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[[File:Twiki.png|450px|thumb|center|Inhouse legal of the future, yesterday.]]
{{image|Twiki|png|The inhouse legal of Tomorrow, yesterday.}}}}{{d|Legal operations|/ˈliːgəl/ /ˌɒpəˈreɪʃənz/|n}}<br>Recursive rent-extraction ''from the consummate rentiers''.
}}A tremendous new wheeze for rent-seeking from [[legal eagle]]s. Legal operations is a [[second-order derivative]] [[Rent-seeker|military-parasitical complex]] that feeds off the direct, ''first''-order [[rent-seeking]] of those already in the legal profession who, shipwrecked on their sacred voyage from trainee to partnership, found themselves washed up on the shores of a deserted in-house legal department. It wasn’t deserted for very long! The history of [[Inhouse counsel|inhouse legal]] — how it went from “sleepy backwater for awkward, work-shy, typo nuts” to “military-forensic complex in need of taming by management consultancy” in twenty short years is interesting, by the way.
==The history of the [[in-house legal eagle|inhouse legal eagle]]==
Legal operations are industrialised [[second-order derivative|second-order rent-seekers]] who feed off the direct, ''first''-order [[rent-seeking]] of those members of the legal profession who, shipwrecked on the sacred voyage from pupil to partner, found themselves washed up on the deserted shores of a [[Legal department|in-house legal department]].
Once upon a time, there were big, clunking deals, and banks who did them would engage law-firms to do the “legals”.
Each of these deals — [[Merger|mergers, acquisitions]], equity offerings, [[bond]] issues, syndicated [[Loan|loans]] — involved parties who weren’t well acquainted sending each other pots and pots of ''[[money]]'': not merely millions, but ''tens'' or even ''hundreds'' of millions. Every so often, ''billions''.
The history of [[Inhouse counsel|inhouse legal]] — how it went from “sleepy backwater for awkward, work-shy, typo nuts” to “military-forensic complex in need of taming with extreme prejudice by [[management consultancy]]” in twenty short years is [[The history of inhouse legal|interesting]], by the way.
So two rather obvious observations:
== What the MBAs bring to the party==
*Firstly, if you are regularly funnelling hundreds of millions of dollars around the financial system, things quite easily can go wrong and, when they do, they go ''badly'' wrong. Just ask [[Citigroup v Brigade Capital Management|Citigroup]].
Now MBAs are not known for their imagination, but they do have a long suit in reductionist analytical rigour and they do love an over-arching metaphorical schema. Management consultants are keen on publishing these, and they will throw [[Microsoft PowerPoint|PowerPoint]] thought pieces around at the gentlest invitation. Lacking the [[subject matter expert]]’s deep grasp of the market, the “in-house legal problem” may be impervious to front-on attack, but they can ''analyse'' it into submission.
*Secondly, a ''very small portion'' of “a couple of hundred million dollars”, when you look at it next to, say, your house, ''is still a very large sum of money'', even if you do charge out at £400 per hour.<ref>In 1990 pounds. The going rate at the time of writing, displaying a sustained immunity to gravity and the general principles of mean reversion, is more like £1,000. To give you some idea of the scale here, when the [[JC]] first stepped onto Southampton dock, from the slow-boat from the South Seas, the biggest deal he had ever worked on was about seven million Australian dollars. Within a year, he had worked on at least one deal where the legal bill was bigger than that.</ref>
Therefore bankers, who themselves might collect as much as ''seven'' percent of the value of one of those big, clunking, multi-million dollar deals, would quite happily expend say ''one'' percent of that value on a decent firm of lawyers to make sure nothing went wrong.
After all, the lawyers usually wind up doing the hard yards: they must churn out thousands of pages of [[verbiage]]; they must run down every quixotic idea; they must accommodate every spurious consideration that the issuer’s finance director can confect; they will regularly work through the night to meet an artificial deadline imposed by an junior analyst who, when it was met, would ignore the draft for a couple of days before advising, without remorse, that he’d forgotten to mention that the deal had changed and this draft hadn’t been needed in the first place.
====The rise of the [[Magic circle law firm|magic circle]]====
So was born the [[Magic circle law firm|magic circle]], which has been with us since at least the time of the [[First Men]], and even before them to the primordial pagan era where the [[Children of the Forest]] roamed the [[Bretton Woods|Woods of Bretton]]. The business model was simple: it was a form of intellectual rope-a-dope. The game was this: we will turn heaven and earth to document whatever you require us to document, whenever you want it, with two considerations: firstly, our [[legal opinion]] will disavow any responsibility for any of the stupid things you made us put in the document, and secondly you will pay us handsomely, by the hour, without question, for doing so. Our end of the bargain is our blood, sweat, toil and tears expended in the pursuit of whatever hare-brained intellectual contrivances catch your fancy. Yours is to pay us, through the nose, for the privilege. Since, in the context of a two-hundred million dollar deal, ''whatever'' we ask you to pay us will be a pittance, everyone wins.
For many years, this state of affairs was all fine and capital: everyone clipped their ticket, lived prettily and maintained nice homes in the stock-broker belt to and from which they commuted each day in late-model German cars. It was the corporate end-clients who paid for it, after all, and since their executive teams were commuting from the same stock-broker belt, in the same sorts of cars, they weren’t any more bothered than anyone else.
As the roaring nineties wore on, the deal pipeline grew ever fatter. [[The Jolly Contrarian:About|Aspiring young contrarians]] started arriving in London from all sorts of far flung places, wanting a piece of the action. Law firms hired them without question, supposing (rightly) that they would work like Spartans for a pittance before buggering off after a couple of years to spend the rest of their lives pleasure-boating on Auckland harbour and kicking the crap out of the rest of the world at Rugby Union. A handful stayed.
====The weaponised legal department====
As the deals came through ever faster the bankers began to wonder whether they could rationalise that legal spend a bit. “The less we spend on the legals,” they reasoned, “the nicer our German cars will be.”
An obvious touchpoint was the hand-off between the bank and the law-firm. It was clunky. Bankers and lawyers don’t really speak the same language: [[Microsoft Office|Bankers communicate in spreadsheets. Lawyers communicate in memoranda]]. “Why don’t we hire some lawyers to manage that legal relationship?” thought the bankers. “If they filter out all the stupid questions, and maybe head off some of the wild goose chases, we won’t burn so much in legal fees. And our name will be spelled right on the [[football team]], too. That’s really important.”
Again, everyone won: the bankers got fatter fees; the law firms got rid of under-performing associates by parachuting them into the banks to steer all the work back to them, the underperforming associates got paid investment banking bonuses and got to go home at 6pm.<ref>Now this may seem uncharitable to inhouse legal eagles, but it is fair. I say it as exactly such an underperforming associate. The appeal of inhouse legal was that it was better paid ''in the short run'', and the hours were much better. And, in the ’90s, there wasn’t as much actual law to do.
The really heroic associates, who liked being regularly beasted till 5am and working weekends, stayed, became equity partners and cultivated aneurysms etc. It is not for everyone. Inhouse life has its moments, but it is a lot less of a slog. Of those who went in-house few returned to law firms (at least not till the 2010s, when the trend started to reverse, largely due to the rise of legal operations machines). </ref>
So began the modern in-house legal team. This worked very well for everyone: deals were executed more efficiently, the embarrassing sensation of seeing your firm’s name mis-spelled in the final prospectus disappeared from the commonplace and the banks started to structure ever more elaborate deals, as the cost and capability of practical legal structuring inside their organisations mushroomed. The inhouse [[legal eagle]]<nowiki/>s, it transpired, weren’t so useless after all. They started to do more than just steer instructions to law firms, translate banking gibberish and check the [[football team]]. They started to ''add value''.
As a consequences [[Legal|legal department]]<nowiki/>s started to get really ''big''. Teams that had numbered a mere handful in 1995 were running into the ''hundreds'' ten years later.
====Here come the management consultants====
All good things must die, and as the encroaching [[modernist]] orthodoxy of managing to margins gripped the city, bean-counters turned their attention to the scale of these legal activities. Which, by 2005, was ''colossal''.
Scrutiny intensified after the Russian crisis, the dot.com bust and the [[Enron Corporation|Enron]] collapse, but they the business administrators really started to find their line and length in the wake of the [[global financial crisis]] in 2007. ''There were way too many goddam lawyers.''
“We seem,” the business analysts wryly noted, “to be spending a ''shit''-ton of money on lawyers, and it doesn’t seem to have done us much good. We took a bath on Russia, Enron, Worldcom, and now half the known financial universe has imploded. We seem to have an internal team of three hundred [[legal eagle]]<nowiki/>s, and we are spending half a billion on external legal firms. And everything ''still'' seems to be blowing up. Can we not ''do'' something about this?
''Thus began Zarathustra’s down-going.''
The great retrenchment of in-house legal began, and ten years later gathers pace. But it didn’t happen, as you might expect, be addressing the difficult questions the credit crisis plainly posed. Instead, [[Management consultant|management consultants]] got in on the act.
== What’s ''really'' wrong with in-house legal ==
Now acres of ink have been spilled, books written, monographs published, thought-pieces floated, on the problem of ''how to fix in-house legal''. [[LinkedIn]] is awash with them; all in awe of technology’s current gallop; their mundane propositions all clothed in expressions of the richest finery. The operating theory: legal is profoundly broken, always has been, but, since we have some new kit, [[this time is different|''this time is different'']]. We can rebuild it. We have the technology. ''We have the capability to make the world’s first bionic legal department.'' Better than it was before. Better, stronger, faster.
But, friends, the problem is not technological, it isn’t new, and it doesn’t require vision. It is rather dreary and age-old. It is easy to state, if not fix:
{{Quote|''Legal is too expensive and too slow.''}}
This in turn hinges on two things, neither of them soluble by [[Chatbot|chatbots]]:
* '''Over-reliance on external counsel''': [[In-house lawyer|in-house lawyers]] are still far too ready to send straightforward work out. This was the original plan, to be sure, and it made sense when the bank only had three lawyers covering the whole investment bank, but times have moved on. In-house teams at investment banks are the size of middling international law firms. They skew more senior and have far more institutional experience than their private practice equivalents. They should not need to refer English law questions to outside counsel, yet still they routinely do it.<ref>It is said that Banks’ reluctance to buy [[Professional indemnity insurance|professional indemnity]] insurance for their legal teams may propel this, but this strikes me as a fatuous argument. Banks are classic self-insurers. If ever the amount of a legal call is sufficiently grave to warrant claim on a professional indemnity policy there are better questions to ask, such as ''why is a bank adopting such a risky strategy in the first place''? If that is too naive an outlook — ok, guilty as charged — then maybe ''that'' is the triage point for engaging external counsel.</ref>
* '''We over-engineer legal documents''': Partly because any professional adviser is short an ugly option should anything go wrong, and partly thanks to the professional [[rent-seeker]]’s tendency towards [[Iatrogenic|iatrogenesis]], legal documents are absurdly over-engineered. They are far too incomprehensible, inscrutable and, even for those who do understand them, they are shot through with overblown protections the parties do not need and will never use, but which are nonetheless argued about and nickel-and-dimed over for weeks of months. Even contracts that aren’t particularly high risk increasingly suffer from “[[Finance contract|banking envy]]”.
Now it is far easier said than done, but were we to address these ''cultural'' phenomena — neither are easily solved problems to be sure, but aligning systems and incentives influences behaviour a lot more than management theory does — then much of the millenarianism we are seeing would melt away. You don’t need [[artificial intelligence]] to review your confidentiality agreements if the market agrees a [[OneNDA|short, plain, standard form]]. You don’t need document assembly if you standardise and simplify your ISDA schedules.
But these problems require an understanding of [[Behavioural economics|human psychology]] and a [[Subject matter expert|deep grasp of the legal and market conventions]] — qualities with which your average [[Master of Business Administration|MBA]] is not liberally endowed.
== What the MBAs bring to the party ==
Now MBAs are not known for their imagination, but they do have a long suit in reductionist analytical rigour and they love an over-arching metaphorical schema. Management consultants are keen on publishing these, and they will throw [[Microsoft PowerPoint|PowerPoint]] thought pieces around at the gentlest invitation. Lacking the [[subject matter expert]]’s deep grasp of the market, the “in-house legal problem” may be impervious to front-on attack, but they can ''analyse'' it into submission.
You do this by breaking down the intractable whole into [[Legibility|legible]], familiar components that already exist in the MBA toolkit. Each becomes its own little sub-domain, with its own [[LinkedIn job descriptions|workstream lead]]-led [[workstream]], going out and gathering evidence and, basically, getting in the way of the lawyers who are busily trying to execute on their own time-worn business model.
You do this by breaking down the intractable whole into [[Legibility|legible]], familiar components that already exist in the MBA toolkit. Each becomes its own little sub-domain, with its own [[LinkedIn job descriptions|workstream lead]]-led [[workstream]], going out and gathering evidence and, basically, getting in the way of the lawyers who are busily trying to execute on their own time-worn business model.
The JC puts on his pith-helmet, grabs his butterfly net and a rucksack full of marmalade sandwiches, and heads into the concrete jungleIndex: Click ᐅ to expand:
Recursive rent-extraction from the consummate rentiers.
Legal operations are industrialised second-order rent-seekers who feed off the direct, first-order rent-seeking of those members of the legal profession who, shipwrecked on the sacred voyage from pupil to partner, found themselves washed up on the deserted shores of a in-house legal department.
The history of inhouse legal — how it went from “sleepy backwater for awkward, work-shy, typo nuts” to “military-forensic complex in need of taming with extreme prejudice by management consultancy” in twenty short years is interesting, by the way.
What the MBAs bring to the party
Now MBAs are not known for their imagination, but they do have a long suit in reductionist analytical rigour and they do love an over-arching metaphorical schema. Management consultants are keen on publishing these, and they will throw PowerPoint thought pieces around at the gentlest invitation. Lacking the subject matter expert’s deep grasp of the market, the “in-house legal problem” may be impervious to front-on attack, but they can analyse it into submission.
You do this by breaking down the intractable whole into legible, familiar components that already exist in the MBA toolkit. Each becomes its own little sub-domain, with its own workstream lead-led workstream, going out and gathering evidence and, basically, getting in the way of the lawyers who are busily trying to execute on their own time-worn business model.
Perversely, change manager interference only further slows down the lawyers even — every other day they are fending off a call from a well-meaning analyst asking for feedback on some innovation or other they didn’t ask for and have little interest in using — while the size of the legal operations team grows, and it foments its plans to entrench itself into the legal team.
The legal work catalog, comprises the following components and opportunities:
