The $12 Billion, 10-year trend is about to reverse.
After 10 years of bringing $12 Billion worth of work in-house—top legal decision makers are applying the brakes. BTI research reveals a substantial drop in corporate counsel hiring in-house attorneys. Only 7.7% of General Counsel want to add in-house attorneys to their staffs, down from 23.0% last year.* All because client needs are changing. Right now, today, as you read this. Here is why and what it means for you:
1. More diverse needs
Corporate counsel’s needs are becoming more diverse. Top legal decision makers are preparing for a host of new legal challenges. Clients see growth in such diverse areas as tax, product liability, class action, supply chain, labor and employment, middle market M&A, cybersecurity, and more. Top legal officers know they can’t possibly staff up to cover all these areas. They would rather look to their law firms to find the right attorneys at the right time.
2. Surge in more complex work
The number of companies reporting they face bet-the-company work quadrupled over the last 3 years. This means clients need more attorneys than they have in-house. Clients know they can rely on law firms to mobilize the resources needed to assess these matters quickly, and field a large enough team of high-performing attorneys on a moment’s notice. So, this work goes to law firms.
3. Corporate legal departments are big enough
The typical corporate legal department has grown 33% over the last 5 years by attorney headcount. The departments are now at the point where they are hitting the existing infrastructure limits. Any additions to the in-house attorney ranks will require additions to permanent support staff and related infrastructure—something corporations are loath to take on.
4. Attorneys moving back to law firms
In a more subtle trend, top legal officers are finding it harder to recruit talent out of law firms. In addition, law firm demand for partners who bring experience as a corporate counsel is increasing. Top legal officers no longer have their pick of the litter in pulling partners out of law firms. Both clients and law firms see the value in partners who have walked in corporate counsel shoes—and both are competing for talent. In-house counsel can more easily accept they will access this talent through outside law firms instead of their own staff.
Clients’ overarching needs don’t change every day. But, they do change every 18 to 24 months—like clockwork. The law firms who really want the business will be in dialogue with their clients about their plans for the year, will have in-depth and pointed client feedback, will be planning for the next year with their clients, and hopefully have helped on-board clients’ attorneys over the last 3 years.
You will have used your client feedback and planning sessions to link the right partners with the right need before clients ever ask for help. The only way to make sure your firm gets the business no longer going in-house is to guide your clients on how to solve their problems—while teaching them along the way.
You may not see an opportunity like this for another 2 years. Why wait until you have to steal the business from someone else when you can anticipate needs before other law firms—who lack feedback and insights—figure out what is going on.
*Based on in-depth BTI research conducted on a rolling basis between February 2016 and August 2016. BTI conducted more than 330 independent, individual interviews with CLOs and General Counsel at Fortune 1000 companies and large organizations, as well as 200 interviews with law firm leaders.
The legal market finally is getting exciting again. Clients have premium rate worthy needs. Complex work is one of the few growing segments. In addition, corporate counsel have truly new needs which are siphoning precious dollars from the low priority needs. The only challenge is how you can get to the new work. This new work is being awarded on a select basis and the lower priority needs are being put out to RFP—or heading to procurement at larger companies.
We have discussed the Litigation Market Outlook in detail. Today’s post will focus on the other $80 Billion large companies spend on their legal needs. The top 5 trends and changes in client legal spending for 2017 are:
4 of the 5 Largest Practices Getting More Legal Budget in 2017
While Litigation shrinks, Employment, Securities, IP and M&A will receive a bigger portion of the budget. Much of the new work will be advisory and counseling in nature—this means the law firms in conversation with their clients are best positioned to capture this rare incremental spending coming into the market.
Cybersecurity and Data Privacy Demand Outstrips Supply
As hard as law firms try, they just can’t keep up with demand. Breaches and risk are growing and outpacing the ability to find the attorneys. Law firms are bringing in high-powered laterals from government which helps the brand, but can’t make a dent in demand. Top legal decision makers are becoming more receptive to using consultants and non-attorneys to help—which may also be a source of talent for law firms.
Corporate Legal Spending Hits Record
Large clients are now spending more, on a per company basis, than ever—beating the last record by an average of $200,000 to $1 million per company. The record is a direct result of clients bringing work in house. This proves clients have increasing needs and are changing the way they operate to accommodate their frozen budgets.
Banking, Financial Services, and Pharma Show Most Need for Complex Work
3 of the biggest legal spending industries are driving the new demand for complex work. Top legal decision makers in the Banking, Financial Services, and Pharmaceutical industries are facing widespread public, government, and investor scrutiny and all manner of public attention. These industries are also undergoing change and trying to stay in compliance while charting new strategies—including a few monster-sized mergers and transactions.
Flat Markets Mask Legal Crosscurrents and Enormous Opportunity
The action in the legal market is under the surface. Overall spending is up a fraction which may sound bleak. But, new needs and a surging market for complex work offer substantial opportunity for law firms willing to swim under the surface. Clients are moving money around to accommodate the higher risk work.
Any movement in the legal budget is opportunity for someone. Don’t look for the RFPs, as clients are awarding this work on a selective basis. The top decision makers are talking to their law firms about the new issues to test commitment and interest—some law firms take the bait, others don’t. If you are not talking to your clients about these issues start seeking them out—now.
Corporate counsel are shifting big-time spending back in-house—resulting in $4 billion moving in-house*. This also marks the 8th year of legal spending moving in-house out of the last 10, the second largest move in-house in 16 years.
Top legal decision makers make no excuses—they want to save time and money. They tell us of increasing rates, runaway scopes of work, and an inability to leverage the relationships they have in place to benefit from their current firms’ institutional knowledge.
The move to save money may not come as a complete surprise. Just over one-half of clients think law firms don’t want to or can’t change. The big move in-house comes one year after the top hourly rate in the market hit $2,000 an hour. The headlines around increases in associate salaries also contribute to the aura of higher legal costs—whether real or not. Everyone can make the leap from higher salaries to higher hourly rates.
The work moving in-house is primarily in the following areas:
- Commercial Litigation
- IP Litigation
- Real Estate
- Smaller M&A
This continuing flow of legal dollars in-house compels every law firm to step back and really look at the world from their clients’ point of view. Bringing work in-house is not easy. Clients have to recruit, hire, train, and invest in an in-house attorney and support staff. Clients have to feel strongly motivated to make this kind of investment and are sending a clear signal they want more value and lower costs.
You can add value and save your clients money even when they bring the work in-house. Reach out to them and offer to help educate these newly hired attorneys—maybe even develop training material. Get feedback about your client’s plan and start offering up potential candidates from your network.
Perhaps most powerful of all—find out why your clients are moving work in-house and where. Polish up your Alternative Fee Arrangement skills. Start thinking about secondments to meet your clients’ needs. Turn the move in-house into a business development opportunity.
Clients have now established a long history of in-sourcing work. This often feared trend presents one more opportunity to help your client. The firms who openly engage their clients about plans and intent will be the firms who find hidden work in one of the most unexpected places.
*Based on BTI research conducted on a rolling basis between February 2016 and August 2016. BTI conducted more than 330 independent, individual interviews with CLOs and General Counsel at Fortune 1000 companies and large organizations.
After 4 years of feverishly bringing work in-house corporate counsel are reversing course. BTI’s brand new study of 322 corporate counsel reveals these top decision makers will move $851 million of in-house spending back to law firms this year. This is in direct contrast to the more than $8 billion in legal spending moved in-house since 2011.
And the work moving to law firms isn’t your everyday work. Clients are bracing for an increase in the big ticket matters law firms drool over. These Chief Legal Officers expect a tripling of bet-the-company litigation, increases in class actions, and substantially more securities litigation. This mini avalanche in high-risk work has clients looking for access to broader resources and skills than they have in-house.
So, the only question is how you outmaneuver all those other law firms who really, really want this work. We think the winners will look beyond the individual opportunities presented by each new matter. Some firms will win pieces of new work on a matter-by-matter basis. The big winners will present themselves to clients as strategists and discuss risks and exposures before the matters ever start. The bigger winners will discuss prevention, potential settlement postures and learn about the business risks posed by the new matters.
Clients are once again adopting new strategies as they adapt to their strategic issues. Few clients will announce these changes as they are too busy managing and dealing with their own goals. Clients will simply evaluate the law firms with whom they work and select accordingly. The biggest winners will ensure they are in a place where clients will see them first—and the most work will go the firms who make the best first impression.
There is $851 million in new business up for grabs. Every new matter—no matter the size—is your opening to help identify and think through your client’s strategy. Offer to develop a plan of attack for what is to come. Embed yourself in the conversation. Introduce preventive strategies. Your options are many—as long you move faster and smarter than everyone else.
Unlike Ben Bernanke, corporate legal departments are taking dollars out of the system. Corporate counsel shifted $5.8 billion from their outside counsel budget to internal spending—the equivalent of keeping 2 Latham & Watkins’ in-house. The shift drives a paltry projected 2013 growth of 1.8% in outside counsel spending instead of a 5.1% compound growth rate had corporate counsel spent the money on outside law firms.
Corporate counsel’s top goal is to wring more value from their scarce legal dollars. Shifting money in-house from law firms...