The 2009 Chief Legal Officer Survey, conducted annually by Altman Weil, Inc., reports ongoing, incremental change in corporate law departments in response to the new economic landscape, but a deep skepticism that their law firm counterparts are equally serious about change.

“This year, in the midst of an unprecedented financial shift, we wanted to learn if the talk about a changing model of legal service delivery – in terms of pricing, staffing and law firm selection criteria – was being translated into action,” DiLuccio said.  But cleints don't see it happening.

Heavy pressure to change

The survey asked Chief Legal Officers (CLOs) to rate how much pressure corporations are putting on law firms to change the value proposition in legal service delivery, as opposed to simply cutting costs. CLOs responded across the board, with:

• 25% rating the pressure as high – or between 8 and 10 on a zero to 10 scale
• 37% rating the pressure in the mid-range at 5, 6 or 7
• 38% rating it low, between zero and 4. 

However, when asked how serious law firms are about changing their delivery model, the answers were in sharp contrast.  Only 5% of CLOs assessed law firms as highly serious, scoring them between 8 and 10.  Twenty percent gave firms credit for some level of effort, rating them 5, 6 or 7. A full 75% rated law firms between zero and 4 on the scale, indicating little or no interest in change.

40% of corporations will send less legal work outside

Corporate law departments will decrease their use of outside counsel in the next 12 months, according to the survey.  Forty percent of respondents indicated that less work would go to law firms this year, up from 26% last year.  In the eight prior years of the Chief Legal Officer Survey, first conducted in 2000, this number had never risen above 20%.

Twenty-seven percent of corporate law departments have also reduced their in-house lawyer staff so far in 2009, and another 9% consider it “likely” or “possible” that they will do so in the remainder of the year, according to the survey.  Law departments also report making cuts to the ranks of contract lawyers (15% of departments have done so), paralegals (21%), and support staff (26%).

“This combination of inside and outside reductions means not only that in-house lawyers will assume greater workloads, but also that Chief Legal Officers will need to become more strategic about triaging work, allocating resources, and, in some cases, tolerating higher levels of risk,” says DiLucchio.  “And when they do hire outside counsel, you can bet that they will be shopping for value.”

The importance of price when hiring outside counsel declines as the importance of the work being done increases, according to the survey.  In addition, there is a direct correlation between the importance of a firm’s capabilities and the importance of the matter to the corporation.     

“Neither of these findings is surprising,” according to DiLucchio.  “But what did surprise us was that CLOs rated the importance of ‘relationships’ with outside law firms at exactly the same low level, whether for critical work, important work or commodity work.  The personal element apparently doesn’t carry as much weight in the hiring decision in 2009.”

The pace of change toward non-hourly billing is accelerating, according to the survey.  Seventy three percent of law departments reported that 1-10% of their law firm fees were non-hourly in 2008; and, 27% of departments said that more than 10% of fees paid were non-hourly last year.  In comparison, in 2009, 57% of departments expect to pay between 1% and 10% of fees for non-hourly work, while 43% will spend more than 10% of total fees in non-hourly arrangements.

The survey

The Chief Legal Officer Survey has been conducted and published annually by Altman Weil, Inc. since 2000, most recently in June 2009.  One hundred and eighty-three responses were received for the 2009 survey, 15% of the 1,222 corporate law departments invited to participate.  Twenty percent of respondents work for corporations with over $10 billion in revenues; 42% are in corporations with between $2-$10 billion in revenues, and 38% had revenues under $2 billion.  Additional demographic and budgetary data on responding law departments is included in the survey report. The full survey is available to download at www.altmanweil.com/CLO2009.