Learning From the Past to Prepare For Tomorrow
Throughout 2010, ACC continued to take the pulse of the legal industry through its annual surveys. From the changing role of the CLO, to the evolving relationship with outside counsel, including the increased use of alternative billing arrangements, our surveys provided data to our members so they could have reliable benchmarks for their own law department management practices and insights into new legal and business trends. Our surveys shared some themes in terms of takeaways for 2011 – a desire for an increase in value and efficiency in legal work predominated and practical methods for achieving such efficiencies emerged.
With fickle consumer confidence and a sluggish economic recovery this past year, CLOs actually showed signs of optimism indicating increased job satisfaction and plans to hire internally, according to the 10th Annual Chief Legal Officers Survey released in March. Results showed a sharper focus on reducing costs, increasing value and responding to regulatory scrutiny. Specifically:
·91% of CLOs reported that despite expanding duties, they were still satisfied with their chosen career. This is a positive data point indicating that external economic conditions did not heavily impact job satisfaction. One could surmise that internal structures, processes and rapport with management strengthened relationships and solidified job satisfaction and will play a key role in continued career fulfillment in the year ahead.
·29% (more than a quarter) of the respondents planned to hire staff for their in-house legal departments in 2010. Despite the recession, this was up from the 23% with hiring plans in the previous year’s survey. The uptick in staffing and augmented workload will require an increased focus on efficiency in the coming year as CLOs manage their law departments, budgets and C-suite relations.
·79% of CLO respondents want to increase the percentage of outside counsel spending based on alternative fee arrangements. As CLOs face a myriad of intricate and new challenges, they are turning to business-oriented solutions. Initiatives such as the ACC Value Challenge will play an integral role in 2011 as in-house counsel seek more creative, value-based billing arrangements with outside counsel.
Another important set of benchmarks emerged in October with the release of the 10th Annual ACC/Serengeti Managing Outside Counsel Survey. For a decade, this survey has assessed key elements of the in-house counsel/outside counsel relationship. This year’s results revealed that in-house counsel are seeking more business-oriented management techniques and more value-based fees from their firms to drive efficiency in legal costs and reduce overall legal spend.
·65% of respondents now require project budgets; 60% require risks/potential resolution strategies. Compared to a decade ago, in-house counsel now require measurable data, metrics, targets, project management tools and rigorous cost-controls to implement getting maximum value from their outside firms. This will continue to be a priority in the year ahead.
·Company resistance to alternative fees has declined by 16%; firms’ resistance to alternative fees has declined 69%. Over the past ten years, results show that law firms are “getting it,” as they are offering alternative fees more often (up 6%). In light of these results – and those from other surveys – we believe the move to alternative billing will continue to increase in 2011, even if the economy strengthens.
·28% sought input from their law firms when evaluating technologies for collaboration. The most common technologies for which law firms provided input were matter management and e-billing systems. Law firms should heed these results and offer clients useful business solutions in 2011.
A third survey in November, the ACC/The American Lawyer Alternative Billing Survey, also showed an increase in the use of alternative fee arrangements in 2010. While still a small percentage of total outside counsel spend, the increase in the number of “value-based” fees demonstrated the determination of law department managers to continue to increase the use of alternative pricing and valuation methods, even as the economy recovers.
·29% of in-house counsel reported an increase in the use of alternative fees in 2010 and 53% of General Counsel said they used flat fee billing for an entire matter. We were interested to see if in-house counsel would continue to experiment with new fee structures once the markets began to rebound and budgets were not under the same level of stress in 2010. The fact that billing practices did not revert back demonstrated that in-house counsel were continuing the march to drive costs and value away from measuring hours alone. The needle will likely continue to lean toward alternative fees in 2011.
·52% of GCs indicated that their value-based or alternative fee arrangements were initiated primarily by the law department, not by law firms. With increased pressure to demonstrate value and stand out from competitors, law firms will need to be more proactive, become trusted business advisors to their clients and focus on value in their relationships with outside counsel in 2011.
·24% of survey respondents not using alternative fee arrangements in 2010, plan to try to implement them in 2011. These results show that the push for value-based fee arrangements is not a fad that will go away. These practices are now not only more acceptable, but becoming more firmly ingrained as an offering at major firms. As value-based billing options become institutionalized, we predict they will increase steadily not just this year, but year over year.
For both law departments and law firms, there is a lot to chew on in these trends and benchmarks as we ready ourselves for a new year with new challenges and we hope, new solutions. We will continue to tap into ACC’s in-house counsel community for feedback and insight to help us prepare for what is yet to come. As Albert Einstein proffered, “Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.”
