In-House Counsel

How Are In-House Counsel Spending Their Money?

Will that money trickle down to the Am Law 51+ firms that routinely report the worst sags in demand?

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When we report every quarter that demand is down for legal services, what are we really saying? It’s not really that the world stopped having legal problems worth fixing, but that clients have found some other way of fixing them. Whether it’s hiring LPOs or ALSPs or whatever other acronym amounts to sending work to non-lawyers, leveraging tech, bringing work in-house, or some combination of all three, clients just aren’t sending work out to the lawyers.

But there’s some hope on the horizon. Exterro and the Blickstein Group just released their second annual Study of Effective Legal Spend Management, and the survey of 59 in-house respondents found that most are looking to increase their legal spend this year — some by a lot.

And while most respondents admitted that a lot of that spend will be going to in-house tasks, 12 said they expected outside legal spend to go up by more than 10 percent. Will that money trickle down to the Am Law 51+ firms that routinely report the worst sags in demand? Time will tell.

But no.

The biggest culprit facing law firms remains client insourcing. Technological solutions — like Exterro’s to be honest — provide in-house lawyers with the capacity to take on tasks that were once shipped off to the firms. From the view of the market, it’s actually damning that fees have gotten so high that clients feel they’re better off paying full-time employees than hiring outside professionals. It should always be cheaper to send work to a firm. And yet here we are.

You may be wondering, isn’t there a limit to how much work a client can bring in-house? The answer, of course, is “yes” but clients are going to keep riding this train as far as it can carry them. We should start seeing clients turn the cost corner and embrace outside counsel again, but it doesn’t seem like they’ve gotten there (or at least they don’t think they’ve gotten there) yet. So what’s the next category of work that clients plan to bring in-house according to the survey?

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Contract review is a glaringly obvious candidate for insourcing. Frankly, it’s surprising that there are still clients who haven’t made this leap. There are tools like LawGeex that can automate this process pretty easily now. Tax strikes me as a bold move. That’s a legal thicket I’d only trust to a dedicated tax partner who sees multiple deals from multiple perspectives every day. A tax lawyer in a legal department would get me worried about an attorney living in a silo, but this highlights how far companies will go to insource their legal work.

The study as a whole provides a fascinating snapshot of the legal industry landscape. If there’s one takeaway for the firms, it’s that clients crave predictability to an arguably irrational extent. They know what a full-time employee costs. They don’t know how many hours you’ll bill. Clients will choose the former more often than not.

Perhaps it’s time for alternative fee arrangements? No, that’s just crazy talk. Let’s just wait around and hope all the work comes back.

2nd Annual Study of Effective Legal Spend Management [Exterro]

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HeadshotJoe Patrice is an editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news.

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