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Getting More Value Out of Legal Spend

How GCs can work with CFOs to revise antiquated legal department budgeting models


By Daniel Hayter Organisations across the globe are facing economic pressure, and legal departments are no longer immune to budget squeezes as a result. According to our recent survey, 100% of UK-based Deputy General Counsels (DGCs) reported their legal department budget had been cut due to economic uncertainty. At the same time, they also reported increases in both the volume and complexity in legal issues.

What does that mean? It means that legal needs don’t diminish in proportion to the market. For example, compliance requirements remain the same regardless of economic conditions. And, as organisational leaders know, in many cases, legal needs often actually increase in a volatile market.

In short, legal departments must do more with less. It’s not the preferred position for General Counsel (GC) to be in. However, by strategically re-evaluating legal budget structures, GCs and Chief Financial Officers (CFOs) can find a way to manage current workloads within budget constraints. If done right, this restructuring will continue to pay dividends long after the economy improves.

Overflow Work

Typically, when in-house legal needs reach the boiling-over point, GCs either hire additional full-time staff or outsource legal needs to a law firm. Neither is an appropriate solution in today’s market, for today’s legal leader. Why?

First, even if additional permanent staff solved the issue of overflow work entirely (it doesn’t), it’s still likely a non-starter. Hiring freezes are preventing many GCs from being able to invest in new full-time staff.

Second, as it relates to law firms, given historically large law firm rate hikes, the cost of using outside counsel has increased disproportionately to the economic headwinds, making law firms prohibitively expensive. But it’s not just cost. UK-based DGCs surveyed indicated numerous problems – well beyond cost – that make law firms ill-suited for overflow matters:

  • 44% reported that law firm legal advice is too conceptual - they need grounded, practical advice.

  • Consisted with that stat, another 38% noted that law firms lack the commercial and business acumen required to tackle typical in-house matters.

  • Finally, another 47% noted that even when law firm advice is effective, the administrative management of that firm is too burdensome for an already overwhelmed in-house team

The Better Option

Of course, a third option exists that provides a much more tailored and appropriate solution for GCs trying to navigate increased legal matters and decreased resources: flexible legal talent.


Senior legal leaders are hungry to use elite flexible lawyers whose experience is on par with in- house hires or law firm attorneys, but who are embedded into the legal team and can be used in on-demand manner for workload surges or distinct expertise needs.

But don’t just take our word for it. Three-quarters (75%) of UK-based DGCs see flexible talent providers as a particularly effective solution to their department’s resourcing challenges.

The Problem

Regrettably, just as many CFOs have implemented headcount freezes, a significant percentage have also initiated enterprise-wide freezes on “contractor” spend. The goal is understandable: to eliminate the loophole of managers hiring “permanent” contractors as a means of getting around headcount ceilings. The consequences to legal, however, are brutal. Because of legal’s unique budgeting approach, these mandates have handcuffed GCs.

The legal budget is a distinct (and some may say, archaic) animal. Legal budgets have a line item for external spend. That line item is further broken down by vendor type – one bucket for law firms and one for everybody else.

That means that when CFOs mandate freezes to mitigate hidden hiring, they are unintentionally cutting off the supply of temporary, flexible legal talent. Law firms, by contrast, are protected (to ensure the legal team has the right resources for litigation or bet-the-company M&A). However, in reality, because the legal team’s needs exceed its bandwidth, GCs use the available law firm budget as a means to handle overflow work.

The impact is diametrically opposed to its intent: management has incentivized GCs to use the most expensive and inappropriate resource (law firms), while stripping GCs of their ability to use the more cost-efficient and appropriate solution (flexible lawyers).

Foster GC and CFO Collaboration

What’s a legal leader to do? Communicate and collaborate with CFOs. Intra-organisational budgetary discussions can highlight the differences in stakeholders’ priorities. A GC’s priority is meeting the legal needs of the organisation. CFOs must ensure the near-term and long-term financial health of the organisation, which often involves controlling costs. Both are essential to the organisation’s future.

By fostering a mutual understanding of the other’s role in the organisation’s ongoing success, GCs and CFOs can become an invaluable team. By considering each other’s priorities, the two institutional powerhouses can combine forces to resolve budget issues from a team-centered mindset.

When a GC and CFO meet to discuss the annual budget for the legal department (or to revise it based on updated forecasting) it’s essential for the CFO to consider the unique nature of the legal department and empower the GC with a more flexible budget that tears down the wall between law firm spend from legal talent spend. Likewise, the GC should frame discussions in financial terms to the extent possible. For example, GCs can explain how flexible legal talent can serve to variabalize the legal cost base, thereby limiting investment in the fixed costs of permanent hires, and reducing over-spend on expensive law firms.

In sum, instead of serving as a closed door, market-led budgetary cutbacks facing most organisations can provide an open window: an opportunity for CFOs and GCs to work together to re-evaluate “traditional” legal department budgetary approaches to make them more modern and agile now, and ultimately, more valuable and effective in the long term.

 

About the Author Daniel Hayter is Axiom’s managing director for Europe. Axiom is a global alternative legal service provider where legal teams go to find the right talent for everything from ongoing in-house matters to complex outside counsel work. Too many legal consultants and legal departments are stuck in a forced compromise. Legal departments have high standards when it comes to finding the right talent and getting the right value. Plus, top legal consultants want more control over how, when and where they practice. Axiom shares and meets the higher standards of its global clients and 14,000+ legal consultants — connecting mid-market and Fortune 500 companies with the world's deepest and widest bench of experienced, highly qualified legal talent. Axiom. Higher standards welcome. https://www.axiomlaw.com/

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