Renewed optimism or replaying the same song over again? The results of a November 12, 2014 LexisNexis survey touted as revealing an increased sense of optimism within U.S. legal departments last year really reveals less about the state of the legal market than the happenstance of events.
In the LexisNexis survey, more than 70% of in-house counsel indicated that this year has been better than 2013 for their legal departments. While this statistic speaks to an overall upswing in the mood of corporate legal departments, many observers are qualifying it as “cautious” optimism. Anecdotal responses clarified the rationale behind the optimism grade, e.g., the business is having a good year, so the legal department is too and the legal department has seen an increase in the number of large cases settled.
The reported optimism is further tempered by responses to other questions that continue to show top legal department goals focused on deriving value from budgets: reduce outside counsel spend (61%); prove the value of the legal department to the business (60%); predict outcomes (48%); automate processes to increase efficiency (43%) and develop predictable legal budgets (37%). When asked what actions are needed to facilitate the goal of reducing outside corporate spend, the top three answers included moving more legal work in-house (53.7%); increasing the use of alternate-fee arrangements (31.6%); and developing billing guidelines and billing rules (29.5%).
Using a term that is dominating legal profession discourse, Mike Haysley, director of Strategic Consulting for the LexisNexis CounselLink business explained, “This is the new normal. What businesses discovered beginning in 2008 is that legal spending can be managed without exposing the company to additional risk; as a consequence, bigger legal budgets aren’t likely to return even as the business climate continues to improve.”
Chief Legal Officers as Change Agents
The LexisNexis survey comes on the heels of Altman Weil’s fifteenth survey of Chief Legal Officers (CLOs), and the themes of the two surveys are consistent. The Altman Weil survey was conducted in September and October 2014. In a familiar refrain, the survey found that corporate law departments continue to wield their buying power to control costs of outside counsel, are shifting work in-house, and re-mixing their in-house lawyer and paraprofessional workforce to control costs. Direct price reductions from outside counsel and alternative or fixed fee arrangements continue to increase. The most common price reduction reported was between 6 and 10%. The number of departments receiving discounts of more than 10%, however, jumped to 36%, an eight percentage point hike over last year.
Among the easy to read graphs about expenditures, staffing, etc., the data questions about the relationship between inside and outside counsel and the changing legal market are most interesting. Continuing a six year trend, CLOs report that law firms are not very serious about changing their delivery service model to provide greater value to clients. (With 0 being “not very serious” and 10 being “doing everything they can,” law firms have received a median score of 3 since 2009.) CLOs have mixed feelings about the best model for the inside-outside counsel relationship, but only 4% are satisfied with the status quo.
When asked to identify which of certain factors would be the most likely change agent in the legal market over the next ten years, “corporate law departments” was the clear winner at 43%. The next highest factor was “technology innovation” at 23% whereas only 6% tagged “law firms” as the most likely change agent.
Interestingly, in its April 2014 survey of Law Firms in Transition, Altman Weil asked the same question of law firm managing partners and they agreed that corporate law departments would be the most significant driver of change (34%). Seeing themselves in a slightly more favorable light than their clients do, 10% of the managing partners saw law firms as the most likely change agent.
What does all of this mean? It’s really more of the same that has been reported over the last several years: the power has shifted to in-house lawyers. They are not satisfied with the old model and want more value. They will continue to exert forces on outside counsel reluctant to change. When will we tire of hearing the same refrain over again and make significant strides toward change?