In response to companies using in-house legal staff over outside counsel, there’s less work for certain firms. More lawyers, especially younger attorneys, expected to start a law firm.
According to a recent Wall Street Journal article, there is an increasing trend of companies using in-house legal departments rather than hiring outside attorneys. These companies are finding it cheaper to use in-house attorneys who don’t charge by the hour on mid-level contract work.
Jennifer Smith, the author of the article, notes that corporations are shifting an estimated $1.1 billion from outside lawyers to their own legal departments this year. This is just a continuation of a trend that began with the recession and came to a head in 2012, when companies shifted $5.8 billion in funding to in-house legal departments.
Smaller Law Firms Feeling the Pinch
Many law firms are beginning to feel some pressure as this trend continues to rise. However, in spite of the general difficulty in boosting revenues, some larger firms have not yet been impacted. This is mostly because they frequently perform more specific and difficult to replicate tasks that in-house teams don’t always have the resources or skill to handle.
The article points out one law firm in North Carolina that is having difficulty finding work for its junior attorneys. These smaller firms are adjusting their hiring practices in response to the changing needs of their clients. Rather than hiring inexperienced attorneys, some law firms are looking for more seasoned partners.
This makes finding work for younger, less experienced attorneys more difficult, and may drive an increasing number of younger attorneys to start a law firm. The author also pointed out some interesting figures regarding this trend:
“More companies are embracing the trend. A survey of more than 1,200 chief legal officers found that 63% of respondents 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.”
Law Firms Specializing in Response
Many law firms are beginning to move away from performing more common law tasks, and are instead concentrating on specialized services such as government investigations. This specialized work is much more difficult to replicate by in-house law departments and can typically bring in a higher working rate.
According to the article, Thomas Sabatino of Walgreen Co. says that these corporate legal firms typically act as a kind of switchboard for legal work. They review the company’s legal issues and decide whether to handle it with the in-house team or to outsource it to a firm with more experience or resources.
Anyone who runs any kind of business knows that they must stay on top of upcoming trends in order to survive. This gradual shift in strategy means that small firms will have to change their approach to doing business if they want to remain relevant.
Not only must smaller firms be able to respond to the changing needs of their clients, they must also be able to anticipate these needs. Small firms are typically well-suited to accomplish the former, but with limited resources as compared to their biglaw colleagues, they may struggle with the latter.
With in-house legal teams and departments farming less work out to outside counsel, smaller firms servicing corporate clients will need to focus on performing more specialized work to remain relevant.