For law departments around the U.S., the 2008 financial crisis sparked a new movement in legal spend: cut overall costs by relying less on outside counsel and more on the department’s own diligent work and internal expertise. With the crisis seven years in the rearview mirror, one might think that all of this insourcing of legal work would be over. But based on data collected by Thomson Reuters, the trend appears to be alive and well.
The “Thomson Reuters Legal Department In-Sourcing and Efficiency Report,” which looks at feedback from more than 300 in-house attorneys, shows that legal departments are not only cutting outside counsel spending, but also looking inward to see where they can grow as a department and become more efficient without tapping the expertise of outside firms.
The top challenge facing the survey’s corporate counsel is a familiar one: too few resources. Some 27 percent of respondents ranked this as the No. 1 challenge, just above another important issue: reducing outside legal costs. “I think that after 2008, departments have been quite clear that they’re a cost center and will be treated as a cost center,” says Bernadette Bulacan, director of market development at Thomson Reuters. “Is it an evolving trend? I think it’s just going to be the ongoing course.”
It’s clear that reducing reliance on outside counsel continues to be one of the ways departments look to cut costs and do more with less. Over the past two years, according to the data, 35 percent of respondents reported an overall decrease in their reliance on outside counsel to get legal work done. A staggering 79 percent reported that this decrease in work has been caused by redirection of matters in-house.
Of course, the level of in-house versus outside attention that is given to legal tasks varies. The survey broke down which tasks tend to be kept in-house and which tend to be handed off, and found that some areas such as contracts are very likely to stay solely or mostly in the legal department. Others, such as mergers and acquisitions or litigation, are more likely to use outside counsel help and expertise.
Eric Laughlin, managing director of legal managed services and the corporate segment at Thomson Reuters, says that it makes sense that companies would want to keep some types of matters close to home in areas where the business-specific institutional knowledge and background of an in-house lawyer is essential to a job well done. “When thinking about areas of work like contracts and corporate governance and compliance,” Laughlin notes, “you are going to be much more effective if you’re part of the business rather than an associate at a law firm who has to get up to speed quickly on a company and then tries to add value.”
In order to meet the demands of the new normal, law departments are beefing up their in-house teams. In 2014, 60 percent of legal departments in the survey hired new staff, including plenty of nonattorney support staff as well as contract attorneys. Almost one-third of respondents said they planned to hire even more in the coming year.
Another reason why it might be a good time to be on the in-house counsel and staff job market is that departments are actually creating brand new positions. Some 33 percent say they have done this is the last year, particularly in the hot areas of contracts and compliance.
This emphasis on building the internal team seems to show that law departments have shifted their focus beyond just outside counsel management. Bulacan notes that many law departments have figured out how to rein in costs using such tools as discounts, matter budgets and alternative fees, and now are comfortable enough to turn attention elsewhere. “Now that its part of the common discourse with outside counsel,” she says, “we have this opportunity to look at internal teams and really look at how to bulk up their strength and take advantage of those skills that they bring to the table.”
