Lawyer Monthly Magazine - August 2019 Edition

Why the Finances of Britain’s Legal Firms Are Due for a Shake-Up After decades of archaic financial management practices, the commercial reputation of the £35.1 billion UK legal services market is in a bit of a sorry state. Major structural problems, which have remained unaddressed for years, have led to concerns over the ability of in-house legal teams to effectively manage their legal spend to the levels expected by CFOs. If this is an age-old problem, why are we talking about it now? Well, new data has shown that a staggering nine out of ten legal departments don’t know what they’ve spent on external legal counsel in the last year. One in five fixed fee arrangements are billed over agreed budgets. Ageing practice management systems have led to recurring errors that cost clients significant amounts of money. Across the UK legal services industry, 2.38% of billings would seem to be for items that clients do not believe they have agreed to pay for – that alone is more than £800,000,000. A Bittersweet Relationship There is no doubting the critical importance of the legal profession to the UK, the law is essential to the running of every business and shapes the environment in which businesses operate, it provides the certainty they need to function. In the UK, the sheer scale of the legal profession is impressive. The Law Society estimates that there were more than 180,000 solicitors in the UK by mid-2017. The UK Legal Services Market Trends Report 2019 puts the value of the UK legal services sector at £35.1 billion in 2018 and predicted annual growth of more than 5% per year amid growing confidence. This growth is coming at the same time as in-house lawyer numbers are increasing - more than doubling over the last 15 years (Law Society). As of 2017, more than one fifth of the profession worked in-house - this number is expected to rise to 35% by 2025. Although there is still a universal respect for the advice given by the legal professionals, the same cannot be said of the commercial reputation of growing in-house legal teams. We’ve seen technology bring greater speed, ease and transparency across every sector - everything from banking to accounting has changed, yet legal is lagging. Spreadsheets and email are still the key tools in the legal sector. The existing software is old, ugly and complicated – while the data they create is hard to spot and impossible to act upon. Legal departments simply cannot stay on top of their legal spend in the way they need to. If the concerns we’re seeing keep on, legal departments could become even more ‘isolated’ within their organisations. Their numbers are estimates, not grounded in fact, with in-house teams getting blind-sided by unexpected bills that are often over three months out of date. For in-house legal teams and their law firms, the result is unnecessary conflict, confusion, and cost. Cause and Effect In-house legal departments face many of these problems due to historic, systemic financial management failures across the legal industry. These issues build friction between in- house legal teams and external firms, reducing the ability of the legal department to operate effectively. Apperio’s analysis of more than £100 million of UK legal spend suggests that errors are widespread and rarely caught and addressed. Apperio discovered dozens of issues - £36,000 charged in error for photocopying, a £42,000 over- charge and a £20,000 bill for duplicate time entries. These errors were not the result of nefarious practices – they are 18 WWW.LAWYER-MONTHLY.COM | AUG 2019 Special Feature Written By Apperio WWW.APPERIO.COM