Law Departments Taking Matters Into Their Own Hands

In-house attorneys are turning away from outside counsel and becoming increasingly self-reliant when it comes to serving their corporations, a new survey from legal consulting firm Altman Weil reveals.

The “Altman Weil Chief Legal Officer Survey” [PDF], which the firm has conducted annually since 2000, collected feedback from more than 200 CLOs heading up law departments of various sizes, with most falling in the two- to 15-lawyer range. Most CLOs responding worked at public companies with at least some attorneys based outside the U.S. The survey this year showed that CLOs are keeping more work in-house and embracing technology, outsourcing, and other tools to keep costs under control. This drive towards increasing efficiency appears to have shifted the balance of work away from outside firms.

Daniel DiLucchio, principal at Altman Weil and author of the survey, told CorpCounsel.com that the trend of departments trying to control outside spend is hardly a new phenomenon. “My sense is that law departments have been trying to achieve some sort of predictability in their legal fees for many years now,” he said. In the last few years though, he said many law department leaders have realized outside firms “aren’t going to change much,” and as a result they have taken matters into their own hands—sometimes quite literally.

The survey showed that this year, 47 percent of respondents decreased outside counsel budget. This trend has been consistent over the last few editions of the survey—last year, 39 percent said they were cutting back on outside spend, and in 2011, 25 percent reported cuts. Some 29 percent of CLOs said their departments are planning to decrease the use of outside counsel—with 82 percent of these departments moving that work to in-house staff instead.

DiLucchio said that CLOs in the survey expressed frustration with a perceived lack of efficiency in the work of outside firms, which doesn’t gel well with in-house business goals, particularly as companies recover from the recession. For the fifth straight year, CLOs in the survey only gave law firms a median three out of 10 rating (with 10 as the highest rating) when asked if outside firms were adjusting their legal-services delivery model to provide greater value to law departments. DiLucchio noted that these consistently poor ratings seem to indicate “law firms aren’t taking this seriously or making the changes that their clients are looking for.”

So, how are in-house departments pulling off the growing workload? The survey showed that law departments are using outsourcing, paraprofessionals, and new technologies to get more done. DiLucchio said that document management, case management, and e-billing technologies have made a tremendous difference in helping in-house lawyers work smarter.

“In addition to that, the law departments are taking a very close look at the kind of work that they’re doing, and making more precise judgments about what really needs their attention and what doesn’t need their attention,” he said. This more risk management–based approach to legal work has helped drive efficiency.

Of course, even if law departments are becoming less reliant on outside counsel, they aren’t going to totally abandon their outside spend anytime soon. They are, however negotiating it down. “Right now it looks to me, from the survey, that most of the in-house counsel are seeking discounts from their law firms,” said DiLucchio.

And while everyone likes to save a buck, the survey indicated that CLOs are more concerned with transparency—understanding how and why they are being charged, and having a chance to discuss adjustments—than they are with getting the lowest price for outside legal work. When asked about law firm pricing options, more CLOs (36.4 percent) wanted “transparent pricing” than wanted the “lowest price” (9.6 percent).

DiLucchio said that like any unit of a business, law departments want to be able to give the finance department budget numbers that are predictable and accountable. “They just want to understand what they are getting into and have some kind of guarantee,” he said.

Rebekah Mintzer is an intern with Corporate Counsel, a Recorder affiliate.