Companies continuously look for ways to control expense ratios to boost shareholder value. The need to cut expenses has left no business unit untouched in today's corporate environment. The one business unit where costs, by their very nature, can be unpredictable is the office of the general counsel. In recent times, two types of cases have proven to be extremely costly to companies: governmental investigations and large-scale litigation.
High-dollar, high-stakes legal and regulatory matters often require retaining teams of outside counsel and numerous consultants and experts to support them, significantly increasing the costs associated with such matters. As a result, corporate counsel has come under increasing pressure to keep their own headcount down. One of the best ways to manage the costs of litigation and regulatory matters is to have a strategy in place at the outset to ensure that any professional services firm that is retained strictly adheres to the company's prescribed guidelines. Once professional services firms have an understanding of what is a permissible versus a non-permissible charge, technology and consulting solutions can be applied to help monitor adherence to the company's guidelines.
Basic technology solutions can enable companies to categorize or bucket services that are performed, allowing corporate counsel to identify anomalies that are typically not going to be paid for. A key objective of technology and consulting is to simplify processes so that all of a company's service providers conform to a set of standards that the company enumerates, facilitating management's ability to compare apples to apples, ultimately enabling them to make reasoned decisions more efficiently and effectively.
The single most serious challenge to legal cost controls is the increasing prominence of electronic discovery. Over the past several years the cost of electronic discovery has skyrocketed and continues to grow at double digit rates on an annual basis1. It is estimated that the costs alone for electronic discovery will reach approximately $2 billion in 2007 and $4 billion by 20092.
The Federal Rules of Civil Procedure, amended in December 2006, have cemented the significance of electronic discovery for the foreseeable future. As a result, corporate counsel are not merely concerned with the costs, but also with the risks and potential sanctions associated with non-compliance of a discovery order.
Corporate counsel are regularly confronted with managing high-stake matters where the complexity, risks and costs associated with electronic discovery can pose a serious challenge for any size company. Outside counsel have been making significant strides to become masters of electronic discovery in order to effectively defend their clients and to prevent potential sanctions for failure to produce. In an effort to effectively control electronic discovery costs, increasing pressure has been placed on general counsel and their staff to become masters of electronic discovery.
Corporate law departments are responding to this need by designating staff members as in-house electronic discovery experts. To effectively understand and control the costs and risks associated with electronic discovery, an internal multi-disciplinary team comprised of legal, compliance and IT professionals is necessary to ensure a comprehensive and integrated approach.
In order to control the costs related to litigation or regulatory matters, a company needs to first understand exactly what data it has in its possession and where it is located. Litigation readiness in essence is the process by which companies are taking control of their processes by mapping out where their data is and fully capturing and identifying what they have and where it is housed.
When a litigation or regulatory matter arises, a company should be prepared to execute a strategy and be able to effectively manage the litigation team of in-house and outside counsel. Once a company is litigation ready and has established that it has possession of only the data that it is required to have under the law and in adherence with its own policies and procedures, then the company will be able to work with a more finite data population. Litigation readiness will enable a company to focus on quickly identifying and producing the relevant data.
Corporate legal departments can supplement their team of in-house electronic discovery experts and become litigation-ready by utilizing, on an as-needed basis, experienced outside consultants with expertise in advanced technologies and techniques. Such technologies and techniques can greatly enhance efficiencies. The effective use of technology, combined with IT risk and litigation consulting expertise, enables companies to better manage and significantly control legal costs. It is preferable for companies to license existing technologies, as opposed to spending corporate funds to develop homegrown solutions due to the costs involved.
Applying the right technology and consulting solutions not only saves in-house counsel valuable corporate dollars, but it also enables counsel to better manage their company's legal and regulatory matters. Understanding the existing electronic discovery technologies, as well as a company's own data and having it contained within an electronic discovery master plan, which can be readily executed, helps companies to avoid spending money unnecessarily. By simplifying what appears to be complex and burdensome technical issues, companies can save a significant amount of time, effort and expense.
Global companies encounter even further challenges related to cost containment as they grapple with the data privacy laws and regulations, which make electronic discovery more cumbersome. It is estimated that the costs of compliance with data privacy should approximate $21 billion by 20113. These costs are frequently the result of being unable to properly manage what appears to be an overly complex process that can and should be simplified.
If the electronic discovery industry is going to be deemed as part of the solution rather than a central problem of the excessive costs associated with the litigation process, it will need to make significant strides. Fully integrated and innovative technology solutions will take full advantage of a company's existing business technology applications to help clients overcome their legal, regulatory and financial challenges. Through the introduction of new technologies that meet client needs as well as consulting services that drive down prices, a new market leader to corporate counsel will surface. The advancement of such technologies and consulting services will result in driving down the cost of electronic discovery, while simultaneously creating efficiencies and increasing shareholder value. 1 Gartner, Inc., Dataquest Insight: Emerging E-Discovery Market Spurs New Content and Records Management Investments by Tom Eid and Debra Logan, October 12, 2006.
2 George Socha and Thomas Gelbmann, "EDD Hits $2B in Socha-Gelbmann Survey," Legal Technology News, August 2, 2007, www.law.com/jsp/legaltechnology/pubArticleLT.jsp?id=1185959203368.
3 IDC, Worldwide Legal Discovery and Litigation Support Infrastructure 2007-2011 Forecast: Legal Matter and Compliance Records Repositories Are the Early Use Cases of the Active Archiving Architecture, June 2007.
Jerry F. Barbanel is the Executive Vice President in charge of IT Risk and Litigation Consulting for the Financial Advisory and Litigation Consulting Services practice at Aon Consulting. Mr. Barbanel can be reached at (201) 966-3494.