Legally Optimistic

A study on legal departments and legal department operations

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Legal Department Survey Executive Summary

Legal departments are feeling more optimistic. While the survey asked questions about legal department goals and challenges, it also explored general sentiment. Overall (70%), corporate legal departments say this year has been better as compared to the previously year.

Top legal department goal is reducing outside counsel spend. Reducing outside counsel spend is the top goal for corporate legal departments identified in the survey (61%). Rounding out the top five: Proving value to the business (60%); predicting legal outcomes (48%); automating legal processes (43%); and forecast legal budgets (37%).

Corporate legal departments plan to bring more work in-house. 54% of legal departments plan to manage outside counsel spend by bringing more work in-house. Other top means included increasing the usage of AFAs (32%); developing billing guidelines and rules (30%); consolidate legal work with fewer firms (21%); and implement a matter management system (21%).

Top challenges: improving operational efficiency vs. regulatory compliance. The survey found not one, but two top challenges facing legal departments. 61% of respondents selected both improving operational efficiency and meeting regulatory and compliance requirements amid a list of common challenges which put these two on parity.

Legal department budget and staffing mostly flat. The vast majority of respondents – in both cases more than 50% – say legal department budgets will remain flat. However there does appear to be an upside – more than 30% of respondents expect both budgets and staffing to increase over the next 12 months. Notably, 37% of legal departments say they plan to invest more in technology.

The top legal department KPI: forecast to actual spend. Comparing the budget forecast to actual spend (56%) is the top key performance indicator (KPI) that legal departments say they track. Other KPIs included: year-to-date (YTD) outside legal spend vs. prior year (47%); legal expenses as a percentage of revenue (35%); total expense for all settlements and awards (32%); and total legal spend as a percentage of revenue (22%).

Relationships matter – relationships the top factor in selecting outside counsel. Corporate legal departments said an “existing relationship” with outside counsel was the most important factor in choosing legal service providers. Law firm diversity and technology savvy ranked last on a list of possible metrics.

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Legal Departments are Feeling Optimistic

Legal Department Optimism

Despite audacious goals and challenges, the mood of legal departments overall (70%) is upbeat. Additional anecdotal responses to this question provide some indication as to why:

• The business is having a good year – which means the legal department is having a good year.

• Businesses are asking for legal counsel before matters become problems.

• The legal department has seen an increase the number of large cases settled this year.

70% of legal departments surveyed say this year has been better than the last year

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Top Legal Department Goals

Top 5 Legal Department Goals:

1. Reduce outside counsel spend2. Prove value to the business3. Predict legal outcomes4. Automate legal processes5. Forecast legal budgets

Amid the current legal climate the results shown nearby are not a surprise. However, these do underscore and important trend: it’s not enough to merely be an effective corporate lawyer. Today effective corporate attorneys are charged with managing (and often reducing) legal budgets and communicating the value of the department to the business.

61% say reducing outside counsel spend is currently the top legal department goal

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The Top Legal Department Challenges

Top 5 Legal Department Challenges:

1. Improve operational efficiency 2. Regulatory compliance3. Budget pressure4. Not enough staff5. Make better use of technology

The two top challenges facing legal departments have parity according to survey respondents. Indeed improving operational efficiencies and meeting regulatory compliance requirements may go hand in hand.

Several surveys – including those published by other organizations – find that compliance consistently ranks on the corporate counsel agenda.

Improving operational efficiency and regulatory compliance are the top legal department challenges

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Legal Department Budgets and Staffing

They say money can’t buy happiness but it can sure help solve a lot of problems, which is why the charts nearby may help explain the (cautious) optimism expressed in the first slide.

For the vast majority of respondents expect both legal department budgets and staffing to remain flat. However there are two notable findings that stand out:

• 32% expect legal department budgets to increase in the next 12 months.• 27% expect legal department staffing to increase in the next 12 months.

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Legal Department KPIs

Top 5 Legal Department KPIs:

1. Legal budget: forecast vs. spend2. YTD outside legal spend (Y/Y)3. Legal expense as a % of revenue4. Total expense for all settlements5. Total legal spend as % of revenue

In open-ended comments, respondents also noted the following as KPIs their departments track:

• Savings from moving work typically performed by outside counsel in-house.

• Total number of cases processed.• Number of legal transactions closed.• Business satisfaction with legal services.

The LexisNexis CounselLink consulting team advises caution in reviewing lists of measures of legal department performance: “Instead of trying to determine what others are doing or looking for a standard list of reports, it would be more beneficial to determine what’s most important to you, your legal department and your company. Those are the kinds of things to measure and track.”

56% say legal budget forecasted vs. actual spend is the top legal department KPI

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The Means to Manage Outside Counsel Spend

How to Mange Outside Counsel Spend:

1. Move more legal work in-house2. Increase usage of AFAs3. Develop billing guidelines and rules4. Consolidate legal work with less

firms5. Implement a matter management

If managing outside counsel spend is a top goal for legal departments, this question answers how most of them plan to do that. More than 50% of respondents said they plan to bring more legal work in-house – a theme that has been prevalent in similar surveys:

• BTI Consulting: US legal market exceeds $100 billion

• Trending Legal Spending: Examining the HBR Consulting Study

54% of legal departments plan to manage outside counsel spendby bringing more work in-house

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Evaluation Factors for Selecting Outside Counsel

Top Factors in Outside Counsel Selection:

1. Existing relationship2. Proven results3. Responsiveness4. Efficiency 5. Flexible pricing

This question was a ranking question where the lower the number the better. The results shown on this survey are also generally consistent with previous studies on the top evaluation factors.

Surprisingly diversity and technological savvy ranked low on the list of factors. This despite substantial coverage in the legal trade media indicating these two factors are increasingly becoming important in outside counsel selection.

An “existing relationship” is the top factor in outside legal service selection

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Legal Department Operational Maturity

Operational Challenges

Earlier in this survey respondents identified “improving operational efficiency” as top legal challenge. In that context, this question serves as baseline for benchmarking progress.

Most legal departments give themselves low marks on a five point scale. 27% percent say they are reliant manual legal processes, while 45%, a plurality, say they have some automation.

About one-fifth (19%) report their legal department has integrated information systems. All in all about 8% give themselves high marks for operational efficiency in either making data-driven legal decisions or having the capability to reliably predict legal results.

27% of corporate legal departments are reliant on manual processes

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Legal Department Technology Spending

37% of legal departments plan to increase spending on technology

Legal Department Tech Investment

While most respondents said they anticipated legal department investments in technology to remain flat, a significant number also anticipate additional investments.

All told about 37% of legal departments expect to increase spending on technology which may well be an answer to the top challenge identified earlier: increase operational efficiency.

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Inside Counsel in their Own Words

The final question of the survey was an optional open ended question that asked: If there was one thing you could change about the corporate legal department what would it be? The question earned and eclectic array of answers from 68 respondents.

Here is a representative sample of verbatim responses:

• More attorneys. Overworked for salary. If I wanted to work this many hours I would have stayed at the firm for more money.

• Increase staffing.

• Increase the technology budget.

• Have it be more focused on legal matters and less focused on day to day operational issues.

• Better document management and better communication across multiple business areas to share best practices.

• Get more data and metrics

• Reduce the layers of review necessary within the law Dept. to finalize work product.

• Collaboration between the different legal specialty areas for the entire business.

• Opportunities for advancement internally.

• Consistency in management, which changes each year.

• More support staff.

• Larger budget with the ability to bring on a more diverse staff.

• I would have the best technology for tracking everything...

• Overcome old procedures that have created some levels of complacency.

• We would be more integrated with the operations side of the business and would be more automated where efficient.

• Update manual processes and stop using spreadsheets.

• Increase efficiency with use of additional technology.

• Use of technology to track billing

• I would really like it if we had a full time Compliance Officer

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Are you peeking behind the curtain?

There’s nothing here!

Survey Methodology and Demographics

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Survey Demographics and Methodology

This survey was conducted online by polling the readers of a third party legal trade publication from September 29, 2014 to October 10, 2014. Respondents were required to identify as a legal professional working for a U.S.-based legal department. Ninety five respondents (N = 95) meeting this criteria answered the survey. Most respondents reported working for corporate legal departments (85%) while the remaining were split between non-profit legal departments (10%) and government at all levels (5%). Respondents were provided an incentive – a chance to be entered in a random drawing for one of eight prizes – to complete the survey.

Demographics at-a-glance:

• Most respondents seasoned corporate attorneys. 90% of respondents identified themselves as corporate attorneys and 68% reported holding supervisory positions including associate general counsel, general counsel and chief legal officer (CLO).

• Broad range of legal departments. A plurality – 39% – reported working for legal departments with 2-5 attorneys, although 22% reporting working for law departments with 20 or more attorneys. 54% stated their legal department spends $5 million or less per year on outside counsel; 22% spend between $5-10 million. About 5% reported spending $100 million or more per year on outside counsel.

• Wide geography; myriad of industries. Thirty-four states were represented in the sample – the most hailed from New York (14%), California (14%) and Illinois (7%). Respondents also represented businesses in a wide variety of industries; the top five industries were: technology, software or telecommunications (18%), finance or banking (10%), manufacturing (10%), insurance (8%), government (7%).

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Survey Demographics: Respondents by Responsibility

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Survey Demographics: Organization by Full Time Attorneys

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Survey Demographics: Organization by Outside Counsel Spend

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Free Online Webinar about this Survey

What: Pulse-Check Survey of Legal Department Operations (LDO). Presented by Kris Satkunas and Mike Haysley.

Who: Corporate legal professionals and inside counsel

When: Thursday, December 4, 2014 1:00-2:00 p.m. EST

Where: Free online webinar; register here: https://cc.readytalk.com/r/rq93haoxjcc9&eom

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Additional Corporate Legal Resources

Landmark Benchmarking Reports:

• CounselLink Enterprise Legal Management Trends Reports & Infographic

• 2013 Year-end: Growth in M&A Billings Benefits ‘Second Largest’ Law Firms

• 2013 Mid-year: The Rise of the “Large Enough” Law Firm

The LexisNexis CounselLink Resources:

• Blog: 5 Tips for Streamlining Your Legal Department

• Blog: The New and Evolving Legal Department Operations Role

• Blog: What are the Going Law Firm Rates by Practice Area?

• Blog: Legal Industry Evolution: Back To Business

• Blog: How Corporate Legal Can Implement AFAs without FUD

• Blog: 6 Emergent Trends from a Corporate Legal Department Conference

• White paper: Pricing Perspectives from Industry Experts

• White paper: 10 Reminders about Increasing your Law Department’s Value

• Webinar: Rackspace Corporate Counsel Finds the Must-Have Attributes of an ELM Solution

• Case study: Kennametal

• Case study: The Cosmopolitan

Social Media:

• Blog: Business of Law Blog

• LinkedIn: LexisNexis CounselLink

• Twitter: @Business_of_Law or @LNCounselLink

• Facebook: LexisNexis Business of Law

• Google+: +businessoflawblog