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Wolters Kluwer ELM Solutions study reveals extreme legal spend volatility

Nearly one-third of corporate legal departments (CLDs) surveyed in a new Wolters Kluwer ELM Solutions study reported a remarkable 90% or more difference between their lowest and highest annual legal spend amounts since 2016, with 9% of those CLDs reporting a difference of three times or more.

The data contained in the company’s second LegalVIEW Insights report is the latest in a series of quarterly reports analyzing data from its LegalVIEW Data Warehouse, which includes information from more than $140 billion in invoices.

The typical change in legal spend was less dramatic but just as crucial for law departments that want to understand how they compare with the overall market. For instance, from 2019-2020, CLDs experienced a median 1% decrease in legal spend, and nearly two-thirds of law departments experienced at least some decline. However, the increases that did occur were more significant as 4% of CLDs saw legal spend double or almost triple in just one year.

“Legal spend variations are more volatile than most people appreciate, and it is not just because of the pandemic. Our data shows that the past is a good future predictor in the short term, but not necessarily the long term,” said Nathan Cemenska, director of legal operations and Industry Insights for Wolters Kluwer ELM Solutions. “In the long run, there is always a risk of significant outside marketplace events that can potentially double or triple the amount of legal work, which is never affordable. However, our analysis also suggests that organizations with more mature legal ops functions – especially in the banking sector – have a better chance at controlling costs even in the most unstable environments.”

Additional highlights from ELM Solutions’ second LegalVIEW Insights report include:

Despite overall legal spend volatility and the long-term trend of escalating legal costs, many CLDs held their spending flat for one, two or even three consecutive years.

CLDs showed a 46-60% chance of holding legal costs flat for one year and about a 9-18% chance of keeping it flat for three years in a row.

The ability of CLDs to control legal cost changes also varies widely by industry. For example, banks and other financial institutions – although their legal costs can be staggering – as an industry consistently reduced their overall legal spend every year since 2016.

However, consumer services businesses tended to see costs increase, while manufacturing companies saw no consistent pattern, either up or down.

In conjunction with its LegalVIEW Insights reports, ELM Solutions is producing an ongoing series of LegalVIEW Insights blogs, webinars and other content discussing the emerging trends from the LegalVIEW Data Warehouse. Earlier this year, ELM Solutions released its inaugural LegalView Insights report. It revealed that 90% of CLDs reduced their active provider relationships, and 16% of attorney-client relationships that existed in 2019 were paused in 2020. Both reports and other associated materials and are available on the LegalVIEW Insights landing page.

Caroline.hill@legalitlexicon.com