Association of Corporate Counsel office in Washington, D.C. Photo: Diego M. Radzinschi / NLJ

In 2017, one in three chief legal officers and general counsel terminated outside lawyers for failing to meet expectations, a new survey finds. The trend could continue into 2018—43 percent of respondents said they planned to end relationships with firms this year.

The data comes from the Association of Corporate Counsel's Chief Legal Officers 2018 Survey, released Tuesday, which includes responses from 1,275 CLOs and GCs in 48 countries.

There are a number of possible reasons that legal departments are bidding outside lawyers goodbye.

“GCs are thinking more on a program level, [about] diversity issues, [or] how helpful the law firms are for reducing spend,” said Amar Sarwal, chief legal officer and senior vice president of advocacy and legal services.

He explained that ACC members are being more assertive about diversity demands and are “a lot more interested in using the ultimate penalty” if firms don't deliver. Sarwal said that if GCs do use the “ultimate penalty,” it's important to tell firms why so that they can improve—which departments may fail to do.

As some companies dropped their outside lawyers, they also looked at growing their legal department budgets. Some 56 percent of respondents expect an increase in their department's overall budget this year. Last year that number was 43 percent. It's the first time in three years of the CLO survey that the majority of legal leaders expected department budget to increase.

This increase could be tied to a boost in expected mergers and acquisitions, with nearly half of respondents indicating they anticipated their company would be involved in an M&A deal this year.

Sarwal said company expansion and increasing responsibilities for the legal department may also play a role.

“There's a lot of growth [in] these companies,” Sarwal said. “They [CLOs] need more legal spend to be able to address whatever needs the company has.”

A healthy proportion of funds are being spent internally, the survey found. One in 10 CLOs who terminated a firm or provider last year moved that work in-house. More than one in four respondents planned to add in-house staff this year, 28 percent versus last year's 26 percent.

Inside spend allocation rose from 53 percent to 56 percent, since last year's edition of the survey, part of what Sarwal calls a “continuing trend” toward moving responsibilities in-house.

This trend is paired with another, the rise of more legal operations professionals on staff. This year, 47 percent of respondents reported having legal ops staff versus 43 percent last year. Ten percent of respondents said they planned to add legal ops staff this year.

“We're at the growth side of that [legal ops] curve,” Sarwal said. “It is so obvious, [the benefits of being] able to have someone focused on the business side of the practice of law, [who is] able to speak the language of finance or tech.”