On April 15th, ELM Solutions kicked off the Legal Ops Accelerate 2021 online series with a webinar focused on the effect that the COVID-19 pandemic had on corporate legal department (CLD) relationships with outside counsel firms. Nathan Cemenska, ELM Solutions Director of Legal Operations and Industry Insights, was joined by legal industry experts Richard Brzakala, of CIBC, and Brad Blickstein, of Blickstein Group, to discuss the current state of outside counsel relationships and where they are likely to go from here.
The speakers covered a range of topics and referenced specific 2020 data that revealed the profound changes in corporate legal over the last year. Here are three top takeaways from this wide-ranging discussion:
In 2020, a large number of supplier relationships were put on hold or terminated altogether.
The data from last year show that in 2020 the typical CLD showed a 16% drop in their total number of legal suppliers. This represents the biggest drop, as well as the lowest absolute numbers, the industry has seen in years, and by a considerable amount. There are several potential reasons for this:
- In many jurisdictions, markets and courts were shut down during the pandemic, forcing companies to pause many of the legal activities that would normally be ongoing.
- Some law departments facing economic uncertainty made a distinction between essential and nonessential work, putting off matters deemed nonessential and informing firms that they were not to bill on those cases until further notice
- Convergence efforts in 2019 may have had an impact, as well. Many companies have been reducing the number of legal suppliers they use to save on costs. Any firms that were phased out near the end of 2019 would not have billed in 2020, regardless of the pandemic.
Most of the supplier relationships put on hold or ended in 2020 were outside of the top 150 Am Law firms.
Bigger, institutional clients often use larger Am Law 100 firms more heavily than their smaller counterparts. These larger firms are multijurisdictional and have relationships with the smaller regional firms that a company may sometimes require and can farm out work to them when needed. In a crisis such as the pandemic in 2020, CLDs facing especially challenging circumstances are naturally more likely to call on their most trusted firms, with whom they have the broadest and longest-running relationships. As a result, these top-tier firms were able to retain more of the work they usually get from corporate clients.
Conversely, smaller firms, which generally handle fewer matters, were more likely to be dropped in 2020, while business was slow.
The “million dollar question” is whether the work will come back after the pandemic and be performed by the same providers.
While there is no way to be sure yet, our panelists shared their expectations about how likely it is that the amount of work CLDs send to legal suppliers will pick up again in the post-pandemic economy. Brad and Richard agree that law departments are likely to return to the engagement levels we saw before COVID-19 and that they will mainly use the outside counsel and other providers they used prior to 2020.
They cited evidence that there is a good deal of backed up work that will need to be done and will require the help of outside counsel and other legal service providers. The nature of some of the litigation and other legal work that companies are likely to encounter may also require local representation in multiple jurisdictions, which makes increasing outside counsel numbers probable. Nathan will be keeping an eye on the data as we move forward and will likely have more to say in future sessions and publications when a trend begins to emerge.
In addition to these highlights, our panelists also discussed some of the consequences of these changes to law firms and how alternative legal service providers may be affected, as well as how some firms worked to mitigate the effects.
For more on these topics, watch the on-demand webinar LegalVIEW Insights: 2020 - A Pause in Corporate Legal Department Supplier Relationships. And be sure to visit the Legal Ops Accelerate 2021 page for information on additional upcoming events.