as a place, but instead as a concept, a moment in time where things are beginning to change. “It’s a tipping point where our digital self is more valuable than our physical life,” he explained.

Attorneys are now beginning to sort through the natural issues – who owns digital assets; what rights do human representations have in a digital world; does attorney-client privilege carry over; who owns digital likenesses; how to preserve, collect and analyze metaverse data; and more.

That tipping point may already be approaching. Indeed, between explosive cryptocurrency holdings, the value of social media advertising and an increasing emphasis on digital holdings like NFTs or virtual real estate, that point already may be here. “For some people, that asset class is more valuable than their physical assets,” Vallellanes added. “When that happens across the board, we can already consider ourselves living in some sort of metaverse.”

For legal and professional services organizations, then, the metaverse is quickly becoming not the realm of first movers, but simply where clients hold their own valuable assets. Cat Casey, chief growth officer at legal technology company Reveal, who spoke on the same metaverse panel, likens the current shift to the advent of the Internet and email – a curiosity at first, but one that quickly transformed into a daily necessity. “After a while, it became so ubiquitous that you couldn’t opt out,” she said.

Naturally, there is skepticism about whether the metaverse could truly become that pervasive. Are people really going to be holding all of their assets online? Yet, almost half (48%) of consumer respondents said they would be very interested or somewhat interested in shopping within the metaverse within the next five years, according to a McKinsey & Co. survey from February. More than 40% of respondents said they would be interested in using the metaverse to attend a telehealth appointment, attend a live learning course or even meet with friends and family, the survey showed.

Plus, where people are, money follows. Jerry Bui, a managing director at FTI Consulting who spoke on the metaverse panel as well, notes that Goldman Sachs has estimated the metaverse’s ultimate market size to be somewhere between a $2 trillion and $12 trillion opportunity. Even now, Bui added, virtual gaming has become a $200 billion business, dwarfing many other forms of media. “If you don’t think there’s momentum towards that end, just look at the money that’s flowing into this space,” Bui explained.

With any big business opportunity, legal problems will follow, and the panelists noted many attorneys are now beginning to sort through the natural issues – who owns digital assets; what rights do human representations have in a digital world; does attorney-client privilege carry over; who owns digital likenesses; how to preserve, collect and analyze metaverse data; and more.

However, for attorneys and their organizations, these open questions present a golden opportunity to drive the technology’s development with an eye toward risk management and proper legal reasoning, Bui said.

While there is no single formula for creating an effective hybrid legal team, there are four essential strategies that legal leaders should pursue to increase the performance and success of hybrid teaming:

1. 1. 1. Create psychological safety
      2. Build belonging and inclusion
      3. Make communication intentional
      4. Prioritize well-being

Create psychological safety

Psychological safety is trust at the team level and a foundational practice of effective hybrid teams. Psychological safety is the belief that employees can be themselves, ask “dumb” questions, share partially formed ideas and respectfully disagree with colleagues without the worry that they will be embarrassed, singled out or otherwise penalized.

Lawyers in a high-trust environment generally feel more comfortable sharing their knowledge and speaking up. Lawyers in psychologically safe environments are also more likely to identify or admit to errors and mistakes earlier. Trust also makes it more likely that lawyers will feel comfortable giving necessary feedback to others on the team. These are critical to a profession that doesn’t sell anything tangible — clients buy legal advice, which must represent the collection of the team’s expertise.

These behaviors will help legal leaders increase trust on their hybrid teams:

• • • Team members should be consistently reminded of the shared common goal and the outcome leaders are seeking to achieve for clients.
    • Legal leaders need to be both accessible and approachable. In a hybrid environment, team members need to feel both the digital and physical presence of leadership.
    • Leaders should offer encouragement — caring and kindness are the new leadership currency in law.
    • Leaders should also celebrate small wins by encouraging lawyers to share examples of small successes during the past week. Tracking small successes has been shown to be a powerful form of motivation.
    • Leaders should also acknowledge the limits of their knowledge. The legal matters that lawyers work on are complex and rarely have a simple answer. Saying, “I’ve not seen this issue before” or, “There isn’t an easy answer to this — let’s discuss it together” signals to team members that leaders will leverage the collective expertise of the team when needed.
    • Finally, leaders need to pay attention to how they listen. Legal leaders often listen to fix problems, and lawyers generally like to listen to win; however, leading effective hybrid teams requires empathy — “humble curiosity” that promotes listening to learn and understand. You can activate humble curiosity with communication cues like, “tell me more about that/say more about that” or “walk through that with me.”

Build belonging & inclusion

Belonging is the need to feel connected to others and to feel like a part of groups that are important and significant to you. One of the biggest challenges legal leaders mention about hybrid work is how to consistently mentor, give feedback and otherwise build the relationships that spontaneously happened when everyone was in the same office. Belonging is such an important psychological need for lawyers that it has been shown to be among the top three drivers of lawyer well-being and motivation. It’s also critical that new professionals feel a sense of belonging quickly.

A good first step is to think about your goal for the interaction and the type of information to be discussed so the best channel to facilitate the relationship can be used. Communications experts call these channels “rich media” versus “lean media.”

A good first step is to think about your goal for the interaction and the type of information to be discussed so the best channel to facilitate the relationship can be used. Communications experts call these channels rich media versus lean media. Rich media include social and collaborative tools, video and face-to-face interactions that are often used for discussions where back-and-forth dialogue is required or when team members must discuss and interpret information and come to an agreement. Lean media are documents, email and texts, and these are often effective methods of communication when new information needs to pass from one person to another (e.g., letting someone know the meeting time was changed to 10 a.m.). Phone calls fall in the middle of the rich versus lean media continuum.

A group of general counsel recently noted the following strategies helped recent hires build strong relationships quickly:

• • • Allow new lawyers to shadow senior colleagues in meetings.
    • Schedule meetings with key partners across the company, which also helps lawyers appreciate the broader company culture.
    • Schedule extra time in one-on-one meetings to discuss non-work-related topics.
    • Set up virtual coffee chats to celebrate personal and professional wins, ask questions and seek feedback about legal matters that lawyers are handling.

Other ways to build belonging include providing greater responsibility to more junior lawyers for tasks that are both visible and important to the organization, and structure unstructured time so that team members can talk about non-work-related topics as they continue to get to know each other.

Make communication intentional

Hybrid legal teams need to communicate in a very intentional way to make sure remote participants don’t feel excluded. The rich media versus lean media analysis from above also applies to team communication.

Team communication norms should be discussed and agreed upon at the beginning of the matter. Teams should discuss practices like how information learned during in-person conversations will be delivered to remote participants and by whom.

Hybrid teams also need to be aware of proximity bias — the tendency for partners or those distributing the work to reward the people with whom they interact in person. Leaders can combat this by coordinating days in the office — for example, requesting that everyone comes in on Tuesday, Wednesday, and Thursday. They can also make sure remote participants speak first on calls, so they aren’t forgotten or left out.

Leaders may also need to be more methodical in how they track distribution of work assignments so as not to inadvertently exclude remote lawyers.

Leaders may even want to have the entire team participate on a call remotely, even if some of them are in the office. This helps to limit the conference room “side conversations” that are common with hybrid teaming. Remote participants can inadvertently feel excluded when they join a call only to see several people huddled together in conversation.

And perhaps most importantly, leaders should clearly communicate expectations and timelines to thoughtfully manage people’s expectations.

Prioritize well-being

Our collective well-being has been significantly challenged since the start of the pandemic, and it’s an area in which lawyers have struggled for decades. Legal leaders have reported remote and hybrid work models have made it even more difficult to know when lawyers and legal professionals may be suffering from burnout and stress.

It can be difficult to recognize the signs and symptoms associated with burnout, but here are some early indicators: procrastination, a drop in productivity, getting sick more frequently with low-grade illnesses like colds and headaches, every curveball is a major crisis (having an outsized negative reaction to a small, basic request), mood changes, inability to concentrate and being detached from things they typically enjoy. Everyone on the team has a responsibility to watch for these warning signs and to invite a conversation (provided you have the right relationship with the person) if they are noticed.

The pandemic changed the way many lawyers and legal professionals want to work. Hybrid teaming is now the expectation of many talented professionals — a model (and a skill set) that legal leaders will need to continue to embrace and practice to retain their top legal talent.

Despite cost control being top of mind, however, executing on this goal is no mean feat.

In a new Thomson Reuters Institute Insights podcast, available on the Thomson Reuters Institute channel, we discuss what the LDO Index, an annual look at the state of affairs within corporate legal departments from those professionals tasked with managing the operations, says about department leaders’ thinking in the current environment. This year’s report compiled a wide range of responses from 107 different companies, from small businesses to those making in excess of $10 billion in annual revenue.

As the podcast looks into the key findings of the Index report, it sheds great light on where law department leaders are seeing their greatest challenges and opportunities. For example, the Index report showed that matter volumes are increasing for the vast majority of responding law departments, even as they cope with flat budgets.

You can access the latest Thomson Reuters Institute Insights podcast, featuring a discussion about the recent LDO Index report, here.

Indeed, few law departments report adding lawyer headcount. The end result is a situation where perhaps the only option to deal with the increasing workload is to send more work to outside legal counsel, even as those external law firms continue to raise rates.

Again, as discussed in the podcast, this is not an easy situation for corporate law departments to manage.

To help shed some light on some of the pain points as well as possible solutions, the Thomson Reuters Institute Insights podcast invited a panel of experts to join us from among the membership of the Legal Value Network (LVN), which partnered on the LDO Index. The Legal Value Network is a group of professionals with the mission to accelerate evolution in the legal industry, connecting business of law professionals from across the legal industry who are focused on designing, building, and implementing innovative models of legal service delivery.

In this week’s podcast, we speak to:

• Alexandra Guajardo, a pricing an analytics officer with Shell’s legal operations team. With her 20 years of experience in the legal industry, Guajardo functions as the right hand of the legal ops team at Shell.
• Justin Ergler, director of alternative fee intelligence and analytics at GlaxoSmithKline. An outspoken critic of the billable hour, Ergler has established himself as a thought leader and expert in the use of alternative fee arrangements for complex legal matters.
• Keith Maziarek, director of pricing and legal project management at Katten Muchin Rosenman. Bringing his 20 years’ experience focusing on strategic growth and profitability initiatives, Maziarek seeks to bring the voice of the client into his firm and helps guide firm strategy towards sustained profitability.

As the podcast illuminates, how corporate law departments control costs is an involved and complicated topic, with nearly innumerable necessary components. This podcast features a great discussion from both the in-house and law firm side of the equation and in doing so, reaches a key conclusion: No matter which steps a corporation or law firm may decide to take, three things are indispensable — transparency, communication, and trusting relationships.

Without those, controlling costs will become much more difficult, if not an impossible task.

For more from the Legal Value Network, you can follow their podcast, Off the Clock

Episode transcript.