Economic and regulatory changes, developments in the legal market, the increasing volume and complexity of workload for legal teams and the advent of technology are changing how general counsel work, how they see themselves and their position in the organisation. How has being a GC changed and how are GCs managing the evolving requirements of their job?
GCs are increasingly providing organisations with strategic as well as legal advice and this is a major factor in repositioning in-house legal departments at the centre of the business.
The shift from simply providing legal advice to a complex role that encompasses strategy and leadership has been driven by a combination of economic factors and budgetary considerations as well as broader choice and increased competition in legal services provision. In many corporations, the GC is leading and managing what is effectively a business within a business, deciding which tasks to retain in-house and which to allocate to external counsel or alternative legal service providers. The GC role is further complicated by globalisation, which exposes businesses to multiple regulatory regimes, and by the speed and frequency of regulatory change.
Although the majority of in-house legal teams comprise between two and ten lawyers, many GCs are in effect sole practitioners, advising on matters ranging from routine contracts and transactions to business critical strategic decisions and crisis management and are recognised as ‘more than lawyers’. Half of the respondents to RPC’s 2013 survey ‘The Changing Role of the General Counsel’ considered themselves stakeholders in their organisation. The majority worked closely with the main board, either reporting to a board director or attending board meetings as an observer, providing the legal perspective and generally influencing business-critical decisions.
The RPC survey also documented the GC’s strategic role, with 90% of respondents advising on broader commercial strategy and 68% stating that they were more involved with commercial strategy than they were five years ago. However, 32% still described their core function in the company as managing the legal department and this includes managing legal spend.
For the first time in three years, The Lawyer ‘In-House Attitudes Report’ 2014 found that changing economic conditions were not in-house counsels’ primary challenge. This indicates a new optimism in the light of economic recovery. However, the growing regulatory burden has increased the legal workload and budgetary restrictions and static staffing levels have maintained internal pressure on the legal function. For many companies, legal spend represents a substantial budget item, which can increase dramatically if the company is involved in M&A and/or litigation.
One popular way of controlling legal spend is to retain more work in-house and reduce reliance on external counsel, whose costs can be relatively high and unpredictable thanks to law firms’ pricing model, which is generally based on the billable hour. However, businesses requiring specialist expertise still need to instruct external firms and the right technology can play a significant role in helping GCs manage their legal spend and improve internal processes and productivity.
Tom Brown, head of legal for UK and Ireland at PayPal, heads a seven-strong legal team:
‘We retain the majority of our work in house and we use external counsel for intricate instructions or when we require country expertise. We have a very tight panel of firms that I trust to do a good job. They need to be responsive, provide value for money and understand our business.’
Some law firms offer their clients collaboration software. Although this can be useful, corporate legal departments tend to instruct different law firms depending on the work in hand and the jurisdictions in which they operate, so working with a multiplicity of law firm systems is complex and impractical.
Furthermore, corporates tend to invest in sophisticated IT architecture that is superior to that of most law firms they instruct, though many GCs acknowledge that law firms have excellent legal research and know-how resources. Corporate legal departments are increasingly deploying software that enables them to track the progress of the work they undertake in-house as well as that outsourced to external firms and to monitor billing against budgets. The resulting management information – which includes, but is not confined to billing data – is used to guide decision making, improve processes and manage and control legal expenditure.
The GC role has evolved as the legal function has shifted to the heart of the business. Michael Ellis, group GC at luxury travel company Abercrombie & Kent is the company’s sole legal adviser and regularly its only representative in meetings and negotiations with partners and suppliers. His role goes beyond legal advice, requiring him to understand the implications of particular deals on the company’s business strategy. Ellis attends board meetings and works closely with Geoffrey Kent, the company’s founder, chairman and CEO. ‘GCs gain general business experience, particularly if they are involved in M&A transactions, and have a significant influence on the company’s strategic direction,’ he says, adding that in addition to legal advice company lawyers are valued for their institutional and business knowledge.
Ellis instructs a broad selection of external law firms, either when he requires specialist advice or when the company expands its services into new jurisdictions. Here he uses external firms who add a local law perspective to the company’s standard contracts and agreements. An important part of his role is selecting and instructing local partner firms to represent the company and help it deliver its strategic objectives in different locations.
Brown is a member of PayPal’s regional management team. He describes the GC role as the conscience of the business. ‘Everyone comes to the GC for legal advice and approval, so we are aware of what is going on across the entire business, which is why lawyers often make good COOs and CEOs’ he adds. PayPal’s legal function relies on software to manage documents and billing.
The expanded GC role has led to lawyers becoming more business-like. As Rob Thomas, a former lawyer and co-founder of Serengeti Tracker, a legal solution from Thomson Reuters, observes:
‘The language of business is accounting and numbers. Technology solutions help in-house lawyers understand company financials and keep track of spending.’
Many legal departments keep billing simple, but those that instruct multiple firms derive value from software such as Serengeti that allows them to analyse billing data from different firms. Bills are submitted using the Legal Electronic Data Exchange Standard (LEDES) standardised format. Standardised data can be analysed and compared against previous bills – for example, to highlight a change in the hourly rate or an additional fee-earner joining the project or to check expenses against agreed guidelines. It also allows GCs to modify bills that do not comply with agreed budget guidelines. Serengeti data can be used to create management reports, for example to analyse spending on particular types of matter. It is about enhancing visibility across the business. Typically, a system like Serengeti, will cost around 1% of spending; and savings in the first year are expected to be over 10%.
Brown adds that this type of management information can be used to make the case for additional resource, either by expanding the in-house team, or in terms of external support:
‘We can track how many contracts we are dealing with and what the turnaround time is. We can also highlight spikes in demand. For example PayPal is particularly busy pre-Christmas.’
It is possible to quantify demand by external legal spend and volume of work undertaken. ‘When I joined a hedge administrator as European GC, there was no legal-specific technology, but the business used task based software with a traffic light system,’ says Ellis.
‘I adapted the system for the legal department to track the various stages of a contract. It clarified for the business the volume of work we were undertaking, and the speed of throughput and showed anyone who was authorised to see it the current state of each matter. The data helped to provide transparency into the legal department and educate the business so that decision makers understood what the legal department needed in terms of technology and resource.’
Thomas explains that Serengeti is particularly valuable for GCs in small and medium-sized legal departments who do not have the time or the resource for manual tasks such as entering data from legal bills:
‘The data in the law firm bills populate the system, enabling it to produce monthly or quarterly reports which include the current status of particular matters and how they are doing against the original budget. The system can also be programmed to create status updates that include alerts for items that are missing or overdue, and even delay bill processing for approval until overdue items are provided. This application uses information from the firms to update the system automatically – with no manual input. Law firms know that if a client organisation uses Serengeti, they have to pay attention – if they don’t, their bills won’t be processed.’
Serengeti makes it easier for a company’s panel firms as it automatically creates the status updates that previously had to be produced manually. It is a more practical solution than law firm extranets, which created difficulties for firms with extensive legal panels as each law firm would present the information in different formats via different systems. What’s more, around 85% of law firms are already connected and billing through the system.
Serengeti’s client-centric format means that all the data flows into a single system and is presented back to the business in a consistent way which allows the strategic GC to automatically track matters and billing as well as applying data analysis to improve processes, boost efficiency and control legal spend.
The Lawyer ‘In-House Attitudes Report’ reflects that the broader role of the GC, which carries responsibilities beyond the legal implications of business decisions, is most obvious in the drive for efficiency, value and commercial awareness that is shaping the relationship between corporate legal departments and their external advisers. The percentage of respondents using technology to capture and compare information about their law firms increased by 10% between 2013 and 2014; some 40% of respondents use matter management systems and 28% use e-billing software to keep track of their legal spend. However, this is just the tip of the iceberg. While The Lawyer’s report highlighted measurement and evaluation of their panel firms as an ongoing challenge for many GCs, some major corporates with large legal panels have introduced comparison software for panel selection and to manage requests for proposal for major projects.
Looking ahead, company directors and GCs generally expect GCs’ strategic input into business decisions to increase over the next five to ten years. The drive for efficiency and value when it comes to legal spend and the complex regulatory considerations that are bringing GCs’ responsibility closer to corporate boards highlight the importance of transparency in corporate governance and decision making. Investing in the right technology is not just about managing the pressure on prices and processes; it also supports the GC’s critical role in managing corporate risk and strategic decisions.
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 E-mail: firstname.lastname@example.org.