June 25, 2024

legal ops law departments trends

Over the past few months, a hot topic among general counsel and legal operations professionals has been the use and value of legal shared services. (For another helpful resource, see this CLOC article from 2022 on the definition of legal shared services).  Amid the consensus that such services are necessary for a law department to maximise performance, competing views have emerged about the purpose and aim of a legal shared services team.

In our numerous conversations with customers about the purpose of their legal shared services team or initiatives, three responses predominate:

• ‘To free up lawyer time from routine or unwanted legal activities so lawyers can focus on their higher and best use.’
• ‘To lower the overall cost and budget of legal services through right-sizing and right-sourcing routine legal work.’
• ‘To better enable the business to grow and scale at speeds beyond what the law department can currently support.’

So, which one is it?  Or is the answer simply YES?

Our experience bears out that the third response is and should be the leading purpose for a legal shared services team.  But why?  The answer begins by understanding the bottom line – figuratively and literally – of the other two views.

Let’s start with the first.  Freeing up valuable lawyer time is important and drives higher use, morale, and retention, but it doesn’t always or necessarily result in better business outcomes.  Legal teams often work from the back foot, often responding to a range of inquiries or risks from the business.  Many of those incoming requests are just noise in that they may be urgent but not closely aligned with the main goals of the business.  This leads to legal teams having to constantly trade one poor use of time for another at no fault of their own.  Thus, it is imperative that in addition to implementing shared services, legal teams must also guide, enable, and train the business to self-serve themselves on basic activities as well as how and when to send things to legal.  Only then will a legal team’s members be able to allocate ‘liberated time’ towards specific ‘grow the company’ projects and transactions.

Now, on to the second – while managing and reducing the overall legal budget is important, it isn’t easy, and the payoff pales compared to the benefits of enabling or growing the business (a key point we will return to below).  As a company grows, so do liabilities – and with them, the need for both internal and external legal services.  External legal service needs tend to balloon because special or unique expertise is required as a company pursues M&A activity, engages in larger and more complex transactions, and fends off litigation.  Outright spend reduction in these areas is difficult – which is why we recommend the goal to be establishing more control of and becoming more purposeful about spend.  Internal legal spend can be directly impacted and reduced through implementing legal shared services teams, primarily by lowering the unit cost of performing routine legal services.  But for external and internal cost control or reduction alike, the benefits are still miniscule compared to other potential benefits at scale.  So, instead of focusing (or tying the use of) on shared services to directly achieve a drop in legal spend, law departments should employ them to lower the overall ratio of legal spend to company revenues as the company grows.  We call this running legal like a business.

And now we arrive at the third and most purposeful reason to implement legal shared services.  The potential time savings and fiscal benefits of shared legal services are limited by how much lawyer time is spent on unwanted activities or how a law department spends on routine legal work. But those limits do not apply to the potential business impact, particularly revenue or profit, achieved by things like improving cycle times and overall performance on contracts.

The numbers bear this out. Consider a company with $5B annual revenue: improving transaction cycle time by 10% (e.g., down three days from 30 to 27 days) equates to $41MM revenue growth potential ($5B/365 x 3 days). Moreover, improving overall performance of contracts by 1% results in $50MM more revenue realisation.  In a $20B company, those numbers balloon to $164MM and $200MM, respectively.  These numbers move the stock price.  The other ones don’t.

Now, it’s not lost on us that these company gains are subject to their own dependencies.  After all, a 10% cycle time reduction or 1% contract realisation gains don’t just come from implementing legal shared services alone. Still, the bottom line is that the aim and return on investment is much larger.

This is why we recommend that general counsels and legal operations heads pitch legal shared services in terms of business outcomes rather than legal ones.  A repositioning could look like this:

Our legal shared services center is primarily designed to enable the business to grow and transact 5 to 10% faster and improve performance while simultaneously delivering benefits to the legal team, such as lowering the overall unit cost of routine legal work and freeing up lawyer time from bottlenecked and mundane legal work.

Ultimately, the answer to the purpose question isn’t either/or but rather a matter of primary and secondary. By viewing shared legal services as, above all, a business strategy, you will achieve the best outcomes for your law department and the company as a whole.