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For U.S. corporate legal departments, cost controls top wish list

Chris Maguire  Managing Director, Corporate, Thomson Reuters

Chris Maguire  Managing Director, Corporate, Thomson Reuters

Corporate legal departments want to use more technology and use it better in order to dampen costs. Making progress on those goals may take some time.

United States corporate legal departments — the empowered buyers in a prolonged soft market for law firm services — are reacting to a demanding environment by making changes and demands of their own.

A new report — the 2018 State of Corporate Law Departments — finds corporate counsel focused on innovation and business discipline in a effort to manage costs and leverage technology in order to realize greater efficiency, budget predictability and value.

The report analyzes data and research from Thomson Reuters Legal Tracker, Acritas, and the Corporate Legal Operations Consortium, or CLOC. It identifies corporate legal departments’ top priorities and, in turn, underscores their expectations on the law firms they engage with.

The report reveals what may seem like a juxtaposition: Legal departments are moving more work in-house even though their satisfaction with outside counsel value is increasing. This finding underscores corporate legal departments’ top concern: Controlling outside counsel costs.

The average satisfaction rating of outside counsel, based on value, increased over the last five years by almost 10 percent. Yet the improvement in service delivery hasn’t been enough to offset budget challenges corporate counsel face. The result is that corporate counsel are not only shifting more work in-house, they’re also turning to technology to trim costs.

Managing resources

The proportion of budget allocated internally has increased from 37 percent in 2013 to 43 percent in 2017. At the same time, 53 percent of departments reduced the number of law firms they work with in order to drive value and efficiency. This also ensures the firms have deeper knowledge of the companies’ business.

Overall, legal departments reported considering three cost-control strategies to be most effective: Strict enforcement of billing guidelines, reduction of invoice expenses, and alternative fee arrangements (AFAs) that provide greater transparency and predictability.

Rewarding value

Corporate legal departments also indicated they want the law firms they work with to demonstrate more value. Three out of four cited “charging less” or “reducing rates” as means for law firms to achieve this goal. Other ways included operating more efficiently (12 percent), greater use of AFAs (9 percent) and more transparent billing practices (6 percent).

The report also revealed a surprising finding around value: Almost one-third of survey respondents indicated they don’t evaluate their outside law firms at all.

A gap between tech vision and reality

Also worth noting was the gap between respondents’ stated goals of using technology and their self-assessment of whether they had made any progress. While “using technology to simplify workflow and manual processes” was the second most-cited priority among respondents (after cost controls), only 40 percent reported making headway on innovation over the past year.

Respondents’ top priorities included using technology more to streamline operations and secure data, yet just 22 percent said they had increased their technology budget in the past year, and 13 percent had decreased it.

What to make of it all?

Dealing with competing priorities – controlling costs while embracing innovation – is a challenge for corporate counsel. Keeping up with demanding business goals and the shifting legal landscape in the face of growing global regulatory requirements and new security threats further complicates day-to-day operations for legal departments.

Though the pace of change may be slow, corporate counsel have adjusted over the last five years. It will be interesting to see how and if this adjustment continues in the near future, and how outside law firms respond in turn.

Learn more

Download the entire 2018 State of Corporate Law Department report and learn more about Thomson Reuters Legal.