Survey: Companies taking more legal work in-house

Increased staffing of in-house legal departments and less work for outside counsel can be expected over the next year, according to a recent survey.
Altman Weil, Inc. reports that 49 percent of the chief legal officers participating in its 2008 Chief Legal Officer Survey plan to hire additional lawyers in the next year, jumping from 40 percent last year.
In addition, 26 percent of law departments plan to decrease their use of outside counsel – up significantly from 16 percent in last year’s survey. Only 8 percent of CLOs plan to increase their use of outside counsel, down from 18 percent.
The survey reflects recent trends as reported in In-House, such as increased frustration with increasing legal fees and a rosy employment picture for in-house lawyers. (See “ACC initiative seeks to overhaul legal fees” in the May issue, and “In-House hires up, career options expand” in the March issue.)
Chief legal officers identified “cost control” as their top concern over the next three to five years, according to the survey. Cost control was rated first by 28 percent of CLOs responding, a two-to-one margin over the next issue of “limited resources” chosen by 14 percent of respondents.
Compliance, which was the top concern for CLOs in each Chief Legal Officer Survey from 2003 to 2007, fell to number three in this year’s 2008 survey.
This year for the first time, the survey looked at use of outside counsel based on law firm size. Survey respondents indicated that, on average, 20 percent of their legal work went to firms with over 750 lawyers; 25 percent of work went to firms employing 350-750 lawyers; 27 percent of work was done by firms with 100-349 lawyers; and 35 percent of work went to firms with under 100 lawyers.
However, when asked how that same work was allocated based on the dollar value of the business, CLOs surveyed indicated that 37 percent of their outside counsel expenditures went to the largest firms.
“The fact that mega-firms handle 20 percent of matters but collect 37 percent of fees is not surprising because corporations are likely to put ‘bet-the-business’ matters that are not price-sensitive into the hands of those firms,” said Altman Weil principal Daniel J. DiLucchio. “This is important because it means that a CLO’s ability to negotiate fees and control costs is really limited to less than two thirds of a law department’s outsourced work.”
When asked if they have fired or are considering firing at least one of their outside law firms this year, 48 percent of CLOs answered yes, compared to 32 percent in the 2007 survey. The reasons for their dissatisfaction with outside counsel were: “mishandling a critical matter” (named most often), followed by “poor quality legal work,” and “cost management issues.’
Although outside counsel have taken steps to improve working relationships with their clients, not all efforts are perceived as equally valuable. In ranking relationship building efforts, chief legal officers named “discounted fees” number one, as well as “improved responsiveness,” “improved project staffing” and “learning our business” as the most important efforts law firms can make.
The Chief Legal Officer Survey has been conducted annually by Altman Weil since 2000, most recently in June. This year’s survey had 126 responses from law departments around the country. Of those responses, 28 percent were in law departments with over 30 lawyers, 33 percent were in 10-30 lawyer departments; and 39 percent were in departments with fewer than 10 lawyers.
The survey is available online at www.alt manweil.com/CLO2008.