Since the first Law Department Operations Survey was launched in 2008, LDO directors have seen many changes. The economy has had staggering implications for in-house counsel, law firm attorneys and business people alike. Many organizations have begun to fundamentally rethink how they manage the legal function. Judges and lawyers have had time to digest the revised Federal Rules of Civil Procedure, and the concepts of defensibility and repeatability have become ingrained in the discovery process. Political parties in Washington have traded power. While the last few years have been particularly turbulent, legal department operations directors have also become more established in their positions, with a track record to prove the value they bring across the organization. Of course, no one in today’s business environment can rest on their laurels, and LDO professionals understand that. It’s all part of the evolution of the pressure and responsibilities that everyone in corporate law departments face today, not just those responsible for operations. “It used to be that managing risk was the major focus of the legal department, and containing costs was less of a focus,” says Brad Blickstein, principal of Blickstein Group, the co-publisher of the Third Annual Law Department Operations Survey. “The importance of controlling costs hasn’t become more important than managing risk. Now it is a risk to not control costs.”
This is part of a major rethinking of the legal function for in-house attorneys and staff. For the second year in a row, respondents ranked driving/implementing change as the top challenge of their position. In 2010, just like in 2009, identifying opportunities for improvement was the second greatest challenge. But just as the challenges exist, so do the chances to make a real impact, says David Cambria, chair of the Law Department Operations Survey Advisory Board and director of operations of the law department at Aon Corp. “Legal department operations directors are perfectly situated to help guide attorneys and business people through these turbulent times,” says Cambria. “They can bring both their legal knowledge and their business skills to the table.”
Indeed, respondents recognize that the most important attribute for managing law department operations functions is business acumen, followed by legal department knowledge. Being able to balance legal ramifications, quantitative information and intangible benefits are critical skills, according to Blickstein. “Operations directors are seriously challenging themselves to drive change. They can do it through the hard numbers and the data,” he says. “This is where the ability to identify key performance indicators is so critical, and where professional management really pays off.”
Aaron Van Nice, director of operations for the Baxter International Inc. legal department and a member of the LDO Survey advisory board, agrees. “We are trying to lead the charge. We want to implement changes that help us focus on the highest-value work.”
Measuring and Managing
At Baxter, that involves an increased use of goals and metrics, so the legal department has strategic plans with identifiable goals, Van Nice says. The future emphasis on hard data in the legal department also presents an opportunity for attorneys to manage to the same type of objective criteria their business counterparts have long been subject to. “At the end of the day, the legal department may have been more focused on qualitative goals, and there was a sense that the attorneys could subjectively accomplish the goal,” Van Nice says. “This will bring us more in line with the business.”
Making critical use metrics and reporting can help operations directors make their cases, according to several experts. However, it’s not an easy concept to introduce in some legal departments. Fewer than half of the respondents have a formalized metrics reporting program. But of those who do, 70 percent feel they make effective use of the information it provides. And the great majority, 90 percent, say that metrics/reporting is one of the ways in which the success of the law department is measured. More than half, 60 percent, have plans to improve or change their metrics/reporting program in the next 12 months.
The most popular indicator that respondents track is legal spend as a percentage of revenue and total expense; another 70 percent track both total cost of outcome and total expenses by firm for particular groups of matters.
The difficulty some legal departments obviously face when it comes to devising and using meaningful metrics doesn’t surprise Heidi Rudolph, vice president, government and legal affairs at the law department at Sara Lee Corp. and a member of the LDO Survey advisory board. “Many departments aspire to having metrics, but the reality of legal is that metrics are not so easy to devise,” she says. Rudolph points out that while a business unit can measure sales against the prior year, for example, legal departments deal with less quantitative issues, such as the value of prevention.
“While financial metrics such as percent to budget are not difficult for legal departments, it is nonetheless challenging to measure the aspects of legal that really matter,” she says. “Measurements for prevention, client service and quality of legal work present a need for more creative metrics development.”
It may be that legal departments haven’t unlocked this “secret,” she says. But Blickstein urges operations directors
to try to do just that. “Operations directors need to be able to conduct cost-benefit analysis, and it’s not just with finances,” he says. “They need to be able to explain how changes and improvements can minimize risk or save time or preserve political capital within the organization.”
Keeping an Eye on the Bottom Line
The hard numbers still matter, of course. In the 2009 LDO Survey, controlling costs were a major concern for respondents, and that has not changed in the last year. “The economy has affected everything, not just legal departments,” says Jeffrey D. Paquin, divisional vice president and chief operations counsel for Abbott Laboratories and a member of the LDO Survey advisory board.
But this is another area where professional managers can lead the charge. Consider alternative fee arrangements. While law firms may pay lip service to the idea of moving away from the hourly rate, very few outside counsel are actually proposing new ideas. According to survey respondents, more than 90 percent of the time, it’s those in the law department, not outside counsel, who set up alternative fee arrangements. And legal departments are eager to break away from the hourly billing rate. Most respondents have tried a fixed-fee per matter approach, and half have experimented with paying their outside counsel a flat fee to handle all matters in an area. Other popular approaches include volume discounts and a flat fee by matter stage. Legal departments are also increasingly trying a contingency fee rate with their outside counsel, according to survey respondents.
But even as interest in new approaches continues, implementation remains a challenge—the majority of respondents cite either a lack of data or the unpredictable nature of matter activity as the biggest impediment to using alternative fee arrangements. This is another area where operations directors can step in. “Up until now, most law firms have dictated their prices, and legal departments have generally paid those prices,” says Blickstein. “If corporate legal departments are setting the prices on alternative fee arrangements, determining how much they are willing to pay and on what basis they will pay, then the law department operations director becomes one of the most important people in the room.”
As their position becomes more important, operations directors are becoming increasingly knowledgeable as well. Among respondents to the 2010 survey, more than half have a J.D., and almost 30 percent have either an MBA or are CPAs. “Lawyers are recognizing that legal department operations is more of a career path,” says Paquin.
Law department operations are also being given the freedom to explore new processes and technologies, even in tough budgetary times. Among survey respondents, 64.2 percent are planning initiatives during the next 12 months to improve their discovery process, and 56 percent plan to improve or evaluate a new matter management and/or e-billing system in the next 12 months.
Their chain of command has also moved higher up—among respondents to this year’s survey, 44.1 percent report directly to the general counsel, while 27.1 percent report to a deputy/associate/assistant general counsel (another 10 percent report directly to the CEO). In last year’s survey, 37 percent reported to the GC.
In difficult economic times, legal department operations directors can provide real value. Nearly 10 percent of survey respondents said their positions were added in 2009, and nearly 13 percent of their positions were created in 2008. But while there has been growth in numbers, who is hiring varies across companies and industries. There are still many opportunities for legal department operations directors to bring improvements to processes, procedures and technologies. About half of the respondents estimate their company’s legal spend would increase 11 percent to 50 percent without a legal department operations director. Another five percent think costs would increase 51 to 100+ percent if they weren’t in their positions. But no matter what happens with the economy, in Washington, D.C., or with law firm billing rates, legal department operations directors will continue to face new and exciting challenges. “Change is the norm,” says Paquin of Abbott.