ALM’s annual survey, the 2013 Law Department Metrics Benchmarking Survey, may give us reason for cautious optimism in corporate law as we head into 2014.
“It’s been a long, difficult few years for U.S. corporate legal departments. In the wake of the financial crisis and the Great Recession, many general counsel had to make painful cuts to their ranks and tighten their purse strings,” wrote Corporate Counsel Reporter Rebekah Mintzer in a news story on the report. “But that might just be over.”
The survey, conducted by ALM and sponsored by the LexisNexis® CounselLink® business, analyzes the viewpoint of 70 in-house law departments. Survey respondents overwhelmingly came from large companies with an average of some $8 billion in revenue, thousands of employees, and with large legal departments.
1. Corporate law headcount is stable, but workload increases.
About 82% of respondents said their corporate legal department avoided staff reductions over the last 12 months, however, 81% say the volume of work has increased. About half (43%) say the workload has increased between 5-10% while another quarter say workloads have increased 25%.
2. Budget cuts avoided in 2013; budgets down compared to 2012.
Roughly 80% of law departments said their department did not implement budget cuts in 2013, however, overall budgets were down from the previous year. Nearly one-third (28.6%) said this year’s budget was smaller by a margin of 15% or more over 2012. About 43% reported budget reductions between 10-14% from the previous year.
3. Alternative fees grow slow, steady, but not quite widely adopted.
Approximately 20% (19.6%) said the number of legal services performed under an alternative fee arrangement (AFA) were higher in 2012 than in 2011. However, the vast majority, (69%) said there was no difference in the use of AFAs between 2011 and 2012. Interestingly, 36% said the catalyst for the use of an AFA was a mutual effort between inside and outside counsel, though 60% say such negotiations were initiated by the corporate legal department. Just 4% of corporate legal respondents said their law firm proposed an AFA – which can be an opportunity for law firms to gain a competitive advantage.
4. Law firm reviews; top factors and mistakes.
Sixty-five percent of corporate law departments have a formal review process for evaluating law firms and 60% conduct such reviews on an annual basis. Ten percent reported conducting these reviews more than once a year. The survey also asked respondents about the factors for selecting a law firm – and the “serious relationship mistakes” – here are the top five answers for each category:
a) Top five evaluation factors:
- 18% – results
- 15.7% – knowledge and experience
- 13.8% – cost
- 10.6% – understands business
- 8.1% – responsiveness
b) Top five “serious relationship mistakes”:
- 14.9% – overbilling
- 13.6% – lack of experience
- 13.5% – “overlawyering”
- 9.3% – lack of results
- 7.4% – lack of sensitivity to budget constraints
5. Legal spend management trends: outsourcing, chargebacks and e-billing.
Sixty-nine percent of corporate legal departments say they had contracted with “legal service providers or vendors to provide outsource services to their law department.” Of those that did, on average these departments tend to contract with four different companies in the U.S and another one offshore. Document review was the most popular service to outsource (58.5%).
The survey also indicated that the majority (61%) of law departments charge back the cost of outside legal counsel to business units for services performed. About one quarter (24%) reported charging back 100% of outside counsel costs; 33% charge back between 80 and 99% of the cost and 21.2% charge back between 60-79% of the cost.
In terms of e-billing, corporate legal departments are equally divided – about 50.8% say they use e-billing while 49.2% say they do not. However, those that do use e-billing, say between 75% and 100% of their invoices are submitted electronically and another 64.3% say e-billing is a requirement for law firms to do business with their corporate legal department.
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With registration, this year’s report is freely available to download and is filled with hundreds of data points useful for benchmarking purposes. The studies from previous years are available for purchase on ALM’s website.
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