Escalating Legal Fees in Corporate America and What It Means for Governance and Shareholder Value

According to a February 2025 report[1] by Brian Baxter for Bloomberg Law, Blackstone Inc., a leading alternative asset management and private equity firm, paid $101.3 million in legal fees to the law firm Kirkland & Ellis in 2024, as disclosed in their recent securities filing. This shows a significant increase compared to the $41.6 million paid in 2023 and the $69.6 million in 2022, which would correspond with Blackstone’s involvement in several high-profile transactions. For example, the formation of a $5.6 billion energy-focused fund and the $1.6 billion acquisition of the UK-based music rights investor Hipgnosis Songs Fund Ltd.

However, the case of Blackstone is not unique. Across corporate America, legal expenses have been steadily increasing. From increasingly complex regulatory environments, to large-scale mergers and acquisitions, to heightened litigation risks, though legal representation is of course a necessary component of corporate operations, these excessive legal fees may prove to have significant implications for corporate governance and shareholder value in the future. If not carefully managed, they may lead to decreased profits, misallocate resources, and shareholder dissatisfaction. 

In this paper, I will present a case study, using Blackstone as an example to examine the trend of escalating legal fees among major corporations and explore the broader implications for governance and shareholder value. Through this, perhaps a comparative analysis of legal fee trends can be drawn to prove more helpful recommendations for managing legal expenditures without compromising legal protection.

To begin, Blackstone’s rising legal costs illustrate a broader trend within corporate America. Over the past decade, they have significantly increased their reliance on high-profile law firms, especially Kirkland & Ellis, arguably the world’s largest law firm. In addition to the previously mentioned billion-dollar projects Blackstone has been involved with, the firm also was involved in a $8.8 billion acquisition of Smartsheet and its $4 billion deal to take Retail Opportunity Investment Corp.[Id. 1] Furthermore, Blackstone has engaged in multiple cross-border deals, which usually require extensive legal expertise due to differing regulatory requirements across jurisdictions. [Id. 1] All of this to say that Blackstone’s legal fees surpassing $100 million for the first time was not surprising.

But why does this matter? The pattern of increasing legal expenditures raises questions about cost efficiency. Rising legal fees pose several risks to corporate governance and shareholder value; for, corporate governance revolves around the mechanisms in order to align executive decision-making with shareholder interests. However, unchecked legal costs can disrupt this balance by diverting financial resources away from shareholder returns and core business operations.

According to a study by the National Bureau of Economic Research, effective corporate governance mechanisms are linked to higher shareholder value. [2] Companies that are more cost-conscious in their governance structures tend to see more positive stock performance and investor confidence (Id. 2). Therefore, when legal costs are excessive, this may come across as out of control, leading shareholders to perceive a company as inefficient or lacking oversight as well as an overall reduced stock valuation.

Excessive legal expenditures can also contribute to principal-agent problems within corporations. The “Principal Costs Theory,” as developed by Columbia Law School, demonstrates that high legal fees may reflect inefficient decision-making by corporate executives, showing that they prioritize risk mitigation over cost efficiency. [3] Additionally, disproportionate legal spending can be a symptom of deeper governance issues. For example, it may indicate that a company faces frequent regulatory scrutiny or engages in questionable business practices that require extensive legal defense. In Blackstone’s case, though its complex investment strategies and global operations necessitate can be justified as needing substantial legal oversight, investors may still question whether these costs are sustainable in the long term.

How do these legal free trends translate elsewhere? While Blackstone’s legal expenditures are notable, rising legal fees are an increasingly popular trend across industries. Several factors contribute to these increasing costs, including regulatory complexity, litigation risks, and high-profile corporate transactions.

For instance, technology firms such as Google and Meta face significant legal costs due to regulatory scrutiny, antitrust lawsuits, and intellectual property disputes. To point to an example, Google’s legal expenses surged in recent years as it fought multiple antitrust lawsuits from the U.S. Department of Justice. [4] Unlike Blackstone, however, which primarily incurs legal fees through financial transactions, as technology companies allocate substantial legal resources toward defending their market dominance; so one could make an argument that these legal fees are more justifiable to their clients and shareholders. The healthcare industry also has experienced escalating legal costs, particularly due to regulatory compliance and litigation. Pharmaceutical companies like Johnson & Johnson and Pfizer frequently engage in legal battles over drug patents, product liability, and regulatory approvals, expenditures that significantly impact profit margins and shareholder returns. [Id. 4] For a last example, energy firms, particularly those involved either in  renewable or nonrenewable energy, face high legal costs related to environmental regulations, land acquisition, and contractual disputes. Companies like ExxonMobil and BP allocate millions every year to legal expenses associated with regulatory compliance and regulation for environmental damages. [Id. 2] When comparing Blackstone’s legal fees to those in other industries it becomes clear that while legal expenses are a necessary cost of doing business, unchecked spending can signal inefficient management. Companies must therefore balance legal protections with financial discipline to ensure shareholder value is not damaged.

Given the risks associated with rising legal costs, corporations must adopt strategies to manage these expenses without compromising necessary legal protections. I propose a few suggestions. First, enhance cost transparency and oversight. A study from the Harvard Law School Forum on Corporate Governance suggests that companies with strong cost-control mechanisms experience better shareholder returns. [Id. 4] As such, by increasing transparency, companies can ensure that legal fees are necessary and align with shareholder interest. Second, expand in-house legal teams to handle routine legal matters. Studies have shown that companies with robust in-house legal departments experience lower overall legal costs compared to those that outsource the majority of their legal work. [Id. 3] This means that reliance on expensive outside counsel could be reduced through cultivation of a strong legal oversight. Third, adopt alternative fee arrangements. With the increasing legal fees trend, many corporations are exploring alternative billing structures, two of which being fixed legal fees or success-based pricing to manage legal expenses. This approach incentivizes law firms to work efficiently and aligns legal costs with business outcomes. In fact, alternative fee arrangements have gained traction in the previously mentioned industries facing high litigation risks like healthcare and technology [Id. 2].

In summary, managing legal costs is essential for maintaining corporate governance efficiency and preserving shareholder value. While legal expertise is a crucial asset, unchecked legal spending can erode financial stability and lead to structural inefficiency. By implementing cost-control measures, leveraging in-house counsel, and adopting alternative billing structures, perhaps corporations, like Blackstone, can achieve a balance between effective legal protection and responsible financial management.

Sources:

1. Baxter,Brian. Blackstone’s Kirkland Billings Break $100 Million Mark, Bloomberg Law (Feb. 28, 2025, 5:06 PM), https://www.bloomberglaw.com/bloomberglawnews/business-and-practice/XB2L5UIK000000?bna_news_filter=business-and-practice#jcite
2. National Bureau of Economic Research, The Effect of Corporate Governance on Shareholder Value, The Digest (May 1, 2011), https://www.nber.org/digest/may11/effect-corporate-governance-shareholder-value
3. Goshen, Zohar & Squire, Richard. Principal Costs: A New Theory of Corporate Law and Governance, 117 Colum. L. Rev. 767 (2017), https://scholarship.law.columbia.edu/cgi/viewcontent.cgi?article=1227&context=faculty_scholarship&utm
4. Pellerin, Mathieu.  The Economics of Corporate Governance, Harvard Law School Forum on Corporate Governance (Aug. 30, 2022), https://corpgov.law.harvard.edu/2022/08/30/the-economics-of-corporate-governance/?utm