Are things turning around for firms? National Law Journal reports “Study Projects Growth in Corporate Legal Spending,” so that looks optimistic. They cite a “BTI Mid-Year Spending Update and Outlook” study ”based on 370 interviews with corporate counsel at Fortune 1000 companies that spend an average of $19.4 million on outside counsel bills.”
BTI hypes the results, saying “Get Ready. Get Set. Rebound.”
After the jump, see why we’re not buying it.
According to the NLJ summary:
BTI data, which were released on Thursday, show that outside counsel spending dropped by an average of 6.7 percent in the first three months of 2009.
An upswing in legal spending on regulatory, compliance, employment, securities and bankruptcy matters will mostly compensate for the sharp declines in spending on corporate, securities, finance and intellectual property, according to the BTI results.
Regulatory work is expected to grow most quickly, by 5.8 percent, followed by an anticipated 2.6 percent upswing in bankruptcy and restructuring, a 2.1 percent expansion in securities and finance and an 0.7 percent increase in employment work.
“The good news is that the spending cuts were so deep it was clear they needed to bring some back,” said BTI president Michael B. Rynowecer.
Did you catch that “mostly compensate” bit? BTI touts the four practice areas that are growing, but what about the rest?
- Corporate -0.1%
- Litigation -0.7%
- Environmental -0.7%
- IP -4.3%
- Investigations -6.3%
- M&A and Corporate Transactions -6.8%
- IP Litigation -7.7%
So how do increased spending in three marginally profitable practice areas (regulatory, securities, and employment) plus bankruptcy result in a net gain compared to massive losses in such big-ticket areas as M&A, IP litigation and investigations?
They don’t.
The other problem with being optimistic about BTI’s result is that the “upswing” in spending is in areas that are reactionary to a continued economic downturn, so the findings are completely backwards. Firms will return to profitability when the cuts in the practice areas BTI poo-poos turn around. No firm is going to thrive in an environment where compliance, employment, securities, and even bankruptcy, have to carry the day.
At least one corporate counsel was surprised by BTI’s findings, according to the NLJ:
But Keith Wexelblatt, senior counsel for Canton, Mass.-based athletic shoemaker Reebok International Ltd., called the results “surprising,” given that yearly corporate legal budgets are fixed at the start of the fiscal year, which is the calendar year for many companies.
“Our budget, like I believe many others’ [budgets], is cast in stone for the entire calendar year,” Wexelblatt said. “Our legal department needs to meet, if not exceed, all of our planned cost-cutting goals. We need to think not only once, but twice, if not three times before sending out legal work.”
Make that three. In the completely unscientific study by Law Shucks of two financial-services companies, both of which spend more than $100 million on outside counsel every year, we got confirmation of Wexelblatt’s view. The cuts are deep, budgets are fixed for the year, and companies are hellbent on reducing outside counsel spend before letting their own people go. Remember, the budget cuts imposed on law departments aren’t negotiable any more. GCs were told months ago how much they’d get for the year and there won’t be a magic pot of gold to allow them to return to their profligate ways (the revenue-generating lines of business always think of law departments as necessary overhead, at best, and business-stifling money sinks, at worst).
Related posts:
