Trending Legal Spending: Examining the HBR Consulting Study

by | Oct 8, 2014

CounselLink Corporate Counsel Analytics

An example of a corporate legal department analytics dashboard.

Around the world corporate legal spending grew by 2% in 2013, according to a new survey by HBR Consulting.  How that money is being spent makes all the difference – inside legal spending grew 5% while spending on outside counsel dropped by 2%.

A narrower look at corporate legal spending within the U.S. produced similar results.  The survey found that total legal spending rose by 1% during the same period, yet inside counsel spending rose 4% while spending on outside counsel spending fell by 1%.

In the U.S., corporate legal departments typically split spending 60/40 between outside and inside counsel.  This means the percentage of movement up or down has an actually representation that may be larger – a smaller slice of a much larger pie for example.

Legal Department Spending Benchmarks

HBR Consulting says it surveyed 292 companies of which 70% had “revenues equal to or above the 2013 Fortune 500 level.”  According to the study’s findings:

Law Department Spending. The median total legal spending was $29.7 million worldwide and $26 million in the U.S. Total legal spending as a percent of revenues worldwide was 0.34 percent. The median inside legal spending was $12 million worldwide. Inside legal spending as a percent of revenues worldwide was 0.13 percent. The median outside counsel spending was $15 million worldwide. Outside counsel spending as a percent of revenues worldwide was 0.19 percent.

Legal Staffing. The median company reported 32 lawyers worldwide and 21 lawyers in the U.S. Per billion dollars of revenues, the median company had 3.6 lawyers worldwide. The median number of total law department staff (including lawyers and all non-lawyer staff) was 57.5 worldwide. Per billion dollars of revenues, the median company had 6.8 total legal staff worldwide.

Forecast for Legal Services. The participants were asked to forecast their demand for legal services across 28 different legal practice areas. The top three areas where demand is anticipated to increase were International (52% of participants selected), Regulatory (44%) and Commercial Contracts (39%).

A Multi-Year Trend; Not Just about Cost

The rate of growth in legal department spending been slowing for three years, according to report about the survey on  HBR Consulting’s Lauren Chung quantified slowing growth for reporter Sue Reisinger – overall spending has dropped, “from 5 percent three years ago to 3 percent two years ago to only 2 percent this year.”

The article says Ms. Chung “credited the decline to continued cuts in outside counsel spending” but noted cuts are not solely about cost but rather about value.  “It’s not just about cost, but about getting more effective service and delivery of that service.”

Related Content:
ELM Trends:  Corporate Legal Continues Law Firm Consolidation
What are the Going Law Firm Rates by Practice Area?
The New and Evolving Legal Department Operations Role

The case of cost versus value is an aspect our own Kris Sakunas has explored noting that common metrics in legal departments are all about cost.  “I’m not suggesting that organizations don’t manage the costs of their legal departments, but cost metrics have to be balanced against metrics that show the amount that the legal department prevents the organization from spending,” she wrote.

Corporate Legal Departments Increasingly Eye Operations, Analytics

“The survey also noted how technology and data analytic tools are increasingly being used to manage legal spending,” according an article published on Inside Counsel. “Some 50 percent of legal departments taking part in the survey said they use data analytics to select and improve negotiations with outside counsel.”

This finding also nests with what we as a software business, which in part develops legal analytics tools for corporate counsel, we’ve seen and heard in the market.  For example at user conference this past spring, the visualization of data was one of six legal department trends top of mind among corporate legal professionals in attendance:

“It is widely acknowledged that lawyers don’t want to see numbers and reports. They want to see a story. There was tremendous interest in seeing examples of how other customers’ present data, learning how to build dashboards, and hearing about when we will roll out more visual standard reports.”

Bright Spot for Inside Counsel Hiring

“On a bright note for legal employment prospects, 55 percent of 2014 survey participants worldwide reported an increase in the total number of lawyers employed while 61 percent increased their total legal staff, which includes paralegals and administrative personnel, [Ms.] Chung says,” wrote MP McQueen in The Am Law Daily: Survey Finds Modest But Slowing Increase in Legal Spending.

While overall legal sectors jobs have been topsy-turvy – for example up in August then down in September – survey data has consistently pointed to an optimistic view point for hiring in corporate legal departments.  Studies from the last 12 months or so, including those from ALM, BTI Consulting, Robert Half Legal, and The Consero Group, all point to a similar trend line among corporate counsel hiring.

If you enjoyed this post, you might also like:
How Corporate Legal Can Implement AFAs without FUD

    Contact Us

    To learn more or schedule a free demo of CounselLink, simply fill out the form below.

    First Name *

    Last Name *

    Work Phone *

    Work Email: *

    Company *

    Country *

    Zip Code * ( USA Only )

    Inquiry *

    LexisNexis, a division of RELX Inc. and our LexisNexis Legal & Professional affiliates may further contact you in your professional capacity about related products, services and events. You will be able to opt-out at any time via the unsubscribe link provided within our communications or manage your communication preferences via our Preference Center. For more information, see our Privacy Policy.