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The Billion-Dollar Treasure Buried in the Legal Department

By Ian Hartsough, Director, Advisory

“I just want a lawyer when I need a lawyer,” said a CEO, who was interviewing a candidate for General Counsel. In only a few words, this statement goes a long way to explain why the law department is one of the last business units to adopt digital in a meaningful way. It’s indicative of how some CEOs still see Legal as transactional—not transformational. We talk about how GCs need to adopt a more business-minded posture to propel digital initiatives. However, the onus is also on the C-Suite to view GCs as more than lawyers at their beck and call, but as agents of business acceleration and profit generation. CEOs pay a hefty price when they have legal staff respond to “what is” instead of imagining “what if.” Let’s do the math.

Global Fortune 500 revenue in 2020 was $33.3 trillion. At current benchmarks of legal spending as a percentage of revenue (just under 1%), that means that every year the Global Fortune 500 enterprises spend in the realm of $320 billion on legal departments. Research shows that digitally transforming the legal department can conservatively reduce costs by 15-20% (that is more than $60 billion of value to return annually); and when combined with the opportunity for gains in the categories of performance/quality enhancement, revenue augmentation, risk reduction, and digital business synergy, the total value capture impact significantly outpaces a pure function of legal spend. At current P/E ratios, that could well exceed $1 trillion of equity value.

X Marks the Spot: 4 Areas of Opportunity to Facilitate Free Cash Flow

CEOs seeking to optimize enterprise performance and value need General Counsel who are eager to reduce costs, promote revenue growth, and ease of business. Neglecting to think about Legal’s ability to create value across its various domains shortchanges the business, collectively costing the Global Fortune 500 to forgo trillions of dollars in value. To unleash the opportunity that may be driven by the legal department, CEOs need to expand their mindsets about GCs and see them as more than gatekeepers, but as gateways to driving business in the digital age. Taking a much more expansive view of Legal’s potential will augment free cash flow in the following four areas:

(1) Data Management

Many legal departments lack the ability to structure their workflow decisions adequately and experience tremendous talent cost leakage as a result. Senior in-house lawyers wind up engaging in more junior work or legal departments lean too heavily on costly outside counsel.

Law departments struggle to effectively manage talent due to an inability to visualize who is working on what at any given time. But with digital, intelligent systems can reveal work patterns that help management understand the bottlenecks in systems without daily time entry.

For example, a large multi-national company implemented a metrics program that supported a contracting center of excellence (CoE). That program sought to examine the lifecycle and turn-time of contracts between the business, the CoE, and (where employed) regional contracting specialists. The result was a dashboard that allowed senior legal staff to assess the adoption of key processes that sped revenue to the business and alleviated the burden on regional and outside counsel.

(2) Contract Management

Contracts are the currency of business. Cumbersome contract management processes can kill agility and suppress profitability. Consider it a death by a thousand paper cuts. Without the latest in data insight via intelligent repositories and analytics, contract management can make the business feel like they are sitting in the penalty box for no reason, losing precious time. According to the World Commercial and Contracting organization (WCC), up to 8% of gross revenue is lost on poor contracting processes. Once deals are done, law departments lack an automated way to hold suppliers accountable for delivering through both cost and revenue lines.

On the flipside, WCC research shows contract automation can speed up negotiations by 50%, reduce unnecessary payments by 75% to 90%, and reduce contract management costs by 10% to 30%. Digital solutions can help make those processes more automatic—augmenting the capacity of current staff to limit costs and capture value that currently slips away.

(3) Workforce Automation

Legal undertakes a great deal of manual work and meeting time, whipping the business up in a fever of frustration. Automating tedious work not only has the potential to save on employee turnover but also to expand the ability of any individual to monitor the business, providing more opportunities for rewarding work.

For example, document review is often the most expensive phase of discovery. The industry average for effective review speed is 35 to 40 documents-per-hour (DPH). However, radically higher rates with less risk may be achieved by integrating analytics, technology, client-driven management and oversight techniques, and other advanced review processes into workflows to drive efficiency. Time is money.

(4) IP Portfolio Management

When it comes to IP assets, legal often does not have a complete and accurate understanding of the value of their company’s entire patent portfolio. Assessing and calibrating the value of patents without automation and applied strategy considerations are challenging and often leads to increased portfolio cost and a choke on value. Applying advanced analytics and targeted strategic mapping to intellectual property assessment benchmarking can change the game of IP portfolio management, making a seismic impact on the bottom line.

For example, a Fortune 50 technology company with a 3,000-patent portfolio wanted in-depth, actionable insights on licensing opportunities. They classified the portfolio into 12 categories and 750 sub-categories aligned with their internal technology and product portfolio. The team identified high-value patents of interest quickly to evaluate new opportunities for the portfolio smartly and close strategic licensing deals.

Legal is a rich asset with a huge opportunity to add value to the enterprise on many levels. CEOs should expect every leader in the C-suite, including the GC, to pursue a transformative agenda for data and processes by which the entire company—working with Legal—can extract all avenues of value to boost the bottom line.

Ian Hartsough is the Director, Advisory, at UnitedLex.

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