Nearly 75 percent of work for legal departments is handled internally, according to a recently released report. Keeping more work in-house has been the reality for in-house counsel for some time, and current and former in-house lawyers say it's a trend that's likely here to stay.
The results from the 19-page "General Counsel Up-at-Night" report are based on responses to an online survey conducted in spring 2017 from more than 200 U.S.-based general counsel and other in-house legal decision makers. With the release of the results, ALM Intelligence together with Morrison & Foerster aimed to shed some light on top concerns for general counsel and ultimately track trends within legal departments.
According to respondents to the survey, 73 percent of legal work is handled internally. Law firms accounted for 25 percent of the outsourced work and 2 percent was allocated to alternative service providers.
While the percentage of work handled internally may seem high, it's not all that unexpected, said Gillian Thackray, vice president, associate general counsel and global chief counsel for intellectual property at The Clorox Co. "It didn't surprise me because a lot of legal work is—it's not big projects. It's small advising, checking on details, continual follow up on things," she said. When is comes to contracts with major suppliers, for example, there's value in having internal lawyers handle those matters that are repeated frequently or ongoing, she said.
Part of why more work is coming in-house may have to do with an in-house lawyer's knowledge of the business. "The more you know the context of what the company is trying to accomplish ... the more you can give really business-focused legal advice," according to Thackray. She said Clorox's legal department, for instance, handles a lot of the company's contracting work internally because the in-house lawyers "intimately know what the company's goals are and what we're trying to accomplish with any particular project."
Control is also likely a reason work is kept in-house, said Michael Sachs, a partner at legal recruiting firm Major, Lindsey & Africa, who was formerly in-house at NBC Universal. He explained that, for a GC or CEO, it might be better to have someone working "two to three doors down" on a matter versus an outside firm, "because [then] you have some control over it."
And of course cost efficiencies are always a consideration, said Sachs. Some 89 percent of respondents in the Up-at-Night report cited cost and efficiency as the rationale for keeping work in-house.
"I think it's a vestige of the recession," Sachs said. "I think the big picture is ... companies are just a lot smarter about how they handle their budget. I think they're just smarter about what they give to outside firms versus what's kept in-house."
That's not to say there's no place for outside counsel, Sachs added. "The norm would be hiring inside counsel who can handle most day-to-day matters, most matters that sort of keep the company moving," he explained. "And [then] go to outside counsel for the most critical, sophisticated and time-consuming matters."
Clorox's Thackray said there are some matters outside counsel are typically considered for. "Both at Clorox and other companies, the things that get sent to outside counsel routinely are: litigation, particularly big litigation ... M&A deals almost always get some sort of outside counsel because they just require such a ramp-up in the number of people handling things," she said. "And then I think investigations of one sort or another."
Going forward, Sachs said the percentage of work that goes to alternative service providers is most likely to noticeably change. "I think that alternative service providers' pile is probably the one most likely to grow in the next five to 10 years," he explained. "If you look in 10 years, those first two numbers may not change radically, but I'd be really surprised if that alternative service provider number wasn't significantly changed."
Because companies are increasingly embracing services such as contract management and document review, D. Casey Flaherty, principal at legal technology consultancy Procertas and former corporate counsel at Kia Motors America Inc., agreed that the percentage of work going to alternative service providers will likely increase in the future.
"I expect the current trend lines to continue where more works goes in-house. And then I expect the percentage of work that goes to alternative service providers to increase," he said. "A world where it's 65 percent in-house, 25 percent outside counsel and then 10 percent alternative service providers seems logical to me in five to 10 years."
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