Reducing Legal Department Budgets May Be Short-Sighted

Thursday, February 28, 2013 - 13:30

Given today’s economic climate, most companies are asking their legal departments to find ways to reduce their budgets. While this may simply be a knee-jerk reaction, general counsel need to be prepared to address the issue, such as by demonstrating that budget reductions would result in limiting the legal department’s ability to positively affect their company’s P&L, or by showing that the legal department’s expenditures are justified to avoid specific risks that would result in much greater losses than the small savings justified.

In this month’s issue, we present examples of legal department activities that may provide substantial savings to a company. These activities may involve the effective use legal technology, outside counsel and even existing law (as potentially applicable in the e-discovery context) to reduce costs, and they may include enterprise risk management plans (ERMPs) that focus on risk avoidance and disaster preparedness.   

Technology solutions touch every aspect of law department activities and can play an important role in creating efficiencies with respect to both human and financial resources. For instance, mistakes, duplicative work and excess legal review costs can be avoided through use of state-of-the-art contract management technology and/or process-oriented technologies like predictive coding that reduce the costs and burdens of e-discovery – a huge drain on law department budgets.

Substantial savings can also be achieved by leveraging technology solutions that automate the legal department’s invoice review to capture and correct “violations” of billing guidelines and fee arrangements that would normally slip through unchallenged. Further, companies can avoid IT infrastructure costs and maintenance by handling e-discovery functions via on-demand technology solutions that provide customized access and the substantial benefit of cost certainty.

We discuss the fact that cost savings can be achieved by using cloud providers and helping legal departments understand the risks that may be involved. Coining a phrase, an author speaks of the “technology fatigue” resulting from the welter of available technology tools, which can be overwhelming and could inspire aversion to new, potentially money-saving legal technologies. Additional budget-conscious themes are efficiency, accuracy and risk avoidance, which accompany our discussions of collaboration in e-discovery requests, particularly during government investigations.

Not only is this collaboration a theme of an e-discovery interview with a service provider, it is also one of the themes of this month’s interview with Allison C. Stanton, Director of E-Discovery, FOIA and Records for the Civil Division of the United States Department of Justice. Ms. Stanton shares with our readers the federal government’s perspective on investigations and the responsibility of corporations with respect to the government’s demands for discovery.

One law firm article discusses a provision in the United States Code that allows for the reimbursement, or “taxing,” of costs, also presenting recent case law in light of how this may or may not be applied to e-discovery costs. Another law firm contributor emphasizes the importance to litigators of having specific expertise in e-discovery, including current knowledge of available technologies. Such expertise delivers more efficient processes and better-informed decision making for clients and advisors alike.

An important theme underlying this month’s discussions is the fact that, by far, the greatest savings are achieved through effective risk avoidance. Corporate counsel usually participate in preparing and implementing ERMPs. The best ERMPs include compliance programs to avoid violations of U.S. and foreign laws and to foster civilized standards of behavior. These plans also provide training for employees to respond to emergencies.

Companies face serious reputational risks in situations involving the health or safety of both their own employees and the employees of global suppliers. Companies are faulted when harm occurs as a result of a natural disaster or other catastrophe, particularly when those could have been anticipated or, in some cases, prevented. As part of a company-wide, cost-management effort, corporate counsel may work with management to develop ERMPs to address these operational and financial risks.

For instance, companies headquartered in the New York area probably planned for a flood someplace in the world that could disable production of a key component of their products, but not for having their New York area headquarters knocked out by Sandy. Those who did plan for such circumstances likely saved their companies considerable disruption and cost. Thus, with ERMPs, general counsel have an opportunity to think outside the box and participate in a broader initiative aimed at potential risk.

Right now, the U.S. is staring down the barrel of sequestration. So far, it has not had its intended effect of bringing the politicians together to work out a mutually acceptable compromise. As we go to press, there is a high likelihood that sequestration will begin to take effect on March 1. It will have myriad effects that will ripple throughout our economy, and – once again – corporate counsel can deliver cost benefits well beyond their own departments in pushing their companies to analyze the impact of sequestration and develop a plan to cope with its effects.

Corporations should beware of the counterproductive results when they mandate cuts in legal department budgets that make it impossible for lawyers to provide such necessary services.

Al Driver,