In-house lawyers on risk, litigation and what they expect from law firms in an uncertain economy
The world economy is facing a period of sustained uncertainty. As companies look to manage risk and costs, the legal department has an opportunity to position itself as a continuing part of the solution that helps businesses thrive.
To better understand how macroeconomic trends impact senior in-house lawyers’ thinking about litigation, managing risk and their expectations for their law firm partners, Burford commissioned independent research that was conducted via extensive one-on-one interviews with 66 GCs, heads of litigation and other senior lawyers responsible for litigation at companies in the US, Europe, Asia and Australia.
The one-one-interviews were conducted by phone between March and May 2023 by Ari Kaplan Advisors. This report highlights key findings.
The economy is increasing the volume and potential budget challenges of commercial litigation and arbitration
- Senior in-house lawyers see an increase in the frequency of commercial disputes
- The economy is exacerbating the challenges in-house lawyers face in paying for litigation and arbitration
- Cost causes some businesses to neglect to pursue meritorious claims and awards, while others are becoming more proactive in safeguarding claims as valuable business assets
GCs are becoming more sophisticated in pursuing meritorious high-value claims
- Cash flow and liquidity remain very important factors for GCs when they consider pursuing meritorious claims
- The availability of legal finance increasingly plays a role in deciding whether or not to pursue affirmative litigation or arbitration claims
- While GCs don’t use quantitative financial modeling for commercial claims, most say it would be valuable to be able to predict potential returns
- GCs believe it is important for the legal department to show it can not only manage costs, but also add value for the business
GCs expect more financial innovation from outside counsel
- GCs expect their law firms to offer more cost- and risk-sharing solutions, particularly in a down economy
- Law firms are expected to be knowledgeable about legal finance
Legal is perceived as adding value through recoveries
Senior in-house lawyers expect to see an increase in disputes over the next two years, particularly contract and general commercial claims.
- Nearly three in four (74%) senior in-house lawyers expect to see an increase in the volume of disputes over the next two years because of the current geopolitical, economic and regulatory environment.
- As a result, some say they expect to pursue affirmative claims more frequently but have concerns about the costs of doing so.
GCs’ top concerns from a business standpoint are cost management, outside counsel spend and a decline in deal work
- Political instability, global energy prices and supply chain issues are all cited as contributing factors to increasing cost pressures.
- 80% of senior in-house lawyers say the current economic uncertainty will have knock-on effects for the legal department.
- Most reference budgetary pressure as the main concern, with many also highlighting a need to reduce outside counsel spend.
- Some senior in-house lawyers say litigation teams may grow, even as layoffs are increasing, particularly for transactional lawyers.
Businesses approach litigation and arbitration in a down economy differently
- Half (50%) of senior in-house lawyers agree that the economic downturn will affect their companies’ appetite for litigation or arbitration.
- Those who say their businesses are likely to pursue more recoveries point to an increased need to safeguard valuable company assets as deals go bad.
- Those who say their businesses are less likely to pursue recoveries give reasons like increased concerns over collectability and conservation of company resources—suggesting that they are more likely to leave money on the table.
- Legal finance is cited as an important part of the decision-making process.
GCs are shifting how they approach proactive litigation and arbitration claims
GCs consider likelihood of success, duration, cash flow and liquidity before pursuing meritorious claims.
- Almost two thirds (65%) of senior in-house lawyers say the impact of claims on cash flow and liquidity is an important factor as to whether or not to pursue a meritorious claim.
- Two thirds (66%) view the ability to control the timing of litigation or arbitration recoveries as important, indicating a need for solutions like monetization, where a legal finance provider provides an upfront advance of some portion of a claim’s future value.
- Some financially minded in-house lawyers also highlight the availability of legal finance as an important factor in deciding whether to pursue litigation claims where cash flow is a concern.
The availability of legal finance impacts the willingness of businesses to pursue meritorious claims.
- 31% of senior in-house lawyers say the availability of fees and expenses financing impacts their willingness to pursue meritorious claims.
- 32% say that a monetization—an acceleration of expected damages tied to pending claims, creating immediate liquidity—would be appealing to their organization.
- While many admit they have not yet used legal finance, many are starting to have conversations about how it might be used.
GCs don’t use quantitative financial modeling but say it would be useful to be able to predict with a high degree of accuracy potential returns of litigation or arbitration claims.
- 64% of senior in-house lawyers say their companies do not regularly model the financial impacts of their claims.
- Even more (79%) say that it would be useful to be able to predict litigation outcomes with a high degree of accuracy.
- Many say their finance teams are already asking for more accurate predictions of litigation spend and outcomes.
- Despite clear demand for greater financial insights into litigation, nearly three quarters of GCs (73%) say their outside law firms do not offer quantitative financial modeling solutions.
GCs are committed both to managing budgets and to seeking new ways to add value.
- 71% of senior in-house lawyers believe that in a downturn, the legal department needs to both manage budgets and risk and seek new ways of adding value.
- Although the great majority see their role as both managing costs and adding value, of those who prioritize one over the other, more prioritize adding value than managing costs.
- Among those who say their businesses have affirmative recovery programs, over half (56%) say their goal is to transform the legal department from a cost center into a profit center.
- Some say their ability to pursue affirmative litigation would increase if their law firm partners or legal finance providers could help them do so more systematically.
GCs expect more financial innovation from outside litigation and arbitration counsel
As economic pressures increase, GCs expect their law firms to offer more cost- and risk-sharing solutions.
- 62% of senior in-house lawyers expect their law firms to offer more cost- and risk-sharing solutions, such as alternative fees.
- Most want their law firms to be more creative with their pricing, and many are frustrated by law firms’ unwillingness to part with the billable hour.
- Others say that the cost of lawyers’ fees acts as a deterrent to pursue claims.
- Even in jurisdictions not typically used to taking matters on risk, some senior in-house lawyers indicate an appetite for US-style contingency fees.
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.
- Many say that their law firms aren’t speaking to them about legal finance, but should be.
- Even those senior in-house lawyers with experience using legal finance still feel it is important that their law firms be aware of the opportunities.
- When looking to pursue multiple claims, over a fifth (21%) of GCs say portfolio finance would be valuable to their company.
- Of those able to name a legal finance provider, almost 95% name Burford Capital first or exclusively.
In a downturn, legal departments and law firms should evolve how they approach litigation and arbitration.
Shifting cost of meritorious litigation or arbitration claims
As law firms and legal departments are expected to cut costs and do more with fewer resources, fees and expenses financing helps businesses recover lost value without adding cost.
- Create budget certainty: Legal finance providers cover the cost of litigation and arbitration fees and expenses—increasing budget certainty for businesses with high value disputes.
- Facilitate recoveries with merit and value: Funders take on the financial burden of pursuing claims, enabling businesses to pursue meritorious matters that return significant value to the organization.
- Work with counsel of choice: Legal finance bridges the gap when companies prefer not to pay their lawyers by the hour.
Managing cash flow and timing of recoveries
Legal departments can free up latent value in their pending litigation and arbitration by monetizing claims, judgments and awards.
- Fund legal department expenditures: Businesses can accelerate some of the expected entitlement of pending matters to offset other legal department and business costs.
- Create liquidity: Monetizing pending claims, judgments and awards creates immediate liquidity that may be used for business purposes unrelated to litigation or arbitration.
- Guarantee minimum recovery: Monetization de-risks litigation and arbitration, as financing is typically non-recourse and ensures a minimum recovery regardless of outcome.
Expanding client offerings
With clients facing the prospect of more disputes and more pressure to control costs, law firms can better serve their clients by offering more risk-sharing solutions.
- Share risk: Law firms can offer risk-sharing solutions to clients to help them alleviate legal budget pressure.
- Educate clients about financing options: Law firms should be ready to educate and inform clients about the availability of legal finance.