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Study: Corporations Slash Spending on Outside Counsel
The American Lawyer
October 21, 2008
Spending on outside counsel by corporations has dropped to its lowest level in eight years, and in-house lawyers expect to finish 2008 without any uptick in how much they pay law firms, a report released Monday found.
Median spending on outside counsel last year fell 9.1 percent, according to a survey of in-house counsel by the Association of Corporate Counsel and Serengeti Law. The spending was less than what those who surveyed a year ago had predicted, and corporate counsel expect no increase this year.
The findings come as the economic crisis is forcing corporations to take a close look at their budgets to find expenses to shave, including legal costs. The survey captured attitudes of in-house counsel in May and June, suggesting spending on outside counsel was being reduced even before the Wall Street financial crisis hit.
"I would have to think the trends we are seeing are going to be emphasized even further given the events of the last month or so," says Rob Thomas, vice president of strategic development at Serengeti, a management and e-billing service provider.
The survey received responses from 337 law departments in small to large U.S. companies. The median company in the survey had revenues of $350 million in 2007, a decline from last year because of an increased number of responses from small companies. But the report says there remains "a strong correlation of results and trends that have developed during the past eight years."
The annual survey found that while legal costs incurred by U.S. companies continue to climb, much of that spending has gone to paying in-house lawyers. Outside counsel remain the most expensive item for corporate law departments, the study notes. But the ratio has shifted in recent years toward in-house staffs.
Median spending on in-house law departments climbed 11 percent in 2007 to $777,775, the report says. Yet outside spending fell 9.1 percent to $1 million. (Large companies with revenues of more than $1 billion typically spent $4.8 million on outside counsel and $2.5 million on their in-house departments.)
The survey suggests one reason spending is shift away from outside counsel: In-house counsel reports that the hourly rates being charged by outside counsel increased 6.5 percent in 2007, the highest rate hike in at least seven years. In-house counsel expect to be hit with even higher rates this year, and the survey notes its participants typically underestimate those increases. In reaction, the study suggests in-house counsel are being more selective in what work is sent outside.
Outside counsel spending in 2007 was also less than expected. Respondents to the survey last year predicted a 5 percent increase in outside counsel spending. In fact, spending actually only climbed 1 percent, the report says.
This year is expected to be worse for law firms, the report says. "For 2008, in-house counsel expect that rate of change in outside spending will be even lower: the median prediction is for no change in annual spending on outside counsel," the report says.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
