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Closing the Best Practices Gap in Legal Department Operations

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While many lawyers assume managing cost puts quality at risk, the evidence is otherwise. The same best practices that save money – clear definition of objectives, streamlining repetitive work, treating all lawyers (inside and out) as part of one team, aligning fee structures with firms, using lower cost resources – also improve quality.

I became a GC in 1988 at Solbourne Computer (part-owned by Panasonic, a quality pioneer), and then at Synopsys, a fast-growing Silicon Valley software company working with customers like Intel, HP and Cisco. We started OnRamp with support from Cisco and the General Counsel Roundtable as a legal department operational management platform to (i) connect people & information in a legal department’s extended team, (ii) automate common legal department tasks, and (iii) enable best practices. OnRamp enjoys an insider’s view of best practice to provide affordable, secure, hosted software to make it easy for GCs to reduce costs by improving quality.

There is no one tool to enable GCs to normalize their operations – but rather a set of technology-enabled best practices. By integrating tools and methods, any legal department – ranging from a Global 10 bank looking to improve collaboration across distributed offices to a $300M company needing basic document management – can achieve immediate success without endless planning. This paper will describe how innovative legal departments are implementing legal operations management best practices and why all lawyers will benefit from adopting them.

I. Background – Growth in Complexity Requires Operational Approach to Legal Work.

The past generation has seen dramatic growth in complexity, driven by globalization, technology and regulatory developments. A legal department may employ 300 professionals directly 200 indirectly across outside firms. But many other fields (e.g., software development, R&D, process management, manufacturing) have seen greater growth in complexity, forcing them to adopt teamwork-oriented tools and methods. Law however, remains the province of an individualized, single matter approach to work; in a world of multiple, recurring and related legal tasks, that individualized approach leads to high cost and sub-optimal quality. Just as the FAA couldn’t keep today’s aviation system safe using 1950’s-style tools, so lawyers must adopt new tools and methods to manage increasing complexity.

Law school teaches us how to make and interpret rules, emphasizing cleverness and complexity, but GCs must manage rules in complex environments, emphasizing consistency and simplicity. Modern GCs need a systems or operational orientation to complement a lawyerly intellectual and advocacy orientation. According to the General Counsel Roundtable, “the largest skills gap for GCs is in operational effectiveness, especially technology innovation.” According to Jeffrey Carr, General Counsel of FMC Technologies, “GCs are executives with legal training who manage teams to achieve objectives.” Jeff’s approach clearly seems to work – FMC has reduced legal spending to less than .2% of revenues, at the same time delivering superior outcomes.

While experts like Cynthia Dow of Russell Reynolds say “successful GCs differ little from non-legal executives “ the relative performance gap among GCs is quite large. Why?
  • GCs are extremely busy and don’t have the resources (including IT support) to make changes;
  • Law department tools (e.g., matter management, document management or contracts management) are control-oriented, not productivity enabling;
  • Law firms emphasize incremental complexity and are not especially change-adept; and
  • Law schools remain focused on legal theory and offer little in terms of improving practice.

But now the “New Normal menu” is now widely understood, and tools available to easily implement change, addressing the inevitable resistance. The first step is to identify clear ideas of possible change based on business priorities, and then begin with pilots to solve real problems and lay the foundation for ongoing change. Lawyers should avoid oscillating between naïvete (“we’re doing a great job…how could anything be better?”) and boiling the ocean (“let’s have an artificial intelligence system that can answer all the board’s 16(b) questions”). Effective application of these best practices should result in at least a 15% reduction in legal spending with improved outcomes and client satisfaction.

II. Legal Department Best Practices

If, in Tolstoy’s much quoted aphorism, “happy families are all alike, every unhappy family is unhappy in its own way,” then perhaps we can say all happy legal departments apply the same mix of best practices to deliver better outcomes efficiently, and all unhappy legal departments are adept at explaining why high costs and not-so-good outcomes are uniquely not their fault. Here are five key best practices:

1. Clear focus on outcomes through project management and feedback. High performing legal departments focus on outcomes, supported by project management and feedback. Law firms organize around “matters,” a construct created for purposes of managing bills & conflicts; GCs focus on projects and processes. A project can be very large (“acquire Acme Global Widget”), very small (“provide exit letter to former head of marketing”) or a subset of a larger project. A process can be thousands of the same thing (creating NDAs) or the many, predictable steps of a large project (creating the 10-K). Candor requires us to acknowledge that organizations are often purposefully vague about intended outcomes in legal matters because clarity would require greater accountability all around; that said, clarity in objectives leads to better outcomes efficiently delivered.

High performing GCs are implementing a lightweight, web-based version of project management, identifying the more significant activities for which they (and the law firms they supervise) are responsible and capturing simple information fields (which can be customized by company) like intended outcome, key resources, assumptions and milestones. This information can be captured in a web-based form and updated periodically. The key metric will be “how close did we come to the desired outcome?” which will likely combine subjective and objective elements.

Feedback supports project management. As Bill Henderson from Indiana University Law School has written, the most effective way to improve the performance of lawyers is through specific and actionable feedback. Clients should provide feedback regularly to lawyers engaged in their matters. High performing legal department don’t simply try to select the best outside lawyers, but to get the best performance they are capable of and find ways to continually improve that performance.

2. Structuring repetitive activities. Much legal work is highly repetitive (since it is rooted in common rules and practices) and so somewhat predictable. And while legal teams sometimes like to create complexity, business clients (e.g., sales and finance) want predictability, speed and transparency. Whether it is many similar contracts in a particular area, the recurring process of creating a 10-K, the steps in completing an M&A transaction or e-discovery, law has many predictable elements. (Law firms, with their “one matter at a time” orientation and only partial insight into what’s happening across the company, have a strong tendency to “re-invent the wheel.”) One critical requirement for streamlining is to make clear where authority lies for different decisions – ambiguity in authority is at the root of many disjoint processes. Contracts of all kinds are the most obvious place to find opportunities to streamline repetitive work, but conventional contract management deployments don’t deliver the promised benefits because they are system-centric, not lawyer-centric. Savvy legal departments are defining the steps in their high volume contracts, creating focused, lower cost teams to do basic negotiations with structured escalation, and giving the sales teams “read-only” access to see what’s going on and improve their satisfaction. Companies like HP are accelerating cycle time, improving quality, saving money and transforming the perception of the legal department with this approach.

3. One team orientation. High performing legal departments adopt a one-team orientation. Using web-hosted systems for global access, they can organize and access information on a common platform for documents, communications and collaboration between inside counsel, outside counsel, and other key stakeholders. By consolidating information in one place, sophisticated GCs create a database of expertise captured through rich profiles, capturing work and communications on a common platform.

4. Aligned fee structures. Outside counsel spend ranges from 30-70% of legal budgets. The billable hour is not the root of all evil, but it does tend to focus on activity and input, rather than outcomes, and is unlikely to lead to much change in service delivery models. Different companies are employing slightly different variations of non-hourly fees; given the inherent inefficiency in the hourly model, every company employing some variant is confident that it is getting superior results.

The best model for performance-based fees is FMC Technologies’ ACES model. For significant projects (typically litigation or larger deals), FMC will compile information about the project and share with its preferred panel of 3-5 outside firms. The firms can then bid on the key elements– result, time to resolution, legal fees, cost (or other quality measure) of resolution, other elements of client satisfaction. FMC can select any bidder (not necessarily the low one) and will then pay a bonus based on over-attainment of the intended outcome in relation to the projected fee. This model aligns the firm’s incentives with FMC, forcing firms to think through how to achieve the intended outcome as efficiently as possible even in the face of imperfect information.

5. Use of lower cost resources. The most significant new players in law are the Legal Process Outsourcers (LPOs). Built on a model that has proven successful in IT, business services and manufacturing, LPOs handle the highly repetitive “process” work that constitutes much of the load for legal departments and firms, and do so with formal processes and metrics to ensure quality. LPO operations can be off-shore or onshore, and can be “black box” (fixed set of work managed through a Service Level Agreement) or “utility” (integrated as the managed service or Center of Excellence of legal departments and law firms). Since most legal departments are headcount- as well as budget- constrained, and often pay a large premium to have repetitive work done through a law firm, they can materially reduce spending by shifting some of that work to LPOs.

Some operationally sophisticated legal departments like Cisco have been able to create their own “captive LPO” which facilitates the utility model, but for most companies that is not feasible, and they will be better off working with a third party LPO. Best practices in working with LPOs include
  • Establishing clear performance criteria;
  • Selecting a sole source or primary LPO provider;
  • Following a “utility” or Center of Excellence model, integrated into high volume processes ; and
  • Encouraging panel firms to standardize on the same LPO to integrate processes and hand-offs, maintain consistent quality and avoid possible conflict.

III. Getting started on closing the gap

Every law department can improve quality and efficiency by implementing best practices.

1. Common, hosted platform. In order to work as one team, your inside and outside lawyers must have common access to documents, workflow, and collaborative tools. The system must provide permission controlled access to documents and information on the site, and meet stringent corporate security standard.

While some law firms may offer an extranet, they are limited to that firm’s matters, while the company’s systems are not accessible to outside counsel. To realize quality and efficiency gains, lawyers must collaborate across all four boundaries in a legal-department centered mode:

a. Inhouse lawyers - inhouse lawyers
b. Inhouse lawyers – clients
c. Inhouse lawyers – firm lawyers (including across firms); and
d. Inhouse lawyers – LPOs

2. Project management and feedback. GCs can jumpstart project management and feedback with a mix of large projects and very repetitive processes, while doing feedback periodically. Benefits include:
  • Making objectives explicit will clarify goals and dependencies, improving quality and efficiency;
  • The GC can have better visibility across all projects to manage more effectively;
  • Improves alignment with and satisfaction of internal clients;
  • Consolidates communication already happening via email and management reporting; and
  • As your law firms implement project management, they can feed into your system; if they haven’t, this will serve as an incentive to improve their capabilities.

3. Streamline Contracting Processes GCs can transform their service delivery and internal reputation by streamlining contracting processes, turbo-charging low complexity sales or procurement contracting. Sales organizations don’t want to control contracting, but they want to make sure deals get done quickly
and predictably; procurement organizations are repeat clients who can make a lot of the contract-related decisions themselves, but where the boundary between legal and procurement is often fuzzy, and the legacy deals (and operative precedents) are often quite disorganized. Legal departments can implement playbooks, capture precedent both preferred and alternative at a clause, geographic, counter-party or business group level, and make clear who gets to decide what.

4. Consolidating Information and Collecting Meta-Information Key legal documents (chiefly, but not only, contracts) should be available in one searchable repository, and legal departments (and key clients, including auditors) should be able to access relevant meta-information.

IV. Enabling Change with OnRamp

Perhaps your legal department is one of those that has executed best practices across the board and has little or no room for improvement. If so, congratulations.

More likely, you spend much of your time fire-fighting, and accept the occasional jibes from the CEO or CFO for the “specialness” of law, but generally are viewed favorably because you’re more efficient and business savvy than your law firms, and effective in responding to challenges across the company.

Either way, you’ll benefit from learning more about best practice from other GCs, and putting in place and beginning to execute a roadmap for continuous improvement around legal operations management with buy-in from your clients, your key stakeholders and your team. There’s no shortage of content:
Please contact Sylvia Nessan This e-mail address is being protected from spambots. You need JavaScript enabled to view it so we can show how it’s easier for you and your team to get ahead of these changes than to wait for them to be imposed on you. Like all of us @ OnRamp, Sylvia is passionate about helping GCs save money by improving quality.

Last Updated ( Monday, 13 August 2012 11:59 )  

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