Over the past decade, from the Great Recession to the present, the relationship between inside counsel and their outside law firms has shifted significantly. Today, in-house counsel are attempting to exercise more control than ever over their outside counsel, with the goal of reducing costs and achieving greater efficiencies. In some cases, they are in-housing routine tasks to realize significant savings, while demanding greater collaboration, or, as Claire Dekar, Associate General Counsel at Maersk, describes it in the video below, “looking to be partners, as opposed to advisees.”
Of course, in-house counsel still rely on their outside partners for expert insight. However, they also recognize the conflict underlying their relationship: law firms are trying to protect their eroding profits even as clients are tightening their belts.
Law Firms and Corporate Clients: Partners With Occasionally Competing Interests
Law firms are facing a decade of near stagnant demand. To grow profits without growing demand, firms have turned to raising hourly rates, increasing rates by an average of 3.1 percent. Despite higher rates, however, realization rates at the largest firms—that is, the amount of revenue collected measured against standard rates—has dropped from 90 percent in 2007 to 81 percent today. Meanwhile, last year markdowns and write-offs cost the 100 largest law firms $4.4 billion.
In this environment, firms are searching desperately to grow revenue. Yet their corporate clients are looking just as intently to reduce spend. Seventy-six percent of general counsel say that reducing outside spend is their number one priority. To do so, they are devoting more of their budget to internal resources—43 percent of their department budgets, according to recent surveys, up six percent year over year. That money is increasingly dedicated to growing in-house talent and implementing new technology, all so corporate legal departments can do more on their own, more quickly and for less.
So, in the evolving relationship between in-house counsel and their outside law firms, where do in-house practitioners still struggle the most? Logikcull recently convened a panel of corporate legal leaders from innovative legal departments throughout the United States to discuss this very question. Their thoughts, left anonymous to ensure candor, follow. (Note: participants in the panel were not those featured in the video at the beginning of this post.)
Controlling Outside Counsel Costs
“We’re all being grossly overcharged right now and we all know it.”
In-house attorneys have no illusions about outside counsel and vendor costs. Though many corporate clients, and many law firms as well, have been focusing on spend reduction for years, corporate counsel still encounter inflated bills, inefficient processes, and high-cost, low-value work.
- Ensuring efficient spend means exercising close supervision. “We still get bills that are three-pages long from outside counsel, with charges for long distance calls like it’s 1995,” says one in-house director of eDiscovery and legal technology. Keeping a close eye on outside counsel bills remains a priority.
- Setting clear outside counsel guidelines from the onset can help reduce these costs. These can include fee agreements, fee caps, as well as acceptable tools and acceptable prices for outside services. Requiring constant communication on matter progression can also help in-house counsel neutralize issues before they get out of control.
- Finally, in-house teams are not afraid to dictate the tools their outside counsel should use. As one participant put it, “when you pay the bill, you pick the tool.”
Managing Discovery, In-House and Out
“Our most important cost-control strategy is to narrow the doc set before it goes out the door.”
When it comes to controlling the cost of discovery and investigations, in-house leaders recognize that they can handle much of the initial process on their own, for significant savings. That means building a process for initial early case assessment and data culling internally, while monitoring the efficiency of outside counsel during the review process.
- Appropriately narrowing your document corpus before sending to outside counsel for review can be a powerful tool for reducing OC spend. Defensibly culling extraneous information before shipping to outside counsel results in significant cost reduction.
- Speed matters as much as data size. Being able to quickly access, process, and root through data means that in-house teams can get ahead of issues much more effectively.
- Monitoring review teams may be tedious, but it can be essential to controlling costs. “It’s not on the law firm to monitor themselves,” one participant explained. In-house teams find benefits in monitoring the number of review hours, number of documents reviewed, and reviewer accuracy to control their discovery spend.
- If you don’t measure it, you can’t manage it—and you can’t take credit for it. “We know this is a significant cost savings,” one participant admitted, “but we aren’t yet reporting on it.”
The App Explosion Is Keeping Everyone Up at Night
“By the time opposing counsel asks for it, it’s way too late to build a system to get it.”
Data is exploding. In 2013, an estimated 2.5 exabytes of new data were generated every day—that’s 2.5 billion gigabytes a day. Six years later, that number is undoubtedly much higher.
However, it’s not just data growth that is making in-house counsel concerned—it’s the ever-growing list of apps, platforms, and devices where that data is hosted.
- One of the biggest challenges facing in-house counsel is simply establishing uniformity around the programs, platforms, and apps that house company information. And that can be a massive amount of programs. “When I first began, we had 200 people using over 300 different applications,” one participant explains.
- Legal and information governance concerns only go so far. “We can’t push back on our app universe too much,” says a VP of eDiscovery and information governance. “Our tech stack is important to recruiting.” Being proactive around emerging data sources, developing clear processes around data retention and its use in discovery can help mitigate future risks.
- Opposing counsel is still somewhat flat-footed when it comes to requesting new data sources. “We’re just fielding our first requests for pulls from Slack data now,” one participant explains, though she recognizes that “attorneys are becoming more sophisticated about where to look.”
Despite corporate belt-tightening, corporate counsel still count their law firms partners as some of their closest and most valuable advisors. As corporate clients become more demanding, those lawyers who are able to rise to the challenge, and to partner with their clients—to bring new efficiencies to discovery and litigation, to guide them through emerging data challenges—will be poised to succeed.