Australian general counsels (GC) are grappling with a unique combination of budget cuts, staffing shortages, and growing dissatisfaction with traditional law firm services. As legal departments in the country face mounting pressure to do more with less, GCs are increasingly caught between upholding company values and meeting stringent budgetary requirements. However, many GCs are finding solutions via internal training, leveraging technology like AI, and utilising flexible, legal talent.
Axiom’s 2024 national study of 100 Australia-based GCs reveals a stark reality: 90% have seen their legal department budgets slashed by an average of 10%, while 97% report critical understaffing. This resource crunch is forcing GCs to make difficult choices, with nearly a third admitting they've had to prioritise budget over core department values.
The situation looks set to worsen, as 41% of GCs anticipate having to put budgetary requirements first if economic conditions deteriorate further. The study, conducted by Wakefield Research and commissioned by Axiom, surveyed GCs from companies ranging from small and mid-sized businesses to large ASX200 enterprises. Half of the respondents were from SMBs, and half were from large enterprises, providing a comprehensive view of the challenges facing legal departments across various business sizes in Australia.
An Expensive Band-Aid on a Gaping Wound
As in-house teams struggle with limited resources, many GCs have turned to traditional law firms for support. However, this historically trusted solution is proving problematic. While 97% of GCs engaged a law firm last year, outsourcing an average of 29% of their legal work, a staggering 94% reported regretting aspects of their law firm engagements.
The reasons for this dissatisfaction are multifaceted. GCs cited a lack of institutional knowledge (39%), overly conceptual rather than practical advice (37%), and a lack of commercial acumen (35%) as top concerns when working with law firms. Moreover, 99% of GCs admitted that some of the work outsourced to law firms could have been handled in-house if they had the time and staffing bandwidth.
This disconnect between in-house needs and law firms is further exacerbated by the rising costs of legal services. Alternative fee arrangements (AFAs) offered by traditional law firms do not provide the economic relief GCs need, with 98% reporting they face challenges in utilising AFAs effectively.
The Legal Holy Grail: Quality, Flexibility, and Affordability
The study also highlights a growing interest in innovative solutions to these resourcing challenges. A significant 79% of GCs who engaged law firms last year expressed willingness to outsource some legal matters to flexible legal talent providers instead. They cited the potential for lower costs while maintaining high quality, oversight, and accountability as key motivators for this shift.
However, GCs face hurdles in implementing these new solutions. The majority (80%) view increasing full-time headcount as a suboptimal solution for their resourcing needs, recognising the potential for turnover and hiring freezes. Additionally, 47% of GCs reported not having the right legal expertise on their teams, further complicating their ability to handle work in-house.
Looking ahead, GCs anticipate high demand in practice areas such as AI, data privacy and cybersecurity, litigation and dispute resolution, and technology and product development. Interestingly, these are also the areas GCs are most likely to outsource to law firms, suggesting a potential mismatch between in-house capabilities and emerging legal needs.
As corporate legal departments continue to innovate, it's clear that the traditional model of either staffing up internally or outsourcing to traditional law firms is no longer sufficient. GCs are increasingly recognising the need for more flexible, cost-effective solutions that can provide specialised expertise without the high costs associated with traditional law firms.
The GC's Dilemma: Innovate or Stagnate?
The findings of this study serve as a wake-up call for the legal industry in Australia. GCs and their teams are at a crossroads, facing unprecedented challenges that require innovative solutions. It's time for a paradigm shift in how legal departments approach resourcing.
GCs should consider exploring new models of legal service providers that offer flexibility, specialised expertise, and cost-effectiveness. By embracing these alternative solutions, legal departments can potentially bridge the gap between their resource constraints and their expanding responsibilities.
As budgeting for the legal department begins for 2025, GCS must reassess their resourcing strategies. This may involve a combination of upskilling existing team members, leveraging technology, and partnering with modern legal service providers that can offer high-quality, flexible support across various practice areas. By doing so, GCs can position their departments to navigate the complex legal landscape more effectively, even as the broader economy faces uncertainty.
The challenges are significant, but they also present an opportunity for innovation and transformation in corporate legal departments. It's time for GCs to lead the charge in reshaping how legal services are delivered and consumed, ensuring their departments can continue to provide value and ensure the legal department is a strategic contributor to the business.
About the Author
Jacob Flax is the Managing Director of Axiom Australia and helps businesses, corporate general counsel, and legal operations leaders improve the effectiveness and transform the efficiency of their in-house and legal ops teams. You can reach him at Jacob.Flax@axiomlaw.com.