Dive Brief:

• The average legal spend among companies has risen from $2.4 million to $3.1 million, a 29% increase in one year, according to a new survey report.
• This substantial bump in spending has been fueled by companies with more than $20 billion in revenue. Those very large businesses saw their median total legal spend rise from $50.8 million to $80 million, a 57% increase, according to the 2023 Law Department Management Benchmarking Report.
• On average, 53% of companies’ legal spend is internal and 47% external, roughly the same distribution as last year, the report from the Association of Corporate Counsel and Major, Lindsey & Africa said.

Dive Insight:

The nearly 30% increase in median legal spend is a reflection of the growing regulatory and legal complexity facing companies across industries, said Barrett Avigdor, the executive director of In-House Counsel Recruiting at Major, Lindsey & Africa.

“Much of that complexity comes from new technologies that create new legal challenges, particularly in the area of privacy,” Avigdor said. “That may also explain why there was a 6-point increase in the number of companies that have put responsibility for privacy under the legal department.”

The ACC/MLA benchmarking report found that privacy is now the most common function directly overseen by legal departments at 57%, overtaking compliance at 56%. 

Jason Winmill, a legal department consultant, said historic law firm rate increases are another factor likely driving the significant jump in legal spending.

Law firms raised their rates an average of 5.5% in the first quarter of 2023, the largest quarterly increase since before the global financial crisis of 2008-09, according to a recent Thomson Reuters report.

But Winmill, the managing partner of the Argopoint consultancy, emphasized that law firm increases alone could not explain an increase in legal spending of such great magnitude.

“There must also be a step change in the underlying demand for corporate legal services — increased regulation and continuing high levels of litigation are part of the story,” Winmill said. “This flood of legal work also suggests a cauldron of dynamic business conditions — both growth, M&A activity, and layoffs — that drove up the need for legal services.”

Companies with $5 billion to less than $20 billion in revenue were a second category that saw legal spending rise substantially. Their median legal spend increased from $20.8 million to $30.1 million, a roughly 45% bump in one year.

Winmill said the most likely explanation for the largest companies experiencing the greatest upticks in legal spend is that “they are bearing the brunt of and disproportionate share of increasing regulation, litigation, and business tumult.”

Overall, total legal spend as a percentage of company revenue increased from 0.56% last year to 0.63% this year.

External spend at large companies

On average, 53% of companies’ legal spend goes toward internal costs, which was a one percentage point decrease from last year.

Additionally, the recent benchmarking report noted that the largest law departments by company revenue tend to spend more money on external legal costs than internal ones.

For example, companies with more than $20 billion in revenue report that 56% of their legal spend is external, while companies with up to $1 billion in revenue spend 44% externally.

“For the past several years, we have seen the role of in-house legal teams broaden,” Avigdor said. “Outside law firms, however, are still essential to handle large litigation and highly specialized regulatory advice. Larger companies tend to have greater needs in those areas which is why we see a larger percentage of spending on outside counsel among companies with $20+ billion in revenue.”

Winmill said large companies are also more likely to be “multi-geographic,” including many who maintain an international footprint.

“In-house counsel at such sprawling companies can cover a lot of legal work on ‘home turf’ — but legal issues further abroad require more outside counsel support familiar with the jurisdiction and regional legal context,” he said.

The report’s findings are based on responses from 449 legal departments in organizations spanning 24 industries, 20 countries and all company sizes. The online survey opened Feb. 16 and closed April 14.