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In-house cost management special report: At the cutting edge
28 May 2013
With financial pressures across the board, in-house counsel are having to take a firm stance on costs
Where are the biggest cost pressures for you as an in-house counsel? Have these increased in recent years?
David Symonds, general counsel Emea, Tyco: The biggest cost pressure is the desire of the business to see spend on external counsel reduced. This has been a focus for a number of years now, but without doubt the pressure is greater than ever.
Robert Marr, head of legal, 1st Credit: I should start with some background. My company can be described as a debt collection company or an asset management company.
In essence, well-known financial institutions sell unpaid debts to us and we, as the new legal owner, seek to obtain payment. When other methods have not been successful we issue insolvency and County Court proceedings. In addition to the company commencing court proceedings it has court claims brought against it as well as the usual non-contentious matters that have to be dealt with.
The biggest cost pressures are court fees relating to the issue, continuance of court proceedings and enforcement of a judgment. The issue fees and deposit to commence an insolvency claim are substantial. There are also associated disbursements such as enquiry agents’ fees that are incurred in some court proceedings. Solicitors’ costs are an issue in the commencement and continuance of proceedings. Other costs that can be incurred are counsels’ fees and one-off disbursements.
Costs have increased in the past few years, especially court fees. Other costs have also risen, but probably in line with inflation.
Richard Reade, assistant general counsel - international, Weight Watchers: Costs have increased. We are a global legal team split between New York and Maidenhead. Weight Watchers International is a surprisingly complex business. The lawyers are working flat out. Like any innovative business we have a lot of IP work, but also B2B contracts, B2C advertising and ensuring regulatory requirements are met in all the countries in which we operate (especially in terms of product sales and general advertising).
In recent years we have seen increased regulation of privacy on the internet, especially in Germany. The more we grow, the more we innovate - and the greater the increases in regulatory burdens, the higher the cost rises.
How are you managing these costs?
Symonds: We require external lawyers to provide a budget at the outset of the matter and they know they are not to proceed until it has been approved. Likewise, if the actual costs look like they will exceed the approved budget it is their responsibility to seek approval to increase the cost estimate. We have the right not to pay for work carried out in breach of these rules and this is a right we invoke.
Marr: We have been able to secure a number of funding arrangements with firms of solicitors which mitigate the effects of court fees and solicitors’ fees.
There are numerous ways we manage costs. We have improved our policies, procedures, training and compliance. This has resulted in a reduction in the number of claims against us, which reduces direct and indirect costs.
In addition, we have used technology and information to assist in the assessment process prior to commencing claims, enabling us to focus our resources - again, a saving.
The final aspect of managing costs is the previously mentioned funding arrangements with solicitors. We have built good relationships with other suppliers and negotiated on prices, but concurrently provided a volume of work that enables them to offer such prices.
And it may seem trite, but internal adherence to a budget and monitoring expenditure have also helped.
Reade: We are examining the value of the work we undertake internally. If we think a task can be performed by a colleague after some coaching we might move it to them.
We also want to stop ‘gap-filling’. Sometimes we find ourselves doing non-legal tasks and when resources are tight you have to focus on your core role. We hope to then have enough available resources to halt the rise in external outsourcing.
How big a role does technology play in your cost management?
Symonds: A considerable one. All budgets and invoices are posted on Serengeti for approval. This has the advantage that all legal spend is captured in one place and enables me to review the amounts we are spending, where and on what. This is of great benefit in helping focus on areas of high spend and looking at ways we can reduce that spend.
Marr: Given our business, the standardised nature of our litigation and the internal and external processes, technology - aside from a spreadsheet - does not and does not need to play a big role. Clearly, this is kept under review and if technology can assist we will evaluate it.
Reade: We use CounselLink. Although we try to keep our global panel streamlined we sometimes have to instruct niche local firms. This means we have a lot of providers to keep track of. Although we have great support from a full-time team member to help manage this we could not do the job without technology. It would be too messy without the information produced by a costs management system.
Effective global legal teams need a consistent approach. Technology helps achieve this. And, of course, technology helps to reduce administration too.
What developments do you foresee when it comes to managing costs?
Symonds: From my perspective it will be more of the same - where are the areas of highest spend and what can we do to reduce it?
Marr: Developments may be driven by costs or management may drive costs. There are some identifiable pressures - the economy, the need to make a profit, availability of work, the number of law firms competing for that work, the growth of in-house legal departments, the experience of in-house legal teams and their confidence and bargaining position, law firms and their business models, court rule changes, technology and communications.
In litigation the Jackson reforms will lead the management of costs. This is likely to have an impact on costs claimed from the other side and consequently the method of working and conducting litigation.
All this may cause law firms to restructure their business models. In addition, in-house legal are likely (due to their employer’s costs pressures or the economy) to seek better terms and prices - for example, a move away from the hourly rate, an increase in fixed fees, an increase in fee per stage of work (‘piece-work billing’) or an annual retainer.
In essence there is a development of multiple methods of charging on more commercial terms. There will be a place for appropriate technology and this will assist in the management of costs.
Reade: We have not heard the last of legal process outsourcing (LPO). It is still adapting. New delivery centres in Glasgow operated by smaller but established LPOs are now firmly in place. Belfast is established and there continues to be interest in nearshoring. I also receive calls from German, French, Spanish and Nordic LPOs bidding to service those jurisdictions.
We also see law firm models such as Berwin Leighton Paisner’s Managed Legal Services Division that took over Thames Water’s in-house team. Such a model is interesting not least because it provides the firm with the ultimate client insight as well as first-hand experience of managing costs versus quality arbitrage.
Ultimately, clients need lawyers to know the law but what they pay for is good judgement. Good judgement doesn’t take time, it takes experience.
Sponsor’s viewpoint: there’s value in technology evaluations
For many legal departments, investing in new technology to manage the workload is a difficult proposition when the rest of the company is cutting back. As highlighted in the peer panel, legal departments are becoming more concerned with controlling legal costs, which each year take an ever-greater bite out of company budgets. As echoed by David Symonds, general counsel Emea at Tyco, “the pressure is greater than ever before”.
Symonds talks about setting budgets at the very outset of a matter, while Robert Marr, head of legal at 1st Credit, mentions technology and information to assist in the assessment process prior to commencing court claims.
He makes a simple yet powerful statement: “It may seem trite but internal adherence to a budget and monitoring the expenditure have also assisted in managing costs”.
The good news is that Thomson Reuters is addressing the challenges of legal departments head on, by offering in-house lawyers the ultimate legal workspace: Serengeti.
Off the cuff
Many legal departments manage significant volumes of legal spending and legal exposure with a cobbled-together array of spreadsheets, files and basic reports that require manual updates (including legal bills, correspondence, emails, court filings, etc.). But when the legal department has all of the company’s legal work in a single system, it becomes possible to effectively manage all of that work with complete transparency - often for the first time.
With the ability to enforce a policy of no payment for legal work that is not processed through the legal department system, in-house counsel can have visibility for the first time into the company’s entire legal landscape. This echoes Symond’s statement about having “…the right not to pay for any work carried out in breach of rules and this is a right we invoke”.
Today’s legal spend and matter management systems pull such data directly from the work being done in the legal department and at its law firms. For example, all of the data in a typical legal bill (hours, staffing, activities, rates, expenses, etc) flow directly from the law firms’ billing system into the company’s reporting database without any manual intervention, enabled by a billing standard adopted by the legal profession.
It all adds up
One Serengeti client recently acknowledged the system’s value: “By having our legal department implement basic spending and budgeting controls with our new eBilling system, we achieved a hard savings return on investment of over 600 per cent in the first year.”
Legal department management systems such as Serengeti allow in-house counsel to immediately increase efficiency at handling routine tasks with automation that reduces cycle time and improves performance.
Ask any litigation lawyer what has been central or material to just about every case before the courts, arbitration proceedings or the enforcers. They will tell you without a doubt: emails.
So if every company adopts 1st Credit’s approach and evaluates technology if it can assist the legal department, then surely we can begin to ‘own’ our pain points?