Getting more from your Legal Spend - the emerging trends and best practices

Transcription

1 AN EVERSHEDS CONSULTING WHITE PAPER: Legal Spend Getting more from your Legal Spend - the emerging trends and best practices As legal costs continue to climb, financial pressures are leading many companies to instigate spend reduction programs and demand more from their legal functions. In many instances, the message could hardly be clearer from their Chief Financial Officer and CEO: Get the costs of your Legal department down and under control or face the consequences. This is often forced upon the General Counsel (GC) who often lack the time, data and analysis to justify their own internal spend. The following article is designed to introduce some of the opportunities available not only to gain control of legal spend but to add additional value. How you can begin to change your own landscape of getting more from both internal and outside counsel along with corporate relations to ultimately provide a positive contribution to the overall organisational strategy and success. A Starting Point Often measuring value is seen as a challenging process for an in-house legal team. There may be concerns around the right resourcing at the right level, the introduction of bureaucracy or inadequate returns for the department. Our conversations with a number of GCs and experts in the field suggest it need not be that way. Simple and practical approaches with the right systems and collective approach can be introduced to clarify objectives, improve performance and importantly begin to measure and demonstrate the value that your legal spend is providing the overall business. Such systems, tools and frameworks should make it easier to run an in-house legal department, and may also make it simpler to identify areas which GCs and other senior in-house lawyers can attain leadership. The following will examine: shared challenges and ways in reducing legal spend behaviours to enhance client service delivery and increased operational effectiveness. companies Legal Spend health check and begin a roadmap moving from cost centre to profit centre Increasingly, without doubt Legal teams and Law firms are compared, evaluated, judged, categorised, ranked, balanced and best practices born. It s the fated consequence and side effect of a rich and opaque market coming to maturity. Eversheds Consulting

2 Legal Spend 2 To be clear there is no single formula or template for measuring the value. Business strategies, internal operational structures and obviously corporate cultures vary enormously and measurement needs to reflect this. However there are common themes, the likes of Tyco and DuPont have implemented very successfully, some obvious and some not so obvious starting points. Metrics are an integral part of the continuous improvement process, helping ensure that objectives are being met and that the organisation is succeeding, and, just as importantly, identifying which programs are not working and where changes should be made Thomas L. Sager and Gerald G. Boccuti - DuPont Ultimately turning their legal function from a cost to a profit centre in its own right for the business. Insight Leads to improved Business Decisions It s no surprise that one of the most prevalent trends in the legal industry during the past few years has been adoption of Legal Management Systems and implementing the right dashboards. This not only allows legal departments to efficiently process and approve spending, but also to budget matters and benchmark internal and outside counsel performance, to ultimately drive the right and required behaviours. According to research over 30% of Fortune 500 legal departments now employ some sort of Legal Spend Management - we would question how effectively are they utilising those systems towards their own strategic goal. These systems when introduced correctly and with the right framework can deliver the required Return on Investment in three major areas; process improvement, outside counsel guideline compliance, and proactive data analysis for performance measurements and approval. Legal Project Management Moving In-House At a time when many organisations are demanding more from their in-house legal function, the need to keep control of your budget is vital. Achieving quality in a legal department requires a systematic approach in which you are able to define quality and measure whether you have achieved it. At their most sophisticated, those systems and techniques take form with firms beginning to utilise and adapt management methods, such as Lean Six Sigma and effective project management techniques to great success. Those tools have helped to redesign their legal function and create a team that demonstrates real and measurable value to your board. Following an in-depth analysis of your legal spend and utilising the right tools you will have solutions that will allow you to deliver your service more effectively and are able to demonstrate lower cost.

3 Legal Spend 3 By redefining the value of work you have the potential of turning matters that are currently seen as high end strategic into business as usual. With our experiences of business process re-engineering, the answers have been right for you and your organisation and not simply imposed from a standard model. Using the real world experience of our people and clients, have been able to develop processes that allow us to work with our clients more effectively with both internal legal teams, but also other external suppliers. Along with clients, we have together created systems and tools that ensure that the right work is going to the right supplier whose effectiveness can then be measured and reported on. Culture change may also be crucial achieving your set aims and by creating a more cohesive team where your people are productive in the roles they are given and the team is seen as a proactive of your company, rather than a drain on costs. Great respect for you and your people, better quality outputs, reduced risks and ultimately lower costs. Getting Right the Relationship and Management of Outside Counsel in Place Strategic relationships with outside law firms can provide the cornerstone around which the corporate law department can build programmes and initiatives to achieve significant cost savings, improve legal services and deliver better bottom line results. Those key strategic partner firms should be viewed as an extension of the legal department and as part of the team working. It s important that you forge more productive partnerships between in-house and outside counsel to reap the benefits collectively. Those relationships in the past have been somewhat tenuous in nature. On one hand, both parties share a common goal to effectively manage matters and achieve a successful outcome by applying their legal expertise. On the other hand, their goals and priorities can conflict, especially when it comes to cost reduction and utilisation of resources. No longer should corporate counsel simply hand over matters to outside counsel with little to no oversight. Internal teams are being created to take control over the process and manage matters internally while effectively partnering with outside counsel to reach dual goals of mitigating risk and reducing costs. This is a section on its own which is of upmost importance to the client and something we have a great deal of experience including designing, implementing and improving currently panels and systems. To accomplish these goals, in-house counsel must clearly and effectively communicate their needs and priorities to outside counsel to improve results and maintain productive relationships and to ensure that they not only provide feedback to outside counsel but also communicating the key strategic goals of the organisation.

4 Legal Spend 4 Performance Metrics Becoming What You Measure. An area of particular importance to us and our General Counsels is to set value-based performance measures and more importantly to align themselves with their businesses overall strategies. US and UK cultures are generally fond of rankings and statistics and have been dealing with the phenomenon for quite a while already, but now it is also hitting the rest of Europe at full strength. Metrics, numbers, benchmarks, ratio, targets will become increasingly important in the management of both internal and external law firms. Therefore it's importance and complexity should not be undermined. It makes clear that Key Performance Indicators (KPIs) should be meaningful and relevant, which you would be surprised to hear is often not the case. The KPIs should be used for learning and improvement and extracting meaningful insights to inform evidence based decision making. As with all the above sections, one thread is clear, they need to and must be clearly linked to the strategy. Only when Senior Management Team has agreed on the content of the Strategy Map should they progress to design of metrics which are firm specific. The purpose of metrics and related targets is to monitor progress toward the achievement of strategic goals, and ultimately the delivery of the organisational strategy. Metrics are not an end in themselves and essential that they go beyond the simple financial metrics. Any long-term objective of Legal function passes through the organisation and staff satisfaction and loyalty. Therefore a metrics strategy ignoring these will be incomplete and ill fated. KPIs are one of the most powerful tools available to enable organisations to achieve stepchange performance improvement which should be a core goal of any performance management system. But using KPIs appropriately comes replete with challenges, as this paper has demonstrated. KPIs should be primarily deployed for learning and improvement and not for command control. When KPIs are used inappropriately, they also become the most resisted of management tools. Therefore careful considerations and the right time spent on designing is important The process of implementing the right metrics and process is tough and will take time and energy, however it s the price to pay to play in the current evolving legal environment. Optimising the Internal Legal team and Law Firm Relationship As the mandate to reduce legal spend continues to accelerate, Senior Management may now have the leverage they need to overcome resistance to change. In this climate, the General Counsel should be more comfortable saying to the law firm partner, we can t afford to pay your rates anymore This is an opportunity for companies to rethink old relationships. Through convergence programmes, RFPs and value based alternative fee arrangements, many general counsel are already significantly altering the balance of power between client and law firm. It is also an opportunity to change corporate mindsets. Too often the role of in-house legal teams is seen as reactive. People think you are there for when the bad things happen, contracts need to be checked or they need to say no to certain projects is

5 Legal Spend 5 required. In short you are a necessary cost to the business. However, this view is changing. A number of progressive companies are investigating the potential of in-house teams to actually generate income through a proactive recoveries service that protects the organisations interests. It s an idea that might seem counter-intuitive Can your team actually create income? But it s an approach that has been shown to work. Having worked with some of the pioneers of this approach such as Tyco and DuPont, what is required is a new mindset where people and your external legal suppliers are constantly looking at areas where they can add the financial value. Breaches of contract, stolen IP, damaged goods the possibilities for recoveries are many. There is a need to create a culture where these opportunities are hunted and the every day disciplined approach to evaluating claims is developed. In Conclusion The practice of managing your legal spend embraces a number of strands which we have briefly highlighted some of the most important within this article. The creation of a Strategy Map is probably the single most important step in building a Legal Performance Management system and a starting point to getting more from your Legal Spend. With this in place the organisation can progress effectively to the next stages and strands with the clear road map in place to measure those incremental advances. The metrics and understood processes are at its core to providing a unique platform right for your business for understanding, planning, controlling, and even reducing a company s overall legal spend. It includes a collection of innovative techniques and technologies that provide those layers of process improvements, automated workflow where possible and data analysis and effectively turning that into knowledge, each of which provide the value and return to a company s legal function. No longer the most common complaint one hears about legal services is how expensive they are or the fees are outrageously high but there is little we can do to reduce them. However we have demonstrated that this perception does not need to be a reality. There is much that can be done to change and/or prevent the situation from occurring and guiding onto a roadmap that you have chosen. This paper demonstrates that this perception does not need to be a reality. There is much that can be done to change or prevent the situation. With a strong resolve, the right support and firm hand you can apply some of the tools and techniques suggested above immediately to get more from you legal spend while increasing quality of service at the same time.