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By Susan Bokermann
Jan. 26 — “It’s always hard to make predictions,” but legal departments in 2015 “have to help the business unlock its future growth potential,” according to Amar Sarwal, vice president and chief legal strategist at the Association of Corporate Counsel.
To that end, corporate legal heads told Bloomberg BNA that their departments have focused on a number of ways in which they can increase efficiencies in the coming year. “[L]egal partners closely with the business to support our business strategies, which drives our legal priorities and how we allocate resources,” said Angela Hilt, vice president, corporate secretary and associate general counsel for The Clorox Co.
The practitioners interviewed said some of the top priorities for corporate legal departments in 2015 are decreasing the use of outside counsel, monitoring the company’s global footprint and forming more robust ethics and compliance departments.
Limiting dependency on outside counsel is a priority for many corporate legal departments this year. Hilt said that the legal department at Clorox does “the substantial majority of [their] work in house,” using outside counsel only “surgically.”
“Controlling costs in terms of outside counsel costs is a priority I see across” legal departments, said Ken Callander, managing principle at Value Strategies, a consulting firm that works with corporate legal departments to help manage their outside counsel relationships.
Callander described one client he works with, a large tech company, that uses outside counsel for about 75 percent of its work. Callander said the company hopes to decrease that number to about 50 percent in 2015—and to more than double the size of its in-house legal department.
Callander said he also works with a small start-up company that has no in-house legal department, but hopes to hire one in-house counsel this year. “So I guess that’s a 100 percent increase.”
In contrast, however, Callander mentioned another large financial company client that sends about 80 percent of its work to outside counsel and doesn’t expect to see any real change in 2015. He attributed this to the type of work for which they use outside counsel, mostly acquisitions, and he said they use large firms to complete those deals.
On the whole, however, it seems that minimizing outside counsel costs is a top priority for legal departments this year. According to the Huron Legal 2014 IMPACT Benchmarking Report, legal departments have been shifting work in-house.
The report found that the median internal legal spend as a percentage of total legal spend increased from 41.2 percent in 2013 to 44 percent in 2014. Bret Baccus, senior director for Huron Legal, said the “trend is reflective of departments evaluating their portfolio of legal work and determining which types of resources internally and externally are most appropriately suited for the work from both a cost and skills perspective.”
As an example, Alexandre Menais, executive vice president and group general counsel for Atos, said “we have made it a point in the past years to hire external counsels as in-house lawyers, enabling us to be able to internalize a lot of expertise work in many subject matters.”
However, some companies are more limited in their abilities to decrease their use of outside counsel. Robert Bostrom, senior vice president, general counsel and corporate secretary for Abercrombie & Fitch, said that Abercrombie “would probably like to do a little more [work] in house,” but that due to the company’s “global footprint, we obviously can’t have lawyers that are experts in the laws of 25 countries.”
Bostrom said that Abercrombie keeps 65-70 percent of its work in-house.
Much of “the future of reducing legal spend” is on the global side, according to Sarwal. He said that a lot of corporate legal departments are saying “the next in-house counsel we have to hire probably won’t be an American one.” That is because as the economy continues to improve, legal departments are going to have to plan for legal action in other jurisdictions.
Similarly, foreign companies view their involvement with U.S. markets as a top priority. Menais said that “with our contemplated U.S. footprint, we will face new challenges with regard to compliance.”
According to the Huron benchmarking report, legal departments ranked ethics and compliance as the highest business priority for the coming year.
Bostrom agreed, saying both sat at the top of Abercrombie’s 2015 priorities.
Many companies are still working on building a robust compliance and ethics department, according to Sarwal. This includes hiring compliance officials and developing whistle-blower hotlines. He said that ethics and compliance are “sort of perennials,” in that they aren’t necessarily going to go away by 2016. He said that a lot of it depends “on where the government is.”
There has been a lot of government regulation over the last few years, and Sarwal said many companies are “trying to get ahead of what is clearly going to be a tsunami of regulation over the next few years in the United States.”
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