New Zealand Law Society - CLO survey shows high termination rate of law firms

CLO survey shows high termination rate of law firms

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An international survey of almost 1,100 General Counsel and Chief Legal Officers has found that 31% reported terminating at least one law firm or outside counsel relationship for underperforming in 2016.

The Association of Corporate Counsel CLO 2017 Survey also found that 46% of responding CLOs reported that they either definitely (10%) or may (36%) terminate a law firm or outside counsel relationship with the intent to hire a new firm to perform the same work in 2017.

The survey, which covered 42 countries including New Zealand and Australia, indicated that generally the bigger the law department budget, the more likely a CLO was to have terminated a law firm or outside counsel in 2016.

Law Department Budget ($US) and whether terminated firm or counsel in 2016

Terminated Less than $1m $1m to $2.9m $3m to $9.9m $10m or more
Yes 28% 38% 39% 48%
No 69% 58% 57% 48%
Prefer not to say 3% 4% 4% 4%
Responses 496 178 84 54

The research found that CLOs who reported terminating a law firm in 2016 were significantly more likely to report that they anticipate increasing their inside budget and increasing their use of alternative fees: 52% of respondents who terminated a firm expect to increase their inside budget compared with 39% who did not sever ties with any law firm.

Less than 1% of the responses from the survey of 1,130 CLOs came from New Zealand (actual number not stated), but 11% of responses came from Australia.

Litigation handling

The CLO respondents reported that their departments handled roughly four active litigation matters at a given time, with the top 5% of departments handling more than 15 litigation matters.

The amount of litigation varied by the type of industry in which a department was engaged, with the healthcare industry handling the highest average number of litigation matters (5.76 at a time), followed by real estate (5.57) and telecommunications (5.57). Those with the lowest average number were information technology (1.67) and biotechnology/life sciences (1.95).

On average, 24% of a law department budget was spent on litigation, with those in the top 5% spending as much as 80% of their budget on litigation. Generally, the larger a department's budget, the greater the percentage of that budget was spend on litigation.

CLOs in Canada and Europe experienced a higher average number of active pieces of litigation within their department compared to those in the United States, Asia Pacific and Australia/New Zealand.

Number of active pieces of litigation being handled at time of survey

Office Region Mean Median
Asia Pacific 3.5 2
Australia/New Zealand 3.9 2
Canada 5.8 3
Europe 5.3 3
Middle East/Africa 5 5
United States 3.7 2

Respondents were asked to rate the importance which they anticipated different issues would have over the nexst 12 months. Top was ethics and compliance, followed by regulatory of governmental changes. The survey report notes that although the order of issues has changed only slightly since 2013, many key issues have grown in their importance to CLOs.

"The continued emphasis on compliance is not surprising given that law departments report having to handle an average of just under three (internal and external) compliance-related investigations in the past year. In the most extreme cases, departments are handling as many as 10 or more investigations. And with 28% of respondents saying they were targeted by a regulatory agency in the past two years, there is a distinct possibility that one in four CLOs are addressing regulatory issues in addition to other compliance-related investigations."

Level of importance you anticipate each of the following issues will hold over the next 12 months

Issue Very or Extremely Important
Ethics and compliance 74%
Regulatory or governmental changes 71%
Information privacy 68%
Data breaches and protection of 66%
Technology developments 59%
Protection of IP or related disputes 52%
Mergers and acquisitions 49%
Employer's duty of care/workplace 44%
Social media management/governance 33%
Antibribery issues 31%
Whistleblower issues 22%
Healthcare reform 19%

In questions on remuneration, the survey found a gender disparity, with 39% of female CLOs making less than US$200,000 and 32% of male. Males were also more likely than females to be in the highest earning category of US$600,000 or more, with 9% of females at that level and 16% of males.

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