New Post: CLM, Legal Operations, Legal operations

Legal Operations: Legal Expenses in an Increasingly Complex World

The world of legal operations for large companies has grown increasingly complex over the last several years. As regulation, litigation, and business turmoil all increase in prominence, the need for corporate legal services has escalated. This has in turn caused an overall rise in legal spending, particularly for companies of all sizes with revenues of over $20 billion.

According to the 2023 Law Department Management Benchmarking Report, companies with more than $20 billion in revenue saw their median total legal spend increase from $50.8 million to $80 million, a 57% increase in one year. This was accompanied by an overall 29% rise in average legal spending from $2.4 million to $3.1 million. Companies of all sizes between $5 billion and $20 billion experienced a 45% increase in median legal expenses.

53% of legal spending was designated for internal costs, while 47% went to external ones. Companies with larger revenues took on a larger proportion of external costs than those with smaller revenues. This significant rise in legal expenses is likely due to law firm rate increases that have happened in historic fashion as well as the greater demand for corporate legal services expected in the face of an increasingly complex business and legal climate.

Planning for an Increase in Legal Costs

It is becoming increasingly vital for companies to plan for an increase in legal costs. Primarily, this means having an accurate prediction of the growth of the expected legal needs. Companies should be aware of the amount of external counsel being used and its associated expense, as well as the growth of the company’s staff and internal operations. Having a grasp of the size and scope of a company’s legal department is essential for financial planning.

Furthermore, companies must be diligent in sourcing for outside counsel, especially in times of increased legal spend. Companies should opt to utilize law firms with better overall values and pricing structures. Look for those that offer fixed-fee agreements or who can provide legal services within budgetary restrictions. Adequately managing legal costs requires careful consideration of the legal market and any outside functions being used.

Compliance as a Necessity

Failing to stay ahead of legal trends in the face of increased legal expense can lead to compliance issues, and, possibly, hefty financial penalties. Compliance requires outside counsel have detailed knowledge of a company’s legal operations, business operations, and industry. To mitigate the financial risk that comes with growing legal complexity and increased costs, proper compliance is essential. Giving outside counsel, or any legal professionals, detailed knowledge of a company’s operations is essential for protecting company assets and minimizing financial risks.

The legal landscape has become increasingly complex in recent years, leading to an elevation in legal expenses. Companies should plan for these likely increases in legal costs, sourcing law firms with advantageous pricing structures and enough outside counsel to mitigate financial risks. An in-depth knowledge of a company’s legal and business operations is essential for compliance. With greater awareness and prompt implementation of the proper methods, companies can prepare for an increasingly complex and expensive legal world.

Published by Steven A Nichols

I am the founder of Banyan Business Outcomes LLC. I've spent my career helping technology companies get closer to their clients, and helping clients leverage technology companies to create value.

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