US Companies continue the consolidation of legal vendors - implications for sub-Saharan Africa
The recent LexisNexis CounselLink Enterprise Legal Management Trends Report (2015 Mid-Year Edition) has been published (for the full report, please click here). The report is a snapshot of data available via the CounselLink Enterprise Legal Management platform comprising more than USD18bn in legal spending, more than four million invoices, and well over one million matters in the US.
On of the key metrics analysed, is the degree of consolidation, ie number of legal vendors used by companies. According to the report, 55% of companies in the data pool have 10 firms or fewer accounting for at least 80% of outside counsel fees (based on 12-month period ending 30 June 2015). This figure has increased by 5% in comparison to 2014 data. Consolidating legal vendors means in reality, corporates leverage law firm panels and similar preferential procurement mechanisms to orchestrate their external legal spend.
What does this US trend mean for African law firms and in-house legal departments?
1. In the context of global panel processes, Africa as a region and individual African jurisdictions in the context of global panel processes have only been reluctantly acknowledged and promoted by legal in-house departments in the US and Europe. The reasons seem to be manifold and in the absence of hard data one can only speculate on the true reasons. Anecdotal evidence tells us that comparatively low legal expense volume of large multinationals in Africa and the continent’s scattered and complex legal landscape are to blame. Albeit growing investments in sub-Saharan Africa and rising legal standards lift up Africa’s profile, those considerations will only fall away in the long run.
2. However, what has indeed significantly changed over the past 12 months is the number of newly established offices in South Africa. Just think of Allen & Overy, HoganLovells (merged with a local firm), Dentons, DLA Piper and Herbert Smith Freehills to name a few. Those firms are usually found on international and US panels and have a good reason to prove their African business case for a new operation in a short period of time. Leveraging existing panel arranegments elsewhere, for instance, in the US, is a no-brainer to them.
3. In return, global general counsel may feel some relief and comfort in simply extending arrangements to African offices of those international firms who they have been closely working with elsewhere. First prize for some of the above-mentioned global firms and an almost olympic challenge for local legal service providers who lack a track record with those clients!
4. Likewise, more and more local African in-house counsel will experience a role in a global panel selection process, strategically uplifting their in-house role and enriching their job profile.
5. Finally, should a multinational company eventually decide to include Africa in its panel processes, one can be assured of seeing a much higher degree of quality in legal procurement with more stringent rules and processes. Definitely a huge opportunity for those local law firms which have developed alternative legal service delivery processes.
In summary, it appears to be a US trend but there is a certain likelyhood that the development of legal procurement best practices in Africa will be indirectly expedited which is good for all market participants – private practitioners and in-house counsel.