In-House Counsel

General Counsel Flex Their Muscles

Biglaw needs to take a page out of the Burger King playbook and adopt a “Have It Your Way” attitude with its general counsel clients, according to a new study. In the words of the ABA Journal:

The recession has driven a power shift that now favors in-house counsel over the law firms they hire, a new report [PDF] has found.

About 75 percent of general counsel and law firm partners said the balance of power now lies with law firm clients, according to the report (PDF). A majority of both groups believe the power shift will be permanent.

We’re hearing more and more often from general counsels about the hot new trend of cutting back drastically on the number of outside firms they work with. The most dramatic example of this came from Levi Strauss, which slimmed its outside legal counsel down to size two.

The report says that 73% of GCs surveyed “admitted to either changing or reducing the number of their external legal advisers as a result of the recession.”

The 13-page report was commissioned by UK-based law firm Eversheds, but looks like it was designed by Barbie — lots of bubbles, and generous use of the color pink. It promises the death of the pyramid law firm structure and the move to “value billing.” It’s pretty, but is it substantive?

The report says:

36% of legal clients felt that the increasing professionalism and status of the in-house lawyer would have the most transformative effect on the profession. The credit crisis has given this trend additional momentum as the remit of in-house lawyers in business broadens and the status of General Counsel rises. In October 2009, Mark Harding, the General Counsel for Barclays Bank, was appointed to its Executive Committee – a relative rarity in the legal market. This is indicative of the growing importance of General Counsel as a strategic partner to business.

So surveyed general counsels say general counsels are important? Shocking!

We’re not social scientists, but we’re a bit suspicious of the study. The results are based on conversations with just 130 general counsels and 80 law firm partners. Those are decent numbers, but not overwhelmingly comprehensive for a global survey.

Moreover, Eversheds isn’t exactly a household name. Producing a report that says that Magic Circle firms have lost their magic and that Biglaw is now Bustedlaw seems a bit self-serving coming from a non-elite firm.

Still, there are some interesting takeaways. As we’ve noted before, GCs are beefing up their in-house legal teams. That means their relationship with outside firms is bound to change:

Over half of the general counsels surveyed said that “as their in-house capabilities increased, they would only look to external lawyers as a source of highly specialised advice.”

General counsels britches are getting bigger:

74% of General Counsel said that they now occupied a far more senior commercial advisory role in their companies compared to before the recession.

Meanwhile, Biglaw britches are getting smaller:

General Counsel are more likely to occupy the role of trusted adviser to the business. Although law firms still aspire to this role, they are seen by the in-house lawyer as service providers and, at best, close collaborators.

Here’s one of the reasons why in-house is hiring and Biglaw is firing:

As in-house legal departments ride an internal popularity wave, the recession has meant that many of them (52%) are actively reducing the work they send outside and taking more of it in-house. Over half of General Counsel (55%) said that the capabilities of in-house legal departments would grow over the next five years and that the recession had given a boost to that trend.

Not surprisingly, 90% of GCs say that corporate is putting mucho pressure on them to cut costs. That means that to “Make It Their Way” is to “Make It The Cheap Way:”

Two years ago in the 21st century report, only 22% of clients and 48% of partners saw value billing as a trend of the future. It was a short-term future. Now, a whopping 86% of clients and 88% of partners say they often or sometimes use value billing. A vast majority of both groups believe that it will become prevalent over the next 2–5 years.

This report says that “post-recession General Counsel and in-house lawyers [will] take their rightful place centre stage, as the clients and purchasers of legal services,” and that the “market for premium legal services is shrinking – with the notable exception of those firms foresightful enough to have developed a regulatory practice.”

The survey has some very interesting information. It’s short enough that it’s worth reading. But the fact that those paying the bill have the power doesn’t seem especially shocking to us, no matter how many pink circles you put around it.

Law firm of the 21st century, The clients’ revolution [Eversheds]
Report Finds Power Shift and Declining Support for Law Firm ‘Up or Out’ Model [ABA Journal]
Levi’s tightens belt on legal spend [The New Lawyer]
Magic circle tag redundant, Eversheds research finds [The Lawyer]

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