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Legal Departments Must Do More With Less . . . And Prove It
The economic downs and ups, then more downs, have spawned myriad regulations-- intended anyway -- to help eliminate some of the root causes of the downticks. Greater transparency has been codified. Failure to comply means liability risk. The demand for legal services has grown. Law firm fees are rising. A company’s compliance burden, which rests largely on the legal department, is heavier than ever.
Put all this together and you end up with legal departments doing more with less and proving they are doing just that.
A recent LexisNexis® survey, conducted by ALM® Legal Intelligence, revealed that 94% of representatives of U.S. legal departments of various sizes and industries said they are facing increased pressure to prove their value to other executives. Where is the pressure most intense? Not surprisingly, spend on outside counsel topped the list. One GC we spoke to noted her company’s use of a separate but internal team dedicated to reviewing legal bills. She said this helps manage costs and, because it’s internal, helps maintain privilege. She also is careful about outsourcing legal work, only doing that in areas where deep internal expertise isn’t enough. But other pressures were right up there with reduction of outside fees.
It is well known that there is little that a CEO dislikes more than surprises. A dip in profits is much more digestible if it is forecasted. With enough lead time, it can be managed, mitigated and even avoided. If it comes out of the blue, that is pure indigestion. Despite the wild-card nature of legal liability (and many plaintiff attorneys wouldn’t have it any other way), in-house counsel responding to the LexisNexis-ALM survey said that along with the pressure to reduce risk and reduce budgets, was pressure to forecast costs.
The in-house lawyer as business executive is probably no better illustrated than the title of Chief Operating Officer within a legal department. As one person in this position said recently, it’s the legal department COO’s goal to provide the tools so the attorneys can do the legal thinking.
In the category of quantifying value, the GC at a financial services company told The Advisor that his department’s work is charged back to the respective business units for which they perform legal services.
The same GC said his group, which is responsible for compliance, also had a 25% reduction in staff. Salaries, of course, make up the largest part of his budget, along with the usual overhead. How is he doing more with less? In addition to overseeing a staff that is simply working harder, he identifies areas where his team might have less expertise–say, employment law–and finds an outside specialist to take that work in bulk.
He also recommends having an employee compliance portal for the quick distribution of regulatory alerts and informative articles. To bolster this effort they use an internal team to run random compliance audits to make sure departments are following the rules.
While GCs set 12-month budgets like everyone else, at least one company told The Advisor the his company takes a longer-term view, recognizing the unpredictable nature of legal work month over month, year over year. In a year when budget is adversely impacted by unexpected litigation, for example, that is considered offset by fiscal periods when the legal work comes under budget.
It’s obvious that across the board there is greater focus on the numbers. CFOs want accountability, not only due to need, but because there is much more stored data to rely on. Companies look to technology not only to increase efficiency in processes, but to manage by the numbers.
A white paper distributed last year by LexisNexis recommends an analytics-based approach to legal budgeting to answer things like, how long a joint venture might take, what it should cost, and how to know when a matter is going over budget.
“Identifying those pieces of data could help GCs to both generate savings and allocate limited resources more effectively,” according to the white paper. “For example, once a budgetary outlier has been spotted and compared to a baseline average, GCs may be better positioned to discuss with outside counsel the cause of the aberration, and what can be done about it.”
Again, this emphasizes the need to get out in front of spending through forecasting. “Spotting an outlier early on also allows GCs an opportunity to adjust their legal strategy in a way that may tamp costs back down.” While legal spend will never be 100% predictable, close monitoring of numbers can help close the gap.
Programs out there include CounselLink® designed for use between in-house legal teams and firms to manage budgets, risk and compliance. CaseTrack® is designed for in-house budget management. There are industry-specific products like Odentrack® and CODE (Comply on Demand Enterprise) for the insurance sector, and many more.
When doing more with less, the keys to success include incorporating professionals skilled at business management into your team, being precise in what you outsource, using analytics to assist with forecasting, being realistic about the predictability of legal costs, and carefully selecting the budgeting and compliance technologies that best support your needs.