Print Posted by Dufford, Waldeck, Milburn & Krohn, L.L.P. on 05/04/2016

Law Firms Face New Competition — Their Own Clients

Law Firms Face New Competition — Their Own Clients

Law firms are contending with growing competition from their own clients.

Many companies are cutting back on their use of outside law firms, and having staff attorneys handle midlevel deals or contracts, reports WSJ’s Jennifer Smith:

This year corporations are shifting an estimated $1.1 billion that they used to spend on outside lawyers to their own internal legal budgets, according to a new data analysis. That migration cements a trend that took off during the recession, when general counsels were under pressure to rein in costs, and spiked in 2012, when companies redirected $5.8 billion in legal spending in-house.

About 58% of larger companies are sending more legal work to their own law departments this year, compared with 50% in 2013, according to the analysis by BTI Consulting Group Inc.

It is cheaper, some general counsels say—and often more efficient.

Some big law firms, which are more likely to offer specialized services that are harder to replicate in-house, say they aren’t feeling squeezed just yet. But smaller firms are adjusting to the new dynamic amid sluggish demand for legal services.

McGuire, Wood & Bissette PA, a small firm in Asheville, N.C., is one example.

The firm’s junior attorneys used to cut their teeth on routine real-estate transactions and contractual work. But banks and corporate clients are giving those tasks to internal lawyers and even to paralegals.

“There is less money to pay everybody,” partner Thomas Grella, who chaired the firm for a dozen years, told WSJ. The firm still handles more complex matters, but “it’s harder to find work for our younger lawyers,” he said.

BTI’s analysis, based on interviews with more than 300 corporate counsels, found that companies and financial institutions will spend more than $101 billion on legal services in the U.S. this year.

But law firms’ share of that pot appears to be slipping. Corporate counsel spent an estimated $40.9 billion on their internal lawyers this year, a 22% increase since 2011.

The trend was underscored in recent surveys of chief legal officers.

Close to two-thirds of chief legal officers are now “in-sourcing” legal work that they used to send out to law firms or other service providers, according to a report released earlier this year by the Association of Corporate Counsel, an industry group.

In a separate poll, 29% of chief legal officers surveyed in late 2013 anticipated a decrease in their overall use of outside counsel over the next 12 months, according to legal consulting firm Altman Weil Inc.

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