43% of law departments expect to increase total legal spend
New findings from Thomson Reuters unveil the “strongest indication” of a greater uptick in legal expenditure tracked in the last decade.
Thomson Reuters has released its 2022 State of Corporate Law Departments Report, detailing departmental priorities for the coming year. The report incorporated responses from over 2,000 telephone interviews with senior in-house counsel across the globe.
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As corporations’ responses continue to evolve moving forward in 2022, the report reflected, there is “appetite and readiness for even greater transformation” across the board.
“Where 2020 and 2021 saw the emergence of new ways of working rapidly imposed because of the pandemic, 2022 looks to offer the law departments the opportunity to drive positive change for their people and work,” the authors noted.
“The most successful law departments will be those that leverage the momentum of the past two years to actively embrace transformative change, in how they integrate and operate both within their organisation and in utilising outside legal expertise.”
The priorities of law departments for the coming 12 months remain largely unchanged from previous years, the authors noted – 50 per cent are concerned with conducting operations efficiently, 46 per cent want to safeguard the business, 39 per cent want to deliver work more effectively amidst external challenges, and 14 per cent want to maintain and develop talent – but with more legal needs emerging and escalating demand for internal and external legal services, there is elevated anticipation for increased spending.
Increases in legal spending expected
The report found that more than two in five (43 per cent) of corporate law departments globally are expecting their total legal spend to increase in the next 12 months. Just one in five (21 per cent) is anticipating a reduction in total spending.
This is the “strongest indication”, Thomson Reuters deduced, of a significant upturn in legal expenditure that has been tracked by the company in the last decade.
“As spend rises, so will the importance of ensuring that it is deployed in the most efficient and effective ways possible. Measurement, monitoring, and benchmarking will become even more critical tools for those managing legal budgets,” the authors advised.
Thomson Reuters suggested three areas where law departments should look to benchmark spending relative to competitors: spend relative to revenue, future spending, and team size.
“Measuring an organisation’s legal spend as a percentage of its revenue enables law departments to monitor movements in legal costs relative to corporate growth. Focusing on legal spend in isolation risks giving the appearance of ever-increasing costs without taking into account the greater volume of work being done,” the authors outlined.
“To be efficient, law departments need to be able to plan ahead and assess the optimal way to resource the anticipated work. That means determining whether it can be handled by the existing in-house team, if additional headcount or different expertise should be hired, the volume of work by type, and whether it is best to outsource the work to external law firms or alternative legal service providers.”
The report also found that four in five (82 per cent) of law departments believe that they are as proactive or better on spend management than they used to be.
Alternative fee arrangements (AFAs) and fixed fees now only account for about 20 to 25 per cent of billings, which marks a slight decline over the past decade.
Elsewhere, almost all (90 per cent) of law departments now use metrics to track their work, but respondents did indicate that metrics can and should be more sophisticated. Spend was identified as the main area for metrics, followed by efficiency and quality.