Optimizing the Legal Spend: A Better Approach for GCs

Notwithstanding the economic impact of COVID-19 upon businesses nationwide, corporations across industries continue to rack up some rather hefty legal bills. In fact, according to Statista, it is estimated that in 2021, large domestic companies will have spent more than $23 billion on litigation alone, up from the $22.8 billion spent in 2020.

As corporate legal fees continue to rise, GCs across the country are being asked to reduce costs. This, however, is a real challenge, especially as first-year associate compensation is becoming increasingly competitive, with many of the nation’s largest law firms offering starting salaries exceeding $200,000 (an amount that only increases as associates get promoted to more senior status). At the same time, there is an anticipated uptick in both litigation and corporate transactions as a result of the pandemic.

Given the current state of law firm payrolls and the rise in demand for legal services, it might be prudent for those in charge of corporate legal departments to reframe the way they approach law firm spending. Instead of limiting budgets for outside counsel, GCs should shift their focus to determine how their lawyers and law firms can be leveraged as assets that provide a meaningful return on investment.

The Wrong Outside Counsel

All too often, legal services—whether related to contract law, litigation or general business transactions—are viewed by corporate leadership as a necessary evil. In many cases, this point of view is justified, particularly when companies retain attorneys who do not possess a deep understanding of their clients’ industries and specific business operations. In these instances, when the ‘wrong’ lawyers are hired, there is no relevant knowledge base brought to the table. As a result, corporations are required to spend a lot of money to have attorneys learn on the job.

A Better Approach

This should be the exception and not the rule. It is more strategic for GCs to pay up for legal professionals with comprehensive industry and subject matter expertise. To do so, GCs must conduct their due diligence to ensure that the law firms and lawyers they hire are the ‘real deal.’

There are many benefits to retaining lawyers who know their clients’ industries and the workings of their specific business. These attorneys are able to identify not just legal concerns, but other relevant operational issues as well. In fact, the right team can do more than just solve legal problems; it can also work toward achieving broader business goals, which can positively impact the bottom line.

Furthermore, lawyers with tested industry chops can serve as a bridge between their clients and other industry players. This can help when it comes to raising funds and contributing to future scalability, among many other things.

All of the foregoing begs the question: where can GCs find legal counsel with real industry and subject matter expertise? Good referral sources include trade associations and other trusted professional and industry advisors. GCs can also look to attorneys who have contributed relevant and in-depth content to industry publications.

Getting The Most Out Of Your Legal Counsel 

It is a given that law firms should provide their corporate clients with long-term value and ROI. To get the most out of their outside counsel, GCs should require an in-depth case or transaction strategy memo that appropriately sets expectations at the outset of any representation. Such a roadmap also serves to identify immediate legal concerns, broader industry issues, and a comprehensive plan of attack.

Thereafter, in order to maximize ROI, GCs should lean on outside counsel for business solutions whenever possible, insightful market analysis, and consultant and vendor introductions.

Real World Applications

How does all of this play out in reality? Well, imagine a digital media company sued by its investors for alleged fraud. A top law firm is hired to provide a defense, which of course means top-dollar fees are being charged. But despite the slew of hours billed by associates and partners alike, the partner-in-charge recommends that the defendant make significant concessions.

Not surprisingly, the client is unhappy with this advice and decides to hire another law firm to take over—one with actual experience in the digital media space. Immediately upon diving into the litigation, these new lawyers draft a case strategy memorandum that offers up a more impactful defense and a more practical path forward. Ultimately, because the more experienced team of subject matter experts has a comprehensive understanding of the client’s business and is able to offer up solutions not obvious to the uninitiated, the litigation is successfully and favorably resolved. As an added bonus and byproduct of the lawyers’ relationships within the digital media sector, the client is then invited to join the leading digital media trade association.

The above scenario is not only a true story, but also highlights the difference between legal services as a sunk cost versus industry-focused representation that is fully optimized. GCs, take note.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.