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Law firms to lose even more litigation work to in-house legal departments

Corporate counsel cite costs control, data security and risk management as top priorities

20 November 2015

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By Manju Manglani, Editor (@ManjuManglani)

About a third of in-house legal departments have increased their legal spend on litigation in the past year to cover a rising level of disputes.

To address this legal need, many companies have hired specialist litigators instead of giving more work to law firms.

That's according to an AlixPartners survey of 242 corporate counsel and compliance officers at European and US companies with annual revenues of at least $250 million.

"Companies, particularly those that operate overseas, are conducting business in a challenging regulatory and enforcement environment," said managing director Harvey Kelly.

"Given this dynamic, it is not surprising that companies are not only facing more disputes in this area, but are increasing their use of techniques to deal with these risks."

The report, which was released yesterday, found that 32 per cent of companies experienced an increase in legal disputes, while 37 per cent increased their litigation expenditure.

However, many are retaining more litigation work in-house rather than giving it to external law firms.

More than a fifth (22 per cent) of respondents reported an increase in the size of their in-house litigation departments over the past year, while 16 per cent said their company had decreased its use of outside law firms.

The results match those of recent research by Thomson Reuters, which found that many corporate legal departments are creating in-house law firms with specialist expertise to reduce their reliance on external law firms.

Its survey of 303 in-house lawyers also found that 22 per cent have created new in-house positions in litigation, along with new hires in contracts (37 per cent), compliance (36 per cent), intellectual property (15 per cent), employment and labour (15 per cent), and corporate and securities (13 per cent).

The top five legal disputes faced by the organisations of respondents to the AlixPartners research are: contracts (53 per cent), employment (38 per cent), intellectual property or patent infringement (29 per cent), tax (20 per cent), and insurance (19 per cent).

Nearly a quarter (24 per cent) of respondents said that their companies' legal disputes involved overseas business partners.

In addition, 11 per cent of respondents said their organisation was involved in 'bet the company' litigation during the last 12 months, up from the eight per cent reported in 2014. Of these disputes, 22 per cent involved regulatory issues, compared with only six per cent last year.

When legal departments have in-house specialists in litigation, M&A or IP, their top reasons given for instructing law firms for such work are the complexity of the issues and the significance of the matter or case, according to the Thomson Reuters research.

The AlixPartners research shows that the most critical issues facing corporate legal and compliance departments are controlling costs (73 per cent), data security (66 per cent), proactive risk management (66 per cent) and early case assessment (57 per cent).

With regulatory investigations and compliance risks mounting, corporate legal departments continue to focus on risk management techniques that emphasise prevention and early detection of potential problems.

The survey suggests that education and training are the most commonly-used techniques to reduce risk, with 53 per cent of respondents citing an increase in their education and training programmes.

Half of all respondents also said they have increased the frequency of their reviews of compliance programmes designed to reduce litigation-related risks.

The 2015 AlixPartners Litigation and Corporate Compliance Survey received 242 responses from corporate counsel and legal officers representing more than 20 industries with annual revenues of $250 million or more. Forty-eight per cent of responses were from European companies and 47 per cent came from North American companies.




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