Budget cuts are well and good, until it gets to the legal department.
Is your legal department on the budgetary chopping block this year?
Like most companies, yours has faced its share of budgetary cutbacks. It’s a familiar and daunting process that involves assessing programs and personnel to ensure they can be justified in terms of the value they deliver against cost.
You sat back and watched as other departments grappled with cuts. Now it’s your turn. But how do you reduce mission critical legal spending without exposing your company to unnecessary risk?
Start by evaluating outside counsel spending
The good news is that you may not have to face the toughest issue of all—the question of who will stay and who is expendable. That’s because your budget overruns may be resulting primarily from outside counsel spending.
The first step in assessing the situation is to determine the ratio of spending on in-house counsel compared to outside legal assistance. It’s not uncommon for businesses to spend half or more of their legal department budget on outside counsel. The most typical split, according to a 2014 Altman Weil Chief Legal Officer Survey, was 43 percent in house (“make”) compared to 57 percent outside (“buy”).
In your examination of outside counsel spending, ask the following questions:
- If there were significant increases in a particular area, what were the driving factors?
- Do you expect those factors to continue to be in play in the coming year?
- Are the cost increases sufficient to justify hiring in-house counsel?
In some cases, adding legal or compliance staff with specialized skills may actually save money, especially if you find yourself frequently relying on outside expertise to handle emerging matters, including compliance.
Can you defend the need for increased spending on outside counsel?
If you are considering a request for increased spending on outside counsel in the coming year, consider what else you may be forced to cut as a result. Make sure that the need falls into at least one of these three categories:
Insufficient capacity. Does your in-house legal team lack the bandwidth to handle important matters because team members are engaged in other commitments?
Unique or discreet matters. Are the matters that require attention highly specialized and do you lack the in-house capability and unique skills to successfully manage them?
Jurisdictional considerations. Is your in-house team unable to handle the matters due to jurisdictional issues?
If at least one of these scenarios rings true, you probably need to continue to include outside counsel in your talent portfolio. If that is the case, don’t hesitate to negotiate fees. While fee deliberation was not typical in the past, it is currently considered common practice. Even top-tier firms acknowledge that businesses have more power to challenge hourly fees or demand that outside firms account for charges that may fall outside the scope of work.
When it’s time to trim your legal department budget, the answer may not reside within the department at all. Click here for more practical ways to rein in legal spending this year.