July 31, 2023
As costs balloon and budgets shrink, it’s crucial to master the art of managing legal spend. While in-house lawyers are notoriously adaptable to the evolutions of company life, the unpredictability of legal costs can have a devastating impact on a business. In this article, we address 6 strategies for keeping your legal spend under control and outline how you can balance effective legal support, with predictable costs.
To describe this year as financially tumultuous would be putting it lightly. Inflation rates have reached eye-watering heights, company overheads have ballooned, and for the legal industry, timekeeper rates have increased by an average of 5.5% in the first quarter of 2023. As the highest rate increase since the 2008 recession, the writing is on the wall: times are tough for in-house legal teams.
For those tasked with managing an in-house function, the challenge has never been greater. In addition to shouldering risk, driving strategy, and appeasing the board, in-house lawyers face an uphill battle in keeping legal costs under control.
That challenge is compounded when research from KPMG indicates that “75% of CEOs believe their legal functions do not deliver sufficient value to justify the time and money spent.”
For a function that often acts as the unsung hero of a business, shielding it from risk and propelling it towards opportunity, it’s a tricky spot. The work you do is critical, but you’ve never had less time, less money, and less faith, to get it done.
So what’s the solution? How can In-house lawyers manage legal spend - particularly in financially tight times? Similarly, how can in-house teams communicate their value, to justify the time and money spent on their function?
Below, we tackle 6 strategies for managing legal spend, from establishing clear boundaries to implementing new processes and reviewing your approvals framework. Pulling on years spent as in-house lawyers ourselves, we provide key insights towards reducing legal costs.
So, without further ado, let’s get started.
Let’s start as we mean to go on. Any external legal support should act as a bolt-on team that eases your load, in a financially predictable way that won’t bleed your department dry. That’s why crystal-clear expectations are essential when it comes to managing legal spend. In fact, this is one area where it’s best to go into exhaustive detail.
Many firms will have a host of processes in place, in addition to day-to-day norms they may not feel is worth discussing. However, that can mean clocking up fees for work that you firstly haven’t authorized, and secondly, haven’t budgeted for. It can also mean paying for services that were never communicated in the first place. While for many other industries, this would be unthinkable, in law, external providers can frequently take the lead, conduct work, and invoice for matters - without having sought the approval of the client. Put simply, it's a recipe for frustration, spiralling costs, and the erosion of any future professional relationship.
When beginning the relationship, set clear expectations, define your approval process for work, and get it in writing. Don’t be afraid to continually check in on these expectations and map each of these against a previously agreed budget.
From the outset, be clear, be direct, and expect consistency from your external provider.
You’ll thank yourself when you avoid surprise invoices, lapses in communication, and boundary oversteps.
Once you’ve established your expectations and boundaries, it’s important to embed a process that exposes your business to regular fee updates and breakdowns. This can be a phenomenally useful strategy, both for managing legal spend and managing your relationship with external providers.
If external providers appear to be vague on the breakdown of their costs or are reluctant to give regular fee updates, alarm bells should be ringing. Any well-oiled, reputable law firm should embrace the process, as it also helps them to manage expectations, and clearly communicate the value that they’re providing for your business.
Define the scope of your budget for an expected period of time, figure out the regularity of fee updates that would best benefit your business, and only work with firms that can readily provide detailed cost breakdowns. Anything less, and you’re putting your legal function, and your sanity, at risk.
A deceptively simple, but particularly impactful solution can be the implementation of a “Legal Front Door”. In its simplest form, this is a tool that streamlines the process of company members requesting legal work from an in-house function.
A legal front door can vary wildly in format, from exhaustive company intranets to help-desk automations to a simple word document. Your legal front door doesn’t need to be complicated, you just need to ensure it serves its purpose: to minimize wasted time, control legal costs, and focus the efforts of your in-house function on the most impactful legal work.
At its most basic, your legal front door should:
While a “legal front door” is often used in an employee-to-in-house-lawyer context, it’s not as commonly thought of when dealing with external counsel. However, it should be.
A lot of time and resource is wasted in back-and-forth requests between an in-house team and external counsel. Similarly, without a clear process in place, work can end up being outsourced when it would have been better managed in-house. In other words, a waste of funds.
By setting up a legal front door, you define a reliable process for receiving, distributing, and recording the right legal work. In other words, a win-win for both sides.
Another useful strategy for limiting legal spending is empowering team members to self-serve when it comes to certain legal matters. While there are countless requests best left within the in-house legal function, there are always routine matters that have little value, or impact, on the business. Worse yet, these ad-hoc requests take up a chunk of your time, keeping you from impactful projects that go to far greater lengths to communicate your value to the business.
While empowering team members to self-serve can take an initial investment of resources, it’s time well spent. By creating templates, contract playbooks, and educational resources, you not only fuel the resolution of countless legal matters - you do it without needing to physically be present for it.
While there can be scepticism surrounding self-service, done right, it can make the lives of in-house teams dramatically better. Ultimately, your self-service process should allow you to automate repetitive tasks, embed compliance controls that mitigate risk, and reduce the workload of your legal team.
Efficiency is something that startups and large-scale organisations alike struggle with. However, legal departments are often particularly burdened with processes and systems that grind progress to a screeching halt. Perhaps you’ve inherited ageing case management software, considered “state-of-the-art”... in 2001. Perhaps you’re forced into ineffective workflows and a convoluted chain-of-command, simply because “that’s always how it’s been done”. Perhaps your days are spent on repetitive low-value tasks, clambering for time while business-critical projects continue to pile up.
It’s not ideal, is it?
Some businesses can be resistant to change, fearing it’s an expensive waste of time. In the case of legal inefficiencies, however, it’s a waste of budget.
Take the time to interrogate your internal systems and processes, and dissect just how effective your legal operations are. You may find that an upfront investment in new workflows, new systems, and new processes will increase the capacity and productivity of your team tenfold.
Finally, we reach perhaps one of the most infamous of bottlenecks: your governance and approvals framework.
While as lawyers, it’s partly our responsibility to act as bottlenecks, that doesn’t mean every blocker is in the best interest of the business. For example, do you need to review every matter? Is there room for a risk-based approach when it comes to certain tasks? For example, can you set a standard for NDAs and low-value contracts, communicate these standards to the team, and carve back much-needed time?
Take the time to probe into your approvals framework - where is your time most frequently lost? What is the value of that time lost? And importantly, how does it compare to the value of the matter?
You may find some matters sit in limbo - requiring reviews as a consequence of their risk factor, but ultimately, low-value to the business in their current state. In these instances, it's worth creating a link between your in-house function, and your external legal provider, to ensure you’re only focusing on valuable work.
With a competent provider, you should be able to outsource routine matters, like employment contracts, customer and supplier contracts. This same provider should make costs predictable, to guarantee your resources are being used effectively.
The goal here is to maximise the value of your in-house function while optimising the impact of your department’s budget.
Life in-house can be tough - but it doesn’t have to be. We exist to lighten the load, focus your efforts, and boost the impact of your team. More importantly, we provide support with transparent, predictable, and manageable pricing - built around your needs.
Think you could do with a helping hand? Discover how we support in-house teams such as Truelayer, Multiverse, and Onfido.