Financial institutions experienced a significantly smaller increase in outside legal spend compared to other industries
A new report from Wolters Kluwer ELM Solutions indicates that financial services companies were largely successful at containing the steep increases in outside counsel spend seen by corporate legal departments at other large organizations in the last year. The study – “LegalVIEW Insights Volume Five, Finance Edition: Trends in Vendor Mix and Total Outside Spend” – reviews many of the topics explored in the latest installment of ELM Solutions’ LegalVIEW Insights report series through the lens of the financial services industry, pinpointing several key differences in how financial companies are approaching the delivery of legal services.
Leveraging insights gleaned from ELM Solutions LegalVIEW database – which contains more than $155 billion in legal invoice data – the report shows that from 2019-2020, financial services organizations saw an 8% increase in year-over-year outside counsel spend – with an increase of virtually zero in 2021. This stands in contrast to large companies rooted in other industries that experienced a 21% increase in median outside spend from 2020 to 2021, and a 36% increase in mean outside spend. The report suggests that as frequent targets of litigation, banks and other financial institutions may have benefitted from the pandemic-induced pause in litigation that began in 2020 and extended into 2021. Banks may have also invested more heavily in rate benchmarking tools, dedicated legal pricing experts and other resources that corporate legal departments can deploy to contain rate increases.
“Banks experienced an average law firm rate increase of only 2.8%, which stands in stark contrast to the up to 10.8% bump seen by industries such as manufacturing and basic materials,” says Nathan Cemenska, Director of Legal Operations and Industry Insights at Wolters Kluwer ELM Solutions. “One explanation is that financial organizations have traditionally invested more than the average corporate legal department in the people, processes and technology necessary to support rate management initiatives, a list that includes the use of dedicated legal pricing experts and access to rate benchmarking.”
Additional highlights from the report include:
- Corporate legal department vendor counts have generally remained depressed post pandemic, with the median vendor count dropping 16% over the course of 2020 alone and experiencing a further 8.6% decrease in 2021. However, the decline of legal provider counts in financial institutions appears to have begun as early as 2017, suggesting that those organizations may possess more sophisticated legal ops functions or face greater pressure from the C-suite to control costs.
- The spend going to alternative legal service providers (ALSPs) from large corporate legal departments has held relatively flat over the last two years. But financial companies increased their spend on ALSPs as a percentage of total spend by approximately 80% from 2019 to 2020, and then increased it by another 56% in 2021.
ELM Solutions released the fifth volume in its LegalVIEW Insights report series – which includes blogs, webinars and other content discussing emerging trends from the LegalVIEW database – earlier this year. Other topics explored by the LegalVIEW Insights series include law firm staffing ratios, the impact of megamatters on overall spend, and the biggest shakeup in legal services since the Great Recession.
