Bottom line remains top of mind

Five years after the beginning of the financial crisis, the bottom line remains top of mind for legal department operations managers and their teams, according to respondents of the 6th Annual Law Department Operations Survey. This focus on taming expenses allows LDO managers to quantitatively demonstrate their value. Yet with their focus and energy spent on budgets and costs, LDO managers may have less time to demonstrate how they provide value in other ways.

“Cost containment provides an easy way to tie what LDO managers do to the value of the organization,” said David Cambria, Senior Director, Enterprise Information Management at CDW and Chair of the Advisory Board for the Law Department Operations Survey. “But we also need to quantify and measure the work we do in other areas, since the most value is absolutely there.”

This year’s survey covers a wide range of topics about the ever-expanding role LDO managers play. Many of the respondents keyed in on budget-related issues and challenges and how costs drive much of the work of legal department operations. However, many of those cost containment issues take place alongside other valuable activities that LDO managers undertake.

For example, when asked about the greatest challenges in managing legal department functions, respondents pointed to driving and implementing change as their single greatest challenge.

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Identifying opportunities for business improvement and cost savings tied for second. Managing a budget was next, followed by a six-way tie of obtaining funding; staying abreast of law department technology; managing current technology; documenting ROI of the position to the corporation; and managing a staff.

“While managing the bottom line can help law department operations managers prove their worth, the relentless focus on costs can drive out the ability to increase value and ROI through strategic initiatives, thoughtful processes and long-term effectiveness,” said Brad Blickstein, Principal of the Blickstein Group and publisher of the Sixth Annual Law Department Operations Survey. “The job of the LDO manager is about so much more than just minimizing expenditures and containing costs. Quantifying that additional value is important.” While respondents are braced for financial pressure to continue for the foreseeable future, they are highly focused on other areas as well. When asked about their biggest challenge for the next one to three years, containing or reducing legal costs was on the minds of the greatest number of respondents, followed by in-house talent development and retention and compliance matters.

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Respondents next ranked identifying key technologies to drive productivity and globalization of legal issues. For this article, legal department operations managers, members of the LDO Survey Advisory Board and industry experts have weighed in on industry trends and their personal experiences, including as part of a special briefing session during the International Legal Technology Association (ILTA) 36th Annual Educational Conference in August.

Cost Containment Approaches

While their jobs are wide-ranging, LDO managers do spend a great deal of time exploring different approaches to reining in expenses. As in years past, many respondents continue to pursue alternative fee arrangements with their law firms, alternative methods of staffing with non-law-firm vendors and outsourcing.

“Cost pressures continue to be a focus of the general counsel and legal department operations professionals,” said Advisory Board Member Jeffrey Paquin, former Chief Operations Counsel of Abbott Laboratories. “One of the most exciting developments in the past year or so to help address these cost pressures and improve operations is the increased use and acceptance of outsourced managed services for all areas of running a legal department and providing legal advice to the organization. General counsel and legal department operations professionals now have a greater number of options to reduce costs and attain other benefits by outsourcing necessary operational and legal services to high-quality consulting firms, vendors and alternative legal service providers that now provide managed services.”

Paquin predicts that outsourcing will play an even larger role in the future to help legal departments achieve their goals.

For many LDO managers, alternative fee arrangements have become standard operating procedure. More than a quarter, 26.8 percent, have been using AFAs for six to 10 years, and more than a third, 35.7 percent,have started using AFAs in the last five years. 

 

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Morethan 7 percent have used AFAs for 11 or more years.

“We are big fans of alternative billing arrangements [at Ford], which we have had in place for about 20 years,” said LDO Survey Advisory Board Member Jon Osgood, Assistant General Counsel & Director — OGC Operations at Ford Motor Co. “Just under half of our legal spend is with alternative billing arrangements, including retainer agreements, flat fee agreements for particular projects (e.g., appeals) and a few contingency arrangements (e.g., affirmative recovery matters). These arrangements are highly effective at containing costs, providing budgeting certainty, placing incentives for efficiencies with the firms to drive down overall costs and also promote healthy long-term relationships.”

Many respondents are also using alternative staffing or non-law-firm vendors for a variety of tasks:

  • 48 percent for document review;
  • 17 percent for contract review; and
  • 12 percent for contract drafting.

LDO managers recognize the value in legal process outsourcing and use it for a variety of tasks: 22 percent use it for document review, 14 percent use it for contract management, 11 percent for compliance and legal research and 5.6 percent for IP prosecutions. 

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Other respondents use legal process outsourcing for a variety of work, including patent preparation, bill payment and subsidiary management work.

This focus on costs has provided the quantitative threshold many LDO managers have relied on in establishing themselves and their departments. Respondents feel that they are paying for themselves. When asked by what percentage they think their company’s legal spend would increase without a legal department operations position, nearly 40 percent said between 11 percent and 25 percent. Another 23 percent said 1 percent to 10 percent and 12 percent said 26 percent to 50 percent.

However, respondents said their strengths extend beyond just number-crunching. While nearly 40 percent consider themselves very effective at finance and budget, more than half consider themselves very effective at overall law department operations management and more than 40 percent consider themselves very effective at intellectual property management and litigation portfolio management.

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“There are some issues that are common to the various practice areas where legal operations directors can add significant value,” said Osgood. “For example, outside counsel conflict [of interest] management, rate negotiation and approval processes and outside counsel selection and evaluation practices, are applicable to all of our attorneys who are engaging counsel, and legal ops directors can be very helpful at establishing common practices in those areas,” he said.

Ford has begun to formally ask its outside counsel firms to evaluate how the in-house team is doing in the litigation management area, Osgood said. The in-house team is not only rated on specific areas such as case assessment and assistance with trial readiness, but the law firms are encouraged to suggest areas of improvement and best practices other clients are using. “The results were very informative, and will drive continuous improvement in our litigation management practices,” he said.

Metrics and KPIs

As in past years, respondents are also tracking cost and spending through metrics and KPIs.

The majority of respondents reported that they have formal metrics and feel they are making effective use of those metrics. When asked which metrics they track, respondents were most likely to answer percent of legal spend as a percentage of revenue and total expense. 

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The second most common metric tracked by respondents was total expenses by firm for particular groups of matters, followed by a tie with average or median bill rate by firm for particular groups of matters and total cost of outcome. However, a third of respondents are using metrics to track compliance and ethics, and 17.5 percent are tracking days to resolution by firm or for a particular group of matters.

Similar to metrics, the five top key performance indicators (KPIs) for LDOs are also geared around finances.

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Respondents ranked their top KPIs in order as: actual spend versus law department’s total budget; total outside counsel spend; law-related expense as a percentage of total revenue: and a tie for total outside counsel and service-provider spend and total cost of outcome. Several respondents are using KPIs for non-finance related information, including time spent, time to completion and the number of clients attended.  

“Most LDO managers would say that metrics are good, but they are not being used to their full extent,” said Kevin Clem, Managing Director at Huron Consulting Group.

The majority of LDO managers generate periodical reports for the GC, CFO or other executives. However they sometimes struggle to get the reports in front of people who will actually read them, according to Blickstein. “People put out reports, and no one asks questions,” he said. For example, 10 percent of respondents said they never produce reports for the general counsel, more than a third never produce them for the CEO and nearly half said they never do so for the board of directors.

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Yet along with focusing on budgets, some law departments have been able to turn themselves into a strategic asset. Rockwell Automation has achieved that, according to Lisa C. Girmscheid, legal department manager in the Office of the General Counsel. By creating a recoupment program, the department can look a little more like a profit center and a little less like a cost center. “Even little things add up — we invite anyone in the company to participate in the recoupment effort,” said Girmscheid. According to Girmscheid, Rockwell Automation relies on outside counsel for some of this work so they report only the net amount of recoupment.

DuPont’s law department has also become a strategic asset. “We’ve done things such as follow up on contract provisions,” said Vincent Catanzaro, Senior Counsel, Global Discovery Manager for DuPont Legal. “Some of those are basic things. For example, when a utility plant goes offline for an extended period of time, we’re often entitled to rate adjustments. We actually follow up on that.” According to Catanzaro, in order to avoid the risk and cost of litigation, the company frequently uses arbitration and mediation.

At Ford, Osgood spends a significant amount of time considering office-wide strategic matters. “For example, to ensure our legal office is properly aligned with the company’s overall business plan, we have an annual process whereby the OGC leadership team lists out our office’s strategic priorities for the upcoming year after conducting a SWOT analysis, and carefully considering the evolving (global) legal environment in those markets where we do business,” he said. “We then update our progress monthly against the key deliverables we generate in each of our strategic priorities, consisting of: effective and empowered organization; zealously advocate and defend; effectively counsel clients; effectively manage risk; deliver financial results; and deliver innovative solutions.”

For those looking to make the shift from cost center to strategic asset, quantitative proof is one way to demonstrate that, according to Blane Erwin, Vice President, Strategic Initiatives at Bridgeway. “You have to be able to answer three questions: Who is doing what? How well? Are you getting value for the level of resource used?” he said.

Such approaches are easier for mature companies with well-established legal departments and experienced operations staff, according to Girmscheid. “You can’t begin to focus on these things if you are still trying to resolve the basic issues,” she said.

Keeping Staff Engaged

Along with the bottom line, many LDO managers are juggling other serious issues. For some companies, talent retention has become a major focus. When asked about their biggest challenges in the next one to three years, respondents listed in-house talent development and retention right after containing and reducing legal costs.

As the LDO profession matures, career opportunities become limited. “Companies are struggling with upward mobility,” said Clem. “There are not a lot of promotion opportunities, so that leaves the question of how to keep people engaged.” He suggests rotational assignments and internal projects as ways to keep employees motivated and excited when promotion opportunities are limited.

Blickstein agreed. “If you were hired as an LDO manager eight years ago, you have to wonder what your career path is. There are not a lot of places for a really effective LDO manager to advance to,” he said.

These limited opportunities for promotion can force people into roles that may not represent a good fit, which can have ripple effects throughout the department. “Attorneys are often promoted to manager because there’s really nowhere else to go,” said one attendee at the ILTA conference. “It’s not necessarily because they are good managers or want to manage other people.”

IT and Security

Respondents to this year’s survey also focused on IT and data. Cyber security is one area that this year’s survey delved into, and it’s an issue of concern for many legal department operations managers. When asked about their law firms’ cyber security provisions in terms of their ability to protect the company’s data, slightly more than 30 percent of respondents rated it as not effective or needs improvement. Another 33 percent deemed it somewhat effective.

Security at law firms represents a worrisome area for many legal departments, according to Blickstein.“I know in-house counsel who are terrified of law firms protecting their data that the law firms have. They have highly sensitive client information, and sometimes legal departments have no idea if law firms are using the cloud or whether a third party has access to their data,” he said.

The survey also honed in on how legal department operations are dealing with other areas of technology. When asked if they have or plan to develop a legal department technology strategy or three-year road map which addresses how they integrate, evolve and replace their  systems to support the legal departments processes and needs, 30 percent said yes, and 53 percent are planning or developing a strategy.

For many legal departments, this involves a holistic approach to IT, according to Erwin of Bridgeway. “More and more, companies are not buying separate pieces of technology,” he said. For example, some companies at theILTA presentation discussed how they are moving away from disparate systems for documents and matters to legal enterprise and Microsoft Office suites.

And while many LDO managers report closer interaction with Finance than their colleagues in IT [Q31], one participant at the ILTA session specifically tries to reach out to his colleagues in that department. “I try to periodically take members of the IT team to lunch, find out what they are facing and let them know what’s up. I call it ‘management by pizza.’”

Despite the challenges, LDO managers have many opportunities, according to Cambria of CDW. “So much of the growth in the profession may be in new offerings that haven’t even been presented to the market. The best thing is, we have the big-picture view on so many initiatives, and we can drive so many of them,” he said.

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