By Daniel van Binsbergen.
We’re in the early days of a down-market that some analysts are comparing to the dot-com crash. But what does this mean for in-house legal teams?
To survive in a down market, legal needs to stay lean and cut costs. This requires GCs to think strategically and confront core questions such as, where can my legal team have the most impact? Who should do what, internally and externally? How can legal do more without increasing headcount?
The goal of this strategic rethink is to get the biggest result with the fewest resources (i.e., efficiency). In our view, finding efficiencies and reducing waste is the only sustainable way to cut costs. Because reducing costs in other ways usually starts a downward spiral: legal risk in the business increases, lawyers end up working overtime all the time, which, in turn, leads to higher team turnover (with associated costs).
In this article, we will explore one key driver for finding efficiency, which is ensuring ‘right-talent-to-task’, both internally and externally. We will also set out how that automatically reduces ‘waste’, increases efficiency, and drives more value for the business.
Operating principles for a lean legal team.
The people in your legal team will have various levels of experience. Experienced lawyers cost more. The value they can offer, unlike more junior lawyers, is the ability to exercise judgement. In other words, they can gauge how important something is in terms of legal risk/commerciality, and change how they approach the work based on that.
In most teams though, experienced lawyers will do a mix of work: work that requires that skill, and work which does not. Your goal as a leader is to ensure that your most experienced lawyers can spend the large majority of their time on work that requires that judgement. Any hours they spend on work that does not require that judgement is ‘waste’.
One category of work where this often goes wrong is ‘routine contracts’. For example, an experienced lawyer who spends 30 hours a week negotiating vendor contracts has a lower ‘legal value output’ than if that same lawyer was tasked with more strategic work. This is not unlike a powerful machine being held back or throttled.
You’d want that lawyer focussed on legal matters which require a deep understanding of the business and its commercial objectives.
This sounds intuitive to most. So why then do legal teams often struggle to move their more experienced lawyers away from routine work?
In short, the culprit usually is suboptimal legal department design which then leads to inefficiency and waste.
This is because most in-house teams are staffed in a generalist way with lawyers who are each responsible for a range of legal work. There are many competing tasks. Each task is separate and it’s always a choice between one or the other. This makes efficiency through specialisation impossible.
To improve efficiency, legal teams need visibility on the various workstreams flowing through the department. Then allocate each workstream to the right ‘resource’, whether internally or externally. Some call this “right- talent-to-task” (i.e., don’t have the head of legal review an NDA or routine supplier agreement).
How can this be done practically without the pain and disruption of a full restructure?
Tackling vendor contracts
From our experience, figuring out how to efficiently handle and resource routine contracts like vendor contracts is one way to start on this journey of better aligning ‘talent-to-task’.
This category of work is often competing against more strategic priorities, such as delivering complex transactional work, supporting a new product launch, exiting markets, or preparing for an IPO. Legal teams rightfully prioritise these big strategic projects because of the legal risk and complexity involved (not to mention the commercial impact).
As a result, vendor contracts are often put on the back burner. Turnaround times worsen, delays get longer, and a backlog begins to pile up. Stakeholder complaints begin to mount and the legal team is put under even greater scrutiny.
The most urgent contract reviews will typically still get done, but they’re an annoying (and costly) distraction from strategic work.
To provide relief, many legal teams bring in external counsel, hire an interim lawyer, or try to get budget to scale internal headcount. This only lowers their ROI and increases costs. Worse still, it takes budget away from other value-add investments.
The result is legal being viewed, often unfairly, as a ‘cost-centre’ who always seem to need more people, more resources, and more budget.
Solving this problem isn’t easy:
Creating process improvements, such as playbooks and self-serve templates, takes time that legal teams often can’t justify spending on vendor agreements.
Making new hires is time-consuming, and also doesn’t perfectly solve the problem, given the variable contract volumes (i.e., during peaks you still don’t have enough people).
Law firms have other more valuable clients and also won’t be able to prioritise your vendor contracts.
And whilst tempting and fun to explore, legaltech doesn’t actually solve the problem end-to-end.
We designed Lexoo to solve this problem, so the steps we took may provide a good blueprint of the steps to take if you want to streamline vendor contracts.
The steps we took were:
We combined our team of former in-house lawyers with our team of developers to provide tooling to speed every single admin step up. We used screen recording software so that our developers could literally watch our lawyers do the work. They then started building product to shave off time. This includes a Word panel that hosts clause databases, playbooks, and automated definition checking.
We then layered on the data of having negotiated thousands of vendor contracts to find the most ‘optimal path’ to getting the agreements across the line. We then updated our playbooks (including fallback positions) to follow this path.
We run a weekly ‘continuous improvement cycle’ to keep reducing ‘waste’ in the system.
The end result is that we can do this work very quickly (max 2 day turnaround on full mark-ups), were able to reduce the ‘time to close‘ by 35%, and to drop our fixed monthly price so that we can be more cost effective than hiring a lawyer in-house to do this work.
You may not have the time to follow this approach, and outsourcing to a provider like Lexoo who already has made the investments is likely the most efficient high ROI option.
Crucially, by taking routine contracts off their plate, our clients are able to apply the ‘right-talent-to-task’ on their end, as their teams are completely freed up to focus on the more strategic side of things.
You can only control inputs, therefore you should manage your inputs and not your outputs. To improve a system, you first need to understand how inputs affect outputs.
If your inputs include doing routine contract reviews, your experienced lawyers will have a lower ‘legal value output’. If your inputs are geared toward strategic work, your legal team will have a greater impact and deliver more value. From this position, creating even greater value is easier because you are in a position that enables you to be more proactive.
However, to break the cycle you need to focus on aligning ‘talent-to-task’ and delegating non-strategic work (controlling your inputs). This means valuing system solutions over short-term, reactive problem-solving (i.e., simply throwing more hires at problems).
In this uncertain economic period, legal should focus on building long-term value over short-term pressures. By delegating routine contracts to a specialised provider, you can create the time and space you need to build sustainable efficiency, and come out of this downturn stronger and value-driven.
About the Author Daniel van Binsbergen is the CEO at Lexoo, a legal service provider for in-house legal teams at rapidly growing companies.
Lexoo operates as an extension of in-house legal teams, by handing their vendor contracts (full outsource or overflow), as well as managing multi-country projects like updating T&Cs or regulatory questionnaires.
Prior to founding Lexoo in 2014, Daniel was a senior associate at an international law firm.
Lexoo is a FT Innovative Lawyer award winner, a Deloitte Fast50 company and the subject of a Harvard Business School case study.