Legal Briefing

Top-ten guide: top ten ways to run your legal department like a business unit

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Opinion | 01 February 2014

Once a trainee has finished their legal education and completed a training contract, they can expect a prosperous and satisfying career. But one thing that many law students are not taught is how to run, or succeed in a business. Law firms have traditionally struggled with marrying the business of law with the practice of law, but less talked about is how in-house legal departments often struggle with integrating into their companies as a collaborative and effective unit of the business. To run like a business unit, it is important that your entire legal department has a culture of collaboration, an understanding of your company’s business and how to demonstrate your department’s success within the business. The following is a list of the top ten ways to help you and your legal department integrate with your company and function more like a business unit.


1) MANAGE YOUR DEPARTMENT’S WORKLOAD

As with any business unit in a company, an initial determination of how to allocate resources, evaluate performance and establish success can’t be made unless the totality of the work in your department is captured and understood. This may seem like an easy task, but without a systematic way to track internal projects and what outside counsel is working on, a legal department – big or small – can lose track of all the legal work being done. So a first priority should be to introduce a system to track the entirety of legal work carried across the business. Once you know what work is being done and by whom, you can then prioritise projects and allocate resources accordingly to enable you to be as efficient with your workforce as possible.

2) KNOW YOUR SPENDING AND USE BUDGETS

The most basic question a stakeholder can ask any business unit is ‘what is your spend to date?’ Whether it’s the last fiscal year, this fiscal year to date or this quarter, every business unit should know the answer to this question. However, ask a legal department and the most common answer you will hear is ‘I have no idea, and this information can only be found by trawling manually through spreadsheets.’ The next basic question is ‘how does this spend compare to expectations?’ To determine this, a legal department should have a budget to measure expected spending. There are many ways to budget for legal matters: on a per matter basis, per business unit generating the work, per practice group or even on a department-wide level. Regardless of which type of budget is used, a legal business unit cannot determine whether it has received good value for the money spent if it did not have a clear expectation of what it should have spent in the given time frame.

3) UNDERSTAND WHAT SUCCESS MEANS FOR YOUR STAKEHOLDERS

To achieve success, a legal department must firstly determine who its stakeholders are, ie who determines success. The CFO, CEO or board of directors may all be stakeholders. In the past they may have only been interested in the successful-outcome rate of matters, large matters whose costs had skyrocketed, or the status of a major litigation case. Increasingly however, legal departments are being asked to measure success not only by those standards, but also by traditional business unit standards, such as: ‘what is the total spend this year compared to last year, and if it’s more, then why?’; ‘are you above or below the department’s projected budget?’; ‘how is the department reducing costs and increasing efficiency?’; and ‘what legal trends are you seeing in our legal work and how should we respond?’ Once you understand how the legal department’s success is being measured by stakeholders, then you can track the necessary metrics to demonstrate success.

4) DEMONSTRATE YOUR DEPARTMENT’S SUCCESS WITH METRICS

Once you have identified your success factors, the next question is how can you demonstrate the success of the legal department? Knowing that your legal department is doing a great job isn’t enough. The director of sales can’t simply tell the CEO that the company has had a bumper sales year, they must prove it. Similarly, your department must have a method to accurately track and report success metrics to your stakeholders. One way to demonstrate performance is by showing how specific achievements align directly with established strategic goals (including certain matters’ results) and spend to budget. Whether done manually, via spreadsheet programs or through a more sophisticated, software-based legal department management system, tracking and reporting success metrics is a key component to being a successful legal business unit.

5) EVALUATE VENDOR PERFORMANCE

Very few departments in a company, if any, outsource as much work to outside vendors as the legal department, yet only the more sophisticated legal departments regularly review outside counsel performance and make changes based on those reviews. If marketing managers hired an advertising agency that put together an expensive yet unsuccessful ad campaign, they would replace the agency or risk poor performance reviews themselves. Similarly, a well-run legal department should regularly review the performance of individual lawyers within the law firms they use, as well as the law firms themselves, for overall value, to make sure they are getting the best and most cost-effective service possible.

6) INNOVATE

Members of the legal industry – whether in-house counsel or law firms – are not traditionally early adopters of change. But technology has invaded every aspect of working at a company and is evolving rapidly. Matter management and e-billing, document management software, e-discovery, IP management and mobile technology are all examples of software that can help lawyers and legal department staff work more efficiently and effectively. A progressive legal department should always be looking for ways to innovate and become more efficient.

7) EXPLORE ALTERNATIVE FEE ARRANGEMENTS (AFAS)

Legal departments, more than other business units, rely on their vendors to achieve their departmental goals, so it is important to align your law firms’ interests regarding results and efficiency with the company’s goals. AFAs can be a powerful tool in creating the proper incentives for law firms and help counter the perverse incentives created by the billable hour. These fee arrangements are advantageous to a legal department for various reasons, including predictability of costs (blended rates, capped fee, flat fees, collars); shared risk (contingency agreements, success fees); and incentives for efficiency (flat fees, flat fees with shared savings, holdbacks). AFAs may take extra work and thought to set up with your firms, but the benefits – aligning interests, predictable costs and reduced costs – are all strategic initiatives that would be clear wins for any business unit.

8) KNOW YOUR COMPANY’S BUSINESS AND KNOW YOUR ROLE IN THE BUSINESS

Lawyers in private practice are trained to look at a set of facts, spot legal issues and give legal advice based on those issues. However, once a lawyer goes in house, these discrete legal issues and questions become part of a greater goal – running a successful and ongoing business. Your legal advice should be informed by your in-depth knowledge of the business and a key to success is understanding that the legal department’s role is to assess risk and give business solutions. Knowing your company’s business is critical to the successful performance of the legal function and facilitates a more proactive approach to risk management, cost avoidance and value creation.

9) NETWORK WITH OTHERS IN YOUR COMPANY

One of the first lessons new MBAs learn at almost any company is that networking within the company is vital to their success. Cross-collaboration among different departments in today’s corporate world isn’t just business speak, it’s a necessity. Lawyers, however, often think of themselves as legal practitioners at a company rather than as a team member with the ultimate goal of helping the company succeed. Having good working relationships with colleagues in other departments, and understanding the roles and pain points of other departments, will help you gain trust with your internal clients and will allow you to give better advice within your company. So, when was the last time you had lunch with someone from finance?

10) APPLY PROJECT MANAGEMENT TECHNIQUES

The basics of project management require you to determine the scope, estimated schedule and required resources to finish a project. Regardless of the size or complexity of the legal matter, project management techniques can always be applied and the scope and estimated cost of a project calculated at the outset. For complex litigation matters, the scope and cost can be estimated by phases of litigation (discovery, preparation, trial etc) whereas for a transaction, they might be estimated for the matter as whole. Again, using AFAs where possible can help with the predictability of costs. It is important that your outside counsel provide you with estimated resolution dates and liability estimates that you can track and report on so that you can fully understand the time of these projects. The provision of regular status reports and budget updates will also keep you informed about scope changes and cost overruns.

CONCLUSION

During tight economic times, all departments must justify their existence in a measurable way and legal departments are no different. In-house lawyers who adopt the best practices of other successful business units within the company will find themselves better able to advise their clients, and will also be seen as trusted advisers when important decisions are being made within a company.

The information in this top ten should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors. This top ten is not intended as a definitive statement on the subject addressed. Rather, it is intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.

Thomson Reuters provide legal solutions for in-house counsel and the legal profession as a whole. To hear more about their legal department management solution, Serengeti, or to arrange a demonstration of the service please contact:

Tel: 020 7393 7447;

E-mail: serengeti.uk@thomsonreuters.com.