When it comes to innovation in a legal department, no one area may need innovative practices more than the management of expenses and setting of budgets.
In fact, James Merklinger, vice president and chief legal officer at the Association of Corporate Counsel (ACC), says that legal departments are increasingly expected to be run as efficiently as other parts of the business.
That means seeing legal departments not as expenses for the entire company, but as part of a business which can lead to revenue by using appropriate management practices.
“The legal profession is catching up with other business units,” Merklinger says, adding that increasingly legal departments are “more and more operating as a business.”
One common trend is that legal department budgets are not increasing—so work needs to be done “more efficiently and effectively,” according to Merklinger. “You always have to do more with less.”
An example of finding increased efficiency can be seen, for instance, at Hewlett-Packard Co., where the company's legal department employed a contract management system. The system shows where the contract stands in getting approvals and signatures, as well as other steps in the process. By not getting held up at any of the company departments, the contract tracking process will allow the company to start earning money quicker.
Moreover, in-house lawyers now need to work more on project management.
Given these goals, what is Merklinger's key management advice for legal departments in 2016?
Focus on knowing the business of your legal department and where you are spending your time and allocating your resources.
And prioritize what has to be done. Metrics can help in the management process, and there should be “predictability” in budgeting, he says.
An example of innovation as applied to budgets can be seen at the initiative developed by Stephanie L. Sciullo, associate general counsel for MSA Safety. MSA Safety's lean legal initiative was inspired by the company's lean manufacturing initiative.
It focused on—among other matters—routine aspects of litigation. To find appropriate recommendations, in-house counsel and outside lawyers mapped out routine activities. Examples include administrative matters, the settlement process, opening up a lawsuit, as well as the invoice approval and review process for outside counsel.
By finding more efficient ways to handle these routine processes, “the more attorneys can focus on legal issues and strategic issues,” Sciullo says. In fact, law schools tend not to even teach these kinds of practice management issues. But she actually teaches the subject in a course known as “In-House Counsel in Modern Corporations” at both the University of Pittsburgh and Duquesne law schools.
But even if other law schools tend to ignore these topics, business in general is aware of their importance. She advises other legal departments interested in bringing more efficiency and focus to their management practices to “jump right in.”
“Just start somewhere,” she suggests. That means do not be afraid to make improvements just because the amount of comparative data for a baseline is not yet refined. In fact, sometimes you can have too much data from which to compare numbers.
Another key piece of advice is do not assume you know how something gets done. Instead, ask a lot of questions and observe how things are achieved. That means talk to everyone involved.
As you watch a process, keep an eye out to avoid duplication of work where two or more people are doing the same thing, she adds. Also, perhaps there is an electronic way to achieve something as an option to a multi-step manual process.
That is just part of the overall effort to eliminate unnecessary work.
For instance, based on her experience defense attorneys kept multiple litigation databases. The same documents needed to be uploaded multiple times. But, by using efficient management techniques, MSA consolidated the documents so there was one platform with cloud storage. Manual processes were re-automated and claims were processed electronically. As a result, it became easier to retrieve data and compile reports.
By using these methods, MSA was able to save a lot of money. And the initiative was recognized by peers with MSA and the Reed Smith law firm being named an Association of Corporate Counsel Value Champion in 2014.
More advice comes from Stephen Roth, vice president and general counsel at Jewelry Television. The company has an eight-person legal department including four lawyers. Roth says the department has “appropriate” risk management on the front end so litigation on the back end is minimized.
He says they choose their outside law firms by expertise and price. Often, though, the department opts for regional and local firms “matter by matter,” Roth says.
Overall, their strategy is to minimize the use of outside counsel by bringing repetitive work in house. They match the task with the appropriate in-house attorney based on the lawyer's particular expertise. For instance, contract review and contract drafting are done in-house, usually, as are review of intellectual property issues and most trademark and copyright work.
Given the cost of outside counsel, it comes out more favorably to bring these kinds of matters in-house, especially if it is repetitive work. Even when going outside, Roth says the department does not need to go to the most expensive law firm in the nation. In fact, he says companies may actually get more “credibility” with judges if the company uses regional firms.
“This will continue to be a trend for us,” Roth says.
From his vantage point, Roth would like to see more feedback from the outside law firms advising his company. There is not frequent guidance on emerging issues that could impact the company. Firms that do provide that kind of advice regularly show, “They are truly interested and get our business,” Roth says.
Among his advice to other companies, is to ensure legal involvement in a business is proactive and ongoing, rather than a “reactive measure… just when there's a problem.” And when the company is considering expansion into a foreign market, legal departments need to be involved in the discussion early on.
Moreover, legal teams need to not think of themselves as “cost centers,” Roth said. But instead look at themselves as adding to revenue and how they can help to minimize expenses. Examples are when there is litigation recovery or licensing agreements.
When figuring out where to spend money in connection with legal costs, it is important not to forget advocacy efforts—which can help save money in the long run.
Todd Etzler, general counsel and vice president of Public Affairs at Family Express Corp., who is also advocacy chair at the ACC, advises that, “Advocacy is absolutely necessary…. There are a lot of things that happen federally and locally.”
Sure there are national or regional associations of companies or professionals. “The associations have a place,” Etzler explains. “But the associations have very little impact if legislators don't know who the people behind the associations are.”
Eventually, state and national legislators will see company officials as resources who they can regularly turn to, so they can help identify potential issues. Companies also may want to use lobbyists to help get them in front of regulators or legislators.
“They’ve got to know who you are,” Etzler says. “If they [legislators] see you there every year [during legislative sessions]—helping them with industry issues—you become a resource for them.”