New research gives insights into how legal team leaders can benchmark against, or consider alternative approaches to, their counterparts across industries and jurisdictions.
The Association of Corporate Counsel (ACC) and global recruiter Major, Lindsey & Africa have released the 2021 Legal Department Management Report, which shines a light on emerging trends in law department management as the world slowly emerges from the COVID-19 environment.
It received survey insights, between March and May of this year, from 493 legal departments, spanning 24 industries and 30 countries.
In May of this year, a report from the Corporate Legal Operations Consortium (CLOC) and ACC found that diversity is the top-ranked priority for law departments in 2021. A separate study from Bloomberg Law explored how businesses across the board are gauging and looking to increase diversity.
The Australian in-house market agrees that this is an area of critical importance for corporate entities, with general counsel needing to bring more authenticity to conversations about diversity and inclusion, and law departments having to “stay vocal” with external providers about the need for better D&I.
Key findings here pertaining to diversity included:
- Only 29 per cent of law departments have internal diversity tracking metrics. Across the board, just 16 per cent of small companies, 39 per cent of medium-sized companies and 71 per cent of large companies have such metrics in place.
- Interestingly, law departments in the Asia-Pacific region are least likely to have such tracking metrics (26 per cent).
- Of the departments that track diversity metrics, almost all (94 per cent) evaluate diversity among new hires, followed by promotions (55 per cent), departures (50 per cent), levels or functions (49 per cent), training (27 per cent) and matter staffing (22 per cent).
- Less than one in five law departments (18 per cent) have diversity metrics in place with respect to external counsel. However, over half (53 per cent) of large companies have such metrics in place.
- Departments that evaluate law firms reported tracking diversity within the teams that handle matters for the legal department (74 per cent), and a majority also track diversity among all lawyers in the firm (62 per cent) or among the firm’s partners (54 per cent).
Use of external providers
Key findings for providers used included:
- Over three in four (77.4 per cent) of law departments have a list of preferred providers of external counsel.
- An average of 36.2 law firms were used by law departments this past year. This includes 10.1 firms by small departments, 35.8 firms by medium-sized departments and 158.3 firms by large departments.
- On average, law departments are only using 1.6 alternative legal service providers.
- The volume of external providers remained the same for 54.5 per cent of departments with regard to law firms, and 83.2 per cent of departments regarding ALSPs.
- Only 29.1 per cent of departments have increased the number of law firms they engage, and just 11.5 per cent of departments are using more ALSPs.
Outside counsel fee structures
The fee structures employed for external legal providers included:
- The most common fee type employed by law departments was discounted hourly rates, with five in six (83.4 per cent) of departments using this.
- Seven in 10 (71.2 per cent) of departments also use standard hourly rates.
- Three in five (62.7 per cent) use flat fees for entire matters, or at different stages of matters.
- Just under half (48.3 per cent) use capped fees.
- One-third (34.5 per cent) use blended hourly rates.
- Three in 10 (28.8 per cent) use retainers, including periodic retainer fees for a portfolio of services.
- Incentives or success fees are used by 16 per cent of departments.
- Contingency fees are used by 14.2 per cent of departments.
Key findings pertaining to the use of law department cash, and where it sits relative to the rest of the organisation, included:
- Total legal spend varies depending on department size. Small companies spend $1.2 million annually, medium-sized companies spend $8.4 million per annum and large companies spend $64 million each year.
- Total inside spend, as a percentage of total spend, is broken down as follows: small companies at 53.1 per cent, medium-sized companies at 42.5 per cent and large companies at 45.3 per cent.
- Total outside spend as a percentage of total spend, therefore, breaks down as follows: 46.9 per cent for small companies, 57.6 per cent for medium-sized companies and 54.7 per cent for large companies.
- Overall, just 4 per cent of legal spend gets allocated to other business units.
- Just 2 per cent of legal spend gets allocated to legal technology.
In late March, Thomson Reuters’ 2021 State of Corporate Law Departments Report uncovered the 10 best ways to manage external counsel costs.
Speaking about the results, ACC Australia and Asia-Pacific vice-president and managing director Tanya Khan (pictured) said: “This report provides valuable insights across a range of metrics for law departments across industries, regions and company size.
“Regardless of industry and company size, this report provides a range of valuable data that will allow legal department leaders to benchmark against, to consider alternative approaches or to highlight how their legal department is excelling against those global benchmarks.”