The UK’s corporate legal profession has doubled in size in the past 15 years and one in four solicitors now works in-house. Lawyers, therefore, have more influence over corporate decision making and corporate lawyers represent a greater proportion of the profession than ever before. How can general counsel keep the legal function at the heart of the business?
GCs and their teams focus sharply on engaging with the organisation, delivering its strategic priorities, understanding its business environment and identifying and managing legal risk. This involves balancing commercial, legal and ethical considerations to facilitate negotiations and deals and avoid disputes. However, it is also important that top management recognise the legal department’s contribution to the business. At the same time as fulfilling its legal function, the legal department needs to establish its value to the business as a strategic resource, beyond a troubleshooting or crisis management tool. This means developing and delivering a strategy for success and communicating and evangelising it across the business.
A business within a business
The corporate legal department is basically an in-house law firm. While many are effectively sole practitioners or small teams akin to a boutique firm, others are equivalent to mid-size firms, and some, like Shell Legal with about 700 lawyers, would hold their own in global rankings. Furthermore, corporate legal teams are under the same pressure to provide ‘more for less’ as other legal services providers. The difference is that the pressure comes from their internal clients – the board-level decision makers within the business.
Legal teams are expanding, albeit gradually. The majority (62%) of in-house respondents to Winmark’s Looking Glass report, produced in association with Mayer Brown and Thomson Reuters anticipated their numbers staying the same, while a smaller proportion (33%) expected an increase in the size of their teams. Only a small minority (6%) expected their staff numbers to decrease.
According to the report, the success of in-house teams depends on their ability to meet the requirements of the business and align with it strategically and operationally. In order to thrive, the legal department needs to position itself as an indispensable resource, otherwise it risks being sidelined – or outsourced. Some big organisations have done exactly that – outsourced their entire legal function to an external law firm, or outsourced volume work to a commercial legal services provider.
The legal department needs to be run like a business within the business. According to Tim Bratton from Lawyers on Demand, speaking at the Law Society’s in-house conference, GCs should spend at least 60% of their time on management matters.
The first priority should be to have a clear business plan and review it regularly.
At the same event, Siemens UK GC Claire Carless explained that the first year of a three-year plan should identify gaps in the service and establish project teams to develop joined-up solutions. The second year should focus on developing the department’s vision, values, goals and strategic priorities (classic business strategy). The third year should develop new targets and objectives.
Operationally, the department should apply project management techniques that include fiscal and budgetary discipline: defining the scope of a project and allocating the work to the appropriate legal services provider, budgeting, tracking progress against the budget and adjusting where necessary, assessing performance and capturing lessons learned.
Collecting and analysing comprehensive and accurate data and producing detailed management reports give the GC material to demonstrate to the board the value of the legal department to the organisation. And this is where technology comes in.
What technology can offer
Software such as Serengeti Tracker from Thomson Reuters tracks all of a company’s legal work. This provides control and visibility over legal expenditure, enabling the GC or chief legal officer to ensure – and demonstrate – that the company is deriving maximum value from its external legal suppliers. Operationally it reduces admin time and increases access to information as all the data is in one database. It streamlines e-billing and invoice review and implements billing and budget guidelines.
E-billing, whereby external law firms submit electronic bills which are uploaded from the firm’s time and billing system using standard codes and definitions to the client’s system where they are authorised and paid, enables the GC and the chief financial officer (CFO) to check that all components follow agreed rates and billing guidelines. E-billing transcends sending and receiving as PDF documents as it provides access to a uniform set of relevant data in a standardised format.
The data in a typical legal bill, including hours worked, activities, rates, expenses, etc flows directly from each law firm’s billing system into the company’s reporting database, using the Legal Electronic Data Exchange Standard (LEDES) standardised format. No data input is involved and the information is always accurate and up to date. This facilitates further analysis. For example, Serengeti Tracker can generate automatically comprehensive real-time reports detailing current spend, performance to budget, project status and more. Benefits include the ability to ensure financial data integrity by maintaining audit trails of all revisions and making sure legal bills are paid on time.
The ability to produce, monitor and manage real-time billing data enables the legal department to compare the performance against billing of external legal services providers, identify trends in respect of particular types of cases and make realistic forecasts of the company’s legal spend and exposure, facilitating detailed financial planning.
On the operational side, comprehensive financial management and transparency can expose efficiency gaps and highlight potential cost savings, for example by assigning work differently. Applying financial management practices to legal projects helps to keep them on time and within budget. Trends in legal expenditure can support decision making by identifying particular areas of risk and prompting the company to take preventive measures. Analysing financial data across all the company’s legal projects highlights the cost and timeframe around particular types of project, supporting negotiations in respect of alternative fee arrangements, which make legal expenditure more predictable.
This type of technology produces metrics that demonstrate how the legal department adds value to the business. For example, they can be used to produce an overview of the legal team’s work and workload, show how it is deploying its resources and support the case for additional resources, such as extra headcount and technology investment. They can also be used to show the function’s return on investment in people, processes and platforms, both in terms of dealing with matters effectively and efficiently, and also in relation to guiding decision making – in terms of strategic direction and legal and business risk.
Making the case for IT investment
The Looking Glass report found that investing in the right technology helps in-house teams increase alignment with the business and measure, enhance and communicate success.
However, it raised the issue that it can often be difficult for in-house legal departments to get budget for specific legal IT solutions, as corporate technology budgets are often in the hands of the chief information officer and/or CFO, who may prioritise solutions that can be applied to the entire company. This means in-house functions need to formulate a solid business case that makes clear what the benefits to the wider organisation are, while working to keep within budget constraints.
John Pritchard wrote in Legal Business, ‘The in-house profession is materially less transparent and independent than private practice. There is less scrutiny’. Perhaps this lack of scrutiny, along with the cost of implementing legal-specific technology, helps to explain why the legal department is often one of the last business support functions to implement financial management systems.
Lack of scrutiny is not a good thing, particularly when it comes to demonstrating value. Legal departments manage substantial legal budgets and handle large volumes of documentation, a significant proportion of which is dealt with by external law firms. A torrent of data from different sources, presented in different ways, means that legal department financial reports may be unclear and inconsistent in terms of completeness, accuracy and auditability. The answer is to apply technology that organises legal billing data into a manageable structure where it can be collected, interrogated and analysed. This increases transparency, facilitates scrutiny and boosts credibility with board members and other key decision makers who can see at a glance what the legal department is achieving with its current resources.
Justifying technology investment involves reporting regularly to the board and the CFO/CEO with metrics that quantify the value that the legal department brings the company. This means:
- understanding that the legal department is a modern business unit that needs to provide and show value;
- tracking evaluations and results;
- demonstrating cost savings.
Add credibility to key messages
The GC and legal team can use metrics to add credibility to key messages, one of which must be that the in-house legal function should be (seen as) a business enabler, rather than a risk averse barrier to business opportunity and new/innovative ways of doing business.
As solicitor and author Ian Jones, another speaker at the Law Society conference, observes on his blog:
‘No-one needs a legal team – there is no pre-ordained rule that your organisation must have in-house lawyers – if you do not manage your reputation positively, it may spell the end of the team and your job.’
Jones emphasises the importance of both actual and perceived value:
‘Our reputation should be built around creating value for our organisation. That means that we need to make sure the lawyers deliver against what the organisation decides is important. Value is measured in terms of delivery of an organisation’s strategy – make sure you are aligned to that and that you emphasise that is what you are measured against.’
Value is not just about reducing legal spend: it’s about justifying legal spend to deliver corporate strategy. Controlling costs does not necessarily mean reducing costs. It’s about being able to demonstrate to the CFO and the board the value of the legal function to the business and part of this is keeping costs under control.
Investing in the right technology, such as Serengeti Tracker, helps to position the legal function at the heart of the business by capturing and analysing relevant data to support top-level strategic and operational decision making. Serengeti increases and facilitates access to information, streamlines invoice review and automates analysis and reporting against budgets. As well as guiding and monitoring legal services procurement and analysing outcomes, financial reporting within the legal function clarifies and validates its activities to the business, demonstrates its efficiency and communicates its key messages to the board in the financial language that they understand.
Thomson Reuters provide legal solutions for in-house counsel and the legal profession as a whole. To hear more about Serengeti Tracker; our legal department management system, or to arrange a demonstration of the service please contact:
Tel: +44(0)20 7542 9845