The Tucson Ten
Author: Richard Stock - Lexpert, June 2015 at pg 66
At an Arizona conference, chief legal officers lay out the issues related to managing in-house
FOR THE FIFTH time in seven years, I invested two days at a conference to meet individually with US chief legal officers. Event organizers, such as the Marcus Evans Group, Consero and IQPC Exchange, bring CLOs together with solution providers such as law firms, e-discovery and cybersecurity firms as well as the occasional consultancy. The goal over 48 hours in Tucson was to identify the primary management challenges faced by each CLO.
The companies covered a broad range of industry sectors: renewable energy, insurance, auto manufacturing, cement producers, pet food, national restaurant chains, cloud hosting and camping equipment. All of them, however, drew annual revenue in excess of $1 billion.
Of my 15 meetings, six were with foreign-owned companies. At least eight had business plans for significant expansion in Asia-Pacific. The US economy is doing well overall, but this is not the case for every region and industrial sector.
Our conversations focused on four sets of challenges: business plans and metrics; workflows and workloads; the organization and resources of the law department; and cost and relationships with external counsel. Three-quarters of the CLOs face “internal” challenges. Aside from the demand for legal services, there is increasing pressure to measure and to demonstrate the value of the law department. Typically, either the law department is overwhelmed or it is on the defensive, failing to meet expectations. Only four of the 15 companies see a priority to reduce the cost of external counsel in the next year.
I observed that law departments that were stressed about workloads and inadequate resources have very little hard evidence – aside from a 55- to 60-hour workweek – to support this contention. There was no data about the number of matters, the level of complexity of the work, cycle times and backlogs, and the practice-management habits of individual lawyers. Interestingly, most law departments are staffed with 80 per cent of the lawyers at more than 10 years of experience. Lawyers personally do 95 per cent of the hours on matters with no opportunity for delegation. There are very few entry-level lawyers and only the occasional paralegal. Otherwise put, departments are poorly leveraged. This translates to at least 50 per cent of the work requiring significantly less than their experience level. This is a common affliction for law departments everywhere.
In such cases, CLOs too quickly look for more resources. But most are unable to present a credible business case for additional resources. They do not have the data or the experience to prepare and argue the case. Added to this is the pressure for coverage in new jurisdictions — mostly in China, Mexico and South America. Too often, the default solution – a very expensive one – is to retain external counsel to cover the outfield for the company.
None of the companies I met had introduced a program in the past five years to reduce the amount of routine work that they do, and cut the dependency of internal clients on the law department. Over time, the layers of work pile on and interruptions multiply. For some CLOs, it is a real stretch to capture and communicate the value of the legal team in non-financial terms. While CLOs are appreciated by the company's leadership, they fall short of making a compelling argument to change workflows, workloads and resources. Good performance indicators are absent.
There are three essential points to include in a business case for more resources in the law department. The first is to demonstrate that productivity improvements have been made. These should take the form of reducing demand for routine work, introducing protocols to qualify who can call the law department, and making sure that individual lawyers have strong time-management skills.
The second component of the business case for more resources is coverage — to achieve increased specialization, for new jurisdictions, or for special and strategic projects. And the final component of the business case, also a good argument for in-sourcing work from external counsel, is to calculate the savings to be derived from additional resources compared to referring work to external counsel. Law departments typically aim for a fully loaded hourly rate that is no more than 45 per cent of the rate that would be paid to a law firm for the same work.
Pleas for resources to deal with backlogs and tapped-out law departments fall on deaf ears if they are not supported by a three-point business plan. Most of the Tucson Ten could make a much better business case for resources.