Will a Decrease in the Use of Outside Counsel Direct Attention to the Litigation Finance Industry By Corporate Counsel?

The legal industry is still feeling the residual impact of the Great Recession of 2008 as corporate legal departments continue to exercise more control over outside counsel by moving larger portions of legal work in-house.  As the legal industry has essentially become a buyer’s market for in-house counsel, it will be fascinating to see whether the litigation finance industry will see an uptick in use by in-house legal departments as another means to control legal costs.  It certainly is an avenue that CLOs and other corporate leaders should consider as a potential means to reduce risk and increase profits without compromising their ability to engage in bringing, and even defending, legal actions. 

The proof is in the proverbial pudding.  A recent survey of 186 Chief Legal Officers (“CLOs”) conducted by Altman Weil, Inc. (“Altman Weil”) found that corporate counsel obtained “more leverage over external resources” by looking for various avenues to reduce costs by utilizing “their buying power to drive down expenditures on outside counsel and innovating from within to further control costs.”   

Altman Weil reports that 40% of CLOs surveyed shifted legal matters in-house in 2014.  Approximately 25% of those CLOs plan to further reduce their use of outside counsel in 2015 as opposed to 14% that intend to increase the use of outside counsel.  Altman Weil notes that these numbers confirm the continuing “seven-year survey trend in which decreases in the use of outside counsel have been reported at about twice the rate of increases.”  

It appears outside counsel are attempting to adjust to changes in the legal market as a majority of CLOs surveyed reported they received, on average, a 6 to 10 percent price reduction in legal costs and fees in 2014.  Following price reductions, the practice of utilizing alternative or fixed fee arrangements was used by in-house counsel to further control their legal department costs. 

For 2015, a large majority of CLOs (58.2%) stated they would like to receive even more cost reduction along with more efficient project management and better budget forecasts from their outside counsel.  The Altman Weil survey highlights and confirms the fact that corporate counsel are increasingly looking for ways to decrease and streamline their legal spending, which will require them to find innovative ways to do so – such as through the use of commercial litigation funding - without compromising their in-house legal strategies.