Legal departments face rising tide of challenges in their transformation efforts, EY Law and Harvard Law School Center on the Legal Profession survey finds

LONDON,April8,2021 --Legal departments across the globe are facing a mounting list of operational challenges as they look to transform in the wake of complex digital and regulatory change,according to the 2021 EY Law Survey,which was conducted in collaboration with the Harvard Law School Center on the Legal Profession. The results come as workloads are expected to rise by 25% over the next three years,with anxieties surrounding revenue growth,cost cutting and difficulties securing C-suite support for investment in data and technology cited as key concerns impacting their transformation efforts.

More than 2,000 business leaders were interviewed during the first two months of 2021 – including more than 1,000 law department leaders from businesses representing 17 industries across 22 countries.

The research comes at a time when economic and fiscal pressures abound,and as law departments face heightened risk,rising workloads and low morale from low-value,routine-work. Yet,many continue to use traditional delivery methods,despite reporting significant challenges with managing outside counsel and insourcing. Meanwhile,automated self-service options,co-sourcing relationships and centers of excellence appear underused. The most innovative are using a portfolio approach,combining strategies as part of a comprehensive and transparent effort to improve risk management,cost control and business enablement.

Risk management is a top priority,but confidence levels are low

The survey shows that a large proportion of General Counsel lack confidence in their department's ability to identify,measure and handle the complex risks facing their organizations. Almost two-thirds (65%) say they do not have the data and technology to respond to a data breach. More than three-quarters (78%) say they do not systemically track contractual obligations,and 68% note that they do not have access to accurate,up-to-date information on their legal entities.

Mounting operational and budget pressures

The economic challenges of the past year have added to mounting pressures on budgets – and there has been a steep rise in the cost savings that General Counsel are looking to target. A significant majority (88%) of General Counsel are planning to reduce the overall cost of their legal functions over the next three years,driven mainly by pressure from the CEO and board. The average cost saving being targeted among large organizations – those with more than US$20b in annual revenue – is 18%. This represents a significant increase from the 2019 EY Reimagining the Legal Function Report,which showed large companies targeting savings of 11%.

Technological deficits and contracting inefficiencies

The report finds that more than half (59%) of General Counsel believe that greater use of technology is a way to reduce costs. However,only 50% of law departments have increased the use of technology over the past 12 months,and only 30% of in-house counsel say they have the technology required to do their job. More than eight in ten (83%) say they lack the skills needed to automate processes,while 41% report they lack the data and/or expertise to develop a case for investment into legal technology.

A lack of investment in technology is also impacting revenue growth. Almost all respondents (99%) say they do not have all the data and technology needed to optimize their contracting function. In addition,97% say they face challenges securing budgets for investment in technology,with C-suite buy-in cited as the biggest contributory factor.

Transforming the legal function and enabling business growth

The wide-ranging challenges to transformation are compounded by rising volumes of work. General Counsel expect legal department workloads to increase by 25% over the next three years,but they anticipate a rise in headcount of just 3% over the same period. Also,three-quarters (75%) of legal departments say growth in workloads will outpace budgets with 87% saying they spend too much time on low-value,routine tasks. As employers fight to attract talent,almost half (47%) say that the increasing volume of low-value work has impacted employee morale.

A further critical challenge cited revolves around how law departments can act as enablers to the business. Little more than half (52%) of General Counsel believe their day-to-day work is aligned with the broader business strategy,and 57% of business development leaders note that inefficiencies in the contracting process have slowed revenue recognition. As law departments look to new and existing solutions,the survey also finds that there is a real appetite for co-sourcing strategies using alternative legal service providers,with 85% of General Counsel saying their department uses these services – up from 72% in 2019.

Kate Barton,EY Global Vice Chair – Tax,says:

"Legal departments face a hugely challenging and uncertain operating environment as businesses remain hyper-focused on revenue growth,with the faster pace of digital and regulatory change all adding to overall fiscal pressures. All the while,workloads are growing exponentially,and budgets continue to face increased scrutiny. If legal departments are to remain effective in our increasingly global,complex and interconnected regulatory environment,they must act fast to transform their legal operations and invest in the right technology. Only then will they be able to keep pace with a fast-growing list of regulatory,cyber and operational risks confronting organizations today."

Cornelius Grossmann,EY Global Law Co-Leader,says:

"As the world starts to move toward economic recovery,enabling growth will be a crucial priority for organizations all over the world. If organizations are to thrive and businesses are to remain compliant,law,procurement and commercial contracting departments will need to ensure they are ready to face an ever-growing list of regulatory risks. Finding the right balance of strategies between insourcing,co-sourcing,data and technology,and centers of excellence,among many others,is critical. Business leaders must elevate transformation of their legal departments if they are to operate efficiently,be competitive,and retain talent."

David B. Wilkins,Lester Kissel Professor of Law,Vice Dean for Global Initiatives on the LegalProfession,andFaculty Director ofthe Center on the Legal Profession,Harvard Law School,says:

"As companies look toward a post-COVID-19 economic recovery,identifying and managing complex risks at the intersection of law,business,strategy,human resources,and sustainability will be more important than ever. To help business leaders drive growth in this next normal,General Counsels will have to accelerate the transformation process already underway in the legal department,leveraging greater use of data and technology solutions,and a more effective and efficient use of the full range of external providers. This process will not be easy and will require business leaders to invest more resources initially. But this up-front investment is critical if General Counsels are to develop the tools they need to evaluate the cost and quality of the full range of resources,and to deploy them effectively to reduce risk and drive growth."

To learn more about the 2021EY Law Survey,visit ey.com.

Notes to Editors

The survey canvassed the views of legal department leaders,as well as those from procurement,commercial contracting,business development,and legal entity management teams. The result is a series of reports from EY and the Harvard Law School Center on the Legal Profession exploring the challenges facing legal departments around the world. This survey is part of the 2021 EY CEO Imperative Series,which provides critical answers and actions to help general counsel reframe their organization's future. For more insights in this series,visit ey.com.

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Emile Abu-Shakra

Dan Barabas

EY Global Media Relations

EY Global Media Relations

+44 7385 345 103

+44 20 7197 1481

emile.abu-shakra@uk.ey.com

dan.barabas@uk.ey.com

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