Industry-Leading Legal Benchmarking Survey Shows Legal Spend Distribution Moves In-House, Especially for Smaller Companies

The Association of Corporate Counsel (ACC) and Major, Lindsey & Africa (MLA) recently announced the release of their annual legal benchmarking survey.

The third report as a result of this partnership found a shift to internal legal spend distribution, driven largely by smaller companies. Additionally, compared to last year, more departments moved work internally in the areas of due diligence, labor & employment, legal research and intellectual property. The executive summary provides high-level survey results on legal department structure, work allocation, law firm usage, staffing, spending and diversity metrics.

“From internal and external legal spend to staffing breakdowns, to diversity metrics, the ACC/MLA Law Department Management Benchmarking Report provides actionable data across today’s law department,” said Veta T. Richardson, President & CEO of ACC.

“As law department leaders continue to navigate supply chain, regulatory, ESG-related issues including the Great Resignation, and more, this report provides a baseline from which to chart a path forward to maximize productivity while reducing costs and ultimately deliver greater value.”

“We are pleased to be able to partner with the ACC again to provide insightful law department metrics that will allow General Counsel, Legal Operations leaders and the C-Suite the ability to measure the fitness of their legal function,” said Gregory Richter, Partner and Vice President, Retained Search and Advisory Services for MLA.

“As organizations are challenged with future-proofing and navigating the current market dynamics, benchmarking is a predominant tool to effectively provide leaders with perspective and build a plan toward performance improvement using actionable peer data. We are excited to leverage this data to help our clients grow and improve.”

More Legal Work Shifts Internal/External Spend Distribution

The survey observed a change in legal spend with departments spending more internally than externally — 54 percent of legal spend in-house — compared to the 2021 survey, which tilted slightly toward a larger external spend — 51 percent on average spent outside versus 49 percent inside. The distribution of internal and external spend continues to vary significantly by company size, with smaller organizations spending more internally on average while the largest departments spend more outside.

At least 90 percent of departments handle at least some portion of the following functions internally, if relevant: compliance, contract management, corporate and governance, document management, invoice review, legal operations, privacy and security, records management, and regulatory. This accounts for nine out of the 17 areas listed, and at least eight in 10 departments also handle some aspect of due diligence, labor & employment, legal research, and litigation/legal hold in-house.

Departments rely on external providers for other tasks, most notably discovery, with only 68 percent handling data collection internally and less than half (45 percent) managing data hosting and processing. Forty-four percent of departments outsource data collection to outside counsel and 58 percent do so for data hosting and processing. These are also the two areas most commonly outsourced to ALSPs — 11 percent and 23 percent, respectively.

Law Firm Use Increases While ALSP Use Remains the Same

Another sign to the increase in overall work for legal departments this year saw a six percent increase (35 percent from 29 percent) in the number of respondents who said they increased the number of law firms they engaged compared to 2020.

The same cannot be said for ALSPs, with 86 percent reporting there was no change in the number of ALSPs used. We continue to see that ALSPs are only seeing widespread use by larger companies with minimum outside spend of US$5 million annually.

Diversity

Twenty-nine percent of respondents track internal diversity metrics or have targets regarding the department’s composition — same as last year. While the number for those that track diversity with respect to their outside counsel composition is lower (21 percent), it is three points higher than in 2021.

When it comes to internal diversity metrics, among those who track diversity metrics, 97 percent report doing so for hiring, followed by promotions, departures and levels or functions – with a third tracking diversity related to staffing and training. This marks an increase in each of these items compared to last year.

Legal Operations Grow Slower as Lawyer Numbers Increase

The ratio of legal operations professionals to lawyers changed slightly, from seven to one in 2021 to eight to one in 2022. Additionally, the data showed that the number of paralegals increases faster than the number of administrative staff, which in turn increases faster than the number of legal operations professionals as the lawyer headcount grows. See chart below.

Number of Legal Staff Based on Number of Lawyers graphUsing data from this survey, ACC offers custom benchmarking reports, providing organizations a true comparison to their peer group based on six criteria. To help put this data into action, ACC partners with Smarter Law to highlight specific areas and actions legal departments can take to help reduce costs and improve efficiency.

Findings are based on responses from 427 legal departments in organizations spanning 24 industries, 26 countries and all company sizes.

The executive summary is available to view here.

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