find the latest legal job
Corporate Counsel and Company Secretary
Category: Generalists - In House | Location: Newcastle, Maitland & Hunter NSW
· Highly-respected, innovative and entrepreneurial Not-for-Profit · Competency based Board
View details
Chief Counsel and Company Secretary
Category: Generalists - In House | Location: Newcastle, Maitland & Hunter NSW
· Dynamic, high growth organisation · ASX listed market leader
View details
In-house Projects Lawyer | Renewables / Solar | 2-5 Years PQE
Category: Generalists - In House | Location: All Australia
· Help design the future · NASDAQ Listed
View details
Insurance Lawyer (3-5 PAE)
Category: Insurance and Superannuation Law | Location: Brisbane CBD & Inner Suburbs Brisbane QLD
· Dynamic organisation ·
View details
Legal Counsel
Category: Corporate and Commercial Law | Location: North Sydney NSW 2060
· 18 month fixed term contract · 3-5 years PQE with TMT exposure
View details
In-house needs reality check on value

In-house needs reality check on value

General counsel need to take the lead on reducing costs, experts claim

General counsel need to take the lead on reducing costs. Ted Dwyer and Richard Stock write

Like this story? Read more:

QLS condemns actions of disgraced lawyer as ‘stain on the profession’

NSW proposes big justice reforms to target risk of reoffending

The legal budget breakdown 2017

IN-HOUSE legal departments are under increased pressure to reduce their operating costs, even when the company is doing well financially.

The simplest response is to focus on the cost of external counsel in law firms, and the first reflex is to focus on hourly rates. This is being done across the board, for example Wal-Mart’s associate general counsel, Miguel Rivera, froze all hourly rates for 2008 by issuing a decree to all his law firms in late 2007.

The 2008 ACLA/CLANZ survey of legal departments in Australia and New Zealand revealed that the number one way (62 per cent of responses) a law firm could improve its working relationship with the company is “to be more concerned with costs”. The pressure is much greater since the beginning of this economic downturn.

It’s interesting that general counsel often look to law firms, rather than themselves, to reduce legal spend. And it’s true that law firms are responsible for escalating costs by 5 per cent - 10 per cent a year on a weighted rate basis.

One leading Australian firm, for example, is now charging more than $1,000 an hour for some of its  partners' advice. But whose fault is that in a free market? The business priorities and business model of a law firm are not the same as those of its primary corporate and institutional clients.

While some companies have introduced innovative methods to move to a true partnership with fewer firms, arguably most have not. It is time for those leading legal departments to conduct a reality check on their efforts to mitigate the cost of legal services.

It's interesting that only 32 per cent of legal departments have conducted a formal procurement process to select their law firms. Fewer than half of these will undertake a similar process to renew agreements within five years.

On top of this, for the most part, legal departments do not know how many hours of legal work they have purchased by category or specialisation in the last three years. They do not forecast their demand using the number of hours by legal specialty and they do not rely on gradations in complexity of legal work for planning and management purposes.

It's worth considering, as well, that there are no recognised optimal staffing configurations for law firms to use for given categories of work and certainly none are discussed with their law firms. Everything is free form.

Only 60 per cent of legal departments negotiate discounts on fees, and 40 per cent pay full retail. Meanwhile, only 30 per cent use matter budgeting and require detailed fee estimates by matter from their law firms. And, finally, only 31 per cent have agreed-upon service levels 28 per cent use non-hourly billing some of the time, but fully 90 per cent of the legal work is still billed on a variation of the hourly rate.

Corporate counsel could do much to fill this void. Many general counsel don’t realise how legal spend can be quickly reduced with the right combination of measures. There has been a lack of confidence among general counsel about where to start. But there’s no use complaining and then doing nothing.

The key objective should be about reaching a long-term agreement with quality law firms that is fair to both sides, and perfectly possible. However, the lead must come from general counsel.

Richard Stock is a partner of Catalyst Consulting. He has led sessions on performance in legal departments for ACLA since 2005. Ted Dwyer is director of Dwyer Heath. He consults to law firms and legal departments on profitability, pricing and work management. Catalyst Consulting is collaborating with Dwyer Heath to better address the management requirements of legal departments.
In-house needs reality check on value
lawyersweekly logo
Promoted content
Recommended by Spike Native Network
more from lawyers weekly
LCA applauds proposed Modern Slavery Act
The Law Council of Australia has welcomed new recommendations for the development of a Modern Slaver...
Top-tier offers targeted mentoring for Indigenous law students
Students at Macquarie University will be the first to benefit from a new Indigenous mentoring progra...
LCA president Fiona McLeod SC
Aug 17 2017
Where social fault lines meet the justice gap in Aus
After just returning from a tour of the Northern Territory, LCA president Fiona McLeod SC speaks wit...
Allens managing partner Richard Spurio, image courtesy Allens' website
Jun 21 2017
Promo season at Allens
A group of lawyers at Allens have received promotions across its PNG and Australian offices. ...
May 11 2017
Partner exits for in-house role
A Victorian lawyer has left the partnership of a national firm to start a new gig with state governm...
Esteban Gomez
May 11 2017
National firm recruits ‘major asset’
A national law firm has announced it has appointed a new corporate partner who brings over 15 years'...
Nicole Rich
May 16 2017
Access to justice for young transgender Australians
Reform is looming for the process that young transgender Australians and their families must current...
Geoff Roberson
May 11 2017
The lighter side of the law: when law and comedy collide
On the face of it, there doesn’t seem to be much that is amusing about the law, writes Geoff Rober...
May 10 2017
Advocate’s immunity – without fear or without favour but not both
On 29 March 2017, the High Court handed down its decision in David Kendirjian v Eugene Lepore & ...