2018 legal department in-sourcing and efficiency report

The 2018 survey uncovered developing trends shaping how departments are driving efficiencies and maximizing stagnating resources despite increased demands on their time. One trend that emerged during the last survey shows general counsel are increasingly expected to serve as business advisors in addition to providing legal advice. Their expanded role means general counsel are more involved across the organization, with particular emphasis placed on board of director and leadership guidance and advising, alongside expanded business duties.

The expanding role of general counsel also aligns to the ongoing trend of legal departments being asked to cover more ground in practice areas and duties. In particular, continual changes in government regulations – especially in areas including employment, data privacy, and immigration – are presenting new challenges for legal departments that are already stretched by limited resources.

Another continuing trend involves the increasingly professionalized legal department operations roles. While most operational activities are still handled by general counsel and attorneys, general counsel are increasingly relying on involvement from operations managers to find creative ways to utilize available resources and track spending and time. This development gets to the heart of the rationale for a more efficient in-house team: the ability to focus on strategic work.

More time for strategic work and less time focused on administrative work also means more thoughtful use of outside counsel. While use of outside counsel has remained steady since 2016, departments still generally outsource less than 25 percent of their work. In-house teams continue to consider different ways of partnering with outside counsel – most often for litigation, M&A, and intellectual property requirements – as a key component of their approach to improving productivity.

The majority of respondents indicated budget pressures continue to compel them to find ways to stretch current resources to cover increasing demands on their department. Survey results showed department sizes are mixed; while the average number of attorneys in corporate legal departments is 29, close to half of departments have fewer than five attorneys. Smaller departments tended to have a general practice focus spanning many areas of law.

The top three challenges identified by in-house teams include having limited resources, reducing outside legal costs, and educating internal clients.

Ongoing Frustrations in the Legal Department

Regulatory changes, data security, and ethics and compliance remain priorities for most companies, and in turn, for legal departments. In particular, respondents ranked cybersecurity as more important to legal departments in 2018, while reducing outside legal costs and keeping apprised of activities/impact rated less important than in 2016.

Protecting information has long been an in-house priority, given the substantial repercussions of a breach or data privacy lapse. As threats evolve and companies look to mitigate risks as much as possible, “in-house counsel is facing growing responsibility to minimize damage to the corporate reputation, loss of key data, and legal and regulatory penalties.”[1]

Among the factors heightening legal departments’ concerns with cybersecurity was the May 2018 deadline to comply with the European Union’s General Data Protection Regulation (GDPR), which imposed new rules for how companies handle personal data of those in the EU and steep fines for noncompliance. The new regulations created questions and speculation over whether the U.S. will implement a federal law to legislate how companies manage consumers’ personal data.[2]

These types of concerns are likely contributing factors to the uptick in another frustration for legal departments: time spent managing regulatory matters. Respondents reported spending more time handling regulatory matters, relative to a year earlier. Of course, the new EU requirement was not the only driver of the increase. With a new executive administration and Congress in the U.S., a number of regulatory changes affected a range of industries and had a major impact on how in-house teams allotted their time. One attorney noted, “Implementing changes to comply with new regulations at the business level,” was among the department’s key challenges centered around maximizing resources.

Alongside the legal issues confronting companies, in-house teams continued to deal with the challenges of providing legal services and operations while demonstrating the value of the legal department to the organization at large. Educating internal clients remained one of the top frustrations cited by respondents in the 2018 survey.

Partnering with Outside Counsel

Overall, the use of outside counsel has remained steady. Nearly 60 percent of legal departments reported outsourcing 25 percent or less of their legal work to outside law firms in this survey, a slight decline from a spike in 2016, when 63 percent indicated they outsourced 25 percent or less of their work.

Similar to 2016, only 2 percent kept all their legal work in-house this year. Another similarity: 26 percent indicated they increased their reliance on outside counsel. Among those relying more heavily on outside counsel, the drivers included – as in previous years – an increase in overall legal work (75 percent) as well as company growth (47 percent).

On the other hand, 25 percent of departments decreased their use of outside counsel over the past two years; this represents a slight drop from the last survey, when 29 percent reported decreasing use of outside counsel over the previous two years. Respondents attributed this decline to bringing more work in-house (73 percent) and cost-containment strategy (61 percent). The last number is notable in that the previous survey showed just 48 percent of those cutting outside counsel costs citing cost containment.

As expected, the 2018 survey saw very little change in how outside counsel is used relative to the previous years. Legal departments continue to use outside counsel most often for litigation (75 percent), M&A work (57 percent), and IP requirements (40 percent). Overall, the complexity of an issue – whether it involves high-stakes litigation, contracting matters, or IP requirements – is a primary driver in using outside counsel.

The number of departments expecting a notable shift in use of outside counsel did see changes in the 2018 survey. This year’s survey showed a higher proportion (24 percent) of respondents expect the amount of work being outsourced will increase and a smaller proportion (19 percent) anticipate it will decrease in the coming year.

Corporate counsel weigh countless factors in determining when to turn to outside counsel. This section examines which contracting, intellectual property, M&A, and litigation matters in-house teams are inclined to keep in-house versus send to outside counsel while seeking to strike a balance of resources.

In the 2018 report, corporate counsel report spending more time handling contract, litigation, and regulatory matters, as well as advising internal business clients. As these business needs grow but staffing and resources remain steady, general counsel must consider what to send to outside counsel. Similar to the 2016 survey, 76 percent of departments use outside counsel for contracting matters. As expected, 99 percent reported turning to outside counsel for litigation matters. For both M&A work and IP matters, 97 percent use outside counsel.

Litigation and Dispute Management

As with the last survey, 97 percent of general counsel reported being involved in litigation matters. Looking at the year ahead, most departments (70 percent, up just 1 percent) expected their use of outside counsel for litigation and disputes to stay about the same. Among the 18 percent anticipating an increase in using outside counsel in this practice area, the most often cited reasons were an increased volume of work and the nature of upcoming cases. One attorney explained, “As our company grows and the legal department remains the same size, reliance on and utilization of outside counsel will need to increase.”

Budget restrictions is the most-cited reason for the 12 percent of corporate legal departments expecting to decrease reliance on outside counsel. A respondent noted, “Due to increasing cost of relying on outside counsel, more work will be retained in-house with attorneys who have the expertise and ability to handle the same matters. [An] increase in number of in-house attorneys may result.”

For corporate in-house counsel, the four tasks most often kept in-house included: internal information gathering, managing legal hold process, initial information gathering for discovery, and analyzing the likelihood of success in pursuing settlement. Corporate counsel were most dependent on outside counsel for high-stakes litigation/disputes (67 percent), involvement of multiple/international jurisdictions (51 percent), and the involvement of complicated legal concepts (48 percent).

Mergers and Acquisitions

For M&A work, respondents reported tasks usually kept in-house included conducting internal due diligence, negotiating terms, and discussing strategy and goals with the deal team. Overall, however, 97 percent of departments are relying on outside counsel for certain types of M&A transactions; the top two reasons for partnering with outside counsel are for significant transactions (82 percent) and the complexity of a transaction (74 percent).

In the coming year, most departments anticipate their use of outside counsel for M&A matters will remain the same. Of the 22 percent that expect their use to go up, the main reason is due to an expected increase in work volume. One attorney noted, “As our company grows and the volume of mergers and acquisitions work increases without any increase in the size of the legal department, increased reliance on and utilization of outside counsel on mergers and acquisitions work is necessary.”

Of the 11 percent expecting a decline in their use of outside counsel, the decrease, for many, correlates to a decline in M&A work. Simply put by one respondent, “We aren’t doing as many deals in 2018 as we did in previous years.”

Intellectual Property

Similar to M&A, 97 percent of departments are using outside counsel for intellectual property matters. They turn to outside counsel due to the complexity of IP issues (59 percent), the involvement of multiple or international jurisdictions (44 percent), and a significant risk associated with a particular IP asset (43 percent). Yet respondents generally keep some tasks in-house, including negotiating and drafting agreements and managing patent, copyright, and trademark portfolios.

Respondents generally expect their use of outside counsel for intellectual property to remain the same in the year ahead. Of the 17 percent expecting to use outside counsel more often, company growth or an increased work volume was the top reason.

One attorney explained, “Our business is expanding ... in terms of the volume but also in terms of the areas of business we are getting involved in, and we are producing more trademarks and intellectual property, which will require greater use of outside counsel.”

Only 8 percent expected to decrease their use of outside counsel for IP work; the decline was most often attributed to budget restrictions and cost savings. One respondent explained the department would make the change “to reduce outside counsel spend on tasks that can be handled within the department.”

Contracting and Drafting

Of the four practice areas, contracting sees the least dependence on outside counsel, though its engagement remains strong: 76 percent reported engaging outside counsel for contracting matters. The tasks most commonly kept in-house include handling document drafting and review approval, discussing transactions details and negotiation issues, and negotiating contract terms with counterparties.

The biggest reasons outside counsel were engaged on contracts issues were managing complex issues (52 percent), significant risks associated with a contract (43 percent), and overflow (39 percent).

Looking ahead, company growth and increased work volume are the most common reasons cited by respondents expecting to increase use of outside counsel for contracting. While only 11 percent expected to increase use, the need for resources was clear in that group. One respondent explained, “Our company has been expanding significantly, both in overall size and in geographic reach, without any increase in the size of the legal department. Because of this, we will need to rely on outside counsel more in 2018 and beyond, particularly in jurisdictions where the individual members of the legal department do not practice.”

Cost savings and budget restrictions are driving the 12 percent of departments expecting to depend less on outside counsel in the coming year. An attorney said, “Efficiency gains from improved internal processes should result in less need for overflow assistance.”

As noted earlier, anticipated use of outside counsel is expected to stay about the same (57 percent) in the coming year, with 24 percent expecting an increase and 19 percent a decrease. These figures demonstrate the ongoing struggle across legal departments to determine how to make the most of limited resources while finding the balance between which tasks to keep in-house versus send to outside counsel.

Looking ahead, legal departments anticipate spending about the same on legal solutions and services, with increases expected for outside counsel spend. Just over one-third (37 percent) expect to spend more on legal solutions, up slightly from the last survey.

This year also saw a significant increase in the use of operations managers to handle all matters of corporate legal department activities, contributing to a focus on creating efficiencies and maximizing resources to address workload.

As departments look to achieve that balance, this section analyzes what’s working. Among the measures: Departments are involving people, processes, and technologies. Whether it’s creating new positions, deploying technology, or shifting work from lawyers to paralegals, this section examines how corporate counsel are achieving greater productivity.

Staffing and Legal Department Operations

Too much work and keeping up with growth were the top concerns cited among those facing pressure to do more with less, followed by staffing challenges and budget constraints. Concerns such as the “volume of work keeps increasing, but [there’s] little desire to increase legal headcount from management” and “a rapidly expanding company with a shrinking department. Too focused on ‘just in time’ legal analysis with not enough time to be proactive on issues” may sound familiar to many corporate counsel.

All of these factors continue driving legal departments to find new ways to improve efficiency and productivity. Staffing may be one of the hardest-hit areas for stretched departments dealing with business growth. An attorney noted the challenge of “maintaining existing high-performing talent when market compensation is exceeding budget.” This echoed in the responses surrounding staffing issues.

Compared to last year’s survey, legal departments are anticipating greater fluctuations in staffing. While most legal departments expected to remain the same size in the coming year, 28 percent anticipate increasing their staff size. The biggest reason was to handle increased work volume. For example, additional regulations are adding to the plate of in-house legal departments. One lawyer explained, “GDPR commands growth in staff and our business needs command an attorney seasoned in our business to provide transactional drafting support.” Only 6 percent expect to have smaller staffs in the year ahead, primarily due to budget restraints.

The proportion of departments hiring has increased since the previous year, with more hires and about the same number of cuts. This year, 52 percent reported making new hires, an increase of 9 percent from the previous survey, while the figures around cuts barely fluctuated (11 percent versus 10).

Nearly one-third (30 percent) of legal departments created new positions – particularly in the areas of contracts and generalists – due to increased workloads and to bring more work in-house. For example, one attorney described creating a new position to manage in-house tasks: “We created a new Manager Legal Services position in order to centralize and standardize Legal Department administration. The Manager is responsible for maintaining the Department information databases, maintaining Department forms and guidelines, billing, budgeting, and supervision of paralegals, among other tasks.”

Another continuing staffing trend involves the use of alternative staffing arrangements, which about 37 percent of departments reported doing, similar to last year. In addition, 62 percent reported shifting work from lawyers to paralegals and other staff, while 43 percent said they use contract attorneys.

The Rise of Legal Operations

Another trend demonstrating in-house leaders’ commitment to improving productivity involves the growth of legal department operations. The survey found while most operational activities are handled by general counsel and attorneys, there was greater involvement from operations managers since the previous survey: 29 percent indicated they have someone managing their legal department operations, up from 21 percent. In fact, operations managers saw an increase in responsibility across the board.

This finding demonstrates the growth of legal operations despite skepticism from some lawyers. As Law.com reported, “While its visibility has increased dramatically during the past few years, legal ops confronts strong headwinds from traditional legal culture.”[3] The resistance may be due to lawyers’ reluctance to change or the risk-aversion inherent to the legal profession, among other factors.[4]

Overcoming resistance will require legal department operations professionals to continue advocating for change, as well as corporate counsel to recognize greater productivity happens when change is fully embraced. Fortunately, progress is being made on both fronts. As Law.com recently noted, “Not only do corporate law departments want greater value and greater efficiency when paying for outside counsel, they’re also increasingly open to innovation and embracing new approaches. And the rapid growth of the Corporate Legal Operations Consortium, or CLOC, means that best practices are being shared with increasing frequency.”[5]

Lawyers’ preference for gradual change may explain another survey finding, which shows the majority of legal departments (59 percent) still primarily fall back on the use of matter budgets to help control legal costs for outside counsel. An encouraging sign includes the greater use of alternate fee arrangements and RFPs, which jumped 8 percent to 39 percent this year – another indication corporate counsel are open to change and adapting new strategies to manage costs and find ways to be creative with available resources.

Technology

Questions regarding billing were new to this year’s survey. Results show 81 percent of in-house teams deal with invoicing, yet only 28 percent use billing software and solutions. It’s a finding counter to other responses indicating a need for efficient process; billing software can have a positive impact on a department’s efforts to control outside counsel costs and increase workflow efficiency. Billing software enables legal departments to better predict, and in turn, reduce legal spend through better visibility into department matters, invoices, and outcomes. It also allows departments to compare the rates they pay against their peers.

Survey results showed among those already using billing software, Thomson Reuters Legal Tracker™ ranked as the most popular billing tool (28 percent). In addition, nearly one-third (32 percent) indicated they requested billing adjustments from outside counsel 1 to 5 percent of the time, while more than a quarter (27 percent) report asking for billing adjustments 6 to 15 percent of the time.

Write-off requests were another spot in-house counsel sought to reduce costs. Requests are most often related to internal meetings, administrative tasks, legal research, getting up to speed, and travel. Administrative tasks (48 percent) and getting-up-to-speed activities (40 percent) tend to have the highest percentage of write-off requests.

Of course, billing software isn’t the only way technology helps in-house departments realize efficiencies. Corporate counsel rely on several measures, with a heavy focus on electronic document storage and business process improvements.

Some departments have already implemented these measures, and others plan to do so in the coming year. Over half (54 percent) of in-house teams have or are in the process of migrating to electronic storage, while 16 percent plan to do so in the year ahead. Looking at business process improvements, just under half (44 percent) of departments already have or are in the process of integrating standard contracts into their business processes; 14 percent intend to do so in the next year.

Similar to last year, the most widely used technologies are document management, electronic signatures, and legal hold and matter management. More than half (56 percent) use document management systems, while 43 percent use electronic signatures. These findings are among the encouraging signs pointing to corporate counsel making moves to be more efficient. Respondents’ top two priorities for increasing efficiencies, as noted above, are migrating to electronic storage and implementing business process improvements. These measures – along with other findings, such as the 37 percent implementing document/knowledge management technology – show departments are eager to reduce time spent hunting for buried organization knowledge, forms, and templates.

According to 41 percent of respondents, the top benefit of being more efficient is the ability to focus on strategic work. A full 24 percent said the greatest advantage of more productivity is the ability to focus on legal aspects of their job.

Despite this, most technologies – from billing and electronic signatures to contract automation and e-discovery – are still used by fewer than half of legal departments. There remains significant room for growth in technology adoption across all the categories the survey examined to increase productivity.

Corporate counsel remain under pressure to do more while resources stagnate. They are asked to manage more asks from company leadership as well as ever-changing government regulations while facing limited budgets and cost restraints. Legal departments rising to the challenge are discovering new ways to manage internal resources and partner with outside counsel. Departments are increasing productivity by deploying new technologies, including billing software, hiring legal department operations professionals, and shifting work from lawyers to paralegals and other staff.

These types of changes produce the intended effect: allowing corporate counsel to work more strategically by focusing on legal work instead of operational activities. Stronger adoption of technology, currently underutilized in most legal departments, would be immensely beneficial to in-house counsel’s efforts to improve productivity. Fortunately, tools such as Thomson Reuters Practical Law Connect™, Legal Tracker, and Westlaw Edge™ can help legal departments accomplish even more.

1 Deana Uhl, “In-House Counsel’s Growing Role in Data Protection and Security Risk Management,” Legaltech news, July 27, 2018.

2 Dan Clark, “Does the US Need Its Own GDPR? The Legislation’s Only Beginning,” Legaltech news, July 31, 2018.

3 Mark A. Cohen, “Legal Operations is Hot. But Legal Culture is Lukewarm Toward It,” Law.com, May 15, 2018.

4 Thomson Reuters, “Overcoming Lawyers’ Resistance to Change,” 2016.

5 Dan Packel, “‘The Wave of the Future’: Law Firm Panels Are Creating a New In-Crowd,” Law.com, July 29, 2018.

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