Cost Cutting Slows in Corporate Law Departments

Newtown Square, PA, November 29, 2011 – Corporate law departments may be easing up on cost cutting according to the newly released 2011 Chief Legal Officer Survey.  More law departments have boosted their overall budgets in 2011, and more are increasing their expenditures on outside counsel.

Fifty-six percent of Chief Legal Officers (CLOs) surveyed in October 2011 indicated that they had increased their law department budgets from 2010 to 2011, compared to 51% who did so the prior year.  The median amount of the increase also rose, going from 6% in 2010 to 7% in 2011.  Forty-six percent of law departments increased their outside expenditures, compared to 43% last year. 

“These are not big changes,” says Altman Weil principal Daniel J. DiLucchio.  “It is the shift of direction that’s interesting as it may signal some softening of the hard line on spending that corporate law departments embraced in the last few years.”

The survey identifies several areas where law departments and law firms are working together on the issue of costs.  Fifty six percent of departments say they work collaboratively with law firms on value-based billing arrangements.  In addition, among departments that have law firm panels, a majority (58%) report that they encourage the panel firms to collaborate to improve process efficiency, rather than encouraging competition to drive down costs.

The use of non-hourly billing continues to edge up.  In 2011, 84% of law departments report using some non-hourly fee arrangements, compared to 81% in 2010.  Non-hourly fees accounted for 14% of total fees according to the survey.

Ten percent of law departments offshored some of their legal work in 2011, and 91% expect the amount of work offshored to stay the same or increase next year.  An additional 13% of departments outsourced e-discovery, document review, due diligence and legal research work that they said they would have given to law firms in the past.
 
“Even if law departments are easing up a little on cost cutting, they are still going to explore less expensive alternatives as long as they are reliable and effective,” says DiLucchio. 

For the third year in a row, CLOs said they don’t think law firms are at all serious about changing their service delivery model, rating them a median 3 on a 0 to 10 scale.  However, they don’t rate their own appetite for change much higher.  When asked how much pressure corporations are putting on law firms to change the value proposition, they assess themselves at a median score of 5 on the same scale.

Most law departments are missing an opportunity to use direct feedback to encourage change in their law firms. Only 35% of law departments regularly and formally evaluate outside counsel, according the survey, and a meager 17% communicate the results of those evaluations to their law firms. 

The survey also provides some insights on the CLO role and perspective.  Chief Legal Officers spend 37% of their time managing the global legal function for their corporations and 24% of time advising corporate executives on strategic issues.  Other CLO functions include practicing law, handling Board issues, managing other corporate functions, compliance and government affairs.

CLOs said that their number one priority for 2012 will be controlling costs.  Other important concerns are efficient delivery of legal services, supporting the business goals of the corporation, providing quality legal service, compliance, risk management, lawyer staffing and managing outside counsel. 

Law firms that want to get on a Chief Legal Officer’s radar screen for the first time should focus on personal attention and substantive content.  The three marketing strategies that received the CLOs’ top ratings were personal contact, free training programs and written material demonstrating legal expertise.  However, even the highest ranking activity rated only 6.7 on a 0 to 10 scale and a number of other standard marketing efforts scored very poorly. 

“It’s still a buyer’s market,” says DiLucchio.  “And CLOs are too busy and too pressured to consider anything less than serious, substantive approaches from law firms.”    

The Survey
The Chief Legal Officer Survey has been conducted and published annually by Altman Weil, Inc. since 2000, most recently in October 2011.  One hundred and seventy six responses were received for the 2011 survey, 13% of the 1,355 corporate law departments invited to participate.  Demographic and budgetary data on responding law departments is included in the survey report. The full survey is available to download at www.altmanweil.com/CLO2011.

About Altman Weil
Founded in 1970, Altman Weil, Inc. is dedicated exclusively to the legal profession.  It provides management consulting services to law firms, law departments and legal vendors worldwide.   The firm is independently owned by its professional consultants, who have backgrounds in law, industry, finance, marketing, administration and government.   More information on Altman Weil can be found at www.altmanweil.com.

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Contact Information

Daniel J. DiLucchio, Jr.
Altman Weil, Inc.
(610) 886-2012
djdilucchio@altmanweil.com

Download the full survey.

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