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Summary: As many corporations send legal work to their in-house legal departments, law firms suffer from the lack of income this work brought to them.
The Wall Street Journal reports that many law firms are now facing competition from their own clients. Due to many companies cutting back on the use of outside firms and instead hiring contract attorneys for midlevel deals or contracts, law firms are losing money. Apparently, corporations will shift an estimated $1.1 billion to their internal budgets this year, as opposed to spending the same amount on outside counsel. This practice began during the recession and peaked during 2012, when approximately $5.8 billion was redirected to in-house departments in corporations.
In 2013, 50% of larger companies sent legal work in-house, which will increase to 58% this year. Most general counsel hail the practice as being less expensive and more efficient.
Many large firms that offer highly specialized services have not yet been affected by the shift. Since the services they offer are so unique, it would be difficult for corporations to send these complex tasks in-house. However, smaller firms have been hit hard in some areas.
McGuire, Woods & Bissette, P.A., located in Asheville, North Carolina, used to offer real estate transactions and contractual work to its associates. However, now that banks and corporate clients are sending those jobs in-house, the associates are not getting the same practice in these areas of law. Some of the tasks are even being sent to paralegals instead.
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Thomas Grella, a partner at the firm, said, “There is less money to pay everybody.” He added that “it’s harder to find work for our younger lawyers.”
BTI Consulting Group Inc., which conducted the data analysis, interviewed over 300 corporate counsels and estimated that companies and financial institutions will spend over $101 billion on legal services this year. However, less of this work will be performed by actual law firms. Corporate counsel spent around $40.9 billion on internal lawyers this year, which was a 22% increase since 2011.
In addition, roughly two-thirds of chief legal officers reported that they “in-source” work that used to be sent out to private law firms. Nearly one-third of these officers predicted a decrease in the overall use of outside counsel over the next year.
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