Law departments appear to be opening up their wallets, both for inside and outside legal help, as they are expanding workloads. Companies worldwide have increased total legal spending by 5 percent, returning to 2009 survey levels, and predict growth in regulatory, global and government business, reports HBR Consulting, analyzing the results of its 2012 law department survey.
Inside legal and outside counsel spending has spiked, says the consultancy, which split off from Thomson Reuters in June 2011. Christopher Petrini-Poli now leads the group as CEO; Doug Caddell, former CIO of Foley & Lardner and a member of Law Technology News‘ Editorial Advisory Board, joined as a director this summer.
The HBR report follows two other recent forecasts of increased spending in the legal community. The International Legal Technology Association and InsideLegal unveiled the latest iteration of their annual technology purchasing survey at ILTA’s August annual meeting, processing responses from 114 ILTA member firms. The survey found that overall technology spending — while still down from pre-2009 expenditures — had increased by 2 percent in more than half of the firms, and that the “new normal” is between 2 percent and 4 percent of total firm revenue. Firms spending more than $26,000 per attorney rose to 9 percent.
Also at ILTA’s conference, David Cowen, managing director of New York-based The Cowen Group consultancy, predicted a “fundamental shift in the marketplace,” as managed technology services surge due to an explosion of electronically stored information — particularly in regulatory, civil and litigation cases, and especially for health and power operations.
The 2012 HBR survey, now in its 26th year, includes two parts: law department metrics and compensation.
Participants in the HBR poll included 260 companies representing 21 industries — with more than 30 percent of companies generating more than $20 billion in revenues, says HBR. Almost 70 percent of participants have revenues at or above the Fortune 500 level, including companies that are privately held or based outside the United States, says Lauren Chung, senior director, law department consulting. “Our participant base is primarily U.S.-based companies operating globally,” Chung says.
The survey looked at spending in the United States versus spending outside U.S. borders, and found “dramatic changes outside the United States,” with a 9 percent increase in total legal spending, says Petrini-Poli. (The 2009 survey reports data for 2007 and 2008, the 2012 survey reports on 2010 and 2011, he notes.)
The spikes were a new direction from the last two surveys in 2010 and 2011. Last year’s survey reported total legal spending was down 1 percent and outside counsel spending was down 3 percent, notes managing director Jonathan Bellis, who leads HBR Consulting’s law department consulting group. “There is a swing in total spending of 6 percent, and a swing in outside spending of 7 percent,” he says. Chung attributes the spike “to a number of factors, including the economic recovery (which appears to be slow but continuing), rising outside counsel rates, growth in legal spending and staffing outside the U.S., and an increase in extraordinary expenses.”
Asked if the survey offered specific insight into technology purchasing or if there was any more detail about e-discovery, compliance, Big Data or regulatory spending, Chung says those subjects aren’t covered specifically. But she notes that systems and technology spending is 1.5 percent of total inside legal spending, and the median number of IT professionals in the organizations is two.
Participants were asked to forecast their demand for legal services across 28 legal practice areas. Regulatory, international and government relations make up the top three on the list. Fifty percent of participants noted an expected increase in demand in the regulatory practice area. This is down from the 54 percent reported last year. Other top areas with forecasted increases in demand include international (44 percent in 2012, down from 48 percent in 2011), and government relations (39 percent in 2012, down from 40 percent in 2011).
More key metrics from the HBR survey include:
• Legal spending outside the United States increased 9 percent; inside legal spending grew by 12 percent; outside counsel spending increased by 8 percent.
• Outside counsel are more expensive: The average hourly rate for the three top-billing firms is $458 in the United States, up from $409 reported in the last survey.
• “Extraordinary expenses” continue to rise: 67 percent of companies noted they had such expenses in 2012 “one-off” costs, such as big-ticket litigation and large business transactions. That’s an increase from last year’s 58 percent.
• In-house staffing continues to grow: Worldwide, 57 percent of participants reported an increase in the total number of lawyers between 2010 and 2011. This is up from the 42 percent of participants that had an increase between 2009 and 2010. Outside the United States, 41 percent of participants experienced an increase in the number of lawyers between 2010 and 2011. This is compared to 35 percent of participants that had an increase between 2009 and 2010.
• The median total legal spending was $31 million worldwide and $26 million in the United States. Total legal spending as a percentage of revenues worldwide was .36 percent. The median inside legal spending was $13 million worldwide and $10 million in the United States.
• Inside legal spending as a percentage of revenues worldwide was .14 percent. The median outside counsel spending was $16 million worldwide and $13 million in the United States. Outside counsel spending as a percentage of revenues worldwide was .18 percent.
• Legal staffing: The median company reported 30 lawyers worldwide and 23 lawyers in the United States. Per billion dollars of revenues, the median company had 3.4 lawyers worldwide and 3.7 lawyers in the United States. The median number of total law department staff (including lawyers and all nonlawyer staff) was 59 worldwide and 45 in the United States.
Wisconsin-based David Baker, who retired in January 2010 from Baker Robbins and Co. (a predecessor iteration of HRB Consulting) is enthusiastic about the latest survey. “This was a great product, and I’m glad to see that it continues,” he says. “Bellis hit on a good thing when he developed the concept at Price Waterhouse; it really got legs at Hildebrandt Baker Robbins when the survey started looking at some of the deeper questions of the day, e.g., performance and spending by practice area; liability management metrics; outside counsel performance, etc.”