Top Southland Corporations Surveyed : Reliance on Outside Lawyers Grows

Major Southern California corporations will continue to hire outside lawyers to handle the bulk of their burgeoning legal problems rather than rely on in-house counsel, according to a survey released Wednesday by Grant Thornton, an accounting and management consulting firm.

Gerald Engel, Southern California managing partner of the firm, said the first-of-its-kind survey was prompted partially by corporate clients seeking advice about hiring attorneys and was done as a public service to both the corporate and legal communities.

Questionnaires were circulated to executives in the top 100 publicly held corporations as ranked by revenue by California Business magazine and the Los Angeles Business Journal, and the top 100 privately held corporations as ranked by revenue by California Business magazine and the Orange County Business Journal. Responses were received from 36.5% of the organizations.

Greater Expertise an Advantage

Engel, whose firm has both corporate and law firm clients, said he has never done a formal consultation but is often asked informally whether a company should hire outside attorneys even though employing its own legal staff might be cheaper.

“It is not just a cost-effective approach,” he said. “Our conclusion would be that you do need outside counsel because they will have more expertise in specialized areas. But you can certainly use in-house counsel for basic corporate matters.”

A decisive 78% of responding corporations said they plan to maintain or increase their use of outside lawyers. Eighty-three percent of responding publicly held corporations have in-house attorneys and 26% of responding privately held corporations do. No private staff exceeded five lawyers, and respondents indicated that they did not plan to expand (or establish) in-house legal offices.

Engel said survey results that most surprised him were (1) that corporate executives are pleased with outside legal service despite high fees, and (2) that law firms have not yet realized that they should be aggressive and competitive in seeking new business.

Marketing Tool for Southland Law Firms

Although 51% of those responding said their fees for outside lawyers increased over the last year, only 31% felt fees were too high and 62% rated the work they got for their money “excellent.”

As for lawyers’ efforts to curry business, 78% of the responding businessmen said their outside lawyers wanted to seek new clients, but 55% said the attorneys apparently did nothing about it.

“This survey will be Southern California law firms’ first marketing tool,” predicted Connie Brown, director of marketing at Grant Thornton.

Apparently, a major reason for the expanding use of outside attorneys is the increase in complaints against corporations.

“There is no doubt that the litigation environment that we have been in for the last three to five years has contributed to the growth of outside counsel services,” said Jeffrey S. DuBowe, director of legal services at Grant Thornton. “Respondents made clear the reasons they will increase outside services are business expansion and additional litigation. Everybody sues at the drop of a hat nowadays, and corporations have to be concerned about that.”