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LegalVIEW Insights: Finance companies' spend is high but flat

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The financial industry’s success with outside counsel management and spend differs in significant ways from that of other industries. To take a closer look at some of the differences, our analysts have published LegalVIEW® Insights Volume 5, finance edition. Although banks and financial institutions consistently spend more than other industries on outside counsel, their spend is less volatile. The report digs into the LegalVIEW invoice data on this and several other points of interest. Here are a few of the highlights.

Financial companies kept outside spend flat

While the broader large corporate legal market saw a 21% median increase in outside counsel spend in 2021, financial companies’ median spend on outside counsel barely changed at all. Many large financial institutions even saw some decrease in this spend. There are a few potential explanations for this difference, including the possibility that this sector benefitted more than others from the decrease in litigation activity that occurred in 2020 and 2021, reducing the amount of work these companies needed to send to outside counsel.

In addition, financial companies were more successful than average at limiting rate increases with a mean increase of 2.8%, which was significantly lower than that of many other industries. For example, large manufacturing and basic materials companies saw increases of up to 10.8%. It is common for banks to have dedicated legal pricing experts, access to rate benchmarking, and centralized control over rates. It is likely that these investments in controlling costs have paid off.

Finance sector companies spend a higher percentage of revenue on outside counsel

While remaining flat in 2021, outside spend of financial companies is consistently higher – 50% to 100% higher in most years – than at the average company. When we look at spend as a percentage of overall company revenue, we see a similar pattern. In addition, when we analyze outliers, financial companies are significantly more likely to fall at the extreme high end for this metric. Fully 11% of financial law departments spend more than 2% of revenue on outside legal costs, and that doesn’t even reflect inside costs, which are not trivial.

Despite this, it would be incorrect to assume that financial institutions are comparatively wasteful. Operating in one of the most highly regulated industries, law departments of financial companies must accept the cost of complying with a staggering number of rules and regulations, as well as the cost of defending investigations and lawsuits when noncompliance is alleged. These companies assess themselves as having “advanced” financial management more often than any other industry, meaning that they take advantage of many of the available technological and process-based measures to control spend as much as possible.

Still, with high levels of spend necessary across the industry, legal ops professionals at financial companies would be wise to evaluate their outside counsel spend and look for any additional savings opportunities. Some of the most effective cost-control measures include using insourced teams, engaging ALSPs, and assigning work to law firms that may be less prestigious but are still entirely capable.

Financial companies’ vendor mix is ​​similar to the broader market

Our analysis did not find major differences between the typical selection of vendors used by financial institutions and that of other large companies. Perhaps surprisingly, despite their reputation of being exclusive clubs that use only the most prestigious, white-shoe law firms, financial companies send about half their work to firms outside of the Am Law 200.

The only significant difference is that financial companies show a slightly higher use of the Am Law 10 and large European firms, spending about 56% more in these categories than other companies. One possible explanation is the large amount of international merger and acquisition activity at banks, as it is common for the legal aspect of these matters to involve London-based Magic Circle firms.

There is much more to be learned from reading the full report. For an in-depth review of these points, as well as additional findings, download LegalVIEW Insights Volume 5, finance edition.