A questionable claim that more lawyers cuts outside spend in half, or that they are one-third the cost

“Corporate Executive Board research reveals that reducing legal staff can actually lead to considerable increased legal costs. Companies with fewer in-house lawyers tend to spend twice as much as their peers with more lawyers.” I suppose if a department is denuded, its client enterprise will pay more to outside counsel. But the vague use of “fewer” gives little guidance. The quote is from the Corporate Executive Board, April 10, 2009.

A second quote also troubled me. “The root of the problem is that contracted lawyers cost two to three times more than in-house lawyers, and companies invariably end up needing to use them for a variety of reasons, and usually on a very frequent basis. Legal work typically isn’t discretionary—try as they might, companies can’t avoid engaging a lawyer when a legal matter arises.”

The General Counsel Roundtable pays attention to its research, so I am surprised that it states that in-house lawyers cost one-third of what “contracted lawyers” cost. All the figures I have seen tell a different story. On a comparable hourly-cost basis, inside lawyers are in the $200 range and outside counsel are in the $300 range for effective rates, which is fifty percent more – far from 200 to 300 percent more.

General Counsel Roundtable says:

September 1, 2009 at 5:28 pm

Rees,
Thanks for citing our research earlier this year. We’re happy to give more clarity into our recent Business Week article on controlling legal spending in 2009.
Our research at the General Counsel Roundtable indicates that similarly-situated companies with fewer lawyers do tend to have higher expenditures. We believe there are two reasons for this. First, having fewer lawyers forces legal departments to rely heavily upon outside counsel in areas they no longer have expertise in. Ultimately, legal departments have to spend more time not only teaching their outside counsel about the business, but managing the work as well (often counteracting the cost-savings associated with reducing headcount). Second, reducing headcount often causes legal departments to use outside counsel as an “overflow” valve for all of the work they can’t do (one of the most inefficient ways to use outside counsel), resulting in higher legal costs.
With regard to the second question, our benchmarking data show that the fully-loaded costs of inside lawyers tend to range from $105 to $375/hr for our members (companies >$600M in revenue), depending on size and location. While law firm lawyer rates (“contracted” lawyers) have shown some weakness recently, our members continue to report average hourly rates ranging from $265 in smaller cities, to $515 for large firm partners. These numbers do not reflect specialist partners that often charge as much as $750-900 per hour.
As stated in our Business Week article, we recommend that legal departments, in lieu of reducing headcount, find smarter ways to use their outside counsel. Increase your core competencies to allow for greater use of your in-house legal department. Look for smaller firms and alternatives such as contract attorneys or temporary lawyers laid off from their law firms. Use technology (e.g., knowledge and matter management, e-billing) to improve in-house productivity. These activities will ultimately generate significantly higher cost-savings over the long run than headcount reductions.
As a company that is constantly searching for the best answers executives have to offer, we look forward to hearing of any other innovative approaches that companies have implemented to control legal costs.