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w w w . c a n a d i a n l a w y e r m a g . c o m M A R C H 2 0 1 9 17 There's a lot from 2018 that suggests 2019 is going to be OK. For example, BTI Consulting Group notes in its Nov. 14, 2018 popular blog The Mad Clientist that "clients are sending substantially more work to outside counsel for the second year in a row. The spending increases are widespread and across the board." The BTI Practice Outlook 2019 identified eight trends shaping the legal market, including that outside counsel spending has hit a "new all- time high" and that clients added $US5 billion to outside counsel budgets. Cybersecurity and mergers and acquisitions are expected to be the benefactors of those increases. It also found that clients expect to pay higher rates for certain popular practice areas. Legal consulting firm Altman Weil, Inc. has also seen looser purse strings at in-house legal departments, which bodes well for 2019. In its 2018 Chief Legal Officer Survey, released in November, the firm found that more legal departments (42 per cent) increased their outside counsel bud- get than decreased it (32 per cent) — the first time that's hap- pened since 2011. Moreover, 41 per cent of chief legal officers expect that their outside spend will rise in 2019. Also notable is that the total in-house law department budgets are rising, with 53 per cent of companies reporting an increase versus 29 per cent that decreased their overall spend. However, there is a cautionary note for external law firms, says Rees Morrison, a principal at Altman who works with cor- porate law departments. He says "inside budgets are increasing relative to the outside counsel spend budgets." Legal spend on internal counsel accounted for 48.2 per cent of the total law department budget and exceeded the spend on external counsel, which amounted to 45.3 per cent. "The two lines crossed over for the first time [in 2018]," he says, providing four possible explanations why internal spend exceeded external spend. The first is that in-house departments are getting more efficient and effective at cost controls, thereby reducing the amount spent on external firms per file and impacting the ratio between internal and external legal spend. Second, companies may be adding internal lawyers and in- sourcing more work that was otherwise sourced to law firms. However, Morrison is skeptical that's the case. The typical ratio at a company is four to five lawyers per billion dollars of rev- enue, he says. "If there was substantial [in-source] movement, we would see that number ticking up a bit, but it hasn't." Third, it may be that more spending is being treated as an internal expense rather than external. For example, in a big discovery, a company may be increasing its use of contract law- yers, in-house paralegals or internal e-discovery groups, which would fall under internal legal spend, rather than external. Fourth, as business conditions improve and external spend increases, he says that "almost necessarily increases the ratio of internal spend" to oversee and manage that work. Morrison says the "biggest wild card" for 2019 remains the U.S. economy. He wonders how much longer the economic tide will rise and notes that the waters are getting choppy. "Some- times, tides go out," he says, and the chance of a contraction in 2019 or 2020 is increasing. Mabey says 2019 is the time for law firms to be cau- tious and focus their atten- tion on budgets, finances and firms structure, particularly succession planning. "Firms flounder because they haven't transitioned management and they haven't transitioned clients." He notes that mandatory retirement in partnership agreements is "all over the map" and older lawyers "are working longer." That is a challenge when it comes to transitioning to the next generation. When you ask a managing partner who is the firm's next managing partner, he says, often "they look at you with glazed eyes." Mabey says, "There is heightened nervousness about 2019- 2020. This is the longest bull market we have ever been in. The law of nature says what goes up must come down." "In its 2018 Chief Legal Officer Survey, released in November, [Altman Weil] found that more legal departments (42 per cent) increased their outside counsel budget than decreased it (32 per cent) — the first time that's happened since 2011." Enhance your presence on Canada's largest legal directory AVAILABLE ONLINE AND IN PRINT Containing contact information for more than 66,000 judges and legal professionals, more than 27,500 law offices, government departments, and law related offices, canadianlawlist.com attracts more than 325,000 page views a month and 110,000 unique visitors! Book your enhanced listing today! Contact Colleen Austin at 416.649.9327 or colleen.austin@tr.com www.canadianlawlist.com ntitled-3 1 2019-02-12 9:56 AM

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