Kevin van Tonder, Director, Cognia
The in-house legal team legal operations model was initially developed as a means to reduce outside counsel spend. It subsequently evolved into trying solve the challenge of legal functions not being aligned with the business – that is, how can the legal department bring strategic value to the business?
As a result, the lawyers end up dealing with the complicated legal issues and operational/ commercial experts sort out the numbers and implement software to help lawyers manage their budgets and tech stack. This is a bit of an oversimplification for illustration purposes, but nevertheless, in this department, the lawyers are still very much in command – more Batman and Robin and less Cagney and Lacey. For the Millennials more Walter White and Jesse Pinkman and less The Avengers.
Striving for a competitive advantage
After the Financial Crisis, and now even more so as we head into a post-Covid world, legal departments need to reinvent themselves in order to bring real strategic value to the business – to be a competitive advantage. But the legal operations model, in its current form, is not that re-invention, although it has played a crucial role in shifting mindsets. The time is right for the legal operations model to evolve from a supporting act into a leading role. And I am not talking about creating new boxes, shifting around existing boxes and adding dotted lines. I am talking about instilling the spirit of legal operations into the entire fabric of the legal department operating model. You see, the problem with legal department value, effectiveness, and efficiencies is not a legal advice problem. It is a management problem.
It’s a management problem
A transformed legal function is one in which the provision of legal advice and services to the business is paramount. Provision or delivery in this context looks at things like:
- How is a legal department structured and is it optimised to support its internal stakeholders?
- What are the capabilities of the legal team and are those capabilities aligned with business needs?
- What processes does it use and how integrated are they in the main end-to-end business processes?
- What technology does the legal department use and how is the data which the legal department generates utilised within the systems used by the business and vice versa?
- Do the legal department performance objectives support the main KPOs of the business?
A legal team can contain the best legal minds in an industry, but if they have poor technology, have no real processes to speak of, or those processes are not aligned with the business at all (ivory tower or siloed thinking), the organisational structure is optimised for the lawyers not the business, then providing those services to the business in the most efficient and cost effective manner is not going to happen.
The reinvention – a future-fit legal department
So, how does the spirit of legal operations inculcate itself into legal target operating models that are more like The Avengers than Batman and Robin? Firstly, in this model the function is headed by a lawyer who has a seat at the table because of their strategy, engagement and management skills as well as their knowledge of the business. Legal advice to the business is merely one of the many components that needs to be managed in addition to external and internal stakeholders, processes, technology and data. In this model the lawyers, technologists, financial professionals, etc. are equal components of a multidisciplinary legal department, fully aligned with the business and optimized to deliver. This is critical because a legal ecosystem exists within a larger business context that is volatile, uncertain, complex and ambiguous. Lawyers need to shift their thinking from solving legal problems by giving legal advice to solving business problems in which legal technical advice may only be one component.
The Practicalities
Let’s use commercial contracting as an example. This contracting is the lifeblood of the business and for the purpose of my argument, I will keep the definition narrow and focus only on sales and supply chain contracts. A traditionally-minded legal team will view their role in the commercial contract lifecycle as the legal risk custodians and gatekeepers. Efficiency or review turnaround times might not even factor into their thought patterns, since the overall objective is to allocate, reduce or eliminate legal risk. It takes as long as it takes. Even if the team considers itself as business enablers, it may still only consider turn-around times as a key metric that needs to be measured and communicated to the business. Having achieved a few percentage points improvement YOY, they sit back firm in the belief that they are on the right track.
But the reality is that, although legal considerations are of fundamental importance, commercial contracts represent economic arrangements. Documenting these arrangements is their primary purpose. Their management (which is a lifecycle activity) has to be approached with a systems thinking mindset i.e. the lawyers have to be mindful of the legal ecosystem but also the wider business context. But the default position of the legal team is to allocate risk. It is easier to do this than to support the business to build contractual relationships that reduce the possibility of risk occurring in the first place. For example, why constantly negotiate the allocation of certain risks in the contract when working with the operations team could provide a solution where an operational procedure for a piece of work is put in place which has a number of checks and balances that can substantially reduce the likelihood and/or severity of a risk occurring? The residual risk that remains is something that can be insured against or can be priced into the agreement. In such an event, a belt and braces approach in the legal terms is just an impediment to business.
Furthermore, why is it that, when faced with commercial contracting inefficiencies and commercial ineffectiveness, lawyers think that the only solution is to throw more lawyers at the problem? More internal headcount means more work can be done, right? But what about process? What about the operating model? Where are the critical management considerations of value vs cost? Where is the business-legal ecosystem design beyond merely replicating a law firm model in-house where the business asks and the lawyers bless them with their wisdom? Where is the scaled-solution thinking? Why isn’t the ‘right person for the right task’ more prevalent in this thinking?
This is going to be unpopular, but as CEO or CFO, if you take a law firm partner out of private practice after a number of years and make them the GC or Chief Legal Officer in your business managing a team of lawyers, guess what? You are more than likely going to get a law firm practice group operating model in your business, so don’t be surprised. “If you always do what you’ve always done, you’ll always get what you’ve always got.”
Tough questions
If we want to do something about the legal department disconnect with the business, the leadership of the legal department has to ask some tough questions that goes beyond merely adding a few legal operations boxes to the current org chart:
1. How can we develop leaders of legal departments to have management skills that are seen to be just as important as their legal prowess? What other professionals can we bring into the department to help address and commercial or management competency gaps in the function?
2. How might we design the legal department so that it is better aligned with the business? For example, should commercial contracting reside within one team, optimised to support the sales and sourcing cycles in the business not just legal risk allocation?
3. Do we really need to over-lawyer all our BAU commercial contracts, increasing complexity and transactional costs?
4. Does the legal team work with the business to operationally avoid or mitigate risk in order to speed up contract negotiations?
5. How do we scale an operating model and new way of working so that it can account for upturns and downturns in the business or peak contracting periods each year? Can we scale yet still reduce structural costs and legal spend? At the end of the day, the legal department is a cost centre and it has to manage itself like one;
6. How do we use tools like Lean Six Sigma and Agile to build and improve processes and workflows and how do we build legal delivery in respect of commercial contracting, as an example, into existing end-to-end business workflows?
7. How can technology support this operating model? Not the other way around.
8. What insights does the business want from its commercial contracts and therefore what metrics will be needed to elicit those insights? What data points will help build these metrics and where do we find them?
Conclusion
In conclusion, the law and in-house legal resources can be a source of competitive advantage if thought about strategically and not merely as “grudge purchase” by the business. This is because legal problems are business problems. They require business solutions. This is done through the partnering of the in-house team and management to achieve the strategic goals of the business. When this is achieved through a transformative approach, the intersection of law and competitive advantage shifts from being seen as a resource burden and ends with legal resources helping to transform the operations of the entire organisation.
