We’ve discussed the fairly stagnant nature of legal budgets, and the expectation of in house legal professionals to ‘do more with less’ a number of times. However, a recent study by HBR Consulting accurately captures the pressures faced by US GCs, who have had to cope with static, or indeed shrinking, overall budgets.
The research picked up on a key theme already observed by many in the profession; that while total legal spend is about even with inflation, spending on outside counsel is actually declining. HBR managing director, Lauren Chung commented on the trend saying, “The survey confirms what we are seeing in our consulting engagements with law departments, where there is heightened attention on resource optimization – the right resources, doing the right work, in the most cost effective and efficient manner.”
According to the report, titled ‘Law Departments Continue the Journey toward Operational Excellence,’ law departments are increasingly being tasked with containing legal costs, while managing an increasing workload. The study highlights the three principle ways which GCs are dealing with this ‘challenging dichotomy’.
There is a clear indication that legal departments are continuing to invest in talent, with the average increase in total compensation according to this year’s survey (base salary, cash bonus and long-term incentives) across all attorney levels sitting at 3.3%; an issue we discussed in a recent blog.
Law departments are also increasing their use of technology to deal with ever-increasing legal demand. The HBR Survey found that the median technology spend is currently $204K, which represents a 2% increase from last year’s results. The top three technology investment areas for law departments are document management, legal spend analytics and contract management.
Alternative fee structures are also something we’ve discussed in recent blogs, and according to HBR, 85% of respondents reported using alternative fee arrangements (AFAs), up 5% from last year, no doubt in an attempt to help contain legal costs. Of those that reported utilizing AFAs, fixed-fee per matter and flat fee for all matters in an area of work were the most common.
Kevin Clem, who leads HBR’s Law Department Consulting practice, commented on the shifts within legal teams saying, “Law departments are now looking to leverage their historical data in more sophisticated ways, as we see a growing emphasis on data-driven matter planning and budgeting. In addition to rationalizing outside counsel spending, many departments are focusing on internal operations and performance measurement as more and more work is being performed in house.”