By Patrick Johnson, J.D. of Thomson Reuters
Law school provides an outstanding education that can lead to a prosperous and satisfying career. But one thing many law schools do not teach their studentsis how to run, or succeed in, a business. Law firms have famously struggled with marrying the business of law with the practice of law, but less talked about is 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 that your entire legal department have a culture of collaboration and an understanding of your company's business and how to demonstrate your department's success within the business. The following is a list of top ways you and your legal department can integrate with your company and function more like a business unit:
1. Manage your department's workload.
As with any business unit in a company, an initial determination of how to allocate resources, evaluate performance and establish success can't be made unless the totality of the work in your department is captured and understood. This may seem like a no-brainer, but without a very systematic way to track internal projects and what outside counsel is working on, a legal department - big or small - can lose track of allthelegal work being done. Business managers prioritize projects and allocate resources accordingly to be as efficient with their workforce as possible. For a legal department to do this, you must first understand all the work being done, whether internally or by outside counsel, and then allocate that work appropriately.
2. Know your spending and use budgets.
The most basic question a stakeholder can ask any business unit, especially a cost center, is "What is your spend?" Whether it's the last fiscal year, this fiscal year to date or this quarter, every business unit in a company knows its spend. As a consultant who's advised over 200 legal departments, I am surprised at the lack of ability of most legal departments to respond to this question; the most common answer I hear is simply "I have no idea."
The next basic question is "How does this spend compare to expectations?" To determine this, a legal department has to have a budget or way to measure expected spending. There are many ways to budget for legal matters: on a per matter basis, per business unit generating the work, per practice group or even on a department-wide level. Regardless of which type of budget is used, a legal business unit cannot determine whether it's received good value for the money spent if there is no expectation of what should be spent in a given time frame.
3. Understand what success means for your stakeholders.
To achieve success, a legal department first must determine who their stakeholders are, i.e., who determines success. The CFO, CEO or Board of Directors may all be stakeholders in the success of the legal department.In the past, these stakeholders may have been interested only in the successful-outcome rate of matters, large matters whose costs had skyrocketed or the status of a bet-the-company case. Increasingly however, legal departments are being asked to measure success not only by those standards, but also by traditional business unit standards, such as: What is the total spend this year compared to last, and if it's more, then why?; Are you above or below the department's projected budget?; How is the department reducing costs and increasing efficiency?; and What legal trends are you seeing in our legal work and how should we respond? Once it's understood how success is being measured by stakeholders, then the legal department can go about tracking those metrics.
4. Demonstrate your department's success.
With stakeholders being properly identified and success factors known, the next question is how can the success of the department be demonstrated? Knowing that your legal department is doing a great job isn't enough. The vice president of sales can't simply tell the CEO that the company has had a banner sales year, but must prove it. Similarly, your department must have a method to accurately track and report success metrics to your stakeholders. "Performance is demonstrated by specific achievements that align directly with established strategic goals (including certain matters results) and spend to budget," said Nick Varsam, Vice President, General Counsel and Corporate Secretary of Victor Technologies International, Inc. Whether done manually via spreadsheet programs or through more sophisticated, legal department - specific software solutions, tracking and reporting success metrics is a key component to being a successful legal business unit.
5. Evaluate vendor performance.
Very few departments in a company, if any, outsource as much work to outside vendors as the legal department, yet only more sophisticated law departments regularly review outside counsel performance and make changes based on those reviews. If marketing managers hired an ad agency that put together an expensive yet unsuccessful ad campaign, they would replace the agency or risk poor performance reviews themselves. For the same reason, a well-run legal department should regularly review performance of individual attorneys, as well as law firms as a whole, for overall value to make sure they are getting the best and most cost-effective service possible.
6.Innovate.
Members of the legal industry - whether in-house counsel or law firms - are not traditionally early adopters of change.But technology has invaded every aspect of working at a company and is evolving rapidly.Matter management and ebilling software, document management software, IP management software, linking approved invoices to your accounts payable software, mobile technology and legal hold management are all examples of software that can help attorneys and legal department staff work more efficiently and effectively." [Our legal SaaS solution] is a huge success. When the CEO asks what we spend on matters, I can just run a report. The approval routing is also incredibly helpful," said Paul Seeman, General Counsel for LAMB Partners. A progressive legal department should always be looking for ways to make itself better managed and more efficient.
7. Explore Alternative Fee Arrangements (AFAs).
Legal departments, more than other business units, rely on their vendors to achieve their department goals, so it is important to align their firms' interests regarding results and efficiency with the company's goals. AFAs can be a powerful tool in creating the proper incentives for law firms and helping counter the perverse incentives created by billable-hour goals. These fee arrangements should be explored for various reasons that are advantageous to a legal department, including predictability in costs (blended rates, capped fee, flat fees, collars); shared risk (contingency agreements, success fees); and incentives for efficiency (flat fees, flat fees with shared savings, holdbacks). AFAs can take extra work and thought to set up with your firms, compared to staying with the billable hour, but the benefits - aligning interests, predictable costs and reduced costs - are all strategic initiatives that would be clear wins for any business unit.
8. Know your company's business and know your role in the business.
Law firm attorneys are trained to look at a set of facts, spot legal issues and give legal advice based on those issues. However, once an attorney comes in-house, these discrete legal issues and questions become part of a greater goal - running a particular business and having that business be successful. Deep knowledge of that business informs legal advice, and understanding that the legal department's role is to assess risk and givebusiness solutions is another key to success in-house. Knowing the company's particular business is "critical to the successful performance of the legal function and facilitates a more proactive approach to risk management, cost avoidance and value creation," said Varsam. Seeman added it's crucial to "[r]espect everyone's role, and if you're on a soapbox they won't respond to you. [In-house attorneys must] [u]nderstand which calls are legal calls and which are business calls."
9. Network with others in your company.
One of the first lessons new MBAs will learn at almost any company is that networking within the company is vital to their success. Cross-collaboration amongst different departments in today's corporate world isn't just business-speak, it's a necessity. Lawyers, however, often think of themselves as legal practitioners at a company rather than as a team member with the ultimate goal of helping the company succeed.Having relationships with colleagues in other departments, along with understanding the roles and pain-points of other departments, helps gain trust with the law department's internal clients and will allow attorneys to give better advice within your company." [H]uman behavior and cross-functional considerations are vital to promoting effective communication and establishing and meeting realistic expectations," said Varsam. So, when was the last time you had lunch with someone from finance?
10. Apply Project Management Techniques.
The basics of project management are determining the scope, the estimated schedule and the required resources to finish that project. Regardless of the size or complexity of the legal matter, project management techniques can always be applied. The scope and estimated cost of a project should be calculated beforehand. For matters like complex litigation, the scope and cost can be estimated by phases of litigation (discovery, trial prep, trial, etc.) rather than the matter as whole, for example. Again, using AFAs where possible can help with the predictability of costs. Having outside counsel give their clients estimated resolution dates and liability estimates that clients can track and report on are key to understanding the time and scope of these projects. Furthermore, having regular required status reports and budget updates keeps in-house counsel informed as to scope-changes and cost overruns.
Conclusion
During tight economic times, all departments must justify their existence in a measurable way and legal departments are no different. Legal department members who adopt the best practices of other successful business units within the company will find themselves better able to give counsel to their clients, and will also be included as trusted team members when important decisions are being made within a company.
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