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Corporations across America have spent a lot of time trimming the fat during the last several years. But when it comes to their in-house law departments, bulking up the workload is increasingly being seen as the best way to do more with less. According to the 2011 HBR Law Department Survey, released this week by HBR Consulting, law departments cut total worldwide spending by a percentage point from 2009 to 2010. In many cases, they did so by cutting down on the flow of funds to outside firms. Although 70 percent of participants spent more on their in-house counsel—6 percent more than they spent last year—the increase was offset by reducing outside counsel costs. Sixty percent of survey respondents said that they reduced their use of outside firms. The HBR survey includes data reported by 219 companies across 20 industries; 70 percent of participants’ revenues are in the Fortune 500 range. Much of HBR’s law department consulting work involves helping clients figure out ways to manage their costs without sacrificing quality of service. With heightened scrutiny from corporate executives and a demanding new regulatory environment, there’s no shortage of work to go around for in-house lawyers. Eighty percent of participants reported that their legal needs were on the rise. The three areas seeing the biggest increases were regulatory, international, and labor and employment. More than half of survey participants reported an increase in their legal staff from 2009 to 2010. Those results didn’t surprise Jonathan Bellis, who leads HBR’s law department consulting practice. HBR found that the median inside hourly cost per lawyer was about 46 percent below what they might pay their three top-billing firms. More and more, HBR sees companies thinking twice before they spend the extra money for outside counsel—especially when dealing with matters that don’t require specific expertise. More than 40 percent of participants told HBR that they expected to increase their in-house numbers in the coming year—with slightly more being added domestically than abroad. The median law department reported 26 lawyers worldwide, with an expected increase of 10 percent. But it’s not just increased headcount that’s accounting for increased internal spending. Some law department funds are being shared with the existing department base. “Compensation levels are going up pretty significantly,” says Lauren Chung, senior director and survey editor. Bonuses are stabilizing for in-house lawyers—after dropping off post-recession—she says, and “ overall cash compensation is going up.” Only 11 percent of survey participants indicated that they would be engaging outside counsel more in the coming year. If in-house lawyers demonstrate they can efficiently absorb the additional work requirements, expect to see that number dip even lower next year. At least anecdotally, Bellis is finding support for the continuation of the trend. “During 2011 we’ve had at least four law department consulting engagements—in different industries—which are adding to internal staff as one of the recommendations coming out of our reviews,” says Bellis. Those clients include a West Coast health-care system, a global insurance company, a Midwestern electric utility, and a European-based manufacturing firm. For many companies, increasing reliance on the in-house legal function makes a lot of sense. Their own lawyers are less expensive, their goals are aligned with those of the company, and they are entrenched in the business, says Bellis. See also: “2011 Law Department Compensation Benchmarking Survey,” CorpCounsel, October 2011.

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