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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. In house legal barely got a look in, but to trot along to companies house every now and then to have a [[Slavenburg]] rejected. It was the corporate end-clients who paid for it, after all, and since their executives were commuting from the same stock-broker belt, in the same sorts of cars, they weren’t any more bothered about it than anyone else. | 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. In house legal barely got a look in, but to trot along to companies house every now and then to have a [[Slavenburg]] rejected. It was the corporate end-clients who paid for it, after all, and since their executives were commuting from the same stock-broker belt, in the same sorts of cars, they weren’t any more bothered about it than anyone else. | ||
As the roaring nineties wore on, the deal pipeline grew ever fatter. [[The Jolly Contrarian:About|Fortune-seeking young contrarians]] started pitching up in London from all sorts of far flung places clutching foreign degree certificates and the | As the roaring nineties wore on, the deal pipeline grew ever fatter. [[The Jolly Contrarian:About|Fortune-seeking young contrarians]] started pitching up in London from all sorts of far flung places clutching foreign degree certificates and the swtichboard number for Robert Walters. Law firms hired them — ''us'' — on the spot, rightly supposing they would work like Spartans, expect little by way of pay, and bugger 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, mainly for the cricket. | ||
====The rise of the weaponised legal department==== | |||
Still, as the deals came through ever faster, and the legal bills got ever bigger, the bankers began to wonder whether they could rationalise that legal spend a bit. “Perhaps we ''could'' be a bit more economical here,” they reasoned. “And the less we spend on legals, the nicer our German cars will be.” | |||
An obvious friction-point 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 turgid memoranda. | |||
“Why don’t we hire some lawyers of our own to manage the legal relationship?” thought the bankers. “If they filter out all our stupid questions, and maybe head off some of the wild goose chases, we won’t burn so much legal expense. And our name will be spelled right on the [[football team]], too: that’s pretty important.” | |||
And so the bankers started to hire lawyers from the law firms. Again, everyone won: the bankers got their bigger cars; the firms could parachute under-performing associates into the banks where they could steer deal-flow back to their almae matres, the associates got 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, still under-performing, twenty-two years later. The appeal of inhouse legal was that it was better paid ''in the short run'', and the hours were better. And, in the ’90s, there wasn’t much actual law to do. | |||
The really heroic associates — the ones who ''liked'' being beasted till 5am and working weekends — stayed at their law firms, became equity partners and cultivated aneurysms etc. But aneurysms are not for everyone. In-house life had its moments, but it was a lot less of a slog, and you got to kick law-firm associates around. Of those who went in-house few returned to law firms.<ref>At least, not till the 2010s when the trend started to reverse, largely due to the rise of legal operations machine.</ref> | |||
So began the modern in-house legal team. This worked well for everyone: deals got done more efficiently, the embarrassing sensation of seeing your firm’s name mis-spelled in the final prospectus disappeared from the commonplace and 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]]s, it transpired, ''weren’t so useless after all''. They started to understand their organisations and the business rationales, and found they could do more than just steer instructions back to law firms, translate banking gibberish and check the [[football team]]. They started to ''add value''. | |||
So [[Legal|legal department]]s started to get really ''big''. This was a direct move ''to reduce external legal spend''. The better staffed you were, the less you spent. Within ten years, teams that had numbered a handful were running into the ''hundreds''. | |||
====Here come the management consultants==== | ====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''. | 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''. The sunk cost of legal — your four hundred internal lawyers, and massive pipeline of mergers, IPOs and CDOs going out the door, was in the high hundreds of millions of dollars. By the early 2010s, rocked by litigation and regulatory action, most global banks were running into the billions.<ref>The CPP research firm estimated global banks spent a combined $200 ''billion'' on legal fees in just four years, between 2010 and 2014. That buys quite a few chicken dinners.</ref> | ||
Remember our observation above: a very small portion of a colossal number is still ''a very big number''. If you can knock even five percent out of a billion dollar run-rate, you are going to look like fifty million bucks of ''hero''. | |||
“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? | “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.'' | ''[[Friedrich Nietzsche|Thus began Zarathustra’s down-going]].'' | ||
When you’ve been spending money like it comes out of a tap, it isn’t hard to look like a hero. You just turn off the tap. It helps when deal flow is flat-lining and the litigation portfolio is winding down by itself, but credit where it is due: the consultants cut the legal spend by twenty-five percent, annually, over four or five years. That’s a lot of hero. Suddenly the heroes at first [[chief of staff]], then the legal [[chief operating officer]], and latterly [[legal operations]] had the same kind of hiring mandate the legal eagles had fifteen years earlier. It is a deft re-brand: chief of staff sounds like, and was, some retired military adjutant who put money in the meter and made sure payroll got done. Chief Operating Officer sounds a bit more organised and intrusive on what the department does. “[[Legal operations]]” sounds like a factory: a long-term industrial undertaking that is here to stay. It sounds like the industrial revolution for the artisanal weavers of the old legal department. | |||
The great retrenchment of in-house legal began, and for ten years kept pace. Much low-hanging fruit was picked. but eventually, the legal spend was buttoned down, But it didn’t happen, as you might expect, be addressing the difficult questions the credit crisis plainly posed. | |||
But | |||
== What’s ''really'' wrong with in-house legal == | == What’s ''really'' wrong with in-house legal == | ||