San Jose, CA, July 1, 2020 — Corporate Legal Operations Consortium (CLOC) today released the results of their 3rd Annual State of the Industry Survey of internal and external expenditure for legal services. The survey embraces more than 140 companies (including 27 Fortune 500) in 17 countries (including 33 US states), covering more than 30 industries, from biotech to consumer goods. The survey measures growth in demand for legal services by industry, organization size, and the structure of the legal ops department.
The survey found that demand for legal services continued to grow through 2019, and that organizations were realizing higher ROI from increased headcount and technology adoptions. The role of legal ops continues to expand, and the skills and expertise of the legal ops teams were becoming increasingly integrated with the organizational strategy and business objectives of their organizations.
In 2019, organizations of all sizes prioritized the implementation of new technologies and the automation of legal processes. The majority of the organizations reported having achieved an adequate integration of technology in their legal operations.
- Total external expenditure by all respondents was $3.6B
- Median external vs internal expenditure was $7.9M vs $5M
- Median internal expenditure per legal department FTE was $200K, down from $290K in 2018
- Median external legal expenditure per in-house attorney was $404K, down from $451K in 2018
- Average external vs internal spend was $29.8M vs $19.2M, with an average total legal spend of $41.4M
- 61¢ of every $1 spent on legal costs were spent externally, compared with 46¢ in 2019
- Average total legal spend as a percentage of revenue was 1.12%, sharply up from 0.44% in 2018
BREAKDOWN AND ANALYSIS
Industries leading in total expenditure were Technology and Biotechnology. Lowest expenditure was reported in the Energy/Oil/Gas/Utility and the Entertainment/Media industries. Companies reported using a variety of techniques to control overall costs, including leveraging alternative fee arrangements (AFAs), preferred provider panels, alternative legal service providers (ALSPs), and shifting more work to in-house attorneys.
Moving work in-house was the general trend across industries. At the same time, the percentage of external spend as a % of total legal spend increased from 46% in 2018 to 61% in 2019. 28% of respondents reported moving more work in-house, compared with only 20% who outsourced more legal work. As for the balance of work between law firms and alternative legal service providers, 20% reported moving more work to ALSPs, as opposed to only 3% who increased the share of work to law firms. More than half of the organizations that responded stated that the ratio between work retained in-house and outsourced work remained unchanged, but this figure varied with company size, from 30% among small companies to 67% among large ones.
Average headcount (FTEs) in legal departments varied from 38 in small companies to 180 in large ones. The Biotech industry led the field with an average of 191 FTEs, down to 21 in the Energy and Entertainment industries.
Legal ops continues to expand in scope and function. The average legal ops team has 6 FTEs, with large companies averaging 14 FTEs and industries like Biotech averaging 26 FTEs. The average legal ops FTE supports 15 legal team members, with the ratio of legal ops-to-attorney ranging from 1 to 6.5 in small companies to 1 to 11 in large ones.
More than two-thirds of legal ops leaders report to the General Counsel and have titles of increasing seniority from Legal Ops Director to Vice President to Assistant General Counsel.
The use of technology and the automation of legal processes has been steadily growing. The most common use of technology remains in the area of eBilling, implemented by more than three quarters of respondents. Although the use of eSignature and Document Management has increased substantially in the last year, overtaking Contract Management, which dropped from 65% the previous year to 56% in 2019. Other commonly used technologies are Legal Analytics, Board Management, eDiscovery, IP Management, and Entity Management. 71% of respondents reported that automating legal processes and implementing new technology solutions were high priorities for 2020.
69% of respondents reported that their legal departments are well integrated with the organizational strategy and business objectives of the firm, and 67% reported that their legal ops teams were a strategic partner of the legal department. Legal ops was also reported to frequently partner with the organization’s financial, IT, HR, procurement. and security units.
ABOUT CORPORATE LEGAL OPERATIONS CONSORTIUM (CLOC)
CLOC is a 501(c)6 non-profit professional association. Its mission is to help legal ops professionals and other core corporate legal industry players (tech providers, law firms, LPOs, law schools, etc.) optimize the legal service delivery models needed to support small, medium, and large legal departments.
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Corporate Legal Operations Consortium