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Trend of in-house counsel doing more internally likely to continue

October 19, 2016

Since joining Indiana University as vice president and general counsel in 2012, Jacqueline Simmons has reduced the money spent on outside legal assistance by doing two things — handling more work internally and demanding price discounts from law firms.

simmons_jackie_mug Simmons

What is happening at IU, one of the state’s largest employers, is not uncommon. Certainly since the Great Recession and possibly a little before, businesses have been relying less on outside counsel and using in-house attorneys more to work on legal matters. The main drivers behind the trend are companies’ desire to save money as well as to increase efficiencies in getting work done.

Industry consultants do not expect corporate legal departments to return to farming out a majority of their work. Michael Sachs, partner at Major Lindsey & Africa, a legal recruiting and staffing company, said businesses may loosen the purse strings in the future but days of spending $500 for a law firm contract review are gone.

sachs_mike_mug Sachs

Simmons, who was a partner at Faegre Baker Daniels LLP before moving to IU, pulled more work in-house by hiring two additional attorneys, bringing her department to 11 lawyers. In fiscal year 2016, she saved just under $295,000 in outside legal spending by negotiating discounts. IU’s legal spending dropped to $1.53 million in fiscal year 2016, down from $2.23 million in FY 2015 and $2.36 million in FY 2014.

She sees the cost savings as reinforcing the trend.

“I continue to see corporations and universities continue to bring more and more work in-house just because it is a less expensive way to get your work done,” Simmons said.

Law firms are feeling the shift, according to the 2016 Law Firms in Transition survey by Altman Weil. A majority of the firms, 61.8 percent, said demand for their services has not returned to pre-recession levels. Sixty-eight percent reported they have lost business because corporate law departments are doing more work in-house and 69.1 percent believe the trend is here to stay.

Robert Reiling Jr., founding member of Reiling Teder & Schrier LLC in Lafayette and secretary of the Indiana State Bar Association Corporate Counsel Section, has seen companies performing more legal work themselves for the past 10 years.

Not only does he expect businesses to keep pulling work in-house, he has encouraged some small enterprises to put attorneys on staff. He has had business clients who grew to a certain size, he said, and he worried that they did not have someone in-house to monitor contracts and review documents.

Partnering with law firms

Companies do still outsource legal work, but they have become more deliberate when making that decision.

Typically, corporate legal departments call upon law firms to handle complex and significant matters for which they do not have in-house expertise. A 2016 survey of chief legal officers by the Association of Corporate Counsel found 90 percent of respondents outsource complex litigation and 63 percent reported they outsource patent work. Meanwhile, at least 80 percent did contract management, document review, content creation and records management internally.

At Emmis Communications Corp., executive vice president and general counsel J. Scott Enright said when deciding whether to enlist outside help, he evaluates the type of legal matter and the workload currently being handled by the three in-house attorneys. The underlying goal is to get the work done quickly and cost effectively.

Generally, issues that require a specific expertise, such as a technical matter from the Federal Communications Commission, will be turned over to outside counsel while the “relatively straightforward” work such as drafting contracts will stay in-house. Also, Enright might use a law firm if his department is already working at capacity on multiple projects.

Yet, he noted, even though the work is outsourced, his department is still responsible. “At the end of the day, we do it all but we don’t do it all directly,” he said.

merklinger-james-mug Merklinger

James Merklinger, vice president and chief legal officer at the Association for Corporate Counsel, said outsourcing does come with risks. Choosing the wrong outside lawyer to handle a matter can force the company to spend more money than it should for legal services or, in the worst-case scenario, the business could go bankrupt from legal expenses.

However, Merklinger continued, keeping all the work in-house can be risky too. Corporate attorneys could become overloaded and their final work product could suffer.

Once IU decides to use outside counsel, Simmons requires the law firm to cut 15 percent to 20 percent off its usual rate. Only one firm has refused to lower its price during her tenure.

Firms that do work under the discount, she has noticed, seem better at moving the work to the appropriate person. Senior partners, who bill at a higher rate, are handling the more complex matters and not doing the tasks that can be managed by an associate. This keeps the cost low for both the firm and the university.

Technology has provided another key factor in keeping outside legal expenses in check. The IU legal department this year implemented Legal Tracker (formerly Serengeti), a management and e-billing software that audits every law firm bill and automatically rejects charges the department did not agree upfront to cover.

Simmons said the dollars IU spends on outside legal services might bump up slightly in the coming years, depending on the type and amount of work that needs to be done. But the university will always realize a savings because of the negotiated discounts with law firms.

A strategy that’s working

More than saving money, in-house legal departments are seen as offering the intangible benefit of better understanding the company and being better able to spot problems before they become major concerns.

Enright said he and his team meet regularly and have developed collaborative relationships with the different departments in the media company. This enables the in-house attorneys to provide a higher level of service than outside firms because they know the priorities of the business.

The ability to get to know a company really well has kept Enright at Emmis for 18 years. “I love it,” he said of his work as general counsel. “I like being close to the business and being able to see the impact you have.”

As a sign that legal departments are becoming more entrenched in companies, Merklinger pointed to the growth of legal operations. These are business units that manage the nuts and bolts of the corporate counsel office, handling a variety of duties from the day-to-day aspects of running an office to picking the computers and software the attorneys will use. Lawyers in the department can then focus fully on their legal work.

The 2016 ACC survey found that 48 percent of the legal departments now had legal operations offices, up from 20 percent a year earlier.

Overall, Sachs sees corporate legal departments becoming smarter about how they use outside lawyers. Companies lose control when they send all the work to outside counsel and have multiple law firms providing services. A better approach, he said, is to keep work in-house and enlist just a handful of outside firms for critical matters.

Whether this strategy is working for legal departments is difficult to measure. Anecdotally, Sachs said he has not heard of any problems or complaints from corporate attorneys. That leads him to one conclusion.

“Is it working?” Sachs asked. “I absolutely think it is.”•

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