New Software Tools Support Global Spend Management For Corporate Law Departments

Tuesday, September 1, 2009 - 01:00
Marcus Linden

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

Linden: In 2006 I joined LexisNexis Examen Inc., a business unit within LexisNexis focused on helping corporate legal departments more effectively manage a variety of administrative matters including their outside counsel spend. I am currently based in Sacramento.

Prior to joining LexisNexis Examen I worked for an insurance company, and just before that I worked for a management consulting firm where I helped corporations identify ways to grow and expand their opportunities with their customers.

Editor: Tell us how the global economic crisis has forced corporate law departments to re-evaluate their international spending on legal services?

Linden: Corporate law departments have always sought ways to control spending on outside counsel - which can be 60 percent or more of their budget. Costs of outside counsel had been growing at eight to ten percent per year while law departments' budgets averaged four to five percent growth per year. So, the question facing general counsel for years has been, "How can I deal with skyrocketing outside counsel expenses on an ever-shrinking corporate budget?"

This problem has become even more acute in recent months as many law departments must contend with mounting litigation resulting from the global recession even as they face severe cuts to their own budgets

Editor: Perhaps you could tell us about any significant differences in spend management challenges at U.S. corporate law departments as opposed to European or Asian corporate law departments?

Linden: Yes, we recently completed our own survey of legal departments and found that 60 percent of U.S. respondents said that there was a significant impact because of the financial crisis while less than 30 percent saw the same thing happening outside the U.S. Other data that I have seen suggests that European legal departments are not seeing the same dramatic cuts in their budgets as their U.S. peers.

More generally my conversations with both U.S. and international GC's suggest that there are some unique and perhaps greater challenges faced by U.S. legal departments.

The most obvious challenge is that the U.S. is much more litigious than other countries. The amounts spent on outside counsel for litigation is much higher for a U.S. legal department versus a similarly sized international company. This means that U.S. law departments have a greater need to have a handle on their outside counsel spending. Secondly, the size of the U.S. and the potential for suits to be brought in 50 states, each with its own laws and regulations, necessitates a much broader network of law firms supporting a legal department.

One London-based GC told me that he manages the whole EU with about 13 to 15 law firms. A similar company with issues throughout the U.S. would have three to four times that number of firms. A London-based GC can get out every year and meet with all her firms - developing great personal relationships that enable her to understand exactly what they are doing for her relative to their proportionate share of her company's legal spend. Her U.S. counterpart finds that the sheer number of firms makes it difficult to build similar relationships and to have as detailed knowledge of their activities. This drives the U.S. general counsel to look for better tools to help manage the dollars of spend under her management.

Editor: Aside from law firm fees, what are the primary drivers of corporate law department spending?

Linden: The next two largest drivers are salaries for house staff and technology costs. Legal management software, for instance, covers not only the basics like spreadsheets and word processing but also more complex functions like matter management and spend management solutions as well as e-discovery tools, which increasingly includes tools that enable a law department to bring some of that work in house and not rely as much on outside firms.

Technology costs are growing today because there is more pressure to reduce budgets by using technology to reduce people costs.

Editor: What are some examples of common inefficiencies in corporate law departments that can make it difficult for them to control spending?

Linden: One of the most common inefficiencies relates to the review and approval of invoices from law firms. Many legal departments today still receive paper invoices from their firms, particularly from overseas firms.

Consider for a moment that it may take 40 days for a paper invoice from a law firm to reach your inbox. That invoice may be a hundred pages or more with thousands of line items. As you review it, you try to remember what your billing guidelines say about travel and other activities and what the agreed-on hourly rates are for particular partners or associates. There is a lot of detail to try to remember, and while you want to review and process that invoice with care, what you really want to do is focus on actually practicing law.

Editor: OK, Let's shift gears a little and talk about your product, CounselLink.

Linden: The key advantage of CounselLink is that it captures all legal department spending. That is a big deal, and I don't think that anyone else really does that.

We are unique because we don't require all firms to send us an electronic file. Even if they send us a paper invoice, we can convert that to an electronic file.

All invoices international and domestic get into the system. Because some international firms aren't familiar with them, we don't require firms to code invoices using industry UTBMS codes.

CounselLink can also handle your invoices from service providers other than law firms. If you've got expert witnesses or are using an accounting firm, all that spending can be inputted into the system. So, 100 percent of all you're spending is at your fingertips.

We probably deliver our highest cost savings through use of SmartReview. This technology actually "reads" the explanation of the charges and can cross-reference an itemized charge and corresponding description from an invoice against the corporation's billing guidelines.

Editor: How much manual work are you folks involved with and how much of this is done through technology?

Linden: We have a team of folks who do the conversion of paper invoices into electronic files, so that is a labor-intensive activity. But once the data is into the system, the process is automated. We have trained CounselLink using the SmartReview technology to recognize patterns in language, to read the charges and descriptions and to know how to categorize them.

You can slice and dice the information so that you can view the information that you need in the form that best serves your needs. As you look at an invoice, you can, if you wish, look only at the tasks that may violate the billing guidelines and see the relevant guideline for each task. If you want to look at just the larger items, you can, for example, see a list of the larger items that drive a designated percentage (say, 80 percent) of the invoice value. So there is great efficiency in having one automatic tool that prescreens invoices for you.

Editor: Is the system internal within the corporate legal department or is that something that is web-based?

Linden: It is completely web-based, so we host all the data in our office in a completely secure environment with all the appropriate backups. That drives some significant cost savings for our customers. They don't need in-house IT resources dedicated to managing and maintaining the system and their subscription with us includes the cost of all upgrades and the applications.

Editor: Tell us about recent upgrades to CounselLink that help law departments manage legal affairs in multiple countries?

Linden: Among the many upgrades in our recent CounselLink release are two that are particularly valuable to legal departments that retain foreign firms or the foreign offices of international firms.

The first is the capability to easily display financial data in any currency based on the user's preference. Our corporate clients retain law firms in over 115 countries. This multi-currency capability extends not only to the invoice but to the budget as well. So, if you have asked a firm to submit a budget and they submit it in Yen, you can look at what that budget converts to in dollars.

If you look at hourly rates for partners across all your international firms, you can now express all of them in dollars and compare the cost of a firm in Italy with one in France and with one in the U.S.

Second, we pioneered the solution that provides support for the LEDES 2.1 invoice format with our CounselLink product. Our ability to support this format allows your firms to easily submit valid VAT invoices without the need for paper or .PDF back-up invoices.

Editor: Does CounselLink support alternative fee arrangements?

Linden: Most legal spend solutions can only support detailed hourly billing. CounselLink can handle any fee arrangement, whether it is detailed hourly, flat fees, contingent fees or a mixture. There is enormous potential for legal departments to save money by providing incentives for law firms that meet performance goals.

Editor: Does CounselLink improve the early case assessment process?

Linden: Very definitely. CounselLink provides a powerful tool to track invoices against the budget that was established at the outset of the early case assessment process. It is a good tool to keep firms accountable for their estimates of what a case or other matter is going to cost.

Editor: What is the single most important "best practice" in the eyes of your customers?

Linden: You definitely want to be sure that 100 percent of your outside spend is being captured in your legal spend system. Not only will you have a comprehensive view of all spending, but the savings you realize from the system will be greater if every element of legal spend is included. E-billing systems have demonstrated that significant savings can be achieved by virtue of the data collected and the discipline they impose. Many of those savings can be achieved by including paper invoices in the system. CounselLink makes this possible.

Editor: Does CounselLink provide reporting tools that enable you to demonstrate to senior management the savings you have achieved?

Linden: Yes. A clear trend over the past four to five years has been an expectation that GCs will be effective managers of budgets and personnel, in addition to being legal experts. GCs and their staffs are now expected to analyze and communicate to senior management their performance against budget. Many of our customers tell us that one of the top reasons for buying CounselLink is that it is a powerful reporting tool.

Our users are able to go into CounselLink's reporting tool to access our standard report suite or to generate customized reports. One of the most popular reports shows how much the legal department has saved in a given year. The report compares the invoices submitted by law firms and other service providers with the net dollars paid out to them. It then details savings generated from careful invoice review and from capturing discounts tied to early payment of invoices. Along the way, our customers are able to demonstrate a five- to-ten times return on their investment in CounselLink.

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