The third edition of the Thomson Reuters Legal Tracker Legal Department Operations (LDO) Index was published yesterday (25 June), revealing a continuing ‘more for less’ agenda among US corporate legal departments, with document management and contract lifecycle management on top of the list of solutions they are seeking to buy and diversity barely registering in the outside counsel selection process.
The report is based on anonymized data from more than 1200 legal departments, as well as survey responses from 217 legal departments using Legal Tracker, including 76 corporations in the Fortune 1000 and across 34 industries.
Sixty-eight percent of legal departments surveyed report the volume of work, defined by legal matters, is increasing, but only 35% of legal departments report an increase in department budget over the last 12 months.
More surprisingly, 25% report a budget decrease, while 40% said that their budget remains flat.
According to the report, the top five initiatives for legal departments (ranked in priority from 1-4) are:
• Controlling outside costs (weighted average of 3.55)
• Using technology to simplify workflow and manual processes (3.04)
• Internal data security (2.92)
• Legal operations (2.84)• Drive internal efficiency in the delivery of legal services (2.83)
The next five priorities were:
Allocating work to law firms that are proactive in showing their value (2.73)
Managing litigation holds with technology (2.71)
External data security focus on outside counsel security practices (2.61)
Bringing more work in-house (2.6)
Using business intelligence to inform decision making (2.53)
“The data emphasizes how legal departments are continuing to manage their responsibilities and work more efficiently amid budget challenges or constraints,” said Chris Maguire, managing director of the U.S. Corporate segment, Thomson Reuters Legal. “One significant area that is seeing substantial growth and investment is the legal operations function. Employing this operational focus, legal departments are leveraging technology and process improvements to more efficiently serve the organization.”
Legal Operations
With 51% of legal departments now saying they have dedicated legal operations staff a majority has just been reached, with the remaining legal departments sharing the operational responsibilities among the entire legal department staff.
Based on external spend, 57% of legal departments that spend $15 million to $50 million have dedicated legal operations staff. That rises to 71% of legal departments with a spend of $50 million or more. By region, the West sees the highest percentage of dedicated legal operations at 61%.
However, the number of internal headcount devoted to legal operations is, on average, largely staying flat (77%), with 19% saying that their headcount will grow and 5% saying that it will decrease. That changes when you just look at large corporate teams, where 42% said their legal ops headcount is increasing.
Outside Counsel/In-house
The majority of legal departments surveyed (68%) reported that the volume of legal work – as defined by the number of matters – has increased in the past 12 months, with that rate of increase consistent across legal teams of different sizes.
Fifty four percent of organisations said they have increased the percentage of work handled in house in the past 12 months, and 37% have increased the number of in-house attorneys. However, 48% have also increased their outside counsel spend.
Spend Management
Unsurprisingly, an overwhelming 93% of legal departments say that controlling outside legal spend is a key area of focus. Most departments (62%) consider themselves proactive, meaning they are using billing guidelines, invoice audits, as well as process management of timekeepers and matters.
Among those surveyed, the top cost control resources utilized include:
• Reduction of invoice expenses
• Moderate enforcement of billing guidelines
• Strict enforcement of billing guidelines
• Standard discounts on proposed timekeeper rate cards
• Reduction of timekeeper rate increases
Departments self-categorised their spend management sophistication ranging from chaotic to predictive with only 13% saying their model is ‘optimised’:
Chaotic (3%)
Reactive (23%)
Proactive (56%)
Optimised (13%)
Predictive (6%)
Alternate fee arrangements are growing, with an average of 60% of corporations saying they use AFAs on 1-20% of matters. A further 14% said they use AFAs 21-40% of the time.
Legal Technology
Forty five percent of corporate legal teams reported increasing usage of legal technology. However, when it comes to the budget for technology, just 35% report that they are increasing the budget, 52% are flat, and 13% said that their technology budget is decreasing.
The 35% matches the percentage that said their overall budget is increasing, but it is not clear whether there is a direct correlation here.
The top technology solutions utilized by legal departments include:
• E-billing/spend and matter management (3.67)
• Document management (2.59)
• Legal hold (2.57)
• Ediscovery (2.26)
• Legal research (2.25)
And as legal departments continue to pursue new ways to improve, the top emerging solutions they are seeking to procure include (by number of legal departments):
• Document management (20%)
• Contract lifecycle management (18%)
• Legal workflow automation tools (15%)
• Knowledge management (15%)
Looking at litigation hold technology specifically, 59% said it was a key priority, with 83% of large legal departments identifying use of legal hold technology as a key priority.
Diversity
Disappointingly, only 5% of corporate counsel said that diversity data was a high priority in their overall selection of outside counsel and a whopping 60% said that it was ‘no priority’.
Overall, 71% of legal department survey respondents do not require diversity data from their law firms.
The Trump administration recently suspended a rule that would compel US companies to report publicly on pay by gender.
The full report of the Thomson Reuters Legal Tracker LDO Index can be downloaded here: Legal Tracker LDO Index.