Alternative Legal Services Providers and the Shortage of Legal Talent

Topics: Alternative Legal Service Providers, Business Development & Marketing Blog Posts, Client Relations, Corporate Legal, Data Analytics, Efficiency, Law Firm Profitability, Law Firms, Leadership, Legal Innovation, Litigation, Midsize Law Firms Blog Posts, Practice Engineering, Process Management, Talent Development

talent

I’ve written a lot recently about how alternative legal service providers (ALSPs) are successfully leveraging technology and streamlining processes in ways that are new to the legal industry.

In my articles I’ve noted how the demand for legal services at corporations is growing. I’ve also highlighted how corporations are looking for new ways to procure legal services and determine what they should be paying for these services to manage legal support costs. Finally, I’ve noted how ALSPs have addressed these needs — at least in part — and how ALSPs’ successes are resulting in very strong growth. That’s been a good thing for many.

Unfortunately, that growth is creating a talent shortage, a talent shortage in a segment of the legal services market which, in turn is affecting the way corporations hire outside legal help.

It may sound strange to say there’s a talent shortage in the legal industry given the number of law students graduating into the profession each year and given how many of them struggle to find a good — let alone a great — legal job. But the hiring we are seeing is very concentrated, and much of it comes from law firms filling traditional associate roles. But there is a demand for legal talent that’s not being met, and it’s having a cascading effect in parts of the corporate legal services industry, specifically that part of the industry involving ALSPs and the work that they support.

ALSPs now account for $10.7 billion of the legal services market, and the sector has grown at a compounded annual growth rate of almost 13% over the past two years, according to Alternative Legal Service Providers 2019: Fast Growth, Expanding Use and Increasing Opportunity, a report published earlier this year by Thomson Reuters Legal Executive Institute, The Center on Ethics and the Legal Profession at Georgetown Law, Saïd Business School at the University of Oxford, and the U.K. research firm Acritas. That study found that overall, ALSPs are expecting future year-on-year growth of 24%, and some are even expecting to double their business in the coming year. Even with streamlined processes and modern technology, that kind of growth requires some pretty aggressive hiring.

New Skills for New Hires

Adding to the talent vacuum is the fact that the talent set and credentials that ALSPs look for in a new hire is a bit different than what law firms look for in a typical associate — and, in fact, is different from what most young legal talent think they want. ALSPs hire legal talent that: i) want a different lifestyle and work environment; ii) are willing to take on projects that often involve lots of non-legal tasks (like creating and managing processes); iii) are not focused on status the way previous young legal professionals were; iv) usually have a bit of legal experience; v) are self-starters who can problem solve on their own; vi) have very good people skills; and vii) can do project management (or are willing to learn), among other talents, knowledge, etc.

Indeed, some of what ALSP roles require could be taught at law schools but are not. Other elements are personality traits that are needed to be successful in an in-house counsel or legal-related role.

Interestingly, a growing number of law firms have recognized that there are opportunities waiting for them in the ALSP market — opportunities they have to address, or face the impact to their core business. As such, some law firms have directly entered into the alternative legal services business. The study shows that in the U.S., about 17% of large law firms are doing just this, most often in discrete practice areas. The firms were reluctant to give details about their operations, which makes me think they’re doing more with this business model than we might suspect.

Some other firms are following a form of the general contractor model by working with their clients to leverage the right resources for any particular type of legal work. Sometimes those resources will include an in-house team (or team member), and sometimes it will be a vendor such as an ALSP.

Law Firms Managing ALSPs

This model is especially attractive to smaller corporations, most of which would much rather their law firm hire an ALSP on their behalf than manage an ALSP themselves. The report shows that this has been happening in litigation and investigation support, specialized legal services provided by licensed lawyers, and merger and acquisition due diligence. In these practice areas, about 14% of corporations are working with ALSPs through traditional law firms. In this arrangement, the law firm takes on any administrative hassle and is responsible for the quality of legal work, but the client can still get the benefits of ALSPs’ expertise and lower-cost business model.

Together, these law firms providing ALSP support through whatever model combined with the growth of existing ALSPs has led to considerable pressure on the talent pool from which ALSPs draw.

However, that talent pool isn’t as deep as you’d think, partly because law schools are loathe to train people for this kind of work. Often law schools don’t encourage their students to consider careers with an ALSP — or with the companies that the firms and ALSPs support. Yet ALSPs can be a great training ground for new lawyers. Indeed, because most law students don’t see working for an ALSP as a first-choice career, the few who do have experience working in this area are in great demand.

Our corporation, like many others, is feeling the consequences of this talent shortage. We are seeing key ALSP talent making lateral moves for the same reasons we’re seeing lateral moves in the law firm world. These individuals are get promoted more rapidly and are afforded unique and interesting opportunities by moving. This type of activity has had the unintended consequence of introducing multiple ALSPs into a single corporate environment.

Additionally, it used to be the job of law firms to jump in when we’re in a pinch, or we need to scale up. However, the law firm model requires that they charge significantly more for routine work — unless, of course, they’ve managed to set up an ALSP themselves.

At the end of the day, there is a need for a particular type of talent with certain legal and non-traditional legal skills, knowledge, and certain personality traits to fill roles that address the legal service delivery needs of corporate clients. ALSPs are a growing segment of the legal market, and that sector provides a great opportunity for junior lawyers and legal professionals.

Corporations, ALSPs, and law firms all need to highlight and help fill this growing talent gap.