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GO BEYOND SILOED LEGAL REPORTING TO MANAGE AND MITIGATE RISK

THE VITAL ROLE OF REPORTING FOR LEGAL OPERATIONS

Easy to use, clear and comprehensive reporting functionality has evolved from an added bonus to a must-have requirement for corporate legal teams when evaluating legal technology. The pressure on legal operations to demonstrate improvements and return has led to reporting features being almost as important as the fundamental benefits of the software tool in use.

Where legal operations is missing a trick is when data analysis from a particular tool is used in isolation. To use legal spend management software as an example, out-of-the-box spend reports and user-friendly analytics wizards allow legal departments to monitor work in progress, measure actual spend, and forecast budgets accurately.

That’s not to say legal spend data isn’t useful on its own. On the contrary, within a spend management tool the data can be analysed across any number of variables such as matter type, jurisdiction or timekeeper seniority. Legal operations is using this data to decide which improvements can be made to ensure legal is contributing towards the business reaching its objectives. Such tactics that are borne from using data in this way include making better matter resourcing decisions, negotiating discounts, getting more value from firms, or making the business case for hiring more internal staff.

Understanding the legal spend can help with budget planning especially when combined with market sector political, economic and regulatory information. For example, legal spend budgets can become distorted during periods of significant regulatory change or through an uplift in litigation and/or regulatory investigations, creating outliers to normal activity. Having a clear view of how the underlying legal spend is trending for the normal business-as-usual activities (based on matter types) will help the decision makers support any budget changes. For example, when GDPR was introduced, a number of companies would have seen an increase in their legal spend as they sought advice to implement the new rules, thereby increasing their legal budgets.

COMBINING LEGAL DATA TO BETTER MANAGE RISK

Where the in-house legal function is working closely and in partnership with the business units across the company, the range of information and data it holds will often put it in a unique position within the organisation by having a holistic view of what is going on across the company. This data not only supports an awareness of what the business is doing but also forms part of the historic corporate knowledge that is built up over the years; such as previous contracts, decisions and outcomes. Historically, this information was not held in a structured electronic format, which meant any form of data and trend analysis, as well as knowledge management, was extremely manual and time consuming.

With the increase in legal matter management and legal spend management solutions as well as better document search and retrieval there is a growing need and clamour for data processing, data analysis and knowledge management. Capturing basic contract terms and/or details of legal opinions in a matter management system provides a very simple knowledge management tool and a rich source of data. Other tools that will help provide data are any solutions used to create standard contracts, access to benchmark reports, as well as internal resources (finance reports etc.).

Those legal operations teams that are seeing the most value are those that combine data from various technology tools to take their strategic input to the next level. One such area, which is of massive importance to the entire business, is management and mitigation of risk.

A legal operations team that is carrying out data analysis on all the data at its disposal will be in a position to identify trends that will lead to a range of questions that should spark further debate, such as;

  • How much work is done “in-house” versus being sent externally?
  • Are the correct processes being followed?
  • Are we getting the right level of technical support for the type of transaction?
  • Is there a change in the fee arrangements being used?
  • Is there a growth in the types of transactions either at a business unit or country level?
  • Is one firm being used more than others for similar types of transaction from a particular part of the business / legal team?
  • How does the firm perform against others for similar types of transaction both on price and performance?
  • How does the business differ to market peers?
  • What is required to manage a specific regulatory change?
  • Is the in-house legal function and its staff compliant with the relevant regulatory authority guidelines, such as the Solicitor Regulation Authority (SRA) etc.?

Below are some examples of how the answers to these questions could demonstrate a change in the risk profile and risk appetite.

By monitoring the volumes of work, what type of work is being done, who is doing it (in-house lawyers, external lawyers or a combination of both), the time taken, the costs etc., the legal operations teams will be better placed to advise on the organisational design, support and management of the legal function as well as the risk profile and the risk appetite of the legal function and in certain cases the supported businesses. Comparing this data to benchmarks would highlight variances that help support any decisions.

A better understanding of what is being done and by whom, will help ensure that the legal function is properly resourced, is not taking on activities that are better placed in other parts of the organisation, and that the appropriate processes and procedures are in place and controls are being administered. This might cover such things as law firm engagement and/or payment of invoices by appropriately authorised individuals within the legal function. For the legal function and its in-house staff, this might include ensuring that they are complying with the rules of the governing bodies such as the SRA, NALP, the Federal Bar Association in Germany etc.

A lack of the appropriate technical support (whether from work done in-house or by external law firms) on deals could lead to drafting errors and/or incorrect advice being given, thereby potentially leading to a greater exposure to legal risk. For the more complex deals it would be normal to see more senior lawyers engaged with the matter.

Spotting an uplift in a particular type of work (such as litigation) or activity (such as drafting) could indicate a lack of understanding of the contract terms within the business front line areas who are requesting contract changes, bad working practices, poor standard documentation, or changes in the markets and/or economic climate (each of which also presents opportunities). Legal operations teams can help to mitigate these by highlighting trends and ensuring that the legal function;

  • Delivers better training and communication to the business and legal function,
  • Carries out regular reviews of standard documentation,
  • Supports reviews of policies, practices and procedures, and
  • Develops a better understanding of the market.

Consistent use of one firm over others should provoke questions as to why that firm is being used. It may be that they are very competitive on price or they have the appropriate skill sets. When analysed against performance and cost this may become self-evident, however if not then there may be some other reason that should be investigated. As part of the legal operations team’s vendor management programme, they should ensure that the firm is maintaining the right level of skill sets for the work they are being asked to undertake, as this will help mitigate legal risk caused by a lack of technical knowledge and support.

A significant move to fixed fee arrangements with law firms may be beneficial if both parties are a) extremely clear on what activities should be covered, by whom and by when, and b) confident that the agreed pricing is fair and balanced. However, if the firm is not providing any supporting timekeeper activity data, it becomes difficult to know whether the firm is providing the right level of technical support and whether the fee structure is still fair and balanced. A legal operations team can help ensure that the legal function is obtaining the best fee arrangements through regular firm reviews and enforcing governance of the billing rules.  They can also ensure that the firm is providing the right level of technical support for the type of work being undertaken as this will not be evident from the invoice data.

Capturing brief details of the contract terms and using software tools to create standard term contracts will allow the legal teams to identify contracts that are impacted by new regulatory changes. With the proposal from the Bank of England for banks to carry out climate change stress testing, an awareness of the type of contracts and contract terms will become more relevant. A legal operations team that can quickly pull this information together can help support the business by ensuring the scope of work is understood and can be properly resourced.

With the increase in cyber security and greater scrutiny by regulators who are starting to require more rapid, robust, evidence-based reporting, the need for greater use of these solutions is becoming more prevalent to avoid data being compromised and fines being levied. Understanding what data has been passed to which supplier helps ensure that those suppliers have appropriate controls in place to manage that information in line with Information Governance and Records Management policies and procedures and that any breaches promptly reported.

It is also worth noting that a lack of data in the legal systems is equally as insightful as it will show where parts of the business and/or legal function are not following agreed practices and procedures. Using legal spend data from Finance will help identify where within the organisation external legal costs have been incurred and with whom, which can assist in building an awareness of the use of external legal support and potentially close any gaps or tighten any controls. Furthermore, using “gap” reports in the legal systems helps identify problems within the data that will distort any data analysis.

For legal operations teams to deliver process improvements and efficiencies, ensure compliance with policies and regulatory requirements, optimise their spend and manage risk, they should analyse the data that is available to them from all the data sources at their disposal. As they start to analyse all their data, instead of analysing point solution data in isolation, they will start to discover new trends and insights not previously seen or understood.

A truncated version of this article was first published by CLOC on 3rd January 2020. The post appears here in full.

Iain MacDonald, Independent Legal Operations Consultant

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