According to a report from Wolters Kluwer ELM Solutions exploring law firm spending habits, large banks are turning more and more to law firms outside the Am Law 200, ALSPs, the Big Four, large Asian law firms as well as European firms. The report also stresses that, while law firms managed to get substantial rate hikes from most in-house legal departments, they did not have many clients in the banking and financial sector.
Specifically, according to the study:
- financial companies direct about 10% of total outside spend to the Am Law 10,
- 10% to the Am Law 11-20, 10% to the Am Law 21-50;
- about 15% to the Am Law 51-100;
- Am Law 101-150 and 151-200 employment for both groups is situated at about 4% and 1% of spend, respectively;
- the other half goes to a mix of others, such as law firms outside the Am Law 200, alternative legal service providers, the Big Four and large Asian law firms;
- in this sense, such a mix of vendor of financial companies appears to be similar to the mix from any large company.
“Despite their reputation of being exclusive clubs that use only the most prestigious, white-shoe law firms, financial companies actually send about half their work to firms outside the Am Law 200 entirely,” the authors emphasize.
However, as stated by Nathan Cemenska, director for legal operations and industry insights for ELM Solutions, this finding is somehow surprising. “If you talk to firms not ranked in Am Law at all – he said – they’re worried big banks and financing companies are going to shun them. But they’re not being shunned. That’s not what’s happening.”
The utilization of European firms
Focusing on the legal work that falls outside the Am Law 200, the only way financial companies’ spend differs from other companies is that they tend to use European and Magic Circle firms more than others.
That is probably related to the large amount of bank work connected to international mergers and acquisitions, with Magic Circle firms in London often handling at least some of the legal work on deals, the report says.
Holding Billing Rates
Again, according to the study, large corporate departments in general increased their median outside counsel spend by about 21% last year. On the other side, the increase for those in the finance sector was “virtually zero” between 2020 and 2021.
Factors behind the flat spend of banks and financial companies may be the sophisticated legal ops departments that helped control rate increases, but also the pandemic litigation pauses. In particular, the median outside counsel spend of financial service firms was about $59 million in 2020 and basically remained there the following year, registering at $59.1 million.
“They seem to be better at containing spend,” pointed out Cemenska, referring to financial companies. “They have very high spend both in absolute terms and as a percentage of revenue. But they are good at not having that grow any further.”
Court closures due to COVID-19 in 2020, which bled over into 2021, helped contain law firm billing: “[A]s frequent targets of litigation, banks and other financial companies benefitted disproportionately from the pause in litigation starting in 2020 and continuing at least partially into 2021. Court backlogs, already significant, increased by about 40% in the 18-month period beginning with the pandemic,” the report said.