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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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February 11, 2008 12:01 AM ET
A little good news for big companies trying to contain costs: Growth in legal spending—which had accelerated over the past five years—is finally tapering off among the Fortune 1000. The total market for corporate legal spending—both on outside counsel and internal legal departments—grew 7.1% in 2007, to $91.6 billion, barely half the growth rate of 13.1% in 2006, and it’s expected to increase just 6.1% this year, according to BTI Consulting Group. The dollars going to outside law firms rose a relatively measly 5.1% last year, to $20.5 million, for the typical Fortune 1000 company, down from the 15.4% bump in 2006. BTI projects growth in spending on outside counsel will remain around 5% in 2008, which will barely cover their projected hike in fees, as CFOs and their in-house legal departments try to contain expenses. “Corporate counsel now have more economic leverage [with outside law firms] than they’ve had in five years,” said Michael Rynowecer, president of BTI. “Expect to see companies negotiating harder than they ever have for substantially better rates. We’re going to see more tension between corporations and law firms than there has been in a long time.” For large companies that spread their legal work across several firms, this might be the year in-house counsel can force them to bid against each other, observed Doug Barnard, general counsel at publicly traded CF Industries, a $3 billion in sales specialty chemicals maker in Deerfield, Ill. In some cases, he suggested, companies may demand multiple-year fixed-fee arrangements or rate freezes and other kinds of discounts. “A lot of corporate legal departments are going to view this coming year as a great time to reduce their costs on outside legal services. And I wouldn’t be surprised if law firms are much more willing to deal to keep their clients.” Mr. Rynowecer of BTI noted that a few of his Fortune 1000 clients have gone so far as to ask their law firms for a “request for value” proposal, which basically insists the outside lawyers come up with a plan that reduces the fees they charge: “Instead of saying, ‘Bid this at your lowest hour,’ they’ve reversed it and said to outside counsel, ‘You give us a way to cut down the fees we pay you, or maybe we’ll look elsewhere.’ That’s a pretty dramatic shift in power.” The slowdown in corporate legal work is being driven by the credit crisis, which has hit legal budgets the hardest in M&A (projected growth for 2008 is 5.8%), corporate transactions (3.8%), tax work (2.9%) and securities issuance (5.1%), explained Mr. Rynowecer. Meanwhile, much of the spending that once went to outside counsel to keep up with new laws and regulations is now going to internal compliance and regulatory departments. Of course, one area that could throw all the projections off is litigation, which remains the No. 1 growth area for the seventh year in a row and accounts for roughly one-third of companies’ legal budgets. According to BTI, 45% of inside corporate counsel plan on bumping up their litigation spending for 2008. And for good reason: The number of securities class-action filings soared 43% in 2007, snapping a two-year lull, thanks in part to the subprime meltdown. Still, Mr. Rynowecer said that while there have been “pockets of new work” related to subprime, it hasn’t yet turned into the “giant bonanza” some had hoped for. Even more bad news for outside counsel: Corporations continue to bring more work in-house to improve efficiency and cut costs. Outside counsel’s portion of corporate legal spending saw its first drop in seven years, to 63.5% from an all-time high of 65% in 2006. Dean Gardner, a CFO at privately held International Garden Products, recommended that companies with at least $300 million in sales should now more than ever consider adding a legal team or internal counsel. As a consultant for executive services firm Tatum, Mr. Gardner three years ago persuaded publicly traded Triquint Semiconductor to add its own counsel to dramatically reduce legal spending. “You can bring in someone with experience, such as in intellectual property litigation, who can do a lot of the work,” he said. “More importantly, when that person goes outside for external help, he or she can usually negotiate better rates.” FW
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