Managing Corporate Budgets In The Downturn: Making The Most Of Data Management

Monday, May 4, 2009 - 01:00

Editor: Could you share some of your background with our readers?

Clark: I am Vice President of Law and Deputy General Counsel for LexisNexis. I've been involved in supporting legal technologies for about the last 18 years, so I've had the privilege of both consulting and working with many in-house and outside counsel over the years.

Editor: What external pressures are causing the most strain on corporate law departments today?

Clark: First and most obvious is the overall economic downturn. The negative fiscal impact on most companies - although not all - has taken a toll on their law departments. The second is the more demanding regulatory environment which, of course, results in increased litigation and all the associated litigation costs. The last is growing concern about the financial viability of suppliers and customers. Law departments are increasingly being called upon to help evaluate and manage risks associated with lagging performance, delinquencies - or even bankruptcies - of their companies' vendors.

Editor: Are law departments experiencing much in the way of disruption as a result of law firms going out of business?

Clark: Corporate counsel rely on their firms to be effectively staffed to represent them, and, of course, law firms are impacted by the tough economy, just as corporate law departments have been. We're seeing law firms take some pretty unprecedented steps to respond to economic conditions, and many of the things firms are doing to resolve their own financial woes are very creative. If law firms are cutting staff or practice areas, counsel may have no choice but to look elsewhere, which is not necessarily what they prefer to do. General counsel like to work with firms who know their industries and their organizations and cultures. If law firms go away or eliminate practice groups, this certainly does create another strain on corporate law departments.

Editor: What are these pressures doing to corporate law department budgets?

Clark: With companies struggling to stabilize their stock prices, their law departments are expected to be good corporate citizens and absorb their fair share of cost-cutting initiatives, including downsizing. Naturally, this creates a situation in which law departments have less money and fewer people to deliver what they need to deliver, which is a high level of service. There is no doubt that in-house lawyers are using creative ways to try to pare the budget, but their shrinking dollars can only go so far. Even faced with increasing regulation and the high stakes litigation that goes along with it, most law departments are experiencing no increase in budget or, in many cases, are dealing with decreases.

Editor: In my experience, there was always demand for a "body count," but I was usually able to persuade the CEO to reverse that decision by pointing out that the potential losses would be greater then the savings.

Clark: Many general counsel don't have the option of deciding whether or not to downsize; more often, it's a question of "how" and not "whether."

We see law departments really trying to focus their in-house staff on their most important core services and efficiently outsource some of their commoditized work. To do this, the law department has to carefully analyze its own strengths and weaknesses in order to know not only what it does effectively but also what it does less effectively. Then, after completing that analysis, a risk matrix could be useful to identify the work in-house counsel must centralize and handle within the department - this would be the work that the company's own lawyers have special expertise to do. Once this is determined, in-house counsel can look at commodity work or specialized but infrequent types of legal projects that can be efficiently outsourced.

Interestingly, some outside law firms don't really want to take on this commodity work and they say it's not the kind of work that's of value to their firms to undertake. I think, though, that some of that response is tempered a bit right now by the need to bring in work of virtually any kind. I've certainly heard about law departments doing some pretty creative packaging of their "commodity" work along with higher stakes work to make it more attractive to law firms.

Editor: Are you seeing more competition among law firms in terms of price or innovative billing in an effort to get business and keep people employed?

Clark: Recently, I've heard a lot of anecdotal evidence of what's going on and I'd say it's a mixed bag at this point. There are firms willing to take on work at a lower hourly rate, for example, but they remain tied to the hourly rate model; they're not necessarily willing to move to alternative fees. Other firms are much more creative in trying to give a project price or a capped fee.

But then I also have heard about firms that are still sending out their annual rate increase letters and it makes one wonder what exactly these firms are thinking. Overall, I'd say that most firms are cautiously optimistic that things are going to quickly get better and are willing to bid on work during the interim at a lower rate.

Editor: How have globalization and the global nature of the current economic crisis affected your customers?

Clark: As companies increase their global presence, their law departments will encounter not just economic issues but issues relating to working across borders as well. They may face a heightened degree of risk in the legal and compliance arena. How do you get the right people, and how do you leverage the people you have, in working across borders? Staffing issues may be related to the lack of resources altogether or to normalizing cultural differences.

The use of technology and collaboration tools to develop inclusiveness and efficiency, and to leverage the time and use of attorneys operating in different time zones, has been key to companies that have done this successfully. For example, they use web-based matter and document management and e-billing technologies effectively to support that sense of inclusiveness and efficiency. We use them in our department for exactly those reasons.

As for the second point, risk management in the global arena can be a pretty high stakes game; general counsel will be forced to evaluate risks carefully when they move into a different geographic or political landscape. They come to realize early on that applying policies abroad in compliance with U.S. laws may create a situation where the company is inadvertently violating the local foreign law. For example, complying with U.S. laws against doing business with entities located in certain countries may violate local anti-discrimination laws. Another challenge is compliance with the Foreign Corrupt Practices Act when you work with foreign representatives in a variety of cultures and differing customs. These types of issues are big concerns.

Editor: Are corporate law departments getting any help or understanding from their outside law firms?

Clark: A lot of firms are under significant economic pressure themselves and may not have the luxury of cutting fees because they have financial obligations to meet. Some firms are offering flexibility in billing arrangements, but even the firms that are sticking with the billable hour model could manage that fee structure in a way that doesn't look like a black hole to their clients. Trying to make their fees more understandable to their clients would go a long way, even if they're unable to adjust their rates or forgive some portion of their fees. Presenting a supportable and realistic budget for a legal project at least makes it easier for the general counsel to measure bang for buck and explain the cost of legal services to the board. That alone would be a great step. But, as I mentioned, even in this challenging year, some corporate law departments have still seen the routine step increases in hourly rates from their outside law firms.

Editor: What are some things that corporate law departments can do right now in order to better manage their budgets at a time of such intense cost pressure?

Clark: First of all, it's important to understand the things they do really well. Second, they need to make sure their resources are focused on the things that are core to the company's business and to stabilizing its revenues. Once they know what they do well and what areas are most critical, they'll identify what can be outsourced. In working with outside counsel, law departments should be prepared to very deliberately manage which activities are outsourced - not only in developing appropriate legal strategies, but also using good business processes, defining expectations and routinely evaluating performance. Using metrics to track and report on spending trends is very important; with this information law departments can identify what leads to successes and then refine the operational and management processes that support success.

I personally believe in reading the story as written in your own data, so using technology as a means to track and record data is central to effectively managing costs. Not having the technology makes it more difficult, but you still need to be focused on getting as much information as you can on those areas of success and then using that information to leverage success elsewhere.

Editor: With that in mind, let's talk a bit about CounselLink. Over the years, we've worked with suppliers of different elements of what CounselLink has brought together. Could you describe how LexisNexis came to bring these things together in this way?

Clark: Fundamentally, LexisNexis believes in the value of technology to enable law departments and lawyers to maximize efficiency and productivity. CounselLink offers exceptional matter management and e-billing capability. These two features make it possible to convert basic information into actionable business intelligence. Our reports give information and insights that help law departments make decisions based on real data.

On the matter management side, CounselLink will allow law departments to forever abandon their ACT databases and Excel spreadsheets by capturing the essential matter and contact information online, where it's accessible anytime from anywhere and everything is in one place. We still work with law departments that have spreadsheets here and there which they use to try to track matters as best they can, but it's much more efficient to aggregate all of the information in one application and one database.

In the same application where all this essential matter information is accessed, law departments can also manage their outside counsel invoice receipt, approval and payment processes, which can then be fully integrated with the company's accounting system. This way, once the invoices have gone through the approval process, the ultimate approved amount goes to the enterprise AP system for payment.

CounselLink is also uniquely capable of handling alternative fee structures. We have had customers use it to manage many types of alternative fee structures such as capped fees, fixed fees, mixed fees and other types of fee models. This flexible feature is used in a variety of areas of law including IP and litigation, collection matters, transactional matters - a huge array of matters.

Editor: In cases such as a fixed fee, is it customary to get an hourly breakdown so the bill can be compared with other bills in terms of the input that went into that particular work?

Clark: That depends completely on our customer. Sometimes they do want to have that "shadow bill" so they can make sure that the agreed-upon fee works both for them and the law firm. They certainly don't want to punish their firms by asking them to move to alternative fees.

Editor: I understood one of the considerations was being sure the work was done at the proper level - who does what and what their hourly rates are - to determine whether commodity work is being pushed up to a partner rather than handled by an associate.

Clark: That's another reason why customers often would like to have a shadow bill, although it may be that they want to be sure the partner is working on the matter and that it's not being handled by an associate with very little experience. Also, you can see not only whether the attorneys are partners or associates, but in fact how many billing lawyers there are. Does it take an army of people to do this type of project, or does it take three people to do the project? Again, it's analyzing data to help to define best practices and ensure best practices are shared with outside counsel.

We have some customers who define, by stages, exactly what work is associated with the fee - so rather than requiring detailed bills, they just want to know that a stage of the project was completed. They will then authorize payment for that stage of the project. Other customers use the CounselLink alternative fee functionality to pay in advance; they may pay half the fee up front and the other half once the project is completed.

Alternative fees offer many options, and I'd say we have customers that have tried them all.

Editor: Do you find that law departments are moving toward early case assessment, where a budget is established at the outset and they track whether or not that budget is being complied with?

Clark: Yes. Early case assessment is growing significantly among our customers, and so is budgeting. Budgeting has always been something of a struggle for in-house counsel without a centralized place to track and manage the budget. CounselLink makes it possible to create, track and report on budgets for every single legal matter. It also enables inside and outside counsel to collaborate on creating the budget, so there's a place for the budget to be proposed and refined. Once it's established, the budget information can be tracked and made available for analysis and reporting.

I think the reason this is becoming more important to corporate counsel is that they need a way to evaluate their law firms and have candid discussions with them about their performance. They also need a way to demonstrate to their business unit leaders what's happening with their budgets and why. That's why good management reporting tools are so important, once you have your data. There's something about a graph or a table that makes it very clear to a variety of different stakeholders where costs are going, something which most people can wrap their minds around and understand easily.

Finally, in-house counsel can use financial and stage-based data to track at what stage of a project or litigation things start to go awry, or at what point you need to decide to settle or litigate and where your strategy goes from there. If you can see a trend using your early case assessment tools - along with your budgeting tools - to get a better understanding of the key milestones in the stages of litigation, that makes the difference. That's extremely important.

Editor: People tell us there are tools that enable a short form e-discovery sampling exercise, to get a rough idea of the principal issues and what discovery itself is likely to cost.

Clark: Well, CounselLink is not an e-discovery system - LexisNexis does have other technology offerings in that area of litigation management. However, with CounselLink, in-house counsel would be able to input the bottom line from the e-discovery process into the numbers required to evaluate a case. You might want to take that information and compare the cost with the costs of other litigation on similar issues as a benchmark. This type of information allows for strategic decision-making.

Editor: So with this system you can not only look at a specific case but also see what your experience has been in other, similar, cases?

Clark: Absolutely, and you can do that to compare not only budgets but your experience with similar cases using different law firms. And, you can use it effectively as a performance measurement tool to evaluate your internal staff - to see who may be the best person internally to manage a particular type of case or transaction. There are many different uses for the tool.

Editor: I understand that this is all online; you don't have to purchase any software to put the pieces together yourself.

Clark: That's right. In fact, not having to purchase hardware or software - or to get the services from internal IT resources - is a big benefit to law departments struggling with budget issues. Many in-house law departments do not have information technology support; CounselLink makes it very easy in that it is software-as-a-service solution law departments can access online.

Editor: I also understand that this system is very important in a compliance sense.

Clark: Certainly, with more and more focus on financial transparency, CounselLink does create a result where all outside counsel costs are aggregated. Whatever format the invoice comes in - whether on paper, online, or in a very specific structured format such as LEDES (Legal Electronic Data Exchange Standard) - all of the information is captured with CounselLink. The application has audit trails for everything that happens to every charge on every invoice, so there is always the ability to go back and check the audit trail if something has changed with respect to a particular charge. It's a very consistent and auditable process, which makes it much easier, from a Sarbanes-Oxley perspective, for the law department to be able to demonstrate that it has appropriate financial controls in place.

Editor: If you already have a system that covers some elements of the CounselLink system, can you integrate them and save some money by doing so?

Clark: Yes. Not only do you save money but you actually save time: you don't have people entering data into multiple systems. We have integrated with pretty much every standard financial system that corporate users may have, and we also integrate with other matter management or IP tracking systems - whatever tools the law department finds of greatest use.

Editor: You also link to the CounselLink attorney registry. Could you explain that?

Clark: The CounselLink Registry is a unique tool. Registry law firms are willing to perform particular services strictly on an alternative fee basis. A customer with a legal project will assign the project online to a firm of its choice that is willing to do the work and has posted a fee for that particular project.

Editor: Is it mainly for commodity work?

Clark: Not necessarily. I would describe it more as predictable work - it could be anything that, for a particular customer, has a predictable process. It can be used very successfully to connect law departments in need of new counsel in geographies where they are not currently represented to our registry of attorneys, and we will actually assist in recruiting attorneys to handle a customer's projects using alternative pricing. We also credential each of the Registry attorneys, making sure they're admitted to practice, have appropriate insurance coverage, and so on. When our customers have a project, they feel very confident that they can go into the Registry and find a credentialed attorney willing to do the work, and our customers and the firms will have agreed on the pricing up front. For example, the Registry makes it possible for a customer in California to go online and assign a project to counsel in Michigan after evaluating a number of Registry attorneys in that state willing to take on the project - again, using alternative pricing.

Editor: So, within the same system they can get that kind of additional information?

Clark: That's right, and law departments can do that with their own panel of firms or, if they don't have a firm where they need one, they can access the Registry knowing that we will help by recruiting and credentialing attorneys for their particular needs.

Editor: And your system also integrates Martindale-Hubbell profiles?

Clark: Yes. If someone is looking to assign a matter to an attorney, they can first look at the attorney's profile by clicking on a link to the individual profile in Martindale-Hubbell.

Editor: I found another reference to create score cards that evaluate outside counsel.

Clark: Yes. When I was in private practice, I liked to think that I was evaluated on a number of different factors when I was working for a client. Obviously, clients are going to look at results. They're going to look at the bottom line and they're going to look at whether you won or lost - in short, whether you got the job done. But there are more subjective criteria you can use to evaluate counsel. Those can be subject matter expertise, responsiveness, efficiency - a number of different subjective areas. We have the ability in CounselLink to capture our customer's criteria so they can evaluate counsel using the characteristics that are most important to them. The criteria will vary with each customer, but all of that information can be captured in one place and then aggregated and reported to create an overall firm profile. That's some of the comparative data, along with cost data or outcome data, which law departments consider when evaluating outside counsel.

We also have the ability to track diversity statistics within CounselLink. If a law department is interested, we invite them to have their attorneys include their diversity profiles within CounselLink and then the diversity data is easily compiled and communicated through our reporting tools. Our diversity tracking functionality can target not just the diversity profiles of the individuals who are performing the work but also the types or categories of work they are performing.

Please email the interviewee at mary.clark@lexisnexis.com with questions about this interview.