Budget pressure, general counsel bet on in-sourcing
A comprehensive survey from Thomson Reuters has uncovered significant challenges facing in-house legal departments, with mounting financial pressures driving strategic transformations across corporate legal teams.
The 2024 State of the Corporate Law Department report indicates that approximately 69% of in-house legal professionals are experiencing substantial budgetary constraints imposed by business leadership. Simultaneously, 72% of these departments are actively seeking methods to enhance operational efficiency.
Technological innovation emerges as a potential solution, with 76% of respondents believing artificial intelligence could be instrumental in achieving productivity goals. In response to financial pressures, 68% of legal teams are considering bringing more work in-house, while 48% are exploring outsourcing to more cost-effective legal providers.
The research unveiled interesting disparities in legal spending across company sizes. Smaller organizations proportionally invest significantly more in legal counsel, sometimes up to ten times more than their larger counterparts. The average business allocates 0.26% of revenue to legal expenses, with notable variations: enterprises exceeding $6 billion in revenue spend merely 0.05%, compared to 0.83% for businesses between $50 million and $1 billion.
Despite ongoing cost challenges, 36% of global in-house teams anticipate increased external legal counsel expenditures in the coming year. The healthcare and pharmaceutical sectors demonstrate the most optimistic outlook, with 56% expecting rising legal costs.
Cost management strategies are evolving, with 67% of departments seeking rate discounts and 52% exploring alternative fee arrangements (AFAs). Remarkably, 80% consider law firms’ flexibility in fee structures a critical selection criterion, and 41% of European legal departments now mandate AFA offerings when choosing external legal services.
The survey underscores a transformative period for corporate legal departments, balancing technological innovation, cost efficiency, and strategic value creation.
As reported by the Global Legal Post, Jas Sandhu-Dade, Thomson Reuters’ European Corporate Segment Director, highlighted the complex dynamics: “Legal departments are increasingly challenged to demonstrate their strategic value. There remains a noticeable disconnect between the perceived and actual contributions of legal teams to broader business objectives.” Sandhu-Dade emphasized that “while large and mid-sized law firms are increasingly employing specialized pricing professionals, complete internal management of legal work remains unrealistic. General counsel must strategically assess which legal functions are best handled internally versus those requiring external expertise.”
