To pare litigation costs, companies are retaining more work in-house and opting for alternative dispute resolution and fee arrangements
Companies are facing more and more legal disputes and as a result, are increasing the size of their legal departments while focusing on a variety of alternative means of dealing with potential litigation, according to AlixPartners' Litigation and Corporate Compliance Survey.¹ As such lawsuits grow more costly and more complex, companies have begun to reassess their compliance programs and implement new tools and processes that can reduce litigation-related risks.
Litigation—and costs—on the rise
Amid tighter regulations and more and more regulatory investigations, a majority of executives (51 percent) say their companies increased the amount of spending on litigation during the past 12 months; 36 percent say the number of commercial disputes their companies have been involved in has risen.
According to the survey, a surprising one in 10 companies has been involved in bet-the-company litigation during the past 12 months, underscoring the threat that legal disputes pose. Not only does litigation result in significant legal costs, but it may also present a major distraction for the managers involved. The survey found that the most common types of disputes involve contracts (89 percent) or intellectual property matters such as patent infringement (59 percent) or are product related (45 percent). Of the companies reporting increases in disputes, 83 percent say their litigation costs rose over the past 12 months.
Litigation departments grow despite the need to control costs
Managing litigation costs remains a priority in legal departments at many companies; 89 percent of respondents say they’re more likely to settle a case than face a trial. According to the survey, companies are reducing litigation costs primarily by retaining more work in-house. Other cost-conscious tactics include alternative dispute resolution and alternative fee arrangements.
However, the survey found that only 9 percent report a decrease in the size of their litigation departments. It is also notable that although companies are handling more of their legal work on their own, they continue to lean heavily on outside law firms (25 percent say usage rose), particularly in such specialized matters as mergers and acquisitions (M&A) and regulatory investigations.
Rethinking compliance and legal risk
Based on the survey, new whistleblower legislation has encouraged many companies to evaluate their existing policies related to internal compliance and risk management. The survey found that a majority (84 percent)—with an eye toward identifying potential gaps—have increased the number of compliance reviews they conduct. To reduce risk, other respondents cite the implementation of technology tools and of policies aimed at monitoring and reinforcing document retention.
Conclusion
Legal and compliance departments seem to be allocating increasing amounts of resources to manage potential litigation and commercial disputes that can have far-reaching implications for companies and their long-term business objectives. Given the significant costs associated with such lawsuits, companies and their counsel face important decisions related to staffing, fee management, and the development of the best strategies and tools for resolving disputes.
1 The AlixPartners Litigation and Corporate Compliance Survey was conducted in December 2012. It polled general counsel about their companies’ frequency and nature of commercial disputes, expenditures, and approaches undertaken to deal with litigation, as well as strategies for addressing litigation-related risk. The survey group consisted of general counsel at US-based companies with annual revenues of $250 million or more.
