SCG Legal Newsletter (March 2017)
Companies Reducing Number of Firms Used for Outside Legal Work
Legal departments are continuing to cut the number of firms they use to handle outside legal work, according to LexisNexis’ most recent CounselLink Electronic Legal Management Trends report. The study found that 62% of the companies surveyed paid 80% or more of their outside counsel fees in 2016 to ten or less firms. The report found that consolidation was especially common in certain industries including retail and trade companies and information companies. The insurance industry had the least amount of outside law firm consolidation. Outside lawyers working on mergers and acquisitions made the most in 2016, averaging $634 an hour. The second most lucrative area was corporate, general and tax, at $575, followed by regulatory and compliance at $543.
In-house Litigation Chiefs Looking to Reduce Legal Spending
Cutting legal costs this year continues to be a major priority for two-thirds of corporate litigation chiefs, according to the 2017 Corporate Litigation Report from legal event organizer Consero Group. That concern was followed by handling data privacy and security issues (46%) and managing labor and employment matters (43%). The survey also found that over one-third of companies saw an increase in the number of suits filed against them in 2016, while 16% had fewer. Respondents also said that their most "worrisome issue" for 2017 is regulatory change, with 53% citing it as the top area of risk this year.
In Majority of Big Law Mergers Revenues Decline, Costs Rise
A report released earlier this month by ALM Intelligence says that most major law firm combinations since 2000 have not resulted in significant growth. The report, which analyzed 50 combinations involving Am Law 200 firms between 2000 and 2015, found that five years after a merger most firms had underperformed their peers in revenue growth and saw their costs increase. Those outcomes, according to the report, are often glossed over by managing partners who fail to account for the complexity involved in cross-selling, expanding into new cities and installing technologies to tie their firms together. Five years after a merger, 30% of firms saw their gross revenue fall and 73% reported revenue gains less than their group of peer firms in revenue per lawyer and profits per partner. Almost all firms (92%) saw cost per lawyer increases, despite mergers having often been viewed as a way to gain efficiencies. Those cost increases amounted, on average, to a 4% reduction in profits per partner. The ALM Intelligence report concludes that law firms should avoid mergers that result in a “larger platform” of practice areas or geographies. Instead, they should focus on deals that will add to their core strengths.
Single Software Program Replaces 360,000 Billable Hours
COIN, or Contract Intelligence, is a software program that interprets commercial-loan agreements, and in one year it will spare JPMorgan Chase & Co. lawyers and loan officers 360,000 hours. “The software reviews documents in seconds, is less error-prone and never asks for vacation,” according to Bloomberg reporter Hugh Son. JPMorgan has indicated that COIN is just the beginning of its investment in automation. The bank, which has a $9.6 billion technology budget, recently set up technology hubs for teams specializing in big data, robotics and cloud infrastructure to work on minimizing work, expense, and risk. “Though JPMorgan emerged from the financial crisis as one of the few big winners, its dominance is at risk unless it aggressively pursues new technologies, according to interviews with a half-dozen bank executives,” Mr. Son added.
Use of Experts for Procuring Legal Services Growing
A new survey by Bloomberg Law and The Buying Legal Council recently found a projected in-house savings of 11% using procurement in legal. The 2017 Legal Procurement Survey indicates that the use of legal procurement experts is growing, with those studied in driving buying decisions in other divisions of a corporation applying their talents to legal. Only 27% of respondents said procurement plays "little to no role" in hiring of outside counsel; 33%, meanwhile, said procurement's main duty is as a partner and adviser in the decision. The use by legal department of procurement professionals seems to be mostly for routine matters – 43% of legal departments said that procurement was a "strong influence" on the ultimate hiring of outside counsel for routine matters. For high-risk matters, however, that number shrank to 14%.
Summer Associate Hiring Flat in 2016
Summer associate hiring held steady in 2016, according to the latest data from the National Association for Law Placement, ending two consecutive years of growth. Some firms increased the number of offers they extended to law students for summer associate positions, but half said they made fewer offers than in 2015, the first time in four years that a majority reduced offers. According to NALP, the median number of summer associate offers extended by firms declined slightly to 11.5 from 12. That’s less than the pre-recession median of 15 in 2007, yet significantly more than the median of 7 from the nadir of the recession in 2009. The average number of offers in 2016 remained steady at 38. The overall offer rate among firms to summer associates for full-time associate jobs following graduation fell slightly last summer, from 95.3% to 94.6%.
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