In-house legal departments are looking beyond law firms in order to reduce their spending and adjust to a slower pace for internal hiring, according to a new report by HBR Consulting.
HBR, which advises both law firms and corporate counsel, relied upon data supplied by 225 companies across 15 industries for the 16th edition of its annual Law Department Survey. More than half of respondents surveyed by the consultancy cited cost control as the top priority for their law department.
Almost half of those surveyed also said they expected their legal spend to increase within the next year. And while total legal spending rose only 2% in 2019, down from a 5% increase in 2018, HBR said alternative legal service providers (ALSPs) were part of a non-law firm group that saw an 11% uptick in use by corporate counsel focused on cutting costs and improving efficiency.
“Law departments are now more than ever looking to alternative options beyond the traditional in-house/outside counsel model,” said HBR managing director Lauren Chung, who leads the Chicago-based consultancy’s strategy and operations practice. “Law departments are seeing that ALSPs bring to the table both expertise in specialized areas and a lower cost component.”
Chung, a veteran adviser to corporate counsel, said HBR expects to see a greater shift in how legal departments allocate spending between traditional and alternative providers. The latter have long made inroads in the contract and electronic discovery space, but corporate secretary support and due diligence work for M&A deals have become routinized enough to be outsourced to ALSPs, Chung said.
Chung said that ALSPs and other non-law firm vendors are now helping law departments that have stabilized in terms of size but still have a robust need for services. Only 37% of respondents surveyed by HBR reported an increase in internal hiring this year, compared to 52% in 2018.
HBR said that 6% of respondents said their law department increased its investment in technology and 11% reported an increase in the use of contract or temporary staffers when compared to last year.
“If you look at all these dimensions of what law departments are doing, cost control is always going to be a top challenge,” Chung said. “Looking internally at their processes, researching model, technology, use of outside counsel, and staffing helps keep those costs down.”
The management of such business-focused legal operations is now being handled by individuals hired specifically for that purpose, Chung said. HBR found that 62% of respondents said they have at least one individual in their law department dedicated to legal operations, with a median of four employees among the law departments surveyed specifically tasked with legal operations responsibilities.
“That’s significant, especially when you think about where law departments were five years ago,” Chung said. In-house legal operations roles, she added, have become “cornerstones for cost management and other initiatives that law departments are prioritizing. That 62% will probably grow because you don’t want lawyers spending their time on legal operations while juggling their time with the practice of law.”
Chung cited another HBR survey from earlier this year, which found that data analytics is a high or medium priority for nearly 60 percent of law departments.
Diversity and inclusion, a key focus at the Association of Corporate Counsel’s annual convention last week in Phoenix, has become another metric in outside counsel management. Law departments are prioritizing diversity from a “value and outcome perspective” and putting stricter guidelines on law firms, some of which have been “slow to move the needle” on the issue, Chung said.
Half of law departments surveyed by HBR said they incorporate diversity information into their request for proposal and law firm selection models. Still, only 11% of participants in the HBR survey said they intentionally reduced spending on law firms that did not meet their expectations.