In-house legal counsel are wielding an ever greater amount of power within their organistions as well as in their use of external legal counsel, and are using the upper hand to cut back on external legal spending, a new survey has found.
The Deloitte Forensic Corporate Counsel Survey 2010 found 59 per cent of in-house counsel surveyed said the amount of legal work being outsourced to external law firms had decreased during the past five years.
Sixty-one per cent of respondents said costs and desire for value was the driver for this trend, as the best way to demonstrate in-house department value to the organisation was to cut back on external legal expenditure.
Making it doubly difficult for private practice firms, in-house counsel have rapidly gained increased prominence within their organisations.
The survey found 63 per cent of legal counsel are now a part of the senior management or executive teams - up from 40 per cent five years ago - while these in-house lawyers are now the first point of call for legal advice given to senior management in 92 per cent of cases - up from 64 per cent five years ago.
In a snub for law firms, the newfound status led to 71 per cent of in-house legal counsel at large organisations saying they had greater influence in the business environment than a partner of a large law firm, an about-face on perceptions five years ago when 76 per cent of in-house counsel said private practice partners had greater influence.
Deloitte corporate counsel Victoria Sweetman says the findings marked a shift towards in-house departments.
"Ten years ago, in-house teams were seen as a speed bump in the business, an object to be negotiated to achieve what you wanted," she says. "We've seen a shift to where they are now a trusted advisor, and the business knows the value of advice they can provide by virtue of their intimate understanding of the business."
This means that outsourcing to external law firms was now the "exception, rather than the rule".
"They won't outsource as a matter of course anymore, only in particular circumstances, and when they do go out, they want high quality work, usually on a specific issue, and in most cases they'll be prepared to pay for it," she says.
This is driving change in the provision of external legal advice, the survey found, with 64 per cent of respondents believing that the methods used by law firms have changed. The predominant form of advice is now email, at 38.5 per cent, while oral advice over the telephone has increased in popularity for 26 per cent of respondents. The supply of formal written reports has decreased dramatically from 36 per cent five years ago, to only six per cent.
In-house counsel's proximity to the business is seeing them take on increased non-legal responsibilities as part of their remit, with the number of their non-legal roles having increased from 2.4 to 3.7 over five years. The most common non-legal roles are company secretarial responsibilities, regulatory compliance and risk management.
However, Deloitte says "the one card that in-house counsel do not have" is that of legal professional privilege, which remains the domain of the private practice law firms in the dealings with their clients.
In other findings, the Forensic Corporate Counsel Survey found the wave of litigation that was expected to follow the financial crisis had not eventuated - in fact, in-house respondents indicated that 82 per cent of their organisations disputes are resolved by negotiated settlement, up from 74 per cent five years ago.
The biggest legal risk on the horizon was maintaining regulatory compliance, found the survey, while 82 per cent of respondents said they had seen increased regulatory activity in the past 12 months, primarily in the area of investigations.