Retaining Knowledge During Today’s Great Talent Migration

In a world that’s on fire, it’s important to have the right partners.

resignation-gd288faa0e_1280There’s a bit of geopolitically triggered whiplash going on in the market for legal talent. After more than a decade of easy money and fiscal stimulus, the global economy was dealt a COVID-19 curve-ball. As the virus took hold across the world in 2020, governments pumped untold amounts of money into their countries to keep their economies alive amid lockdown after lockdown. Vaccines were developed faster than these bailout packages anticipated and suddenly economic activity rebounded as optimism turned to opportunism, and free money enabled a boom of economic activity.

Professionals who had spent two years at home — with shorter commutes, more time with kids, fewer workday distractions and better coffee — decided they didn’t want to go back to the office. The “Great Resignation” hit law firms as many witnessed a wave of lawyers departing — to other firms, to in-house, to government, and, frankly, to less inflexible and time-intensive jobs. Law firms scrambled to hire top talent — and even some mediocre talent, too — to keep up with demand. They passed on the cost of this through rising bill rates.

That feels like a long time ago, even though it has only been a few months. Too much money in the economy and supply chain shocks have stoked inflation. A war between Russia and Ukraine has compounded issues and carved a major country out of the global economy.

The U.S. Federal Reserve Bank is aggressively raising interest rates to cool off the economy. Now there are arguments in the U.K. parliament about whether a technical recession (which is underway) is actually a recession. IPOs are being abandoned and merger and acquisition activity is slowing down.

Law firms that had bulked up on expensive talent are letting go of employees. Some are doing it through real layoffs, others are doing it through layoffs disguised as performance-related firings.

Corporate legal departments bear the brunt of this downside. While law firms have been moving to hire and fire quickly, corporate teams have moved a bit slower. Their staffs have been flat out, under immense pressure, navigating their enterprise around the unprecedented impacts that the pandemic, as well as ongoing geopolitical and economic activity, are exerting on their businesses.

As these lawyers left or changed law firms, in-house legal departments had to also contend with knowledge and intellectual capital leakage that has and will occur from their enterprise and across their respective legal services supply chains. In-house teams have become increasingly reliant on external legal specialist advice amid such turmoil because they can’t hire fast enough and because the world is changing. In a volatile macroeconomy such as today’s, national, regional and global regulatory frameworks across all industries evolve in response to prevailing conditions. This presents real challenges for corporate legal departments as they seek to fulfill their duty to guide enterprises through the ever-growing legal and commercial complexities.

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At the same time, law firms have been unsteady partners. Recent data from the Thomson Reuters’ 2022 State of Corporate Law Departments report shows that turnover at law firms is high and increasing with, for example, the annual associate turnover rate at the most elite law firms in America today standing at 23.7%. With a new batch of layoffs underway in an inflationary environment, it’s hard not to anticipate a thorny mix of rising bill rates and a reduction of external talent available. Companies will compete to maintain relationships with the best external counsel as they vie for their time while realizing that the long tail of support on which they have relied may be turning over, along with the knowledge that has come from working together.

If outside counsel is increasingly on the move, then it’s imperative, arguably now more than ever, for in-house legal teams to act and embed effective systems that help their enterprise retain the knowledge it buys in from external law firms and lawyers as well as make it readily accessible for decision-making within the organization now and into the future. However, proprietary research we at Hence Technologies, in collaboration with research agency Coleman Parkes, have conducted with more than 150 general counsels, chief legal officers, and heads of legal operations, indicates that only 18% of legal departments have a clear process for collecting internal feedback on external law firms.

This means that, when external lawyers move between firms, the enterprise often loses the opportunity to capture the experiences it has about working with those individuals. Also, new hires in the legal department don’t get to benefit from their own company’s historical knowledge base about its external lawyers. In losing visibility of any past value personally created by individual outside lawyers, in-house legal teams’ time and budget-consuming efforts in the selection and management of law firms and lawyers becomes less evidence-based on performance and easily defaults to appointment decisions actually, or perceived to be, driven by biases unrelated to proven or relevant value.

When we speak directly to in-house teams, few feel confident they have solved the challenge of capturing and acting on feedback from their relationships with external counsel. Yet, many cite this as a lower priority than process-driven tech efforts like implementing e-billing or spend-management software.

Yes, money can be saved by knowing what you are being billed and for what. However, in a world that’s on fire, it’s more important to have the right partners. Knowing which external lawyers make the difference for your business allows you to invest in those relationships, which can keep you at the top of the list for support as needs arise. Being able to track which individual lawyers know what also enables you to follow them as they move from firm to firm. While we at Hence have built a solution to this, many corporations also rely on in-house systems for elements of this tracking.

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However you keep tabs on your lawyers, one thing is for sure: the law firms that corporate in-house teams have leaned on in the past are responding to the same volatile economic and political conditions as the corporations themselves. Failure to build intelligent systems to keep pace with change will put corporate legal departments on the back foot when it comes time for support.


Sean West HeadshotSean West is Co-Founder of Hence Technologies, a software company that transforms how enterprises work with external counsel. He was previously Global Deputy CEO of Eurasia Group, the geopolitical advisory firm. He writes a biweekly column in Above the Law on geopolitics and the practice of law.

Boko InyundoBoko Inyundo is Director, Strategic Relations at Hence Technologies, a role he took after 15 years at DLA Piper, Linklaters and Lewis Silkin

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