How to address enterprise-wide legal considerations after a crisis

As businesses begin to emerge into a post-COVID world, legal challenges are expected to arrive in waves.

Many legal functions are in a state of continuous transformation. The reason for this is simple: the environment they operate in is constantly evolving. Pressure from the C-suite to manage cost is ongoing, the regulatory and legislative environment is ever-changing, and there is a perpetual need to capitalize on new technologies and new service delivery models.

As noted in research from EY, published in the new report  Realizing the benefits of legal managed services (pdf), to manage this environment, C-suites across the corporate world have asked general counsel to put efficiency and resilience at the forefront of their agendas.

Significant global events can often accelerate the desire or need for transformation. The 2008 global financial crisis (GFC) was one of such events for corporations and, more specifically, for legal functions. The economic fallout from the GFC and the new regulations that resulted from it created ripples that were felt long after the crisis abated.

Progressive law departments responded to these challenges by transforming their operations – developing new, efficient ways of working, and rethinking the way they bought legal services from outside vendors.

Now, as the world finds itself in the grips of the global COVID-19 pandemic, the C-suite is presented with legal challenges across its organization. As businesses begin to emerge into a post-COVID-19 pandemic world, those challenges may keep coming in waves.

Human resources departments may be faced with ongoing labor and employment issues.

Procurement teams and sales teams may have to rewrite contracts to reflect new risks. Finance and tax teams may have to restructure their organizations to reflect changes in supply chains, buying patterns and revenue streams. Law departments may be involved in helping resolve all of these challenges as well as dealing with day-to-day questions, requests and crises.

How organizations in general and law departments in particular will deal with the issues that may arise will highlight operational strengths and weaknesses and pose a number of questions, such as:

• How flexible and adaptable is the law department – will it be able to change work processes in the short term to meet the “new normal?”
• Will those short-term changes be future-facing, so that they don’t just solve immediate challenges but, more importantly, improve operations in the longer term?
• Will departments be able to deal efficiently with the high volume of work that is destined to come down the pipeline?

The answers to these questions may ultimately determine how resilient law departments and the businesses they serve are now and moving forward. There are two prominent considerations in this conversation. First, what legal services will businesses perform themselves and what will be performed, under the law department’s direction, by external providers.

The second consideration is related. What partnerships will businesses form with external legal providers. Data in the report on the use of legal managed services (LMS) suggests the answer to this question will be crucially important. 

The move to legal managed services

The report shows that there has already been a significant shift toward the use of legal managed services by large and medium-sized organizations. Progressive law departments who are increasingly using managed services are gaining significant benefits that go beyond cost-savings.

The report reveals that there are three clearly defined groups of law departments based on their sourcing strategies, which it labels as:

• Pioneers – this group, which makes up 37% of law departments, has already migrated many law services to non-law firm providers and are actively looking to expand their use of legal managed services.
• Explorers – accounting for 35% of respondents, the majority have tried outsourcing but not on a widespread basis. These firms are actively considering expanding their use of legal managed services.
• Observers – this group (28% of law departments) is not considering using managed services currently even if they are aware of the benefits anecdotally.

Furthermore, as Pioneers have shifted selected high-volume work to legal managed services providers, in-house counsel are able to focus on higher-value work. This appears to have a positive impact on these law departments’ ability to recruit and retain talent, as it improves morale and the attractiveness of the business to future hires. Notably, the data shows that Pioneers are the only group where a majority of respondents report that recruitment and retention is not a challenge. 

Additionally, the use of legal managed services also has benefits on law departments’ ability to invest in new capabilities. Pioneers are twice as confident that they have the appropriate non-legal competencies as the other groups. They are also twice as likely to report they have the necessary technology and process-automation skills.

It’s worth viewing these points together. The law departments that are using legal managed services are confident that they can handle complex risks, have the right people in the right place, and have the right competencies and tech in place. This can be the fundamental difference between those departments that are able to move swiftly and resolutely both during and after a crisis, and those that aren’t.

Large corporations and the law departments that serve them should be prepared to flex and adapt to a whole manner of events – some of which can be seen from a distance, and some of which are more likely to be categorized as “black swans.” As such, those law departments that are resilient and focused on managing transformation proactively are the ones that will be better prepared for whatever comes down the pipeline, big or small.