Date: April 12, 2013 Topic: The Shrinking ... - Georgetown Law

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concentrated panel of law firms involved in relational governance. This mode involves less flexibility in terms of supplier selection but the firm benefits from reduced costs of contracting. For example, having an on-going and committed relationship with a law firm facilitates communication (as there is no need to identify points of contact or firm background), and ensures that the client firm will get the top partners for their case. We therefore expect a company’s willingness to invest in relational governance with a selected few law firms to result in a high degree of outsourcing and a smaller in-house legal department (Moeen et al., 2013). By contrast, companies collaborating with a large number of law firms will increase their reliance on internal legal resources. Thus, we predict the following: H5: The larger the number of external law firms employed by a firm, the greater its reliance on the internal sourcing of legal services. EMPIRICAL METHODS Data and sampling To evaluate our theoretical framework and test our hypotheses, we first collect information on the size and composition of internal legal departments and their relationships with external law firms. This information is not publicly available, so we use proprietary survey and secondary data collected by ALM Legal Intelligence, a research unit within the American Lawyer Media Group. ALM is a leading provider of news and information on legal markets, and offers detailed business information and competitive intelligence about the legal industry and their clients. In particular, we used ALM’s annual survey of in-house legal departments as well as ALM’s reports on corporate activity, including litigation, M&A transactions, and corporate bankruptcies. These data are available from 2004 until 2011 for Fortune 500 companies 2 . 2 For 2004 and 2005 the data are only available for Fortune 250 companies. 16
To be included in our sample, we require firms to have ALM annual survey data as well as data on firm operations in Compustat corporate and industry segment files. Our final dataset is an unbalanced panel consisting of 1230 observations from 285 firms (i) observed over up to eight years (t). Our reported number of observations drops to 945 as several statistical analyses below require the inclusion of one-year lagged variables. Dependent variable Consistent with other empirical work on plural sourcing (Parmigiani, 2007; Parmigiani et al., 2009), we seek comparable information on internal and external suppliers of legal services. Ideally we would have information on hours worked on specific matters by in-house lawyers at corporations as well as hours worked on the same matters by lawyers at outside law firms on behalf of these client corporations. Such data are not publicly available as lawyers at both types of organizations treat such information as sensitive and strictly confidential. We do, however, have ALM survey data on the number of in-house lawyers and the number of external law firms providing outside legal work for these firms. Thus, we construct our dependent variable based on the count of in-house lawyers (as reported in the ALM annual survey of general counsel (GC)) and include the count of external law firms as a right-hand side term. Our dependent variable is the natural log of the annual count of inhouse lawyers per $100 billion in firm sales. Changes in the dependent variable then reflect changes in the in-house lawyer count attributed to factors unrelated to organic growth. An increase (decrease) in the dependent variable can be attributed to two possibilities: a) increased (decreased) reliance on internally made legal services by in-house lawyers rather than externally bought legal services by outside law firms; or b) an increase (decrease) in the overall amount of legal work that needs to be undertaken on behalf of the firm by both internal and external providers. In order to account for the second possibility and isolate 17
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Date: April 12, 2013 Topic: The Shr
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REFERENCES Alavi, M., Leidner, D. E
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Page 71 and 72: 1 DECONSTRUCTING BIG LAW The Future
Page 73 and 74: The Stanford Law School Research Pr
Page 75 and 76: 2011 General Counsel with Power
Page 77 and 78: Executive Summary of Key Findin
Page 79 and 80: General Counsel with Power? 201
Page 107 and 108: Resource Co-Specialization and Supp
Page 109 and 110: al., 2009), plural sourcing (Bradac
Page 111 and 112: ely more on R&D resources, advertis
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Page 115 and 116: specialized tasks such as complex a
Page 117 and 118: also distinct from economies of sco
Page 119 and 120: In case studies of innovating firms
Page 121: knowledge. This translates into a r
Page 125 and 126: Law firms. In order to measure the
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Page 141 and 142: Gulati R, Puranam P. 2006. Compleme
Page 143 and 144: Sako M. 2013. Professionals between
Page 145 and 146: Table 3. Panel data regression mode
Page 148 and 149: The Shrinking Pyramid: Implications
Page 150 and 151: Limiting the Damage of Lateral Part
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Date: April 12, 2013 Topic: The Shrinking ... - Georgetown Law

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