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Cost Control Shifts More Legal Work In-House

By Katerina Milenkovski, Litigation News Associate Editor – August 13, 2008

Nearly half of the chief legal officers participating in a 2008 Survey by Altman Weil, Inc., say they plan to expand their in-house legal departments in the next year, while more than a quarter of them plan to decrease their use of outside counsel.

According to the survey, “cost control” is cited as the top concern for these corporate legal departments over the next three to five years, followed by “limited resources.” About 49 percent of chief legal officers participating in the survey say they plan to increase their in-house capabilities by hiring more lawyers, while 26 percent say they will decrease their use of outside counsel.

“I wasn’t surprised by the findings at all,” says Horace W. “Hob” Jordan Jr., Lake Forest, IL, cochair of the Section of Litigation’s Corporate Counsel Committee and general counsel of Kingsbridge Holdings, LLC. “In today’s day and age, CEOs are putting more and more pressure on their general counsels to have a budget that is accurate. If work is done in-house, you supposedly know what your fixed overhead will be and you can predict and control costs better,” Jordan says.

The survey also looked at outside counsel use by firm size, finding that on average, 20 percent of the responding corporations’ legal work went to mega-firms with over 750 lawyers, which constituted about 37 percent of the companies’ outside counsel expenditures. Twenty-five percent of the work went to large firms of 350 to 750 lawyers, while 27 percent of the work was done by medium-sized firms of 100 to 349 lawyers, the survey finds. Small firms of less than 100 lawyers did about 35 percent of the work, which amounted to 22 percent of the companies’ outside counsel expenditures, according to the survey.

“This is the aftermath of recent years of explosive growth in profits and reluctance on the part of some partnerships to allow for stagnation or even a decline in profits per partner. The trend to do more in-house is a function of the increasing costs of outside counsel—that’s the bottom line,” says Paul L. McDonald, Northfield, IL, cochair of the Section’s Minority Trial Lawyer Committee and senior counsel at Kraft Foods.

“We are always looking for opportunities to get quality service for a price that makes sense,” says McDonald, noting that law firms that don’t want to cut their rates can accomplish the equivalent by staffing cases more efficiently.

“Because of the increasing rarity of equity partnership, many younger but experienced attorneys are leaving law firms. As a result, there is a talent gap,” McDonald notes. “Where we, as the client, would be interested in staffing a routine case with a senior associate or a junior partner—someone who could handle the majority of issues on a day to day basis—many firms instead staff the case with several younger attorneys or with an expensive senior partner. The senior associates just aren’t there,” McDonald says.

Jordan says that to meet the cost concerns of corporate clients, firms need to explore more alternative billing arrangements. “Task-based billing or other arrangements are easier for general counsels to budget,” Jordan opines. In addition, “really getting to know the client and its culture is more important now than it has ever been. That means you need to know other senior executives in addition to the general counsel and legal staff,” he advises. “In my experience, if you take the time to come out for an hour, the general counsel is usually willing to meet with you, and that meeting is likely to bear fruit down the road,” he says.

“As outstanding lawyers begin to view in-house positions to be more attractive than partnership, the quality of in-house lawyers is getting better,” observes Jordan. Nevertheless, he thinks it would be a grave risk not to continue to use outside counsel for litigation matters. “Most in-house lawyers lack the day-to-day expertise that a litigator has. I used to be a litigator at a major law firm before I went in-house. For me to go back into that forum—taking depositions, doing discovery, putting on witnesses—would be foolhardy. I can’t devote my schedule to that one project the way I would need to, and my skills are rusty,” Jordan says.”I think it’s a lot better to hire counsel who does it on a day-to-day basis than to try to be a jack-of-all-trades in-house,” he says.


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