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Change is being driven in-house and externally

Editor's Box

For the most part, when I talk to general counsel in Canada for stories and at events, they say the majority of the work they send out is still going to a traditional law firm model where lawyers charge by the hour or they have agreed on some special fee arrangements.

In part, the death of the billable hour may have been delayed in the last few years as the big law firms have worked to provide their own alternative services model at lower cost, achieved either by staffing work differently or sending to other offices in Canada outside Toronto.

And it would seem the work the firms have done to try and reinvent themselves a little is paying off. In early February, Thomson Reuters released its 2018 State of Corporate Law Departments Report that showed that legal departments are seeing greater value from their outside counsel.

The report analyzed data from Thomson Reuters Legal Tracker (note: this magazine is published by Thomson Reuters), Acritas and the Corporate Legal Operations Consortium. The average satisfaction rating of outside counsel based on value has increased nine per cent over the last five years, showing improvements across all areas of service delivery, according to the report.

This shouldn’t be a huge surprise as many national law firms have been making announcements about creating their own alternative services delivery models and partnering with ediscovery services firms and others to try and fill in the gaps their clients say they want closed. Good timing, since predictions from ALM Intelligence indicate clients are moving to reduce their law firm panel numbers. The report showed that 53 per cent of legal departments have reduced their roster of outside firms over the last four years, working with a median of 16 firms. At the same time, 43 per cent have grown their outside counsel ranks, with a median of 17 firms. 

Controlling outside costs is the top priority for in-house departments and, as a result, they are moving more work inside and turning to technology and legal operations to drive efficiency. The report also showed legal departments increased the allocation of their legal budget to in-house legal work to 43 per cent, on average, in 2017, up from 37 per cent in 2013. Conversely, they spent 57 per cent on outside counsel, down from 63 per cent in 2013.

Increasingly, data is showing that in-house counsel are open to buying legal services from a widening range of providers in the push to deliver the greatest possible value for their organizations.

As a new group of legal department decision-makers moves in-house, it will be interesting to watch how they hire both internally and externally. The other question being floated is what will happen in the next downturn? On the in-house side, will the internal ranks be thinned in favour of outsourcing to ASPs or other models?

The demographics are changing in-house — the average age of a Fortune 500 GC is 45 years old — and as general counsel get younger, they will no doubt be making different choices.