An Evolution from Cost Center to Business Unit: Corporate Legal Departments & Outside Law Firms
Once upon a time, in the traditional “guild” model of law practice, attorneys and firms set rates and legal clients simply paid invoices for services rendered. Today’s market has evolved significantly and everyone in the ecosystem must not only understand but practice within the confines of a budget and near real-time metrics/analysis and agreed-upon outcome valuations.
Understanding the Business of Law
For practicing attorneys, law school provides an outstanding education that can lead to a prosperous and satisfying career. However, one thing many law schools do not teach their students is how to run, or succeed in, a business. After years of struggle, most law firms have learned the hard way they must integrate the business of law with the practice of law, however until recently, the lesser discussed topic of how in-house legal departments, for the same reasons, 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 for the entire global legal department have a culture of collaboration and an understanding of the organization’s business and strategic vision for progress.
Moving towards a Culture of Continuous Improvement
Establishing a legal operations function is a major step towards helping the law department run like a business. While larger departments have had such resources for a decade or more, it has really been in the last half dozen years that the role became a standard fixture.
The GC typically charges the legal operations role to operate as the rest of the business enterprise - having defined goals, budgets, metrics, and processes confirming to the company’s business operating system.
Legal operations professionals’ daily work is all about continuous process improvement. Never should similar tasks be performed differently by different resources, rather focus on standardization of the phases, tasks, and activities for any given piece of work in order to resource it using the most cost effective model available, with solid operating procedures to ensure consistency and quality.
Often, applying tools from the lean/six-sigma disciplines leads to elimination of obvious waste and immediate low-hanging fruit. Take time to map out the current state and have the task performers identify bottlenecks. Legal operations staff can help or coach working groups to fully understand their workstream at a component level.
Once all the inputs and outputs are understood, ensure that the voice of the customer plays a part in what’s being done – what is being asked for, and what metrics exist to monitor the health of the process? For years, many groups became bogged down in data reporting without real consideration for actionable metrics. Leverage the data to support continuous improvement and make sure what is delivered is exactly what the client asked for, no more and no less, on time and within budget.
Busting the Myth… not all legal work is bespoke/complex
Before the emergence of so-called “commodity” legal services and the ability to decompose into singular tasks, many corporate legal departments enjoyed less financial accountability within the greater corporation. Attorneys applied their unique skills to areas of law and were expected to be constantly assessing a changing regulatory and legal landscape. The legal marketplace as a whole, particularly the unpredictable nature of litigation involved so many variables so as to be “unmanageable”. Predicting costs and adhering to budgets was not important versus “bet the company” legal risks. Further, many in-house attorneys came from law firms where they had been given the same carte blanche to solve their clients’ problems, with little or no background in business and finance. Controlling costs and creating budgets was seen as a job for the accounting department.
Another area of innovation has been happening in the world of alternative legal service providers. Certainly not a new concept – Axiom, Clearspire, and others were conceived more than a decade ago – it is really the existing paradigm of more general business and IT process outsourcing evolving to realize, that for many legal needs, the services are a commodity. Through a variety of organizational structures, particularly outside the U.S. where
attorney ownership is not dictated, a myriad of consulting agencies and others have begun performing legal work.
It is only a matter of time before a tipping point is reached where for a certain size and complexity of in-house legal department is ideal for a nearly complete “outsourcing” to an enterprising alternative legal services provider. Equally true, as already seen in the insurance/finance services sector and some law firms, a well-run department can provide services externally at a more fixed, predictable cost – something corporate CFOs greatly welcome.
Senior leaders expect the legal department to operate like a business and learn to manage a detailed budget, just like any other department. Forward-thinking general counsel are embracing financial accountability in a number of ways, including forging closer ties with the CFO. They are gradually learning the language and principles of accounting and finance, and taking a more aggressive stance in managing the company’s legal matters. The result is a transformation in the way legal operates, the way lawyers view themselves in the corporate context, and how the legal function is perceived across the organization.
What can senior legal department leaders impress on their teams to reach a point of success? Consider that the corporate legal department is a business unit inside the corporation, and as a cost center must continually demonstrate how it adds value within the company through the use of reports, tools, key metrics and results.
Must interact with internal clients and departments (such as risk, compliance, IT, security and procurement), senior leadership, regional / global operating divisions, outside counsel, consultants, and government and regulatory bodies.
Must have a close working relationship in particular with the IT department to manage the costs, complexities and challenges of electronically stored information and e-discovery matters in particular.
Will very often have to manage headcount problems, budget issues, workflow peaks and valleys, and competing internal departmental agendas and interests.
Must have relevant and timely information and data to make informed business and legal decisions while focusing on mitigating risks.
Apply standard tools from their business operating system to continuously improve, solve problems, and establish standard work processes that are repeatable, measurable and defensible, while not stifling the creative ability to handle crises including new lawsuits, government investigations, etc.
About the Author
Mike Russell, a 20+ year pioneer in Legal Operations, currently leads operational excellence for the Ingersoll Rand Global Legal Department, a frequently referenced author and speaker firmly entrenched at the crossroads of legal, technological, and business process expertise in legal service delivery.
Past experience includes advising the visionary Clearspire founding team's revolutionary New Law start-up, and 15 years as a strategic legal technology Director with Liberty Mutual Insurance Enterprise Legal Services (a corporate legal department of 2,000 professionals across 70 locations with nearly $1B managed legal spend).
Prior to making the switch to corporate legal, he also worked as IT Director for large regional law firms. Having joined the American Bar Association Law Practice Management Section in 1995, recognized as a Law Department Champion in 2011 through an ILTA Distinguished Peer Award, and enjoys active involvement with the Corporate Legal Operations Consortium (CLOC), International Legal Technology Association (ILTA), and serve as faculty for the Association of Corporate Counsel (ACC) LegalOps annual symposium and section steering committee.