Above The Law: New Survey Of In-House Counsel Provides A Ray Of Sunshine For Law Firms

Originally Published in Above The Law | January 12, 2014 | By Joe Patrice

Over the last few years, in-house counsel have broadcast one message loud and clear to law firms: no thanks, we got this. Year after year, clients moved more and more work in-house, viewing larger in-house departments as a cost-effective alternative to outside counsel. Even as the economy improved for everyone else last year, chief legal officers reported a staunch unwillingness to increase spending on outside counsel, preferring to keep work themselves. As Annie Oakley put it, “anything you can do, I can do equivalently well at a fraction of the corporate legal spend.”

But the latest survey of chief legal officers released by Consero (and its partner Serengeti) finally brings some good news for outside counsel. The early 2000s heyday is not coming through that door, but at least the post-recession dark ages are inching into the rearview mirror.

The last time we reported on a survey like this, around 25 percent of respondents expected to cut outside legal spending in 2015 with only 14 percent planning an increase. Perhaps the strong fourth quarter changed some minds because the Consero survey found a whopping 46 percent of chief legal officers expect outside counsel expenditures to increase over the next year while those in a cutting mood are down to 20 percent.

That said, the news isn’t all good. Corporate legal departments remain as committed as ever to growing their internal capacity with 34 percent reporting that the size of their internal legal department grew over the last year and 58 percent expecting their legal department’s internal expenditures to increase over the coming year. Additionally, 72 percent of respondents reported increased corporate pressure on their departments to become even more efficient and to better manage legal spend — an increase over the last year, meaning any additional spending on outside counsel is going to be fraught with nit-picking. Indeed, almost a quarter of legal departments surveyed have all or nearly all their law firms pre-budgeted, with only 11 percent allowing outside counsel to operate without budget.

And “outside counsel” is no longer synonymous with Biglaw. Continuing a trend we’ve covered before, the Consero survey found 51 percent of chief legal officers moved work from an Am Law 200 firm to a smaller firm last year and there’s no reason to believe this trend will reverse itself. So even though corporate legal departments are loosening up when it comes to outside legal spend, Biglaw is still looking to get a smaller share of the pie. Thus the big winners according to this report will be the mid-sized and smaller firms that promise focused (often geographically localized), quality legal work for less.

Although there is one exception for Biglaw. Firms with global expertise could benefit handsomely, according to the survey. Only 8 percent of those surveyed expect to cut back on international work this year, while a third believe they will be increasing their spending on international legal work.

So happy 2015, law firms! It may not be the ideal report, but after a dismal run of years, outside counsel have plenty of reason to celebrate.