In order to take a sound, data-driven approach to budgeting, legal departments need to look beyond their immediate history and current matters to ascertain their own department’s performance over several years. This should be combined with a thorough understanding of the industry-wide risk for unforeseen developments. Our LegalVIEW® Insights report series can help you develop that industry knowledge.
Our most recent report in the series, Volume 2: Corporate Legal Department Spend Analysis uncovers some surprising facts by analyzing legal spend over the last five years. Here are a few of the insights you can learn about in the report:
From 2016-2021, legal spend for about a third of Corporate Legal Departments (CLDs) ranged up or down by 90%.
In legal departments across industries, our analysis found that legal spend suffered very significant changes throughout the five-year period in the report. We found that 29% of corporate legal departments saw a difference of more than 90% between the lowest year’s spend and that of their highest year.
In fact, 9% of CLDs had such a large difference in legal spend over this time that their most expensive year was fully three times as costly as their least expensive year. When legal spend is this volatile and unpredictable, it makes budgeting very difficult. This is particularly important in the current environment where legal departments are expected to contribute to meeting a company’s bottom line business goals. An over-budget legal department is less likely to win the confidence of senior leadership, which in turn can mean they are entrusted with fewer resources over time. Without funding to invest in the people and technology they need to optimize operations, legal department performance can suffer.
Despite the volatility, it is possible for some legal departments to reduce costs or hold them flat for an extended period.
Our analysis showed that while some companies saw legal expenses increasing between 2019 and 2020, about 62% of legal departments decreased their spend. Part of that may be attributable to the unusual circumstances of a global pandemic in 2020, which slowed business for some companies, leading to less need for legal services. However, there were other companies where the circumstances of the pandemic led to increased risk and required more legal input than usual.
For the majority of about 62% of legal departments, external spending was down or flat in 2020. Additionally, 29% of all legal departments had held spend flat for two years as of 2020. And 18% managed to do so for three years. In a market where legal spend fluctuates considerably for many companies, the ability for a substantial portion to keep spending flat over such a period is significant.
Some industries are better than others at controlling spend.
Our report shows that the legal departments of financial institutions tend to spend much more on outside counsel than their counterparts in consumer services and industrial companies. However, the mean amount spent on outside counsel by financial services companies decreased over this five-year period. Meanwhile, consumer services companies saw a substantial rise in this metric while median spend fluctuated up and down for industrial companies.
What can other industries learn from financial services in this area? Studies like the 2020 ACC Legal Operations Maturity Benchmarking Report show that the banking industry is more advanced with respect to legal operations disciplines like financial management and external resources management. This could help them better predict and control their legal spend.
For more detail on these insights and additional findings on the trends in corporate legal spend in recent years, download LegalVIEW Insights Volume 2: Corporate Legal Department Spend Analysis.