Cost pressure: why in-house counsel and law firms need to innovate

German legal departments, the clients of law firms, are working with increasing skill on tasks that they used to contract out to external advisors. Apart from having their own staff deal with legal issues, more and more legal department heads are successfully experimenting with taking on coordinating roles within complex projects: a counter-model to the one-stop-shop thinking that used to be more common when hiring large law firms.

When it comes to purely German deals, companies are seen increasingly often strategically hiring several smaller firms – each one with a clearly defined area of responsibility. Those who tried this out in acquisitions, including Delivery Hero, but also traditional companies like ZF Friedrichshafen, are convinced: the greater effort is more than compensated for by the good value for money. This means that now there may be five firms divvying up a pie that a few years ago one firm would have polished off alone.

In the most recent JUVE in-house survey, 41 percent of companies with substantial international activity surveyed claimed that they had built up their own global law firm networks. These networks are still used first and foremost to cope with local, everyday work. But the step of transferring their experience gained in managing such networks to cross-border transactions does not seem far away.

Larger, cross-border deals have been a safe bet for legal advisors up to now, as these are generally counted as a project cost, rather than coming out of the department’s budget. But legal departments’ own networks and their growing experience with ad hoc law firm cooperations will, in the medium term, enable them to contract out even cross-border transaction work in a more differentiated way. So here, too, things are getting more troublesome for law firms.

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