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 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.)
“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.
“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.
“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.
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.
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