For the thirteenth year in a row, Altman Weil, Inc. has surveyed Chief Legal Officers or CLOs on the issues of importance on the management and operation of their corporate law departments. These surveys capture current thinking of Chief Legal Officers and give lawyers in private practice a good indication of what corporate clients are think about and want from firms that do work for them.
Corporate law departments report that they are re-negotiating outside counsel fees, shifting work to lower-priced law firms, increasing in-house capacity, opting for alternative service providers and using new technology — all to develop a more cost-effective legal services model. Over 200 General Counsel participated in this survey.
One of the key conclusions that comes from the survey: Chief Legal Officers are not waiting for law firms to change their business models. They are taking change into their own hands and are creating a new internal value proposition. Firms had better pay attention!
Cost Control and Efficiency
The survey asked Chief Legal Officers what they have done in the last 12 months to control costs – their highest management priority as reported in the 2011 Survey. The number one answer, from 71% of respondents, was to negotiate price reductions from outside counsel. In addition, 47% of law departments shifted work from law firms to in-house lawyer staff; 41% shifted law firm work to lower priced firms; and, 36% reduced the total amount of work sent to outside counsel. Ten percent of CLOs reported instituting a law firm convergence program. The winds of change are upon us.
In addition to outside counsel cost management, law departments addressed internal cost issues in 2012. Sixty-three percent of departments improved the efficiency of their own procedures to cut costs; 36% shifted in-house work from lawyers to paralegals or other paraprofessionals; 35% used contract lawyers; and 25% of law departments outsourced some work to non-law-firm vendors to save money.
The methods of cost control that proved most effective were negotiating price reductions and shifting work in-house, according to the survey.
When asked what actions they had taken to improve internal efficiency in the last twelve months, CLOs identified greater use of technology tools as the most often used method, as well as the most effective. Other efficiency enhancers were greater use of paralegals and other paraprofessionals, project staffing with contract or temporary lawyers, outsourcing to non-law-firm vendors and project management training.
Staffing and Budget
Survey results on law department staffing and spending reinforce findings on the shifting balance of work between law firms and in-house lawyers.
In 2012, 46% of law departments increased their internal budgets, compared to 28% reporting a decrease. Additionally 38% of law departments report that they plan to increase their in-house lawyer workforce in the next 12 months, compared to only 7% of departments that plan to decrease the number of in-house lawyers.
At the same time, 39% of law departments decreased their outside counsel budget in 2012, compared to 34% that increased it. This is the first time in three years that the survey has found more departments decreasing than increasing their law firm spend.
In the next 12 months, 29% of law departments expect to decrease their use of outside counsel, compared to 14% that plan to increase outside counsel use. These aren’t enormous changes, and many departments still plan to maintain the status quo. But there is clear, incremental movement in how CLOs are managing their law departments.
Inside – Outside Relationship
Asked how much pressure corporations are putting on law firms to change the value proposition in 2012, CLOs rated the pressure at a median 6 on a scale of 0 (no pressure) to 10 (intense pressure), up from 5 the previous year. CLOs continue to express deep skepticism about law firms’ willingness to change their service delivery model, rating firms’ seriousness about change at a median 3 on a 0 to 10 scale for the fourth year running.
Chief Legal Officers have clear preferences when it comes to choosing law firms. When asked to rate which factors influence their selection of outside counsel, Chief Legal Officers identified ‘demonstrated understanding of your business/industry’ as the top factor and rated it 9.6 on a scale of 0 (no effect) to 10 (extremely positive effect). Other highly rated influencers were referrals from colleagues, rated 8.6; personal contacts, rated 6.7; and written material demonstrating a lawyer’s expertise, rated 6.1. Ten additional factors, including law firm websites, directory listings and social media activity, all rated under 5 on the 0 to 10 scale.
The Chief Legal Officer Survey has been conducted and published annually by Altman Weil, Inc. since 2000, most recently in September and October 2012. Two hundred and four responses were received for the 2012 survey, 15.7% of the 1,297 corporate law departments invited to participate. Demographic and budgetary data on responding law departments is included in the survey report which you can find online at www.altmanweil.com/CLO2012.