Commercial firms are competing in a static market as large clients grow their in-house legal teams rather than turn to external firms to deal with an increasing workload, research seen exclusively by the Gazette has indicated.

An annual benchmarking survey of 124 heads of legal conducted for Winmark’s chief legal officer (CLO) programme also suggested that changes in general counsels’ spending patterns are causing magic circle firms to lose out to mid-tier rivals.

The research showed that 44% of legal departments have increased in size, primarily to cope with a higher workload. However, this has largely been achieved without any significant increase in overall budgets, as three-quarters of companies’ legal budgets had neither increased nor decreased significantly. This indicates that companies are spending a greater proportion of their overall legal budget on in-house lawyers.

The vast majority of respondents used both UK mid-tier law firms and magic circle firms. However, 18% said they had used the magic circle less in the past year, while 30% said they had increased their use of mid-tier firms.

Sandie Okoro, general counsel at Barings Asset Management and chair of the CLO’s advisory panel, said: ‘General counsel want better value for money – that is clear. The shift to the mid-tier firms is interesting… I would take from these findings that the mid-tier firms are a lot less different from "top-tier" competitors than had been assumed – in terms of the quality of advice and the service clients receive. Clients are clearly getting comfortable with these firms.’

Okoro added that, in her experience, ‘mid-tier firms are much better at cross-selling services’ than the magic circle.

General counsel also instructed the bar directly more often in the past year, with 35% saying this had increased; some 12% had made more use of legal process outsourcers.

The survey also asked general counsel about innovations they had seen from the law firms they instructed, with 46% asserting that there had been ‘no innovation’. Where innovation was mentioned, it predominantly related to pricing and value-added services. Only 3% of general counsel said they had seen any innovation in client relationship management.

Okoro said: ‘I get the sense that when law firms "innovate", too often it is without establishing a proper dialogue with their clients. Very few would be able to say "we listened to what you told us, and we’ve changed a lot".’

The annual average legal spend of general counsel surveyed was £15m. The average size of the global legal department was 65 lawyers.