Corporate law departments are spending more, but less of that that money is landing in Big Law coffers, according to a new survey.
More than half of the law departments that responded to Altman Weil’s 19th Annual Chief Legal Officer survey increased their spending between 2017 and 2018. But about a third of legal officers shifted work done by major firms to lower-priced alternatives, the data indicated.
Corporate legal counsel “are successfully using smaller law firms that offer quality work and service at considerable reductions in cost,” the survey said.
Small firms are not the only beneficiaries, however, said Rees Morrison, an Altman Weil principal who co-wrote the survey results.
“Corporations have more to spend because the economy is recovered, and there are always a number of legal issues law departments have to handle,” Morrison told Bloomberg Law. “They are dividing up work in various ways, inside their own legal departments, outside in less costly firms and alternative legal providers.”
“But it’s not monolithic,” he said. “Companies which are confronting a complex situation or a completely new kind of legal matter, for example an environmental lawsuit, are going to choose legal advice a different way than one that is deciding how to handle more routine work.”
In addition to allocating their legal spend in more diverse ways, corporate legal counsel are finding that Big Law firms are balking at giving them discounts , the survey found. According to the data, slightly more than half – 55 percent – of legal officers reported that major law firms resisted giving greater discounts on the quoted fees.
Even so, nearly two thirds of law departments reported receiving some price reduction from outside counsel generally, with a median 10 percent discount off standard hourly rates.
Major law firms are likely trying to stanch losses caused by some of the major changes in recent years to corporate legal department practices. With their eyes firmly on the bottom line, corporations are less likely to pay high rates for routine legal work that is often performed by associates.
They have, however, continued in many cases to pay premium prices for top-drawer partners with the skills and experience to handle complex legal matters that can affect the company’s bottom line.
According to the survey, corporate counsel also are funneling work to alternative legal providers, particularly the more rote tasks like document review and litigation discovery.
Three-fourths of larger law departments, categorized as those with more than 50 lawyers, are employing such outsourcing, the survey found. However, outside vendors receive only a small slice of such department spending – about 6 percent, according to the data.
Altman Weil, a management consulting firm focused on the legal industry, based its survey on responses from almost 280 law departments at corporations with revenues between $1 billion and $5 billion in fiscal year 2017. Companies represented came from a range of industries.
Looking to the future, 41 percent of chief legal officers in the survey anticipated that they would spend more on outside legal advice next year, and fewer – 29 percent – thought they would spend less.
Morrison said that chief legal officers were increasingly expected to run their departments like corporate business units. This has meant that the CLOs were focusing on not only where but how they spend their budget.
“There are higher expectations of performance,” he noted.
Higher expectations may lead many law departments to higher in-house headcount. Forty-two percent of law departments in the survey said they would likely add to their lawyer count in the next year versus only 7.5 percent who were planning to cut back.
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