Latest Legal Management Trends Revealed in New Report Based on 8 Million Invoices
The recently released 2021 Enterprise Legal Management Trends Report from LexisNexis CounselLink reveals some insights into the recent changes that the legal profession has undertaken in the wake of the pandemic, as well as some surprising and unexpected metrics.
Despite pandemic-related issues and pressures for legal departments to reduce outside counsel spending, hourly rates paid to U.S. law firms continued to increase in 2020. On average, partner hourly rates were 3.5% higher than 2019 rates. This is slightly higher than the 3.3% increase in partner hourly rates from 2018 to 2019.
The high-level takeaway from a revenue perspective is that 2020 was business as usual for most law firms. This year’s report provides updates on its six key metrics and is based on 2020 charges as billed by outside counsel as well as an analysis of the impacts of the COVID-19 crisis. For the first time in 2021, the report includes a seventh key metric highlighting hourly rates billed by law firm partners located in countries outside of the United States.
As with all metrics, the report pulls from highly granular subcategories to provide more meaningful comparisons. For example, median litigation hourly rates in 2020 were notably higher in South Korea ($720) and the United Kingdom ($649). Other key findings include the following:
• The largest 50 firms continue to take a larger share of high-rate work: The largest 50 firms (those with more than 750 lawyers) continue to account for the largest share of U.S. legal spend. In 2020, 49% of outside counsel spend was paid to Largest 50 firms, which is consistent with results from recent years. Trends show that the largest firms continue to gain share of wallet for the highest rate work. The three matter categories commanding the highest partner rates are Mergers and Acquisitions; Regulatory and Compliance; and Finance, Loans, and Investments.
• The larger the firm, the higher the timekeeper rate: Partners working in high-rate practice areas had the highest average rate increases in 2020. Regulatory and Compliance rates showed the highest increase at 4.1% on average. The next highest average partner rate increases occurred in Corporate (4%); Finance, Loans, and Investments (3.9%); and Mergers and Acquisitions (3.9%).
• AFAs continue to increase: Alternative fee arrangements (AFAs) continue to gain favor among corporate counsel. In 2020, 17% of matters had some portion of their billing under an arrangement other than hourly billing. The percentage of AFAS has been gradually rising over the years. It is noteworthy that in 2020, AFAs were utilized for more than 10% of matters in each major practice area except Commercial, which billed 9.9% of matters under an AFA in 2020.
“As we emerge from the global pandemic, the high-level takeaway from a revenue perspective is that 2020 was business as usual for most law firms,” said Kris Satkunas, Director of Strategic Consulting for CounselLink and author of the Trends Report.
“However, while large firms still occupy a dominant position in the marketplace, it’s notable that legal departments continue to look for new vehicles – including AFAs - to lower costs, make budgets more predictable and better manage their own capacity. Even the largest firms will be under pressure to work with clients to achieve these goals.”
The seven metrics are derived from data processed through CounselLink’s $40 billion benchmarking database and provide concrete examples of how legal departments currently function.