Data on legal spend within the financial services industry is somewhat paradoxical. While the financial industry as a whole pays more for outside counsel work than other industries, it is also the industry that does the best job of keeping legal rates flat over time. On episode 10 of the Legal Leaders Exchange podcast, Nathan Cemenska of ELM Solutions talked with Magen McClintock, Senior Legal Operations Specialist at KeyBank, and John Crawshaw, Business Analytics Manager at PNC Financial Services, to tap into their expertise on managing legal costs by limiting rate increases.
During the episode, Nathan spoke about some of the trends he observed in the financial industry data in the 2021 Real Rate Report and asked Magen and John to comment on their related experience and practices. Here are a few of the topics covered:
Who handles outside counsel rates?
This topic demonstrates that there can be more than one way to get good results and that the right approach for a particular company depends in part on its specific circumstances. John talked about PNC’s approach of having in-house attorneys communicate directly with outside counsel for rate negotiations. While PNC does not have a pricing management team, they do make sure that attorneys are supported by John’s team and that they have access to industry benchmarks and pricing information on other law firms.
Magen worked previously on the procurement team for KeyBank and played the “bad cop” role in pricing negotiations from that position. She now works in the legal department and continues that role in negotiations. KeyBank does have a centralized process, which includes periodic renegotiations with the company’s panel of preferred firms to help keep rates in check.
Rate negotiations aren’t the only way to keep spend down
Both industry experts agreed that alternative legal service providers (ALSPs) can be an important part of a corporate legal department’s savings strategy. There may be areas where it is not possible to negotiate a lower rate from a law firm, and engaging an ALSP is the preferred approach. Going out to bid on this type of work often leads to a flat fee or other alternative fee arrangements with an ALSP, which also helps with budget predictability.
In some corporate law departments, stakeholders may not have much experience with ALSPs and, therefore, may not feel comfortable engaging them in place of law firms for some work. However, even where that is the case, knowledge of alternative fee arrangements could be useful when dealing with firms, as well.
What you can learn from matter staffing data
Corporate legal departments look at many different metrics when analyzing their spend and seeking opportunities to reduce costs and improve performance. Nathan cited the findings of the ELM Solutions LegalVIEW Insights report volume 4, which found that at AM Law 50 firms, associates bill about 47 percent of hours, with partners only billing about 30 percent. Outside of the Am Law 50, it’s a mirror image, with partners billing about 47 percent of hours and associates representing about 30 percent. Nathan asked Magen and John to comment.
Both agreed that the smaller firms, since they are more partner-heavy in their internal roles, tend to staff their matters with a higher number of partners. Geography can be a factor in this as well since firms in large cities often have larger rosters of associates. John, in particular, feels that the industry is heading in the direction of increased focus on staffing ratios. So far, our experts are generally not seeing critical decisions based on staffing metrics, but there have been outlying examples of matters not being properly staffed where these metrics have helped identify the issue.
To hear the discussion in full, listen to Financial services insights from the Wolters Kluwer 2021 Real Rate Report. If you are a podcast app user, be sure to follow our Legal Leaders Exchange show on your favorite app (Apple Podcast, Spotify, Google Podcast, Amazon / Audible.com, iHeart Radio), to make sure that you don’t miss any of our informative episodes.