Burford recently commissioned research into how macroeconomic trends are impacting senior in-house lawyers’ expectations of their law firm partners. Among other findings of the 2023 GC Survey is that as economic pressures increase, GCs expect more financial innovation from outside litigation and arbitration counsel.
GCs expect law firms to offer alternatives to the billable hour
With costs increasing for legal departments, 62% of senior in-house lawyers expect their law firms to offer more cost-and risk sharing solutions, such as alternative fees. As a legal counsel at an energy company said: “We will be demanding those solutions. Law firms increase rates regularly, so we are trying to find alternative options.”
Clients want their law firms to be more creative with their pricing, and are prepared to take business elsewhere if law firms aren’t flexible. As one lead counsel at a transport company put it: “Law firms that are in the business of helping legal departments look good, save money and be more innovative will earn more business.”
Call out quote: “We are increasingly looking to our law firms to offer more creative billing proposals beyond the billable hour. We are starting to understand how to use our leverage, but we have not really seen significant results.” – Associate GC, aerospace and defense company
Many GCs expressed frustration with the billable hour. As one GC of an energy company said, “I want our outside counsel to have as much skin in the game as we have. The billable hour no longer serves us well.” Another GC of a food company expressed disappointment that law firms continue to rely heavily on the billable hour structure: “I am stunned the billable hour remains prevalent.” Still another GC explained that the current economic climate has not yet had an impact on law firm pricing structures, but that it should: “I keep expecting our law firms to offer more options, but they do not do so. It should be happening, and it seems like the environment is ripe for it to happen, but they do not seem to want to move away from the billable hour.”
GCs want risk-sharing partners
GCs want to know law firms are willing to share in litigation risk and see them as partners in this respect: As one said, “We like to know our law firms are willing to share in the risk.” But some recognize that traditional law firms, typically structured as cash-in, cash-out partnerships, are not set up to take on this kind of risk. As the GC of an international food company explained, “Law firms are not typically risk enterprises that are structured as well as litigation funders to manage risk.”
The associate GC of a media company explained that a lack of financing options might dissuade his company from working with a firm on their disputes: “In an economic downturn, we may not be as motivated to pursue some litigation or transactional matters without creative billing options.”
Even in jurisdictions not typically used to taking matters on risk, some senior in-house lawyers indicate an appetite for US-style contingency fees: “We are already considering alternative fee arrangements, but outside of the US, contingency fees are not as common.”
Law firms are expected to educate GCs about the availability of legal finance
Over half (51%) of senior in-house lawyers view it as important that law firms are well-versed in legal finance solutions and are ready to advise them about its availability. As one associate GC of litigation at an industrial manufacturing company said: “[Legal finance] is part of the overall creative approach that we expect and helps to build long-term relationships… Any creative non-status-quo ideas are aspects of dispute resolution that we would like to consider.” Law firms should advise on every available option: “I want my outside counsel to be aware of and advise on every option available to us in setting a strategy.”
Even those with experience using legal finance still felt that it is important that their law firms be aware of the opportunities: As one senior in-house lawyer put it, “The GC and litigation counsel have experience, but it is valuable and appreciated if we deal with law firms that are mindful of [legal finance] opportunities and educate us.”
As one corporate counsel of a global retail corporation put it: “Litigation funding is an option that outside counsel should share when companies are considering affirmative litigation.”
To read the findings in full download the 2023 GC Survey.