Four Out Of Five Companies Plan To Reduce Their Legal Spend Over The Next Two Years, EY Survey Finds.
Legal News & Analysis - Asia Pacific
22 August, 2019
- Organizations globally plan to reduce their legal function costs by an average of 11%
- 59% report challenges in attracting and retaining talent for today’s legal function
- 74% already outsource or plan to outsource legal function activities
Eighty-two percent of companies globally (Singapore 78%) plan to reduce their legal function costs over the next two years, with 42% of global respondents (Singapore 20%) planning on doing so by more than 10%, according to a new report released today by EY. Reimagining the Legal Function Report 2019 surveyed more than 1,000 senior legal practitioners across 25 jurisdictions (including over 40 in Singapore) and found that, on average, companies plan to reduce their legal function costs by 11%, with the current average legal spend equating to US$172m for internal and US$169m for external.
Across regions, the anticipated reduction in spend is greatest in North America, where reductions of 13% are planned, with Europe and Asia-Pacific expecting the least impactful reductions at an average of 9% (Singapore 9%).
Cornelius Grossmann, EY Global Law Leader, says:
“In the face of heightened demand from the business for legal support in a rapidly changing regulatory environment, the findings support the generally acknowledged position that legal functions are increasingly being challenged to do more with less. New operating models will need to evolve to address these challenges. Courageous innovation will enable legal functions to drive true value in company-wide transformation initiatives.”
On the Singapore landscape, Dmitry Tetiouchev, EY Asia-Pacific Law Leader says:
“Singapore respondents appear to be less willing to significantly reduce their cost on legal function. There are various reasons for this: some legal functions here are already operating on leaner models with limited options to cut back further, while others may not have the full knowledge on the available options for legal function to reduce cost effectively and without disruption to ‘business-as-usual’.”
Challenges in talent and innovation
The survey highlights difficulty in attracting and deploying talent. Nearly three out of five businesses (global 59%, Singapore 66%) reported challenges in attracting and retaining the appropriate talent needed for today’s legal function. Deployment is also a challenge; legal functions find they exhaust considerable time and effort on routine tasks, with 67% of global respondents (Singapore 61%) spending 20% of their time on routine compliance and “low value” tasks.
The survey also highlights that legal functions are in danger of falling behind when it comes to innovation. Sixty-four percent of global respondents (Singapore 63%) felt that the legal function has not benefitted from innovation as much as other functions, such as HR, IT and finance. Respondents cite ongoing business-as-usual pressures as the greatest barrier to innovation over the next 12 months at 36% followed by budget constraints at 32% and lack of management skill or interest at 28%. For Singapore, the greatest barriers to innovation are ongoing business-as-usual pressures (46%), budget constraints (46%) and lack of appropriate technologies (22%).
“New legal technology products and solutions appear in the market every day, making the matter of choice even harder to achieve. But technology and innovation are only two components of the broader legal function transformation. To benefit from this transformation, there should be a clear understanding of legal operations strategy and how it aligns to that of the broader organization, what the function is trying to achieve and which problems to solve.”
A need to re-evaluate operating models
Looking to the future, key trends identified include the increased adoption of outsourcing: 74% of global organizations (Singapore 63%) are either outsourcing already or would consider doing so for functions including contract management, document retention, due diligence, employment law, and entity and document management.
Procurement models are also shifting, with increased consideration now being given to alternative legal service providers (ALSPs) in order to drive value. Although the trend is visible across businesses of all sizes, it is particularly prevalent among smaller legal functions, with 60% of those with a headcount lower than 1,000 considering ALSPs and legal process outsourcers, a rise of 17% compared with the previous year.
“Many legal functions have been resilient in dealing with changes over time, but we see momentum for change. Finding the right balance of technical expertise, work allocation and efficient technology utilization will remain the paramount challenges of this critical transformation process.”