The Corporate Legal Operations Consortium's (CLOC) short history in the legal industry is impressive. For evidence of this, you need to look no farther than the meteoric rise of its annual conference. In the span of three short years', The Corporate Legal Operations Institute, CLOC's annual meet up, has evolved from a small gathering of legal operations professionals to one of the largest must-attend events in the legal industry's annual calendar.

Given CLOC's rising stature in the legal industry it is worth asking what its impact has been thus far. Next week's conference will likely be a celebration of CLOC's successes. That seems warranted. The Consortium has scored some early wins. Before popping the campaign bottles, however, CLOC's members should also assess the work that remains undone.

CLOC's Impact – The Successes

While CLOC is still young, it is not too early to begin assessing its impact on the legal industry. Through their conferences and the ongoing advocacy of the Consortium's members, CLOC has started an important discussion in the legal industry. It has raised the profile and importance of law department leaders. It has also normalized the idea that law departments need management professionals to modernize and standardize day-to-day operations. The benefits of all of this is, admittedly, difficult to quantify. Starting conversations and promoting new ways of thinking are difficult to put dollar signs on. That said, few serious people within the legal industry would argue that the dynamic between law departments and legal services providers is the same as it was ten years ago. Almost everyone would agree that CLOC has been part – perhaps a central part – of that shift.

CLOC can also boast more tangible accomplishments. The Consortium has facilitated the sharing of data and best practices between law departments. The importance of this cannot be overstated. These initiatives have allowed law departments to enforce stricter billing guidelines and negotiate more forcefully with legal services providers. They have also provided law department leaders with the data necessary to convince their CFOs to increase headcount and insource more (see Figure 1). These are tangible accomplishments which CLOC has brought to their corporations and to the law department community – they save dollars and, in some cases, improve the quality of services.

CLOCs most important accomplishments are, arguably, those that have been achieved through the actions of its individual members and through the Consortium's influence on the broader law department community. UnitedLex's recent deals with DXC and GE are good examples. While these deals were not arranged or negotiated through CLOC, the Consortium fingerprints are all over them. Both UnitedLex and DXC have been active in the CLOC community. The deals mirror many of the discussions that have occurred at CLOC's events and public conversations. While these deals may not have the CLOC stamp on them, they are clearly part of the same movement. They are sign that CLOC is inspiring action not just conversation.

The Unfinished Work – Rates, Diversity, Fee Arrangements, and New Vendors

In the biggest areas, CLOC's record is more mixed. Over the past several years law departments have stated their goals relatively clearly. They would like to see the billable hour phased out and an increase in alternative fee arrangements (AFAs). They would also like to see more diversity in the legal industry. Perhaps most importantly, law departments would like to foster a greater range of legal services providers, beyond law firms, from which they can choose from. A look at the data in these areas suggests CLOC has a long road ahead of itself.

The hourly rate is a good example. Despite all of the talk of “the death of the billable hour”, not much has changed in the past several years. It is difficult to assess the exact percentage of work billed by the hour. This is because there are no standards for tracking fee arraignments. Some law departments, for example, consider discounted hourly rates or volume-based discounts as AFAs. This lack of standardization muddies the water and makes an honest appraisal of fee arrangements highly difficult. The best data suggests that somewhere between sixty and seventy percent of law firm work is still billed by the hour. While this is down from seventy five percent in the pre-downturn era, it hardly feels like a win.

Importantly, hourly rates increase every year. Over the past decade, standard rates have increased by thirty percent and collected rates have increased by eighteen percent (see Figure 2). These averages hide wide dispersion. Large law firms, particularly those in higher value areas, have been able to secure annual rate increases of seven or eight percent per year. In assessing these figures, it is worth remembering that inflation has averaged 1.1% since 2012. Law firm rate increases far outpace this benchmark. These statistics stand in stark contrast to law department's public pronouncements to “hold the line on rates.” They also suggest that law firms still hold significant market power to set rates as they like.

In the area of diversity, the data also shows little progress. Law departments have made increasing diversity, both in-house and at their law firm partners, a major goal. Despite their efforts, the story on diversity in the legal industry remains the same. Law firm's recruitment practices, at the entry level, appear to be relatively diverse. Nearly half of incoming associates are women and the hiring data on ethnic minorities' largely mirrors the diversity at law schools. The difficulty is retaining these individuals. The data shows a steady attrition of females and ethnic minorities out of law firms and the legal industry more broadly. Today only eighteen percent of equity partners and twenty two percent of GCs at Fortune 1000 Companies are women (see Figure 3). These statistics, particularly on the law firm side, have barely moved in the past decade.

Another place to look for CLOC's impact is on the vendor side. The legal industry has seen a tremendous inflow of new vendors over the past decade. The vast majority of these new service providers are not law firms – causing them to fall into the amorphous alternative legal service provider (ALSP) category. Some of the most prominent ALSPs – including Elevate, Axiom, and UnitedLex – have begun to get significant traction in the market and consistently report double digit annual growth rates. Despite this growth, ALPSs only account for around 1% of the legal market (see Figure 4).

The largest ALSP – Axiom – earned approximately $400 million in revenue last year. That sounds like a big number, and it would place them in the Am Law 100, but it's also worth noting that Kirkland & Ellis reported $500 million dollars in growth last year. This means that Kirkland's growth, in a single year, overshadowed Axiom's growth over the past eighteen years. That, of course, of does not minimize the hard, and important, work that Axiom and the other ALSPs are doing. It just underscores an important fact – that many ALSP's are still relatively small. They are only an alternative to law firms in a narrow range of services right now. In most areas of work, law departments must still continue using law firms. An optimistic view of this situation would determine ALSPs have a lot of room to grow, especially as technology-enabled services become more of a reality.  A pessimistic view might suggest ALSPs are marginal players in the legal industry – ankle biters which don't post a significant threat to law firm's core business.

The Road Ahead

Is it fair to judge CLOC based on their ability to solve seemingly intractable problems like diversity? Probably not. The Consortium is only three years old after all. Its early years have been marked by stunning success. Those successes may have created a launching pad to attack the bigger problems that plague law departments and the legal industry more broadly. If that is CLOC's goal, its members should spend the next week thinking seriously about what skills will be needed to solve problems like diversity and fee arrangements.

The legal industry, sometimes, tends toward an “us-versus-them-mentality”. Problems are often framed as a zero-sum game between law firms and “new law”, a term crafted over the past several years to describe legal tech, ALSPs and forward-thinking law departments. While there is some truth to this framing, it has begun to hinder collaboration. Law firms need to be brought into the CLOC movement. Law department leaders might argue that law firms have left themselves out of the conversation. That's fair, law firms have largely ignored CLOC. Few executive committee members from major law firms, much less managing partners, are active in the CLOC community. That needs to change. That said, law department leaders can do more also. On the big issues, little will be accomplished without law firm's help. A good place to start would be to ensure the tone of the conversation continues to invite law firms in – the “new law” vs “old law” language needs to go.

The next few years will, almost certainly, be defining ones for CLOC. The conversation they have started could follow one of two paths. It could become more insular and more of an echo chamber. It could also grow and become more inclusive. If that happens, CLOC could, very well, find itself as the center of the legal industry. That would be a fitting home for law department operations professionals.

Nicholas Bruch is a Senior Analyst at ALM Legal Intelligence. His experience includes advising law firms and law departments in developing and developed markets on issues related to strategy, business development, market intelligence, and operations. He can be reached by Email, Twitter, or LinkedIn.