Corporate Legal Departments Maintain Status Quo

According to the Altman Weil Law Department Management Benchmarks Survey for 2005, despite years of discussion of cost controls and alternative billing arrangements, the status quo still rules in most corporate law departments.

“Law department expenditures and staffing remain largely unchanged,” notes Altman Weil principal Daniel J. DiLucchio. “And hourly rates remain the predominant law firm method of billing corporations, with the number one alternative billing technique reported as ‘reduced hourly rates’ — which ends up being no alternative at all in many cases. This suggests that law departments are not sufficiently analyzing their costs, nor implementing techniques that will assist their companies in managing, containing and controlling those costs,” DiLucchio adds.

Total law department expenses in all companies surveyed averaged $847,599 per lawyer in fiscal year 2004, virtually unchanged from the previous year. Internal expenses represented 50% of total expenses on average. For all companies participating in the survey, total legal expenses, measured as a percent of revenue, averaged 0.61% in 2004, which is virtually unchanged from the 0.59% reported-last year.

The 2004 cost of operating the in-house law department for all companies rose to an average of $324,547 per lawyer. This is a 2.5% increase over 2003 costs. Outside expenditures accounted for 51% of total law department costs. The Survey reports the highest percentage of non-litigation outside counsel fees went to general corporate practice (11%). For litigation practice areas, the greatest spending was on commercial/contracts (9.4%) and labor/employment (8.3%).

Lawyer staffing in corporate law departments decreased somewhat in 2004, with the key measure – lawyers per billion of revenue – dropping to 2.93 lawyers/billion compared with 3.5 lawyers/billion in 2003. This decrease was reflected in both a decrease in the average number of management lawyer positions as well as the average number of general lawyers. The average distribution of lawyers by practice areas within the law department remained consistent with 34.1% categorized as general corporate and 13% in litigation.

Staff positions were basically unchanged in 2004 with 0.9 paralegals per $1 billion in revenue reported in 2003 and 2004. In addition, administrative staffing was reported unchanged at 1.8 administrators per $1 billion of revenue for both 2003 and 2004. The Services industry employs the greatest number of lawyers at 4.02 per $1 billion of revenue, while the Wholesale/Retail industry employs an average of 1.47 lawyers according to the Survey.

Hourly billing by outside law firms continues to be the prevalent method of charging for legal services as 43.1% of the fees paid to outside counsel are based on hours. For those firms that do use alternative billing arrangements, reduced hourly rates are reported as the most prevalent by 57% of Survey participants.

In spite of in-house counsels’ continuing concerns over outside counsel cost management and service delivery, only 18% of in-house counsel formally evaluate their outside counsel. Although this is a 2% increase over the number reported for 2003, it remains low.

A separate Compliance Study conducted by Altman Weil, Inc. and Integrity Research Group reports that 66% of its participants have created a distinct compliance function in their organizations. Of those, one-third report to the Chief Executive Officer, one-third report to the General Counsel and one-third to “Others” in the organization.

The 2005 Survey includes data from 140 companies, 29% with revenues of $5 billion or more. Survey data is reported by sales revenue, number of corporate employees, industry type and law department size. Data was collected in the spring of 2005 and reports on fiscal year 2004.