By Brandon Gee
Dolan Media Newswires
Corporate legal spending nationwide will remain flat in 2014, but winning the business of large international companies could give law firms a competitive edge in the year ahead, according to a newly released report from a consulting group.
Based on annual interviews with corporate legal decision-makers, Wellesley, Mass.-based BTI Consulting reports that Fortune Global 500 companies now account for 40 percent of corporate legal spending in the U.S., up from 30 percent in 2010.
Their spending is surging at a compound annual growth rate of 7.2 percent and is helping to stabilize the market for outside legal services, as other companies’ legal spending is shrinking at a rate of about 2.7 percent.
The forecast notes that, despite their own size and scope, “global companies show vigorous interest in working with every size and manner of law firm” and that “75 percent of their law firm hires are outside the Am Law 50.”
“It’s a good trend,” said Michael Rynowecer, president and founder of BTI, which provides strategic market research for law firms. “It speaks to an opportunity, but that opportunity has to be seized.”
The trend is illustrated by seven-lawyer Boston firm Beck, Reed, Riden, which has multiple Global 500 clients. Stephen Riden and Russell Beck said the firm pitches its lawyers as experts in business litigation, intellectual property, and labor and employment law — and nothing else.
“Within the scope of those three areas, we can do anything,” Beck said. “Outside of those areas, we do nothing.”
“The thing that we most emphasize when talking to these companies is that we have expertise in an area they’re interested in,” Riden added. “They tell us that’s what they appreciate. They’re looking for people who are the best in the industry for a particular matter.”
Beck said that while big firms historically have been able to leverage their longstanding relationships with major companies to earn additional business, economic pressures have forced companies to realize they can achieve the same quality of service at a cheaper price from smaller firms.
“We are a beneficiary of that change in mindset,” he said.
Internal spending climbs
Mark Roellig, executive vice president and general counsel of Massachusetts Mutual Life Insurance Co., a Global 500 member, said that he still will turn to a big firm for “bet-the-company” litigation or a “deal of the decade.”
Otherwise, Roellig confirmed the trends identified in BTI’s forecast and said MassMutual is “triaging work … to maintain costs and quality.”
But Roellig said MassMutual also is taking part in a less exciting trend for outside lawyers: a slow, steady climb in internal legal spending.
“I think that the in-house practice is becoming more sophisticated than it historically has been, and I think that trend will continue,” said Roellig, who noted that his average outside counsel hourly rate is about $400 to $500, while his in-house rate is just $200.
Roellig said he also is relying more heavily on the use of non-lawyer professionals to perform work when possible and expects the firms he hires to do the same to save money.
Along the same lines, Roellig said he is increasingly asking law firms how much Six Sigma and other process improvement and organizational efficiency training they have done in the past year. He said most firms are still “miles away” from embracing such strategies and techniques the way the rest of the business community does.
In order to win the business of large global companies, Rynowecer said firms should show more flexibility on pricing, accommodating needs and following a strategy. Furthermore, he said lawyers should take the time to understand what the large, complex global companies do and what they want to do, rather than merely citing general skills and past representative cases.
“It goes beyond your experience,” Rynowecer said. “Once they know you can do it, they want to know three to four other things.”
“We’re moving fast, and we’re going to go to people we trust,” he said. “Spend time and effort building the relationships before you ever send the first bill.”
Roellig said firms should tout their diversity, as corporations like to see that in their vendors. One reason Roellig said he likes smaller law firms is that he can immediately see how diverse the team working for him is. When he works with a large firm, by comparison, even if it boasts an overall diverse workforce, he cannot be sure if the team that works on his matters will reflect that.
Beck said he enjoys working with Global 500 companies because they “tend to be very sophisticated on the nuances of issues in a case, and they have the resources available to work with us to make sure cases are managed efficiently and effectively.”