By George Rudoy
While corporate legal departments have long been shielded from the types of budgetary pressure other departments face, legal professionals are now subject to a new set of expectations about managing spending. At the same time, several forces, both internal and external, are driving up legal costs.
As just one example of escalating costs for law firms, during the COVID-19 pandemic, the demand for associates skyrocketed. Amid competition for resources in the broader labor market, associates commanded larger salaries than ever before. As law firms were paying more for associates, they began charging increasingly higher rates to corporate clients to cover the costs. While law firms have been looking for ways to raise prices, the companies that hire them for legal support have been asking for better and more predictable pricing.
Outside legal consulting can play a central role in helping bridge the gap between escalating costs and expense management, maximizing efficiencies in the relationship between corporate legal departments and law firms. One avenue for cost reduction is technology. Better data management, information governance, knowledge management, and corporate governance can help reduce costs for outside counsel. Legal consultants can help to evaluate opportunities for technology to promote efficiency, and they can help to implement technology solutions as well.
Even more important than technology, though, is having a neutral party who can speak the language of both sides. A natural companion to the advice that companies often seek from outside consultants on tax and audit, these services can help legal departments and law firms better satisfy the needs of their clients while meeting executive expectations regarding cost controls.
Streamlining data management
Legal departments need to be both proactive and reactive when it comes to data management. The proactive side involves preparing for the inevitability of certain legal actions by implementing sound information governance practices. On the reactive side, corporate legal departments need to be prepared for the possibility of legal action.
For example, if a company is under investigation or facing a legal issue subject to arbitration, the corporate legal department will have to lead a response to requests for evidence as part of e-discovery protocol. Identifying the relevant information, knowing what information is available internally, and presenting it to the legal team to conduct responsiveness, confidentiality, and privilege review all are critical, time-sensitive, and potentially very expensive tasks.
Requests for evidence and subsequent e-discovery are often a lengthy, expensive process that causes business disruptions. Here again, legal consulting plays an important role in helping businesses proactively organize their data so they can conduct e-discovery in a way that minimizes expenses, time, and resources.
Improving knowledge management
Knowledge management – building a repository of precedent information and effortlessly retrieving it – is a key enhancement for law firms. Knowledge management is important for several reasons. For example, if a law firm keeps good records of legal advice provided to a client undergoing a major event such as an acquisition, the law firm can offer better-priced legal advice for future transactions, supported by previously developed content, documents, and experience.
Well-established procedures and protocols for both contributing to a corporate knowledge base and withdrawing information when needed can significantly improve efficiency for legal departments and law firms. Technology has an important role to play, and legal consultants can help build technology-based tools, such as portals that enable firms to track the movement of information back and forth or data rooms to house critical information.
Supporting staffing and collaboration
Planning for staffing needs to address legal issues as they arise is an intricate puzzle. Striking a balance between having the right expertise available in-house and managing costs across the peaks and valleys of need is a delicate exercise.
Some companies outsource their entire legal departments, whereas others choose to have a fully staffed, in-house legal department. In almost all scenarios, there is an occasional need for legal outsourcing, whether for additional resources or for a certain subject-matter expertise offered by a law firm. Staffing levels and priorities also can evolve over time, in response to the macroeconomic environment. During periods of economic uncertainty, companies sometimes scale down their internal legal staff to cut costs.
Consultants can guide legal departments and help them establish an efficient, cost-conscious balance between in- and outsourcing, supported by processes and technologies to evaluate and benchmark the efficiency and cost. Additionally, outside specialists can play an important role to bridge the gap between legal departments and the business side, bring parties together, and gather information. For example, when a company is under investigation, it is often necessary to engage other internal departments, such as IT and compliance, to determine best practices to respond to the investigation needs, identify relevant information, and develop a response plan.
Aligning legal and overall business strategy
The landscape today has shifted away from the days when confidentiality and privilege meant legal departments were generally left to function on their own. A company’s legal strategy needs to be aligned with overall business strategy, following the same best practices as accounting and other departments on structure, efficiency, and technology use.
Although expectations for law firms and corporate legal departments today are more complex than ever, they don’t have to do it all. A third party can play a valuable role in helping companies prepare for whatever legal challenges might come.
George Rudoy, Principal, Advisory
+1 212 751 8255