In September, we highlighted a recent poll of Australian law departments that indicated companies were shifting legal work in-house as a means of cutting and controlling costs. According to new data from HBR Consulting, the phenomenon is growing in the U.S. Results from the 2011 HBR Law Department Survey showed a 6% increase in in-house legal spending from 2009 to 2010. Over the same period, outside legal spending declined 3%. The numbers reflect a trend towards larger, more robust law departments taking a more prominent role in not only shaping a company’s legal strategy, but carrying it out.
Although the argument that law departments can reduce legal spending by moving more work in-house is not new, the length and tenor of the economic downturn may have pushed general counsels to more seriously consider the strategy. Mark Ohringer, general counsel of global real estate developer Jones Lang LaSalle, recently noted that he spends 75% of his budget on non-law firm resources and considers his in-house team to be outside firms’ “biggest competitor.” And GC Jeff Carr of FMC Technologies in Houston told Inside Counsel earlier this year, “At the end of the day, you really would rather not have to use outside counsel if you think it through.”
One major reason for investing in internal legal spending is the opportunity to use the legal function to prevent and anticipate problems, rather than to merely address them after the fact. In-house counsel who work closely with the business units have the opportunity to be forward-looking in a way that outside firms do not. For instance, when Google decided to cease business operations in China last year, the decision was driven in part by general counsel Kent Walker, who told the Financial Times that the in-house legal role is, in part, to “see around corners.”
As companies increasingly focus on what the in-house legal function has to offer, they may find they need to adjust their existing model to accommodate their needs. IBM, which has spent the last several years overhauling their law department to better serve the company, has done just that with regards to their attorney recruitment. IBM has begun to hire students directly from law schools, in an effort to ensure that in-house attorneys develop key company knowledge and specific skills. According to an article on the company’s law school recruiting last month in Corporate Counsel:
The decision to hire students from law school came three years ago. There was nothing wrong with the candidates they were hiring after five, six, or seven years at law firms. But the skills they’d learned as associates didn’t match up very well with their responsibilities at IBM, [General Counsel Robert] Weber says. The company still had to train them for six months before they were really ready to contribute.
And IBM is not alone. As the in-house function grows in size and prominence, more companies may seek to control the training and recruitment of attorneys instead of outsourcing these activities to outside firms.
The in-house shift is thus not merely a reallocation of resources. For at least some law departments, the shift has been an opportunity to gain greater control over the legal function and the long-term legal strategy of the company.
Posted by Emily Fisher