Bloomberg Law
June 4, 2019, 8:01 AM

INSIGHT: Transforming Your Legal Department Into a High-Performing Organization

Suzanne  Folsom
Suzanne Folsom
Manatt, Phelps & Phillips, LLP
Robert Garretson
Robert Garretson
Manatt, Phelps & Phillips, LLP

High-performing companies integrate—and sometimes even embed―legal operations into their business processes. And the resultant successes are manifest. This interconnected approach to legal operations, which more closely connects them with the business culture, often serves as a catalyst for substantial value creation for the organization.

Best-in-class departments serve as trusted business advisers who are well equipped to foreshadow, consider, and address threats presented by the organization’s business strategy and operations while working collaboratively to ensure internal customers receive superior service so that they have the freedom to operate in the dynamic, global marketplace.

As each legal practice group within the department (i.e., litigation, commercial, compliance, etc.) becomes a trusted adviser to its internal business partners, their success, and the attendant internal recognition of it, increases. Key to these victories is the ability for the attorneys to be approachable and accessible—providing timely and relevant service that addresses the group’s business needs and issues.

Concurrently, the legal department should optimize its business operations and protocols, pursuing every opportunity (inside the organization and with outside counsel) to achieve cost savings, efficiencies and quality improvements.

Organizations seeking to establish a best-in-class legal department need to ponder, “Are we currently structured for success? And if not, how can we make that happen?”

Undeniably, when the answer is “no’, the department needs to be transformed―perhaps radically―to ensure it is aligned to meet the organization’s current and future needs. Whether starting at ground zero to build a new legal function or critically examining an existing one, the organization should assess whether its legal activities, resources, and personnel are appropriately dedicated and deployed in line with the organization’s activities and strategy.

The ‘Clean Sheet’ Approach

The “clean sheet” approach is highly recommended to identify the optimal organizational structure. Its key components include:

1. Assess the functions the legal department is required to perform, thinking in terms of activities instead of titles, roles, and individual personnel. Ask:

  • Are our internal activities aligned with our business model?
  • What are the primary activities that the department must accomplish, regardless of criticality?
  • What activities are mandatory for legal and regulatory purposes?
  • What activities are required to ensure that we can run and maintain the organization?
  • Are there activities we should start/stop/continue?
  • Should we be “making or buying” certain functions (i.e., keep activities and responsibilities in-house or outsource them)?

2. Create roles and develop an organizational structure to satisfy those activities that must be accomplished and that deliver the highest value to the organization. Make sure to determine:

  • How much time should a Full Time Equivalent (FTE) employee devote to each activity?
  • How many FTEs are necessary to accomplish those activities?
  • Do the activities lend themselves to a natural fit for existing functional areas (i.e., litigation, compliance, corporate, employment, etc.)?
  • Do the activities lend themselves to natural groups allowing them to be sorted by employment levels (i.e., administrative, paraprofessional, attorney, senior attorney, management-level attorney, etc.)?

3. Assess current talent to determine whether the team possesses the requisite skills, knowledge, capabilities, experience, leadership and management acumen to successfully execute, deliver and direct the department’s critical activities. It’s important to accept that you may need to “go to war with the army you have” while simultaneously planning for/building the army that you need.

Personnel with the highest potential should be placed in roles that are most suitable for them―and which, over time, will give them room to grow. Importantly, the transformation process will not be easy, and difficult personnel decisions must be made. Ultimately, the department’s new shape may not have positions for all the existing personnel. To drive this analysis, ask the following questions:

  • Are people sitting in the right seats?
  • Do we have the right number of seats?

Reducing, reassigning, or reallocating personnel and responsibilities almost always results in dissatisfaction from retained and departed personnel. Senior legal department management should prepare for the inevitable backlash and possible retaliation (and allocate the time necessary to manage these reactions internally and externally, especially with senior management).

Assessing Data and Tech Tools

Similarly, as legal departments have become more data-driven and technology-focused, leaders have an opportunity to assess the technology and tools currently in use and develop a forward-looking road map. With the plethora of solutions providers in the market, investments based on the value each product delivers will be the most successful.

The technology infrastructure should be examined and configured to address the most critical concerns, whether e-billing, matter management or e-discovery. Consider whether the systems used, or planned for use, are compatible with the company’s overall IT architecture and plan. Questions to ask include:

  • Are existing or planned programs cross-compatible and can information be shared across the different platforms?
  • Do we have the licenses needed to support the anticipated user population?
  • How frequently is technology upgraded/refreshed?

As critical as it is to understand the current state of technology, forecasting the department’s future needs will allow the time to adequately map the IT and financial resources necessary.

Outside Counsel Retention

The retention of outside counsel is critical for companies that are intent on success in today’s ever-changing global business environment, in order to help address the full host of legal issues when in-house resources are not sufficient. To ensure this, existing relationships should be assessed to ascertain whether the firms have the background, experience, and talent necessary to address the matters in the jurisdictions where the company operates.

Additionally, the senior legal leadership should determine whether outside counsel has invested the time needed to understand the company’s underlying business and the challenges it faces.

Owing to the nature of internal legal departments primarily being seen as cost centers, outside counsel should be assessed for the value they deliver. This doesn’t simply mean hiring the lowest-cost provider; rather, it’s about creating a business partnership that provides the highest-quality legal services cost-effectively.

Accordingly, the department should develop and adopt a comprehensive outside counsel billing policy that provides expected billing practices, guidance on allowable activities and expenses, and details on outside counsel’s conduct of assignments.

The company should ensure that it has engagement letters on file that further detail the expectations for each firm. A thorough review of the quantity and quality of work being produced by outside counsel should also be conducted, so that senior legal leaders can discuss performance and conduct negotiations with vendors to secure alternative fee arrangements and discounts to drive lower costs, higher-quality work and more predictable billing rates.

Whether you’re a new general counsel with a legal department in need of significant change, or you’re seeking to reinvigorate your department’s performance, a disciplined change management approach will help transform your department into a high-performing, efficient and respected organization.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Suzanne Folsom is a partner in the Investigations, Compliance and Strategic Response Group in Manatt, Phelps & Phillips’ Washington, D.C. Office. She is the former general counsel, chief compliance office & SVP government affairs and global public policy at U.S. Steel.

Robert Garretson is a managing director in Manatt’s Investigations, Compliance and Strategic Response Group. He is the former general manager of governance strategy and the director of legal department operations at U. S. Steel.

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