CLO study projects more hiring and spending to handle increased regulation.
This year’s Association of Corporate Counsel (ACC) annual conference held in Denver attracted nearly 2,000 in-house counsel and featured 112 panels across 13 broad subject tracks. The top issues discussed included managing the costs of running an expanded corporate legal department, the changing role of the chief legal officer (CLO), identifying increased risks for legal liability and how general counsel are dealing with higher levels of professional scrutiny.
As the legal landscape becomes more complicated, many general counsel are feeling the heat of greater personal and professional scrutiny. In fact, the issue of professional liability and preparing for crisis was a recurring theme throughout the three-day conference. In her opening address, ACC’s newly appointed president and CEO Veta Richardson told the assembled crowd that ‘we are in an age of hyper-regulation’ and warned counsel to prepare for more scrutiny in their daily work lives.
The increased focus on the role of the CLO was considered so important that it was addressed during the very first general session of the conference when four leading experts gathered to discuss ‘Corporate counsel under scrutiny: liability for corporate misconduct.’ During the conversation, John Villa, partner at Williams & Connolly, expressed his belief that despite increasing numbers of criminal and civil cases being launched against general counsel each year, ‘I don’t really think there is a witch hunt on for in-house lawyers by the SEC.’
While other panelists Alberto Gonzalez-Pita, former general counsel at HCP, Judge Sven Holmes, vice chair of legal and compliance at KPMG, and ACC chief legal strategist Amar Sarwal generally concurred, the underlying message was that in-house counsel are no longer viewed as exempt from prosecution. As Richardson explained in her remarks, general counsel are ‘considered key players in governance investigations, and therefore prime targets.’
Risky business
It seemed every panel, regardless of the topic, had an underlying theme of risk management. General counsel are more concerned than ever about risks, not only to their companies, but also to their own careers. There is an increasing shift in focus toward governance and compliance issues. Only a few years ago these functions were often seen as being outside the role of general counsel, but as regulation becomes more complicated and international regimes update their governance rules, the office of the general counsel is changing to take on a broader responsibility within the corporation.
This increased responsibility requires general counsel to develop better financial management skills. There were multiple panels on fee arrangements for outside counsel, managing litigation costs, making the legal team a profit center, and everyone’s favorite – executive compensation. And that’s even before we got to the topic of compensating the in-house legal team.
Many of these trends are reflected in ACC’s 2011 chief legal officer survey, which was released during the conference. The report examines issues that are most on the minds of CLOs in the US and internationally.
In response to the complicated regulatory environment, many CLOs are looking to boost staffing, according to the survey. In spite of the difficult economic conditions, 37 percent say they have immediate plans to hire staff. Interestingly, it is unclear whether that hiring will favor support staff or those with legal qualifications. The past two years have seen dramatic cuts in support staff as CLOs react to tightening budgets by focusing on core legal skills. This is especially the case in IT, with the average number of IT employees in the legal team falling by half since 2010. This came as a surprise to many participants given the growing importance of e-discovery and electronic searches required for stepped-up due diligence processes.
Positive growth
‘The increased trend in hiring more law department staff reflects positive growth within in-house legal departments,’ explains James Merklinger, ACC vice president and general counsel, in a statement. ‘ACC has seen a 20 percent increase in non-US-based CLOs in the past three years and international in-house lawyers are expanding, as exemplified by this year’s survey demographics; therefore, a larger support staff is needed for the department internally as well as to work with outside counsel.’
With staffing on the rise, many CLOs are looking for ways to effectively manage expenditures. Over two-thirds of survey participants say they are implementing practices to create cost and time efficiencies and looking for methods to create value for the department and the company as a whole.
Most of the cost-cutting is targeted at outside counsel fees, which present a significant challenge. According to the survey, 52 percent of CLOs report spending over $1 million annually on outside counsel help and 18 percent spend more than $5 million annually.
As a result there has been a shift to alternative fee arrangements, with 63 percent of CLOs reporting some use of non-traditional billing structures. This is up from 32 percent in 2009. Despite this shift, only about 10 percent of outside legal work is conducted under a non-billable-hour model.
The role of the general counsel continues to rise in importance at all public companies, and with this heightened importance come additional challenges and responsibilities. Perhaps the most important message of the conference was put forward by Mary Ann Hynes, senior vice president and general counsel at Corn Products International: ‘Get yourself involved as much as possible with the business people because the more you know about how the company makes its money, the more effective you and your team are going to be as lawyers.’
The CLO experience managing outside counsel, 2010
45% of CLOs experienced an increase in hourly rates charged in 2010
77% of CLOs saw an increase in value of work performed by outside counsel
47% of CLOs used value-based fixed fees or discounted rates
Source: ACC, 2011 chief legal officer survey
