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The article below has been republished in full courtesy of Law360, written by Dani Meyer.
Competition for new clients in today's legal market is tough as general counsel whittle down the number of firms they are willing to work with, resulting in only 44 percent of legal departments engaging with a new firm last year, a new study says.
The 2015 year-end edition of the LexisNexis CounselLink Enterprise Legal Management Trends report found that 56 percent of legal departments aren’t willing to hire new firms that they haven’t worked with in the past four years.
Of firms that are willing to work with someone new, only 11 percent engaged with four or more new firms, according to the study, compared to 44 percent that hired at least one new firm.
“From the law firm perspective, the low level of new outside counsel hiring represents a challenge to firms hoping to acquire business from new clients. This supports the importance of firms differentiating themselves and finding new ways to add value for clients,” the study said.
However, the numbers do vary across different types of work, according to the study. For instance, 57 percent of companies with significant litigation and 46 percent with significant corporate work brought in new firms last year, compared to less than a quarter when it comes to employment work.
The report found that companies worked with a median number of 36 law firms in 2015, a figure that the study said is affected by a company’s size, the industry in which it operates and the type of legal matters that it deals with. Half of CounselLink’s customers retain between 23 and 71 law firms, according to the report.
The study also said that outside counsel fees spent on mergers and acquisitions have more than doubled since 2012, and 72 percent of the fees were earned by large law firms boasting more than 500 lawyers.
Approximately 99 percent of those M&A fees were billed on an hourly basis, according to the report, which also found that top lawyers’ billing rates increased from $903 per hour in 2012 to $1,032 in 2015. In comparison, the median rate was $623 in 2012 and rose to $638 last year.
“As demand for M&A expertise has grown, those partners with significant experience in this practice have been able to command higher rates,” the report noted.
Partner rates at law firms with more than 750 lawyers have billable rates that are about 30 percent higher than those at firms with 501 to 750 lawyers, a gap that the report said has stayed stable.
The use of alternative fee arrangements has also stayed fairly stable, at around 9.4 percent, with employment and labor, insurance, IP patent and regulatory and compliance fields using alternative fee arrangements most often.
Kris Satkunas, the principle author of the report, said in a statement on Tuesday that a cautionary tale can be found in the “vast volumes of legal spend data.
“That cautionary tale is cost metrics need to be balanced against value metrics. The data in this latest ELM trends report supports the notion that when it comes to high value work such as M&A, the corporate legal department is willing to pay for the very best legal counsel available,” Satkunas said.