How to Recession-Proof Your Legal Spend
Gone are the days when legal departments had a blank check to spend on outside counsel. After two years of riding the post-pandemic wave of financial growth, many in the legal industry are preparing for a recession.
The International Monetary Fund projects that global economic growth will drop dramatically by the end of 2022 and fall even further in the coming year. Many in-house legal departments are already feeling this slump in the wake of a legal talent war in which compensation expenses increased by over 17 percent but demand for legal services plummeted. As a result, revenue fell nearly 15 percent from 2021, according to Law.com.
For legal departments and their organizations to remain competitive in tough economic times, they must demonstrate an ability to adapt, reprioritize, and act decisively. Legal bill review allows in-house teams to avoid the time-consuming process of reviewing third-party law firms’ invoices for discrepancies and errors, stop overpaying for outside counsel fees, and waste valuable time scouring legal bills with a fine-tooth comb – a results-based formula to reduce overall legal spend and recession-proof their organization, whether or not a recession is on the
While a recession is never ideal, it may present some opportunities for legal departments to evaluate their outside counsel spending and make the necessary adjustments so that they do not merely survive – but thrive – during uncertain economic times. Whether or not an economic downturn becomes a reality, organizations and their in-house legal department should take the following steps to recession-proof their legal spend and lessen the impact should the hard times hit:
Analyze spending. In-house departments are being asked to do more with less, which will only intensify should a recession hit. Although the obvious answer is to spend less, finding ways to do that can be challenging. You should start by determining exactly where the money is going and then matching that up with the must-haves versus the nice-to-haves. Next, focus on targeting areas where a reduction could make the most significant impact and consider how current spending could be decreased or shifted to get more for the money.
Pinpoint inefficiencies. According to the 2022 Wolters Kluwer Future Ready Lawyer survey, one of the top five trends expected to impact most legal organizations is a greater emphasis on improved efficiency and productivity. However, many corporate legal departments are still afflicted with inefficiencies. In the face of a potential downturn, now is the time for legal departments to hone in on how they’re doing things and consider whether there might be a better way. To get an unbiased opinion, ask for perspectives from new team members, colleagues from other departments, and outside consultants – a fresh pair of eyes can often identify inefficiencies that those in the trenches may be unaware of.
Rely on legal operations. A legal operations (ops) function manages business processes, activities, and people to help in-house legal departments better serve a company’s legal needs. If you have one, take advantage of it. If you don’t, consider creating one. According to a 2022 Association of Corporate Counsel (ACC) report, approximately 60 percent of in-house departments have at least one legal ops professional on their team, and 75 percent of organizations with $3 billion or more in revenue have a dedicated legal ops staff. Legal ops teams typically support in-house departments with skills like planning, financial, vendor, matter, technology management, and legal data analytics. The goal of legal ops is to help in-house teams streamline workflows and boost efficiency to better position companies to survive a potential recession.
Deliver structure. In-house legal teams should provide and enforce outside counsel guidelines (OGCs) that set out specific policies and procedures. OCGs benefit both in-house teams and their outside firms because they put the details surrounding the financial and operational aspects of the business relationship in a clear, understandable format. To generate additional efficiency and reveal opportunities for cost savings, in-house teams should evaluate their current guidelines (or create new ones) and continually assess the performance of their outside law firm. If executed properly, OCGs can be a valuable tool for legal spend management and overseeing business processes; however, they should be guidelines, not a set of demands presented by in-house teams to their outside counsel.
Outsource when appropriate. The possibility of an economic downtown doesn’t automatically have to lead to staff reductions; however, it should prompt in-house lawyers to reconsider how they use their resources. While many in-house teams pride themselves on being able to “do it all,” sending matters outside their area of expertise to third-party counsel can be an efficient and cost-effective strategy. Focusing on maximizing internal efficiency in tasks that build company revenues and value while outsourcing the rest can be an effective strategy allowing your team to design a workflow that can withstand a recession.
Reduce time spent on low-value tasks. Precious time can be lost on repetitive, low-value, high-volume tasks, shifting the focus away from the work that many attorneys move in-house to perform. According to the ACC report, over 90 percent of those surveyed believe that time spent on manual daily activities takes time and effort away from working on higher business goals and affects their ability to deliver services promptly. Forty percent of the respondents said they spend three or more hours per day sifting through emails or other systems to determine matter status or find advice from outside counsel.
Utilize legal spend management services. In-house teams increasingly use legal spend management services to review their bills from third-party counsel for errors and discrepancies. A legal bill review expert’s job is to determine the accuracy and reasonableness of legal charges by analyzing every charge on every legal invoice received from outside counsel. Legal bill review providers ensure that each line item on a legal bill from third-party counsel adds fair value and are prepared to negotiate bill adjustments when appropriate to remove the friction between in-house departments and their outside counsel surrounding billing disputes. This arrangement allows in-house teams to avoid difficult conversations with third-party counsel about billing issues.
For legal departments and their organizations to remain competitive in tough economic times, they must demonstrate an ability to adapt, reprioritize, and act decisively. Legal bill review allows in-house teams to avoid the time-consuming process of reviewing third-party law firms’ invoices for discrepancies and errors, stop overpaying for outside counsel fees, and waste valuable time scouring legal bills with a fine-tooth comb – results-based formula to reduce overall legal spend and recession-proof their organization, whether or not a recession is on the horizon.
