The latest "LDO Index" report shows that corporate law departments continue to face old challenges like cost control, even as new ones, such as ESG priorities, raise fresh concerns
As has been the case for years, corporate law departments continue to face the brunt of pressure points involving cost control, increasing workloads, and staffing concerns; however, newer challenges involving technology adoption and environmental, social & governance (ESG) priorities also have given many department leaders sleepless nights, according to this year’s Legal Department Operations (LDO) Index Survey, published by the Thomson Reuters Institute and the Legal Value Network.
Balancing outside counsel & in-house workloads
It’s no surprise that controlling outside legal counsel spending remains a top priority for law departments. Spending on outside counsel remains the single largest budget item for most corporate law departments. Given the changing economic environment and increasing volumes of legal work matter, departments also are gearing up to handle more work in-house for the remainder of 2022 and beyond.
You can download the full 2022 Legal Department Operations Index here.
Roughly one-half of respondents to the LDO Index survey said their departments were hiring additional attorneys. However, increasing matter volumes and growing headcount have not necessarily translated into increased budgets for many departments, and relatively few say they’re increasing their hiring of legal operations staff.
The general trend of the economy is also weighing on in-house counsel’s minds as they adapt to continuously increasing law firm billing rates. In general, the rates paid by law departments to their outside law firms has continued to increase, although not necessarily across the board. Year-over-year rate increases in 2022, compared to 2021, represented modest growth, or in some cases, even a slight contraction. When compared to 2020, however, rates in 2022 are up nearly universally — and in some cases, they’re up quite substantially.
Even as legal departments try to get their outside counsel costs under control, the use of alternative pricing structures — such as alternative fee arrangements or blended rates — remain relatively rare. Indeed, most law departments rate their legal spend management sophistication as middle of the road, which means that most departments continue to rely on general billing guidelines and discounts as their primary cost-control measures.
In fact, the survey shows that more sophisticated cost-control measures and the metrics used to track their efficacy remain relatively underutilized by all but a few corporate law departments.
Technology & staffing
The most common technologies that are seen to bring value to law departments today are electronic billing, electronic signatures, and online legal research — although many also feel that these solutions, while purchased and deployed, remain underutilized. Perhaps as a reflection of this concern, legal operations professionals report that the pace of change in their companies regarding improvements to process and technology is, for the most part, moderate at best or slow to non-existent at worst.
Indeed, there is a similar sense of hesitancy with regard to resource and budget allocation. While 30% of respondents reported being satisfied with their departments’ budget and resource allocation, another 28% reported being either dissatisfied or very dissatisfied with their allocation.
This may be indicative of the fact that in-house matter volume continues to increase, while budgets and legal operation staffing remain, for the most part, stagnant. The average corporate law department in the survey reports only 3.8 legal operations full-time equivalent (FTE) staff members within their department. While this will obviously vary based on department size, the additional commentary provided by survey respondents indicates that for many companies, dedicated legal operations staff remain relatively rare.
The rising importance of ESG
Despite much conversation in the broader marketplace around the increasing importance of ESG issues in general, and diversity, equity & inclusion (DEI) concerns in particular, the majority of companies responding to the survey have yet to implement a diversity initiative. For those companies that do report having such an initiative, it is still a relatively new venture, often less than two years old. These initiatives also seem to lack granularity in the diversity information collected, and most companies report that they seem unsure of how to utilize the data that they do collect.
As focus on ESG and DEI issues continues to sharpen, however, the need to collect such information and use it in a meaningful way will only increase. Those companies which have already begun such initiatives, particularly the small percentage that have been at it for a while, will likely find themselves at an advantage.
However, it appears that much work remains regarding how to use diversity initiatives to drive meaningful change, or how to achieve desired goals and outcomes in terms of encouraging outside law firm diversity. Equally unclear, too, is how outside law firms can help their client companies meet their own ESG goals.