Corporations Spend More on In-House Lawyers, Less on Outside Firms

Corporations appear to be cutting back on fees to outside law firms as they beef up their own in-house legal staffs. A new survey highlights the shift.

Spending on outside law firms by corporate legal departments dropped by a median of 9.1 percent last year, while outlays for in-house legal departments increased by 11 percent, the American Lawyer reports in a story on the survey findings.

Rising legal fees could be the problem, the story says. Outside law firms hiked hourly rates last year by 6.5 percent, the highest percentage in seven years, the survey found.

The survey, conducted by the Association of Corporate Counsel and Serengeti Law, also found that more in-house counsel are requiring specific terms of retention by their outside counsel, according to a press release (PDF).

About a fourth of the respondents are going further to manage outside counsel by reducing the number of firms they hire, issuing competitive bids for new work, requiring minimum levels of experience for associates working on their projects, and getting discounts for early payment of bills, the press release says.

While alternative billing is getting lots of publicity, most corporations are still being billed on an hourly basis, although the fees may be discounted.

The study gathered responses from 337 law departments in small to large U.S. companies with median revenues of $350 million. An increased number of small companies responded to the survey, but the report said the results and trends are consistent with prior years.

[Reported by the ABA]

Will a Boost In Litigation Increase In-House Hires?

Fulbright & Jaworski recently conducted a survey (PDF) of 360 in-house counsels regarding projected litigation activity for 2009. 31% of those surveyed projected an increase in legal disputes involving their companies for the coming year – over 21% last year. More significantly, nearly 20% predicted the need to hire more in-house lawyers to manage the expected increase. For all the litigators looking to move in-house, the real question is how many more?

The prediction of hiring additional in-house litigators is counter to the recent trend of cutting back on in-house litigation expenses. The survey had found a decline year-over-year in the size of in-house legal departments managing litigation. Is this survey representative of what is going on in the legal marketplace?

In terms of projected litigation activity, that’s definitely a yes. Reasons given for the projected increase included turmoil in the credit markets and subprime related litigation. Respondents also pointed to increased litigation in employment and business litigation matters – all anticipated collateral damage of the recent economic fallout.

When it comes to projected in-house hires; however, the answer may not be as clear-cut. In-house legal departments are continuing to trim the fat and to cutback on legal expenses. Therefore, while hiring in-house lawyers may be a less expensive alternative to outsourcing the work to outside counsels, it remains an expensive proposition. I suspect that these same companies will continue to enforce their internal cost cutting measures, including:

• Increasing the workload of existing in-house counsels
• Increasing staff hires over attorney hires
• Hiring contract attorneys rather than full time attorneys
• Hiring counsels with multiple skill-set (inc. litigation)
• Capping legal budgets, including compensation

What does this mean exactly for the 20% who actually plan on hiring? Traditionally, in-house legal departments tend to hire few litigators, preferring to have outside counsels handle most of the litigation. In general, in-house litigators are expected to settle cases, oversee outside counsels on ‘bet the company’ and highly specialized litigation matters, and implement risk management measures to avoid liability. Their roles are usually perceived as more limited than those of their transactional/corporate counterparts, which is also one of the reasons legal departments are more conservative when hiring litigators.

Earlier this year, according to the Hildebrandt 2008 Law Department Survey, the median company employed 3.8 lawyers per billion dollars of U.S. revenues and 3.3 lawyers per billion dollars of worldwide revenues. Of these 3.8 lawyers 0.5 is a litigator; in other words only about 15%-20% of all in-house counsels are litigators (Note: This number only refers to counsels hired strictly as “litigators.” There are many more in-house counsels with litigation skills who also handle litigation matters in addition to other responsibilities.)

I suspect that the 20% who responded to the survey were already understaffed in term of their litigation support. Therefore, in light of a significant increase in legal disputes, these same companies will need to re-balance their legal staff to handle the additional work in-house. This may not create the kind of hiring increase – in terms of numbers – this report suggested.

Who will most benefit from this litigation boost? While 20% of those surveyed plan on hiring more in-house lawyers to manage the expected increase in litigation, it is important to note that 80% do not plan to hire additional litigators, despite the fact that they too will experience an increase in litigation. When it comes to full-time in-house litigators, the number of newly available positions will most likely look like a drop in the bucket. Those who will most likely enjoy the benefits will be litigation support staff and contract attorneys.

While the news may be good – it will not provide the type of boost that litigators wanting to go in-house are hoping for.

Obama or McCain? GC’s Are Split.

Barack Obama and John McCain have been running a tight race among the nation's voters -- and among the country's top corporate lawyers. McCain has a slight lead in total donations from general counsel at Fortune 100 companies. Still, elite GCs are giving significantly more to Obama than they did to Al Gore or John Kerry, the previous two Democratic presidential nominees.

According to a Corporate Counsel review of general counsel contributions, 23 legal chiefs have given McCain $53,250, while 19 have given Obama $47,950. And they're loyal to their favorite.

"It shows that general counsel at large corporations are just like everyone else," says Brett Kappel, an of counsel at Vorys, Sater, Seymour and Pease in Washington, D.C., who specializes in election law. "They're evenly split between the two parties."

What do the contributions look like?

Obama supporters ($4,600):

• Joel Benoliel of Costco Wholesale Corp.

• Mark Chandler of Cisco Systems Inc.

• Michael Helfer of Citigroup Inc.

• Louise Parent of American Express Co.

McCain supporters ($4,600):

• Rosemary Berkery of Merrill Lynch & Co. Inc.

• J. Barclay Collins II of Hess Corp.

• Christine Richards of FedEx Corp.

• Mark Treanor of Wachovia Corp. (who retired in June)

Obama may have broken records in his overall fundraising, but McCain continues to lead among GCs. While Obama has been riding a wave of popularity, GC’s generally tend to be more conservative than their fellow attorneys. Perhaps it is because they have more to protect that they favor fiscal conservative politics?

Obviously, GC’s are not necessarily swayed into supporting another fellow lawyer like Obama, providing more favorable support to non-lawyer McCain - despite his poor taste in jokes.

The Law Blog reported on a lawyer joke that McCain used several time on the campaign trail, and even told on the Tonight Show earlier this year:

What is the difference between a catfish and a lawyer?
One is a scum sucking bottom dweller. The other is a fish.

McCain then says, “There goes the lawyer vote.”

Apparently, McCain does not seem overly concerned about the effect his jokes might have his popularity amongst lawyers. Obviously, GC’s can take a joke – even one as bad and overused as the one McCain has been using.

In any event, with less than 30 days to go, there is still no clear winner? Are you just as split as the GC's ?

Pay For In-House Lawyers Up, But Staffing Is Down

Average In-House Counsel Compensation (Large Companies/Fortune 500):

In-house lawyers make an average of $236,000 in pay and bonuses.

This is up from $226,000, according to a new survey of 223 larger companies conducted by legal consultant Hildebrandt International.

The companies surveyed by Hildebrandt had revenues of more than $1 billion and assets of more than $3 billion.

Lawyer pay — including base salary and bonuses — increased by an average of 8% among all lawyer levels. Last year, that figure was 10%.

Average In-House Counsel Compensation (Large Companies/Fortune 500):

The overall compensation for chief legal officers with large publicly traded companies has exceeded $900,000.

The survey showed their pay increased by 14% last year, to an average compensation of $700,000.

Long-term incentives increased the average total compensation to nearly $1.5 million for general counsel and nearly $2 million for chief legal officers.

Legal Fee Expenses – What Are Companies Spending?

The total legal spending by companies increased by 5% in the United States, and 3% worldwide.
The four previous years, legal spending grew at a rate of 6% to 7% in the United States.

The median company spends $4.3 million per billion dollars of revenue on legal fees, which includes in-house legal staff.

Inside legal spending worldwide increased by 6%, while spending on outside counsel grew by 2% in the United States and 3% worldwide.

The mix of inside and outside counsel spending held steady, the survey showed, with inside spending representing 41% of total spending and outside counsel representing 58%.

Most companies — 67% — said they expect no change in the number of law firms they plan to use in 2008, but nearly a third — 29% — said they anticipate decreasing that number.

What Are the In-House Attorney Numbers?

The median company employs 3.8 lawyers per billion dollars of U.S. revenues.

In the last four surveys, the number was greater, ranging from 4.2 to 4.7 lawyers per billion dollars of U.S. revenues.

What Are The Hiring Prospects?

Companies are looking to cut down on expenses – both in terms of in-house lawyers and outside counsel fees. Therefore, while pay is increasing, in-house staffing is softening.

Unemployment in the legal sector is also at an all time high. Legal services sector employment has dropped 1.3 percent, shedding 15,600 jobs, since its all-time high in May 2007, according to data released by the U.S. Department of Labor.

There were 1,165,100 jobs in the legal sector in September, down from 1,180,700 jobs in May 2007.

Of the 159,000 jobs lost in the last month, 2,000 were in the legal sector, the Department reported.

The nation’s overall unemployment rate held steady at 6.1 percent in September.

What Does It Mean?

In the face of economic turmoil and uncertainty, companies are looking to cut down on expenses. Corporate legal departments have not been spared from cost-cutting measures. Companies are turning a critical eye towards their in-house legal staff, and outside counsel fees. General counsels are watching their bills from outside counsel more closely than ever. At the same time, companies are also looking to do more in-house with fewer in-house attorneys.

Compensation increases reflect a still competitive market for top legal talent – although with unemployment rates rising, we predict that these increases will continue to soften into 2009. That said, companies are still actively hiring in-house counsels – but more cautiously and strategically. When looking at the cost-benefits analysis of bringing work in-house, companies are still better off relying on their in-house counsels.

Companies are conducting a thorough analysis of outside billings, selecting practice areas that can be moved in-house, determining the capacity of in-house attorneys to handle the work, calculating the cost of adding in-house counsels, and managing expectations about savings from bringing additional work inside the company.

In other words, companies are critically looking at the kind of work and counsels that can best meet their most immediate and pressing legal needs. As a result, companies who are hiring additional counsels are primarily focusing on generalist with a combination of regulatory and corporate experience, litigation, and intellectual property experience.

The good news is that the in-house market is still active; the bad news is that it slowing down. And with the recent collapse of several big financial institutions, many more lawyers will be on the market. In addition, as in-house legal departments begin to shrink to critical mass, candidates vying for in-house positions will be facing more competition than ever. Is there anything you can do to improve your odds? Sure, (see our previous post “Winning The Horse Race: Tips For Job Hunting During A Recession”).

Many companies continue to welcome top legal talent and to pay top dollar. The key is knowing how to market yourself effectively. Opportunities will come...