2017 Chief Legal Officer Survey

Transcription

1 2017 Chief Legal Officer Survey An Altman Weil Flash Survey

2 Copyright 2017 Altman Weil, Inc. All rights reserved. No part of this work may be reproduced or copied in any form or by any means without prior written permission of Altman Weil, Inc. For reprint permission, contact Altman Weil, Inc Welsh Road, Suite 328, Willow Grove, PA or

3 SUMMARY & ANALYSIS 2017 Chief Legal Officer Survey Each year since 2000, the Chief Legal Officer Survey has provided insights into the state of in-house law departments from the perspective of their chief lawyers. Now in its eighteenth year, the 2017 survey identifies long-term trends, highlights new and emerging issues, and explores the reasons behind the findings. The Chief Legal Officer (CLO) position is a complex job encompassing law, business and leadership roles and the law departments they lead are not monolithic. They range from solo shops with one lawyer who wears all hats, to departments with 1,000 or more lawyers that have a vast array of resources and an equal number of challenges. This year, for the first time, the survey includes breakouts by department size to provide more depth and insight on management approaches and spending decisions. In doing this, we have been able to identify where department size is a factor and where it does not appear to be material. We also asked not only about the management tactics law departments are using in a variety of areas, but also whether or not each effort has resulted in a significant improvement in performance. The report includes data on department personnel and operations as well as outside counsel management and throughout the survey these internal and external elements intersect. The push and pull of interdependence between law departments (as clients) and law firms (as their primary service providers) is evident. At the same time, non-lawfirm vendors and evolving technology tools play a growing role, offering new alternatives to the traditional 'law firm-client' pairing. Law Department Staffing Thirty-eight percent of law departments plan to add in-house lawyers in the next 12 months, according to the survey. That is 4.5 times more than the 8% that plan to decrease their in-house lawyer staff, continuing a recent trend of law department growth. Of those planning an increase, 68% said they plan to add lawyers to cover an overall increase in workload; 49% will do so to fill open positions, and 29% will hire to cover new areas of law. A little over a third (36%) of all departments plan to increase lawyer staff for a more calculated reason to save money on outside counsel costs Altman Weil, Inc Chief Legal Officer Survey - i

4 SUMMARY & ANALYSIS The Law Department Operations Manager (LDO) position (akin to law firm COOs and executive directors) is relatively new, but it is gaining traction. This year, 37% of law departments report having either a full-time or part-time administrator up from 33% last year. Three quarters of all departments with 50 or more lawyers report having an LDO on staff. These professionals oversee day-to-day operations in the department and manage financial issues, including outside counsel spend, technology and people. For most law departments with even ten lawyers or more, there can be significant value in transferring administrative functions to a specially qualified professional. Although many CLOs will default to adding another lawyer if they have added resources, it is worth assessing the benefits of freeing up lawyer time from administrative tasks to focus more on practicing law. Improving Internal Efficiency Of ten options to improve law department efficiency, the most common response, from 58% of all respondent departments, is a greater use of technology tools. The preference for this tactic directly correlates to department size, with 55% of 1-lawyer departments using it, while 81% do so in departments with over 50 lawyers. This differential is not surprising considering the investment of money and time required to purchase and effectively implement new tech tools. The second most frequently deployed efficiency technique is greater use of paralegals and other para-professionals, reported by 45% of all departments. Here, there is no significant difference based on department size. We also asked how effective each of the ten efficiency tactics had been in improving performance. The tactic with the highest effectiveness score is outsourcing to non-law-firm vendors although it was second to last in frequency, used by only 19% of all departments. This is also a tactic used much more by large departments, likely because outsourcing also requires a significant up-front investment to set up and manage and makes most sense if it can be applied to a critical mass of work over an extended period of time. In contrast, the second most effective technique is also the second most frequently used i.e., a greater use of paralegals and other para-professionals. This is an effective, familiar, and easy-to-implement tactic available to all law departments Altman Weil, Inc Chief Legal Officer Survey - ii

5 SUMMARY & ANALYSIS We recommend that law department leaders look at each pairing of tactic and effectiveness, considering the investment required and the outcomes reported, in order to identify where potential opportunities may exist to improve their department s performance. Controlling Costs We asked Chief Legal Officers about 14 cost control techniques and the effectiveness of each. In this category, the most frequently used tactics are: price reductions from outside counsel (named by 64% of departments); improved internal efficiencies (in 58% of departments), requiring outside counsel budgets; and, alternative or fixed fees (the latter two in 51% of departments each). The use of all cost control tactics on the list has a direct correlation with department size, with larger departments more likely to pursue each option. Interestingly, outsourcing to non-law-firm vendors again took the top spot as most effective tactic for those that use it to control costs. For departments in which outsourcing is a viable option, it clearly has proven potential. The second, third and fourth most effective cost control tactics all target outside law firms: shifting law firm work to lower-priced firms, reducing the total amount of work sent to outside counsel, and shifting law firm work to in-house lawyers. Each of these tactics is an example of labor arbitrage in which CLOs are rethinking who should do their work and how it should be done. The Law Department Budget We asked CLOs about the change in their total law department budgets from 2016 to 2017, as well as detail on changes to internal spend and spend on outside counsel and vendors. Overall 45% of departments increased total spend in 2017; 36% decreased their budgets; and, 19% made no change. A majority of law departments increased their internal budgets in Fifty-six percent of all departments report an increase, while only 22% report a decrease. This continues a multi-year trend in which increases in this category have significantly outpaced decreases. For the first time since 2013, law department vendor budgets also saw more increases than decreases with 20% of departments upping their vendor spend, while 12% decreased it Altman Weil, Inc Chief Legal Officer Survey - iii

6 SUMMARY & ANALYSIS Outside counsel spend is the only category in which more departments cut their budgets in 2017 than those that increased it. Forty-one percent of law departments report decreasing outside counsel spend, while 32% report an increase. However, the differential between decreases and increases has been narrowing each year since The survey found a noteworthy turnaround in law department predictions about future outside counsel spending. When asked about their plans for 2018, 40% of law departments indicate they plan to increase their outside budgets next year as opposed to 33% that anticipate a decrease. This is the first time since 2007 that more departments plan increases than decreases in outside counsel spending. This anticipated change of direction in outside counsel spending in 2018 may be an extension of the narrowing gap between decreases and increases in actual spending reported over the last three years. It will be interesting to see if this prediction about future spending pans out in real changes next year. Department Size and Spending Trends On spending, department size is a clear determinative factor. For total legal spend in 2017 and in each budget sub-category, the largest law departments diverge sharply from departments of other sizes. For example, in law departments with over 50 lawyers, only 22% increased their total spend in 2017, while 59% decreased the budget. At the other end of the spectrum in one-lawyer departments, 77% increased total spend and only 12% decreased spend. The same pattern holds true for planned outside counsel spending in While in aggregate 40% of departments say they plan increases and 33% plan decreases, the results by department size tell a more nuanced story. In one-lawyer departments, 70% plan to increase outside spend in 2018, and 5% plan a decrease. In 2 to 10 lawyer departments, 44% plan to spend more on outside counsel, and 25% plan a decrease; and, in 11 to 50 lawyer departments, 36% plan an increase and 39% plan a decrease. In departments with more than 50 lawyers, only 22% plan to increase outside counsel spend while 53% plan a decrease. Why are so many more large law departments able to hold the line on spending increases? Larger departments have more lawyers to cover workloads, can afford more sophisticated technology, are more likely to have outsourcing capabilities, likely wield more leverage over law firms, and more often than not employ an LDO and staff 2017 Altman Weil, Inc Chief Legal Officer Survey - iv

7 SUMMARY & ANALYSIS to manage processes and metrics. All of these tools equip larger departments to work more efficiently and to control inside and outside costs more effectively. Smaller departments are simply less flexible and have fewer tools at their disposal. Negotiating Power Virtually all law departments receive discounts on standard law firm rates that range from an average of 1% to 15% or more, with a median of 10% a number that holds true across all department sizes. But what obstacles, if any, do departments face in getting greater discounts? The top reason, given by 55% of CLOs, is that they believe they do not have enough buying power to negotiate more effectively. The next most frequent response, from 51% of departments, is that law firms resist giving greater discounts. An additional 30% of departments say they don't push harder for discounts because they don't want to damage good relationships with their outside counsel. To get a better idea of how much negotiating power law departments really might have, we asked what percentage of their outside fees last year were for work that could have been done by many different law firms. The median response across all department sizes is 41% to 50% of their outside spend. We also asked what percentage of fees went to work that was not price sensitive, and received a median response of 21% to 30%. A number of factors are in play here. It seems that law departments do, in fact, have considerable negotiating power which they may underestimate. However, there are many costs and considerations in retaining law firms that go beyond pure dollars and cents. There is value in continuity, institutional knowledge and relationships that may equal or surpass a few added percentage points on the discount scale. This is an area where Chief Legal Officers need to thoughtfully assess which law firms merit their loyalty, and when there may be strategic gain in negotiating more aggressively or looking for alternative providers. Outside Counsel Management We asked law departments what they routinely do to manage outside counsel. Eightyone percent say they require budgets for major matters; 79% provide guidelines for billing, expenses, matter staffing and matter management; and, 67% negotiate fixed, capped or alternative fees Altman Weil, Inc Chief Legal Officer Survey - v

8 SUMMARY & ANALYSIS It's noteworthy that although 79% of departments indicate they provide standard billing and management guidelines to their law firms, only 60% say they routinely enforce the guidelines provided. When we followed up with a question about which outside counsel management techniques are most effective, the number one response was to enforce these guidelines. To set standards and then fail to enforce them is an obvious and unnecessary omission and one that should not stand in any law department that is serious about effectively managing law firms. In considering what changes and improvements they would most like to see from outside counsel, CLOs in departments of all sizes prioritize costs over process. Their top three choices all focus on containing costs, including: greater overall cost reductions, identified by 51% of all respondents; improved budget forecasting, chosen by 46% of CLOs; and, non-hourly pricing structures, chosen by 39% of CLOs. Their second tier of priorities address how their work is done, including: modification of work to match legal risk levels (31%), more efficient project management (30%), and more efficient project staffing (29%). This preference for cost control over process efficiency is borne out in another question. Forty-five percent of CLOs say they have shifted a portfolio of work worth $50,000 or more from one law firm to another in the last year in order to get lower fees. In contrast, only 28% have made a similar change to achieve greater matter management efficiency. It is easier for law departments to demand cost reductions from providers and let them determine how to achieve lower fees. Understanding Law Department Challenges In a final question, we asked CLOs to rate three key groups of stakeholders on their knowledge and understanding of the challenges of leading a law department. Using a scale of 0 to 10 in which 0 equals 'no understanding, 5 is 'intermediate understanding,' and 10 equals 'sophisticated understanding,' law department leaders rate non-law-firm vendors at an average of 4.2, their organization's executives at 5.7, and their outside counsel at 6.1. It's striking that neither category of service providers vendors or law firms are perceived to have anything approaching a sophisticated understanding of their customers and clients, and surely that is a source of dissatisfaction for Chief Legal Officers. While it should not be the job of the CLO to proactively educate providers on 2017 Altman Weil, Inc Chief Legal Officer Survey - vi

9 SUMMARY & ANALYSIS their department s needs and priorities, such an understanding is another factor law departments can and should consider in making future purchasing decisions. The 2017 Survey The Chief Legal Officer Survey has been conducted and published annually by Altman Weil since 2000, most recently in September and October Two hundred and eighty responses were received for the 2017 survey, 21% of the 1,332 law departments invited to participate. Demographic and budgetary data on responding law departments is included in the survey report. The survey report follows and is online at Altman Weil, Inc Chief Legal Officer Survey - vii

10 SUMMARY & ANALYSIS Survey Methodology The large majority of survey questions were posed in a multiple-choice format and responses are reported as received. Question text is transcribed in the following report exactly as it appeared in the survey. Where there were special instructions, rating scales, or supplemental definitions, that information is also included. Free text data submitted by respondents was reviewed and, in a handful of cases, edited to correct obvious typographical errors. For numeric entries, we made a small number of corrections where the intended response was clear. In a few instances we omitted a data point as impossible to derive from the information provided. About Altman Weil Founded in 1970, Altman Weil, Inc. is dedicated exclusively to the legal profession. It provides management consulting services to law firms, law departments and legal vendors worldwide. The firm is independently owned by its professional consultants, who have backgrounds in law, industry, finance, marketing, administration and government. More information on Altman Weil can be found at Altman Weil, Inc Chief Legal Officer Survey - viii

11 The Chief Legal Officer Position Please estimate how your time was allocated over the last 12 months. (Responses must equal 100%.) 100% 18.3% 19.6% 23.6% Other Managing the Law Department 0% 35.0% Other corporate management responsibilities Practicing law Advising executives / Corporate strategy Legend, top to bottom, corresponds to percentages top to bottom Other corporate management responsibilities defined for this question as: Compliance, HR, Security, etc. OTHER (representative comments) Risk management Board activities Corporate Secretary Government affairs / legislative advocacy Professional activities / development Community activity 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 1

12 The Law Department's Greatest Value Beyond effectively solving legal problems that arise, what does your CEO and/or Board of Directors value most in your Law Department s performance? Rank the following activities from 1 to 6: 1= Most valuable to 6 = Least valuable. Supporting business objectives 32.2% 37.8% 30.0% Advising company leaders 29.9% 40.3% 29.9% Managing legal risk 43.6% 37.3% 19.1% Availability & responsiveness 48.8% 40.0% 11.2% Controlling legal spend 71.1% 20.9% 8.0% Managing compliance 70.4% 25.9% 3.7% 0% 20% 40% 60% 80% 100% Ranked below top 3 Ranked 2 or 3 Ranked #1 OTHER (representative comments) Deep knowledge of the business and regulatory environment Serving as an ethics sounding board Strategy development Corporate governance 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 2

13 Law Department Workforce Next 12 Months OUTLOOK 2018 Within the next 12 months do you plan to increase or decrease your Law Department workforce? In-house lawyers 8.4% 51.6% 37.5% Contract lawyers 7.5% 76.0% 12.6% Paralegals 5.7% 67.4% 23.5% Support staff 3.9% 76.5% 17.0% 0% 20% 40% 60% 80% 100% Not sure Decrease No change Increase TREND: Increase or decrease in-house lawyer workforce in the next 12 months 50% 40% 30% 20% 10% 0% 41.4% 42.0% 42.6% 38.1% 37.7% 37.9% 37.2% 37.5% 11.5% 9.2% 7.4% 8.5% 8.4% 5.7% 5.4% 6.0% times as many departments plan increases to in-house lawyer staff, as plan decreases in the next 12 months. Increase Decrease Trend data compiled from Chief Legal Officer Surveys Altman Weil, Inc. An Altman Weil Flash Survey - 3

14 Reasons for In-House Hiring OUTLOOK 2018 FOLLOW-UP QUESTION Asked of the 37.5% of departments that plan to add in-house lawyers in the next 12 months: If you plan to hire one or more in-house lawyer in the next 12 months, what are the primary reasons? (Check all that apply.) To cover increased overall workload 68.1% To fill open position/s 48.6% To save money on outside counsel 36.2% To handle a new area of legal expertise 29.0% To expand our workforce geographically To handle new responsibilities of the department To take advantage of our superior institutional knowledge 14.5% 14.5% 2.9% 0% 20% 40% 60% 80% OTHER (representative responses) Succession planning To support a growing line of business 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 4

15 Law Department Operations Managers Do you have an administrator or other business manager who manages law department operations? 3.7% 26.8% 59.3% 10.3% Yes, full-time Yes, part-time No No, but we plan to in the next 12 months BY DEPARTMENT SIZE: Department has a Law Department Administrator Yes Full-Time Yes Part-Time No Plan to 1 lawyer 0.0% 10.0% 90.0% 0.0% 2-5 lawyers 9.1% 5.5% 81.8% 3.6% 6-10 lawyers 9.8% 4.9% 80.5% 4.9% lawyers 33.3% 13.6% 49.4% 3.7% lawyers 55.0% 25.0% 20.0% 0.0% 100+ lawyers 70.6% 5.9% 11.8% 11.8% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 5

16 Law Department Operations Managers Background Where did your law department administrator / business manager come from? Within the law department 50.0% Within the company / organization (but not from the law department) 29.0% Another law department 11.8% A law firm 9.2% 0% 10% 20% 30% 40% 50% 60% What is your law department administrator's educational background? Bachelor's degree 57.0% JD 22.1% MBA 18.6% Paralegal certification or training 18.6% Other graduate degree 8.1% Less than a Bachelor's degree 5.8% CPA 2.3% 0% 10% 20% 30% 40% 50% 60% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 6

17 Law Department Operations Managers Time Allocation Please estimate the percentage of time your department administrator / business manager spends on each of the following functions. 100% 11.9% 11.7% 0% 15.1% 16.9% 20.1% 24.3% Other People management Technology management Outside Counsel spend tracking and analysis Financial management Day-to-day operations Legend, top to bottom, corresponds to percentages top to bottom OTHER (representative responses) Practicing law Records management Outside counsel relationship management Initiatives to drive down costs, increase efficiency and client satisfaction Strategy and planning Paralegal responsibilities Special projects 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 7

18 Law Department Management Efficiency In the last 12 months, have you done any of the following to increase your law department s efficiency in its delivery of legal services? (Check all that apply.) Greater use of technology tools 57.6% Greater use of paralegals and other paraprofessionals Internal restructuring / reorganization of resources 45.0% 44.7% Redesign workflow processes 44.7% Collection and analysis of management metrics 38.6% Knowledge management efforts 27.9% Project management methods 24.1% Project staffing with contract / temporary lawyers 20.2% Outsourcing to non-law-firm vendors 19.1% Hired a Law Department Operations Manager 9.5% None 6.1% 0% 10% 20% 30% 40% 50% 60% Efficiency tactics 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 8

19 Efficiency Tactics By Department Size In the last 12 months, have you done any of the following to increase your law department s efficiency in its delivery of legal services? (Check all that apply.) 1 lawyer 2-10 lawyers lawyers 51 lawyers or more Greater use of technology tools 55.0% 50.5% 62.0% 81.1% Greater use of paralegals / paraprofessionals 40.0% 48.4% 43.0% 37.8% Restructure / reorganize internal resources 20.0% 35.8% 50.6% 67.6% Redesign workflow processes 40.0% 36.8% 50.6% 46.0% Collection and analysis of management metrics 25.0% 30.5% 46.8% 56.8% Knowledge management efforts 30.0% 19.0% 24.1% 46.0% Project management methods 15.0% 16.8% 31.7% 27.0% Project staffing with contract / temporary lawyers 20.0% 14.7% 22.8% 27.0% Outsource to non-law-firm vendors 10.0% 14.7% 16.5% 37.8% Hire a Law Department Operations Manager 0.00% 0.00% 12.7% 18.9% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 9

20 Efficiency Tactics Resulting in Significant Improvement For each of the initiatives you ve undertaken to improve efficiency in the last 12 months, has it resulted in a significant improvement in efficiency of legal service delivery? Outsourcing to non-law-firm vendors 26.5% 73.5% Greater use of paralegals and other paraprofessionals 25.6% 72.7% Project staffing with contract / temporary lawyers 14.0% 14.0% 72.0% Internal restructuring / reorganization of resources 33.3% 63.2% Hired a Law Department Operations Manager 37.5% 62.5% Greater use of technology tools 6.7% 34.7% 58.7% Redesign workflow processes 48.2% 50.0% Project management methods 46.8% 48.4% Collection and analysis of management metrics 9.0% 50.0% 41.0% Knowledge management efforts 7.0% 54.9% 38.0% 0% 20% 40% 60% 80% 100% No Too soon to tell Yes 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 10

21 Efficiency Tactics Comparison of Use and Results This chart combines findings from the two prior questions. Each bar shows the percentage of law departments using that tactic. Data points on the line show the percentage of those departments using each tactic that report it has delivered a significant improvement in performance. 38.0% 41.0% 48.4% 50.0% 58.7% 62.5% 63.2% 72.0% 72.7% 73.5% 27.9% 38.6% 24.1% 44.7% 57.6% 9.5% 44.7% 20.2% 45.0% 19.1% Knowledge Management Project management metrics management Redesign workflow processes Technology tools Hired Operations Manager Restructure/ reorganize resources Contract / temporary lawyers Greater use Outsourcing paralegals / to paraprofessionals non-law-firm vendors % using tactic Of those using tactic, % experiencing significant improvement in efficiency 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 11

22 Law Department Management Cost Control In the last 12 months, have you done any of the following to control law department costs? (Check all that apply.) Received price reductions from outside counsel 63.8% Improved efficiency of internal procedures 58.3% Required budgets from outside counsel 50.8% Used alternative or fixed fee arrangements 50.8% Shifted law firm work to in-house lawyer staff Reduced total amount of work sent to outside counsel Modified work done to match legal risk levels 35.8% 33.5% 39.8% Shifted law firm work to lower-priced firms Shifted in-house work from lawyers to paralegals or other paraprofessionals Used contract or temporary lawyers 30.3% 26.8% 33.5% Outsourced to non-law-firm vendors 20.1% Reduced in-house lawyer staff 12.6% Instituted a law firm convergence program 11.4% Reduced in-house non-lawyer staff 9.5% None 2.8% 0% 10% 20% 30% 40% 50% 60% 70% Cost control tactics 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 12

23 Cost Control Tactics By Department Size In the last 12 months, have you done any of the following to control law department costs? (Check all that apply.) 1 lawyer 2-10 lawyers lawyers 51 lawyers or more Received price reductions from outside counsel 40.0% 60.4% 69.6% 78.4% Improved efficiency of internal procedures 40.0% 55.2% 67.1% 67.6% Required budgets from outside counsel 30.0% 52.1% 55.7% 56.8% Used alternative or fixed fee arrangements 25.0% 40.6% 65.8% 70.3% Shifted law firm work to in-house lawyers 20.0% 37.5% 40.5% 56.8% Reduced total work sent to outside counsel 35.0% 34.4% 38.0% 46.0% Modified work done to match legal risk levels 25.0% 28.1% 43.0% 37.8% Shifted law firm work to lower-priced firms 15.0% 36.5% 36.7% 32.4% Shifted in-house work to paralegals 15.0% 31.3% 31.7% 35.1% Used contract or temporary lawyers 30.0% 15.6% 32.9% 46.0% Outsourced to non-law-firm vendors 15.0% 12.5% 21.5% 35.1% Reduced in-house lawyer staff 5.0% 11.5% 16.5% 16.2% Instituted a law firm convergence program 10.0% 4.2% 17.7% 18.9% Reduced in-house non-lawyer staff 5.0% 8.3% 10.1% 18.9% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 13

24 Cost Control Tactics Resulting in Significant Improvement For each of the initiatives you ve undertaken to control costs in the last 12 months, has it resulted in a significant improvement cost control? Outsourced to non-law firm vendors 9.8% 84.3% Shifted law firm work to lower-priced firms 13.4% 82.9% Reduced total amount of work sent to outside counsel 20.2% 79.8% Shifted law firm work to in-house lawyer staff 17.2% 78.8% Received price reductions from outside counsel 13.1% 15.0% 71.9% Used alternative or fixed fee arrangements 23.3% 70.5% Reduced in-house non-lawyer staff 8.7% 21.7% 69.6% Reduced in-house lawyer staff 12.9% 22.6% 64.5% Shifted in-house work from lawyers to paralegals or other paraprofessionals 31.9% 63.9% Used contract or temporary lawyers 25.0% 13.2% 61.8% Modified work done to match legal risk levels 36.9% 59.5% Instituted a law firm convergence program 41.4% 55.2% Required budgets from outside counsel 20.5% 30.7% 48.8% Improved efficiency of internal procedures 8.1% 49.3% 42.6% 0% 20% 40% 60% 80% 100% No Too soon to tell Yes 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 14

25 Cost Control Tactics Comparison of Use and Results This chart combines findings from the two prior questions. Each bar shows the percentage of law departments using that tactic. Data points on the line show the percentage of those departments using each tactic that report it has delivered a significant improvement in performance. 43% 49% 55% 60% 62% 64% 65% 70% 71% 72% 79% 80% 83% 84% 58% 51% 11% 34% 27% 30% 13% 10% 51% 64% 40% 36% 34% 20% Improved internal efficiency Require outside counsel budgets Law firm convergence program Modify work to match risk level Contract or temp lawyers Shift work from inhouse lawyers to paralegals Reduce inhouse lawyer staff Reduce inhouse non-lawyer staff Alt. or fixed fees Price cuts from outside counsel Shift work from law firms to inhouse lawyers Reduce work sent to outside counsel Shift law firm work to lower priced firms Outsource to non-law firm vendors % using tactic Of those using tactic, % experiencing significant improvement in cost control 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 15

26 Outsourcing What types of work have you outsourced to non-law-firm vendors in the last 12 months that you used to give to law firms? (Check all that apply.) Litigation discovery (including e- discovery) Document review 21.2% 25.1% Due diligence Contract management Patent / IP work 10.8% 8.9% 7.7% 42% of law departments said they had shifted at least one type of work to non-firm vendors in the last year. 58% had not. Legal research 6.2% None 58.3% 0% 10% 20% 30% 40% 50% 60% FOLLOW-UP QUESTION What is the approximate total dollar value of the work shifted from law firms to nonlaw-firm vendors in the last 12 months? Minimum 1 st Quartile Median 3 rd Quartile Maximum Average Total 2017 $2,000 $65,000 $200,000 $500,000 $5,000,000 $496,377 $38,221, law departments, constituting 71% of those who reported shifting work away from law firms, provided the dollar value of that work. Three data points were omitted as impossible to interpret Altman Weil, Inc. An Altman Weil Flash Survey - 16

27 Data Analytics Internal Data Collection How do you collect data on your law department's outside counsel spending? (Check all that apply.) Matter management software 57.7% Accounts payable reports 48.6% Excel or other spreadsheets 37.8% Other 6.2% 0% 10% 20% 30% 40% 50% 60% BY LAW DEPARTMENT SIZE 1 lawyer 2-10 lawyers lawyers 51 lawyers or more Matter management software 21.1% 37.2% 74.1% 80.6% Accounts payable reports 63.2% 56.4% 42.0% 47.2% Excel or other spreadsheets 52.6% 48.9% 32.1% 19.4% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 17

28 Data Analytics Internal Analysis of Outside Spend Data How effectively does your law department analyze and apply the data available to you on outside counsel spending? 0 = Not effective 10 = Highly effective 25% 20% 15% 10% 5% 0% 19.6% 17.5% 15.0% 14.6% 8.3% 9.6% 4.6% 5.0% 1.3% 2.1% 2.5% Effectiveness of law department s data analysis Median: Altman Weil, Inc. An Altman Weil Flash Survey - 18

29 Data Analytics Outside Spend Analysis Provided by Law Firms Considering the ten law firms that receive the largest proportion of your outside counsel spend, in the last 12 months how many of those firms have provided you with an analysis of spending data that was useful to your law department? 0 = None of our top ten firms 10 = All of our top ten firms 80% 68.2% 60% 40% 20% 0% 10.7% 7.0% 5.0% 1.7% 2.9% 1.2% 0.4% 0.8% 0.0% 2.1% Number of your top ten law firms that provide useful data analysis Median: 0 In your department's outside counsel evaluation criteria, how much weight do you assign to a law firm's ability to provide useful data analytics? 0 = Not at all important 10 = Highly important 40% 30% 20% 10% 0% 28.5% 16.2% 13.6% 11.4% 10.1% 5.7% 6.1% 3.5% 3.5% 0.9% 0.4% Importance of law firms' ability to provide useful data analysis as evaluation criterion Median: Altman Weil, Inc. An Altman Weil Flash Survey - 19

30 Data Security Considering the ten law firms that receive the largest proportion of your outside counsel spend, in the last 12 months how many of those firms have you asked to comply with specific data security measures? 80% 0 = None of our top ten firms 10 = All of our top ten firms 60% 61.7% 40% 20% 0% 20.8% 2.9% 5.0% 4.6% 1.7% 1.3% 0.8% 0.8% 0.4% 0.0% Number of your top ten law firms asked to comply with data security measures BY DEPARTMENT SIZE: Firms asked to comply with data security measures MEDIAN AVERAGE 1 lawyer lawyers lawyers lawyers lawyers lawyers All departments Altman Weil, Inc. An Altman Weil Flash Survey - 20

31 Law Department Budget Allocation 2017 Please estimate the percentage of your total 2017 Law Department budget (internal and external legal spend) that each of the following components comprise. (Responses must equal 100%.) 5.2% 49.3% 45.6% Internal expenditures Outside Counsel Non-law firm vendors Definitions: Internal expenditures: e.g., Department compensation and benefits; contract lawyers, facilities, technology and other operating costs Outside Counsel: Total expenditures to outside law firms Non-Law-Firm Vendor: Expenditures for legal matters, e.g., e-discovery, document review, due diligence, legal research, etc. TREND Law Department budget allocation Internal Outside Counsel Non-firm vendor % 49.6% 6.0% % 50.3% 7.1% % 52.4% 6.1% % 49.4% 6.2% % 49.3% 5.2% Trend data compiled from the Chief Legal Officer Surveys Altman Weil, Inc. An Altman Weil Flash Survey - 21

32 Law Department Budget Changes: 2016 to 2017 Please estimate the percentage increase or decrease in your Law Department budget from 2016 to Decrease Increase Internal budget 7.0% 10.3% 22.0% 41.6% 8.9% 5.6% Outside counsel budget 10.8% 12.2% 17.8% 26.8% 13.2% 8.9% 10.3% Vendor budget 7.5% 68.0% 13.0% 4.0% Total law department budget 6.6% 8.5% 21.3% 19.0% 28.4% 6.6% 9.5% 0% 20% 40% 60% 80% 100% Down 1% to 5% No change Up 1% to 5% Down 6% to 10% Up 6% to 10% Down over 10% Up over 10% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 22

33 Law Department Budget Changes 2016 to 2017: By Department Size IN-HOUSE BUDGET 51+ lawyers 36.4% 18.2% 45.5% lawyers 28.0% 16.0% 56.0% 2-10 lawyers 15.7% 28.1% 56.2% 1 lawyer 23.5% 76.5% 0% 20% 40% 60% 80% 100% Decrease No change Increase OUTSIDE COUNSEL BUDGET 51+ lawyers 54.5% 24.2% 21.2% lawyers 48.6% 20.3% 31.1% 2-10 lawyers 34.8% 32.6% 32.6% 1 lawyer 11.8% 29.4% 58.8% 0% 20% 40% 60% 80% 100% Decrease No change Increase 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 23

34 Law Department Budget Changes 2016 to 2017: By Department Size VENDOR BUDGET 51+ lawyers 16.7% 63.3% 20.0% lawyers 14.9% 61.2% 23.9% 2-10 lawyers 10.5% 76.7% 12.8% 1 lawyer 58.8% 41.2% 0% 20% 40% 60% 80% 100% Decrease No change Increase TOTAL BUDGET 51+ lawyers 59.4% 18.8% 21.9% lawyers 41.7% 12.5% 45.8% 2-10 lawyers 28.9% 25.6% 45.6% 1 lawyer 11.8% 11.8% 76.5% 0% 20% 40% 60% 80% 100% Decrease No change Increase 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 24

35 TREND: Change in Law Department Budget Charts show what percentage of departments increased their budget, and what percentage decreased their budget in each category. The balance of departments, to total 100%, made no change in the budget category and is omitted in these charts. IN-HOUSE BUDGET 70% 60% 50% 40% 30% 20% 10% 0% 56.2% 56.6% 54.4% 56.1% 50.9% 50.1% 46.1% 27.6% 24.8% 25.2% 27.4% 22.0% 17.1% 17.3% More than twice as many departments increased in-house budgets this year, as those that made cuts continuing a multi-year trend. Increase Decrease OUTSIDE COUNSEL BUDGET 70% 60% 50% 40% 30% 20% 10% 0% 47.0% 48.0% 43.5% 39.0% 40.9% 40.8% 45.8% 25.4% 34.2% 28.9% 26.1% 31.6% 31.6% 32.4% In 2017 more law departments decreased outside counsel spending than increased that part of their budget but the differential has been shrinking since Increase Decrease Trend data compiled from Chief Legal Officer Surveys Altman Weil, Inc. An Altman Weil Flash Survey - 25

36 TREND: Change in Law Department Budget Charts show what percentage of departments increased their budget, and what percentage decreased their budget in each category. The balance of departments, to total 100%, made no change in the budget category and is omitted in these charts. VENDOR BUDGET 70% 60% 50% 40% 30% 20% 10% 0% 21.9% 20.9% 15.5% 16.3% 16.3% 20.0% 12.8% 13.9% 14.8% 15.6% 15.4% 12.0% This year, for the first time since 2013, significantly more law departments made increases in their vendor budgets, compared to those making decreases. Increase Decrease TOTAL BUDGET 70% 60% 50% 40% 30% 20% 10% 0% 55.8% 46.3% 41.7% 41.8% 45.9% 44.5% 36.8% 40.4% 41.6% 36.9% 34.1% 36.8% 36.4% 25.9% For the second year in a row, more departments report an increase in their overall budget, compared to those reporting decreases. Increase Decrease Trend data compiled from Chief Legal Officer Surveys Altman Weil, Inc. An Altman Weil Flash Survey - 26

37 Outside Counsel Spend Planned for 2018 OUTLOOK 2018 In your fiscal year 2018 budget, have you/will you increase or decrease your overall spend on outside counsel? 32.5% plan to decrease 39.5% plan to increase Outside Counsel spend % 8.5% 18.5% 28.0% 22.1% 9.6% 7.8% 0% 20% 40% 60% 80% 100% Decrease 1% to 5% No change Increase 1% to 5% Decrease 6% to 10% Increase 6% to 10% Decrease over 10% Increase over 10% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 27

38 Outside Counsel Spend Planned for 2018 OUTLOOK 2018 BY DEPARTMENT SIZE: Planned change in outside counsel spend in lawyers 52.8% 25.0% 22.2% lawyers 38.5% 25.6% 35.9% 2-10 lawyers 25.0% 31.3% 43.8% 1 lawyer 5.0% 25.0% 70.0% 0% 20% 40% 60% 80% 100% Decrease No change Increase BY ORGANIZATION REVENUE: Planned change in outside counsel spend in 2018 Over $20B 76.5% 11.8% 11.8% $10.1 B to $20B 50.0% 23.1% 26.9% $5.1B to 10B 38.6% 27.3% 34.1% $1B to $5B 23.6% 31.5% 44.9% Under $1B 20.4% 26.5% 53.1% 0% 20% 40% 60% 80% 100% Decrease No change Increase 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 28

39 TREND: Plan to increase / decrease Outside Counsel spend in the following year This chart shows what percentage of departments planned to increase their outside counsel spend in the next year, and what percentage planned to decrease outside counsel spend. The balance of departments, to total 100%, planned no change and is omitted in this chart. 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 24.4% 19.6% 19.8% 19.1%17.3% 17.6% 15.9% 19.6% 17.6% 15.8% 16.3% 13.9% 26.2% 7.9% 40.4% 29.1% 34.1% 28.6% 29.1% 26.2% 14.5% 15.0% 13.8% 14.2% 12.6% 12.2% 39.9% 35.2% 21.8% 19.8% 39.5% % For the first time since 2007, more law departments plan to increase outside counsel spend in the coming year, compared to those planning to decrease outside counsel spend. Increase Decrease Trend data compiled from Chief Legal Officer Surveys Altman Weil, Inc. An Altman Weil Flash Survey - 29

40 Reallocation of Outside Counsel Spend OUTLOOK 2018 FOLLOW-UP QUESTION Asked of the 32.5% of departments that plan to decrease outside counsel spend in 2018: If you plan to decrease your spend on outside counsel in the next 12 months, how will you cover the work? (Check all that apply.) In-house lawyer staff 72.7% Less work overall 45.5% Lower-cost law firms 45.5% In-house non-lawyer staff 27.3% Non-law-firm vendors 19.3% Contract lawyers 6.8% 0% 20% 40% 60% 80% Less work overall "due to changing business priorities, preventative law efforts, higher risk tolerance, etc." Non-law-firm vendors e.g., for e-discovery, document review, due diligence, legal research, etc. OTHER (representative responses) Use of technology 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 30

41 Discounts on Outside Counsel Rates If you received discounts on standard rates from outside counsel in the last 12 months, what was the average price reduction received? 70% 60% 59.7% 50% 40% 30% 20% 10% 12.2% 21.4% 6.6% 0% 1% to 5% 6% to 10% 11% to 15% Over 15% Median: 10% TREND: Average Price Reductions from Outside Counsel by year 70% 60% 61% 58% 60% 50% 40% 30% 20% 10% 0% 24% 24% 21% 12% 10% 7% 8% 8% 7% 1% to 5% 6% to 10% 11% to 15% Over 15% Altman Weil, Inc. An Altman Weil Flash Survey - 31

42 Outside Counsel Rates Obstacles to Greater Discounts What obstacles, if any, do you face in getting greater discounts from outside counsel? (Check all that apply.) Not enough buying power to negotiate more effectively Law firms resist 50.8% 54.9% Don't want to damage good relationships 30.3% Not enough time/resources to do more 17.2% Not fair to push too hard Not enough internal pressure to pursue greater discounts Too hard to enforce 13.1% 12.3% 9.8% None 11.5% 0% 10% 20% 30% 40% 50% 60% BY LAW DEPARTMENT SIZE 1 lawyer 2-10 lawyers lawyers 51 lawyers or more Not enough buying power to negotiate effectively 52.6% 61.1% 61.5% 33.3% Law firms resist 31.6% 51.6% 50.0% 66.7% Don't want to damage good relationships 47.4% 28.4% 28.2% 33.3% Not enough time/resources to do more 21.1% 20.0% 12.8% 19.4% Not fair to push too hard 10.5% 12.6% 15.4% 11.1% Not enough internal pressure to pursue 26.3% 11.6% 6.4% 13.9% Too hard to enforce 5.3% 8.4% 15.4% 2.8% None 10.5% 8.4% 11.5% 13.9% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 32

43 Outside Counsel Rates Negotiating Power Approximately what percentage of your outside counsel fees last year was for work that could have been done by many different law firms (i.e., work where you had significant negotiating power over fees)? 50% 48.8% 40% 30% 20% 10% 0% 13.2% 12.8% 10.7% 7.0% 5.0% 2.1% 0.4% 0% 1%-5% 6%-10% 11%-20% 21%-30% 31%-40% 41%-50% Over 50% Median: 41% - 50% Approximately what percentage of your outside counsel fees last year was for work that was not price sensitive (i.e., work so important that costs were not an issue)? 50% 40% 30% 20% 10% 11.6% 7.0% 14.1% 16.1% 17.4% 11.2% 10.7% 12.0% 0% 0% 1%-5% 6%-10% 11%-20% 21%-30% 31%-40% 41%-50% Over 50% Median: 21% - 30% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 33

44 Outside Counsel Management Tactics Does your law department routinely do any of the following to manage outside counsel? (Check all that apply.) Require budgets for major matters Provide guidelines for billing, expenses, matter staffing, matter management 80.8% 78.8% Negotiate fixed, capped or alternative fees Enforce guidelines for billing, expenses, matter staffing, matter management 59.6% 66.7% Perform data analysis of your outside spend 37.5% Provide post-matter feedback 36.7% Require defined level of technology proficiency 9.2% 0% 20% 40% 60% 80% 100% Outside Counsel Management tactics BY LAW DEPARTMENT SIZE 1 lawyer 2-10 lawyers lawyers 51 lawyers or more Require budgets for major matters 68.4% 77.2% 85.9% 89.2% Provide guidelines for billing/expenses/staffing etc. 42.1% 64.1% 96.2% 94.6% Negotiate fixed, capped, or alternative fees 42.1% 64.1% 73.1% 78.4% Enforce guidelines for billing/expenses/staffing etc. 31.6% 52.2% 62.8% 83.8% Perform data analysis on outside spend 10.5% 33.7% 39.7% 54.1% Provide post-matter feedback 36.8% 38.0% 37.2% 37.8% Require defined level of technology proficiency 5.3% 6.5% 7.7% 18.9% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 34

45 Outside Counsel Management Tactics Significant Improvement For each of the outside counsel management techniques your law department uses, has it resulted in a significant improvement in outside counsel performance? Enforce guidelines for billing, expenses, matter staffing, matter management 15.5% 9.2% 75.4% Negotiate fixed, capped or alternative fees 13.3% 12.0% 74.7% Provide guidelines for billing, expenses, matter staffing, matter management 24.9% 12.7% 62.4% Require budgets for major matters 22.3% 18.1% 59.6% Provide post-matter feedback 18.4% 26.4% 55.2% Perform data analysis of your outside spend 17.8% 27.8% 54.4% Require defined level of technology proficiency 31.8% 27.3% 40.9% 0% 20% 40% 60% 80% 100% No Too soon to tell Yes 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 35

46 Outside Counsel Management Tactics Comparison of Use and Results This chart combines findings from the two prior questions. Each bar shows the percentage of law departments using that tactic. Data points on the line show the percentage of those departments using each tactic that report it has delivered a significant improvement in performance. 74.7% 75.4% 54.4% 55.2% 59.6% 62.4% 40.9% 9.2% 37.5% 36.7% 80.8% 78.8% 66.7% 59.6% Require technology proficiency Perform data analysis of outside spend Provide post-matter feedback Require budgets for major matters Provide guidelines for billing, expenses staffing, matter management Negotiate fixed, capped or alternative fees Enforce guidelines for billing, expenses staffing, matter management % using tactic Of those using tactic, % experiencing significant improvement in performance 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 36

47 Law Firm Service Improvements Of the following service improvements and innovations, please select up to three that you would most like to see from your outside counsel. (Select up to three.) Greater cost reduction 51.3% Improved budget forecasting 46.2% Non-hourly based pricing structures 38.5% Modification of work to match our legal risk 31.2% More efficient project management 29.9% More efficient project staffing 28.6% Greater effort to understand our business 25.2% Improved communication and responsiveness 20.1% Preventative law strategies 15.8% Technology efficiencies 12.0% 0% 10% 20% 30% 40% 50% 60% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 37

48 Reasons for Switching Law Firms In the last 12 months, have you shifted a portfolio of work worth $50,000 or more from one law firm to another for any of the following reasons? (Check all that apply.) Client service Lower fees Legal expertise 44.8% 42.1% 48.3% Managing matter efficiency Conflicts Our key partner(s) changed firms Size or depth of firm resources 28.3% 27.6% 22.1% 20.0% Inability to handle our geographic scope Predictable fees Data security concerns Technology sophistication 9.0% 6.9% 0.0% 0.0% 0% 10% 20% 30% 40% 50% 60% Reasons for switching law firms OTHER (representative responses) Failure to provide practical, actionable, effective advice Lack of commitment to diversity and inclusion Consolidation of work to garner leverage and efficiencies 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 38

49 Inside / Outside Relationship Law Firm Change Efforts In your opinion, in the current legal market, how serious are law firms about changing their legal service delivery model to provide greater value to clients (as opposed to simply cutting costs)? 0 = Not at all serious 10 = Doing everything they can 30% 25% 20% 15% 10% 5% 0% 23.9% 20.1% 17.1% 11.5% 12.4% 5.6% 5.1% 3.4% 0.9% 0.0% 0.0% Median: 3 TREND: Law Firms Seriousness About Changing Service Delivery Model BY DEPARTMENT SIZE BY YEAR Median Average Median Average 1 lawyer lawyers lawyers lawyers lawyers lawyers Trend data compiled from Chief Legal Officer Surveys Altman Weil, Inc. An Altman Weil Flash Survey - 39

50 Inside / Outside Relationship Pressure on Law Firms In your opinion, in the current legal market, how much pressure are corporations putting on law firms to change the value proposition in legal service delivery (as opposed to simply cutting costs)? 0 = No pressure 10 = Intense pressure 25% 20% 15% 10% 5% 0% 21.7% 14.9% 14.0% 14.0% 11.9% 9.8% 6.0% 3.8% 0.9% 1.7% 1.3% Median: 5 TREND: Level of Pressure on Law Firms to Change Value Proposition BY DEPARTMENT SIZE Median Average 1 lawyer lawyers lawyers lawyers lawyers BY YEAR Median Average lawyers Trend data compiled from Chief Legal Officer Surveys Altman Weil, Inc. An Altman Weil Flash Survey - 40

51 Law Department Performance Initiatives Requiring Greater Resources What is the most important internal task, project or initiative that is going undone because your law department doesn't have the resources (i.e. funding, people, time, or corporate support) to address it? (Open-ended question) We categorized all free-text responses for the following chart. Contract management 12.2% People development 12.2% Operational efficiency 11.7% Risk management 10.6% Compliance 7.2% Strategy and planning 6.7% Information governance 6.1% Technology improvement 5.6% Hiring lawyers 3.9% Spend management 3.9% Management metrics 3.9% Shifting more work in-house 1.7% Knowledge management 1.7% Departmental restructuring 1.7% Intellectual property protection 1.1% Other 5.0% None 5.0% 0% 5% 10% 15% 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 41

52 Law Department Performance Initiatives Requiring Greater Resources What is the most important internal task, project or initiative that is going undone because your law department doesn't have the resources (i.e. funding, people, time, or corporate support) to address it? (Open-ended question) We categorized free-text responses and have included a selection of comments from the top categories presented in order of most-frequently cited topics. Contract Management Contract workflow and management technology Partnering with individual departments to develop contract templates Implementing a contract database Technology upgrade for contract retention and management People Development More proactive education and training of leaders and staff Education of business people on legal issues Management and training handbooks Training, promotion, advancement, succession Operational Efficiency Simplification and standardization of agreements and processes to increase efficiency Internal operations audits Process automation and creating more self-service tools using workflows and AI Policy development and implementation 2017 Altman Weil, Inc. An Altman Weil Flash Survey - 42