Compliance redefined: The strategic evolution of Outside Counsel Guidelines in an AI-driven era

October 23, 2024

Outside Counsel Guidelines (OCGs) are a cornerstone of the relationship between law firms and their corporate clients. As the legal industry evolves, so do these guidelines, reflecting the rapid advancements in technology, growing client expectations, and the business of law.

The future of OCGs was the focus of Sandpiper Partners’ recent roundtable, where Joe McSpadden, Williams Lea’s Executive Vice President for Global Legal Services, joined top law firm leaders and their clients. Together, they explored the major developments in OCG requirements, and the strategies law firms were using to navigate these complexities.

Here are the top takeaways from the roundtable:

AI: The next frontier in Outside Counsel Guidelines compliance?

Artificial intelligence (AI) has emerged as a transformative force in the legal industry, with early success automating document drafting and streamlining contract reviews. When it comes to OCG management and compliance, law firms are actively exploring its potential to optimize time entry, improve billing accuracy, and minimize non-compliant invoices.

“There are nuances to these guidelines,” said one law firm panelist. “How we can quickly take in those guidelines, catalog them, tag them, then leverage them in the future… I don’t think there’s a tool yet on the market that is able to do that in a way that doesn’t involve a human in the process.”

Another panelist took it a step further: “The ideal product is one that isn’t just going to identify the problem but attempt to fix it. [It] should be able to pull in substantive information about a lawyer and the time they are spending, either in a meeting or reviewing a document to ensure that a proposed entry being put forward is not only compliant but substantive, reflecting the value of their time, because this tends to be an obstacle in billing, these vague, inconsistent entries.”

As law firms look to machine learning as the next innovation after automation, the technology presents powerful transformative potential. However, human oversight remains essential to ensure AI is used responsibly and effectively, striking the necessary balance between leveraging the technology’s strengths and maintaining human control.

This is at the core of Williams Lea and Hercules AI’s end-to-end billing compliance solution, which blends the power of AI with the precision of human expertise. “When we crossed paths with Hercules AI, we combined our human capital and subject matter experts with their advanced technology, resulting in a solution that significantly improves the billing compliance process,” shared Joe McSpadden, EVP at Williams Lea.

Aside from the need for human oversight, law firms also need to ensure that their AI tools don’t replace but rather enhance critical legal skills. One law firm panelist cautioned, “There could be a loss of skills. If all associates do is check [the AI tool’s work], as opposed to actually doing the work, their skill goes away over time, and that’s not a great development.”

Another panelist countered with some optimism, “With the widespread implementation of AI, there’s going to be a corresponding evolution in skills. Our skills will evolve to meet the technology, and that is not something we can or should always resist.”

Billing: From administrative task to strategic function

Billing and billing compliance within law firms continue to evolve. Once viewed as purely administrative processes and tasks, these are now recognized as strategic to maintaining strong client relationships and ensuring firm profitability.

“Billing is no longer your traditional administrative support function; it’s more strategic, and it deserves to have the right talent, the right skill, and the right technology,” said Joe McSpadden. “The team at Williams Lea learned that it’s crucial to have specialized talent dedicated to that specific role. We’ve seen situations where a firm acquires some new billing software and has the admin staff manage it. That can be a challenge.”

This strategic evolution reflects the increasing complexity of client requirements and the need for law firms to be more sophisticated in their financial and client service management approaches. In many law firms, specialized roles have emerged, such as OCG experts.

“In our talent, in our structures, it’s changed significantly over the last five years in the way we organize the finance team to deliver commitments with OCGs, especially in our e-billing team,” a law firm panelist shared. “Our e-billing team now has specialists in OCGs, in onboarding new clients that are e-billed, in dealing with rejections… these roles didn’t exist five years ago.”

There has also been an increased focus on hiring more senior professionals who understand both the legal and business aspects of law firm operations. Additionally, there are efforts to educate and empower various teams, from billing to procurement, to have more strategic client conversations about pricing, alternative fee arrangements, and process improvements.

“When it comes to specialization, there is no silver bullet, it requires coordinated and aligned professional services teams,” said a law firm panelist. “When it comes to reviewing and disseminating OCGs, we need to leverage the relationships and specialized skills of people in their respective teams.”

Another law firm panelist shared: “We should empower billing and collections teams to truly understand clients and allow them to have conversations with clients. That’s why we’re hiring more senior staff, so they can solve as many problems as they can with our clients. I think that is an important part of the evolution of what we’re looking for in our teams.”

The OCG whisperer: Communicate to succeed

As OCGs become increasingly complex, clear and consistent communication between law firms and their clients has become a critical factor in successful OCG compliance.

“This [OCG management] is an ongoing relationship where you need to continue to work together to try and make things more efficient,” said one client panelist.

A law firm panelist weighed in, “One of the things that works well is that you have a dedicated team that deals with firms on rates and other policy issues… having a centralized contact for firms is helpful.”

This kind of approach helps address issues more proactively, reduces misunderstanding, encourages more collaborative problem solving, and fosters stronger client relationships. Some clients go as far as organizing regular workshops and forums with their law firms to discuss OCG updates. “It [workshop] is a really good opportunity to reiterate key lessons learned, educate our law firm partners about internal processes, our pain points, our issues, and more,” shared a client panelist.

Regular communication is especially critical when updates are made to existing OCGs to accommodate new developments in the industry. The emergence of AI is one such example. “We sent a global note to all our law firms, just to make them aware and reiterate some of our expectations, given the continued focus on AI,” an investment bank client panelist said.

Another client panelist agreed, “We felt we had to address the use of AI, that not only captures our firm’s policy about it, but also we wanted our OCGs to be a document that reflects our own values, choices, and discussions that we have with all our law firm partners.”

Law firm relationship management, especially when it comes to Outside Counsel Guidelines, is evolving rapidly, driven by tech advancements, changing client expectations, and the increasing strategic importance of billing compliance. Law firms must remain agile, innovative, and client-focused to meet both the challenges and opportunities presented by modern OCG management.

Learn more about the future of billing compliance, an end-to-end billing compliance solution by Williams Lea and Hercules AI that combines the power of AI and the accuracy of human experts.