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
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.