Corporate Law Department Surveys
Richard Stock - Lexpert (November / December 2007 at p. 123)
Professional associations, trade magazines and consulting firms have been carrying out surveys of corporate law departments for years. Most of these have been in the U.S., but the Australian and Canadian markets have seen the arrival of surveys in the last five years. Some are benchmarking surveys, while others are less rigorous methodologically and are carried out by trade publications primarily in the form of opinion surveys. To these are added customized surveys prepared for individual companies on a range of issues.
Some general counsel suggest that benchmarking surveys are “dangerous because they set forth a common mediocrity. They tell you what everyone else is doing, but not best practices.” Yet Jeffrey Carr, FMC Technologies Inc.’s vice president and general counsel, sees value in cherry-picking metrics from professional associations and trade magazines as long as it propels change. The better surveys will include breakdowns by region, industry, and company size.
Inside Counsel’s 18th Annual Survey of General Counsel was released in July 2007. Some 862 in-house counsel responded, with 40% of these general counsel and 135 law firm lawyers included. The focus of this survey is primarily on the relationship with and cost of law firms. The findings are general in nature and suggest a need for further study. Of law departments, 70.5% gave their firms a “B” on overall performance and 19% gave them an “A”. However, 62% of law firms gave their firm an “A”, 35% a “B” and 3% a “C.” The pitfall in this statistic is that their is no telling the extent to that the responding firms are those which provide services to the participating law departments.
Inside Counsel’s survey also reports that law firms think the best way to improve service is to understand their clients’ needs and business processes better. But in-house respondents said firms need to reduce costs and improve efficiency as a way to demonstrate improved service. Some 70% of law departments disagree that law firms are actively seeking out ways to reduce the costs of the legal services they provide. Only 24% of law firm respondents disagree. Contrast the 46% of corporate counsel who say their firms adhere to budgets with 74% of law firm respondents who say they adhere to budgets. This kind of discrepancy is inevitable when the survey reports that one-third of law departments do not set budgets for law firms, less than 25% use e-billing to track charges, and only 33% of law departments are asking for pricing alternatives to the hourly rate.
There seems to be a lack of alignment between the criteria to select law firms and the reported pressure (77%) to reduce total legal spend. The most frequently cited selection criteria from the July 2007 Inside Counsel survey ranked as follows: quality of work, responsiveness, creative solutions, and billing rates. Alternative fee arrangements were ranked seventh.
The Association of Corporate Counsel (ACC) released its Seventh Annual Chief Legal Officer Survey earlier this year based on the responses of 848 CLO’s and GC’s. The survey is brief with 16 questions. Four of these describe the demographics of the respondents. Surprisingly, 79.5% of the respondents have fewer than 6 lawyers in all locations. Less than 10% are from the not-for-profit sector, 51.5% are private and 33.6% are from public companies. Some 58% reported annual corporate revenues under US$500 million.
The survey reports relatively few “opinions” and does not contrast in-house and law firm views. It reported that only 33.7% of the companies planned to increase in-house capacity, while 54.3% saw no change in their relative use of law firms. Only 25.5% planned to increase law firm activity. 43.1% used fewer than six firms on a regular basis and another 41.8% used from six to fifteen. Some 32% “fired” at least one firm in the previous year but it appears that only half of these were significant relationships. Poor responsiveness and quality of work issues were cited three times more frequently than cost as the reasons for termination. This finding is compatible with the Inside Counsel survey that shows that law departments continue to value technical expertise and service quality above cost performance in selecting and replacing law firms.
Amazingly, only 101 respondents out of 848 chose to answer the question on “new or noteworthy initiatives implemented by firms to improve the relationship with the law department.” Seminars / training, communications and client relationship structures account for 41.6% of the initiatives.
The Australian Corporate Lawyers’ Association (ACLA) released its biennial In-House Law Report on May 23, 2007. More than 660 in-house lawyers responded. Providing corporate governance support is an increasing (67%) part of corporate counsels’ role, but less than the 76% reported in 2005. On the other hand, more reported difficulty (42% compared to 36% in 2005) in recruiting quality in-house counsel and 48% reported difficulties in retention compared to 43% in 2005. These are difficult realities when 72% of participants say the trend is to keep greater volumes from being outsourced.
Legal spend is set to increase as a proportion of revenue in 40% of the companies and 39% reported stability of legal spend as a proportion of revenue. The pressure to contain legal costs is increasing for 67% of participating organizations. It comes as no surprise then that 45% of respondents indicated they are moving toward more formal tendering processes to retain external counsel. Furthermore, 52% agreed that the trend in their organization is to use a smaller number of firms, but 33% say that they have stabilized the number of firms for the present time.
Less than half (47%) say they are seeking out alternative pricing arrangements, down from 58% in 2005 but still much higher than the 33% reported by the ACC. While less than the 65% reported in 2005, over half (54%) of corporate counsel agree that coordinating external providers is an increasing part of their role.
The Canadian Corporate Counsel Association released its In-House Corporate Counsel Barometer in April of 2007. Over 700 corporate counsel completed the on-line survey earlier in the year. No information is provided about the positions held by the respondents, about industry sectors, or about other attributes of the law department. The survey focused on the advantages of an in-house role, the role of the general counsel, litigation, managing the relationship with outside counsel, and innovative business practices by law firms.
Respondents cited three top advantages to working as corporate counsel, namely being an active part of business decisions, applying legal training to a business environment, and enhancing their business skills. Job satisfaction remains at 72% and 90% of respondents believe their company values their work. The top job challenges in rank order are staying on top of the volume of work, keeping overall costs down, and finding / keeping adequate resources to deal with responsibilities. Both law departments and law firms are feeling the effects of international recruiting and normal work weeks topping 50 hours – results consistent with the Australian findings.
The survey reported very little innovation in cost-saving measures. The most often cited measures were in-sourcing at 58%, requiring less service from outside counsel again at 58%, assigning work to appropriate people, and imposing cost restrictions on law firms. Five criteria are described by corporate counsel as being more important than billing rates when selecting a firm: responsiveness, specialization, prior experience / results, existing relationships / referrals, and consistency of performance across the firm. The survey carefully points out that the importance of the criteria varies greatly by industry sector.
Three in 10 have ended the services of a law firm in the last year, with price and then responsiveness cited as the primary reasons. Over 86% of respondents say law firms have not developed and implemented innovative business practices. Practices mentioned tended to be discounts on rates and volumes and other variations in pricing.
CCCA’s Corporate Counsel Barometer was insightful about the role of the general counsel, depicting the relative importance of advisory, management and legal roles The general counsel’s most valuable advisory skills are to perform as a business lawyer (37%), advise on legal services (31%), and accomplish business strategies (29%). The most valuable management skill is to handle special projects with important legal ramifications. Regulatory compliance and enterprise risk management were stated as top issues.
There are common themes running through the four surveys: workloads, recruitment / retention, regulatory / compliance and cost management, and the relationship with external counsel. Surveys and benchmark studies would do well to include segments on performance management and best practices to add value to the survey participants.