By Aebra Coe
Banks that lend money to law firms published two reports this month that concluded firms have hiked rates as demand for legal services wanes, a strategy for revenue growth that experts say will likely push more work in-house, further hurting demand for legal services.
It’s a Catch-22. In order to increase revenue in a market in which demand is sluggish, law firms have often chosen to raise their rates. But in response, many corporate legal departments have now decided that moving work they used to outsource to those law firms in-house is an attractive and cost-effective option. And that means, ultimately, there is less work for law firms.
“We’ve seen it for many years now. Hiring law firms is very expensive, and billing rates are continuing to increase,” said Jeffrey Lowe, global practice leader of Major Lindsey & Africa. “With average billing rates [for BigLaw firms] somewhere in the $700 range, it doesn’t take too much math to figure out that it could be cheaper to bring someone in-house.”
Major Lindsey’s Washington, D.C., in-house practice group leader, Deborah Ben-Canaan, said that she and her team have witnessed corporate legal departments balloon in recent years.
“For many companies, and I think they've become more savvy, it’s a very simple ‘make versus buy’ analysis,” she said. “Sometimes it’s cheaper to bring in talent than pay hourly for it.”
She added that it’s not only the monetary perks that encourage the inward flight of lawyers. According to Ben-Canaan, it is a “huge benefit” to an organization to have a legal mind down the hallway to bounce ideas off, to call into an important meeting or to offer thoughts on potential legal pitfalls of business decisions.
“There’s an institutional knowledge that exists when you’re in-house that can prevent legal issues from arising down the road,” she said.
A large corporate client of hers recently decided to grow its international business and determined that it would hire knowledgeable lawyers with experience handling transactions in the regions of the world in which it planned to grow rather than outsourcing the new work to a law firm.
“They knew how much it would cost to go outside and made a decision that having someone to handle at least a majority of the work internally was a better choice for them,” Ben-Canaan said.
Read more of this feature at Law360.