The downturn presents an opportunity for in-house lawyers to rewrite the rules of engagement with their external legal counsel - and technology could provide the key to ensuring strict adherence, writes Angela Priestley
The state of the current economic climate is leaving in-house legal teams in a difficult situation as management teams turn the spotlight on departmental cost/value returns within their organisations.
A recent survey of 209 Australian in-house lawyers by Deloitte found that the ability to "reduce legal risk" and "achieve the timely resolution of legal problems" was regarded by respondents as their most demonstrative value to their organisations in the current climate.
In-house lawyers are being asked to buffer their organisations against the adverse affects of the economic climate, yet the survey found that 25 per cent believe their legal budgets will decrease over the next 12 months, while a further 50 per cent believe they will remain unchanged.
"Predictably," says Deloitte forensic director Victoria Sweetman on the results of the survey, "many organisations across Australia and globally have responded to the global financial crisis by looking for ways to cut expenditure and to extract greater value from existing resources."
Sweetman adds that many in-house lawyers will remember the last serious economic downturn, and the large numbers of redundancies that occurred in an effort to reduce overheads. Indeed, there has already been a spate of in-house redundancies this year.
It's clear that the pressure is on legal departments to work harder than ever, and in many cases, with fewer resources. According to Gretta Rusanow, from legal knowledge management consultancy Curve Consulting, it could be time for law firms to step in and, where possible, offer resources to assist their in-house counterparts.
That could mean better harnessing the power of technology to communicate with clients. According to Peter Moon, partner telecommunications & IT at Logie-Smith Lanyon Lawyers, that could be difficult to sell to most partners in large law firms.
"I have been pushing this for 20 years," he says as a lawyer who has established a wiki to communicate with one of his clients. "It is just the nature of the beast that they (law firms) will be hurting badly, but they can't bring themselves to skill up."
If law firms can not be coerced to cooperate, says Rusanow, then in-house lawyers should find the means to better negotiate their external counsel fees - by monitoring and managing their legal costs through technology - and particularly through matter management.
Does it matter?
External legal representatives will often demand a good chunk of the legal department's budget, but a matter management system can ensure in-house lawyers are getting the most from their external legal spend by capturing data to provide analysis on just where the cash is going.
Rusanow says: "Matter management can track outside invoices and provide a reporting capability that enables you to track budgets and work ... It's also about managing costs. Do you have a panel, have you negotiated a fee arrangement, did you get your procurement dept involved?"
A smart system not only provides an overview and understanding of the basic workloads of internal lawyers, but can also offer a risk management analysis on the work that is being done. Perhaps a spike in sexual harassment has occurred following the merging of a team across the organisation; effective tracking of legal work can identify the problem and seek to manage it accordingly.
Then there is the question of tracking costs - the capturing of information about the cost of a particular matter over time can put a law department in a commanding position, allowing them to better negotiate costs with their external counsel.
In the United States, where in-house legal teams can often number in their hundreds, there is a serious market for matter management technology. The market in Australia is a lot smaller - especially with the average size of an in-house team rarely exceeding one or two lawyers, but even the simplest of matter management systems are providing some powerful answers.
Rusanow, who once advised legal teams in the US on their technology spend through PricewaterhouseCoopers, finds her work as a private consultant in Australia a little different. "The local market is characterised by relatively small legal teams with smaller budgets and general counsels might be able to do all the work," she says. But solutions have still been tailored to meet the needs of small in-house clients. From Lex Australia, comes Lex Legal Suite, offering the ability to manage matters and contracts by linking to relevant documents, tracking file notes and analysing invoices and time. Nsynergy offers LegalNet, a solution for assisting in-house counsel and law firms to collaborate with greater transparency and LexisNexis (also publisher of Lawyers Weekly) has Visualfiles, a file management solution for organising and automating business processes.
Small in-house legal teams may not have the budgets to spend on specialised technology for matter management, but in many cases they do have the resources available.
Elizabeth Harris, a cost lawyer who also runs consultancy Allocatur, says that in many cases, simple Excel spreadsheets - if used effectively - may do the trick. "If you can track your costs, and do it in conjunction with setting up billing and engagement guidelines, it becomes quite clear what you are prepared to pay for."
Harris believes billing and engagement guidelines may provide some favourable conditions for in-house legal departments to negotiate in.
Such engagement could involve contacting clients to seek pre-approval to fly business class, to do more than three hours research on any particular aspect of a matter, or to change lawyers on a matter and/or to provide an explanation as to why more than 10 hours has been recorded on a particular day by a single individual - all factors that can be tracked through matter management.
Harris believes that some legal departments have already caught on to the need for such engagement rules.
"You can get more sophisticated and project manage the matter," says Harris. "Sit down with a law firm and make them plan out the work required ... Decide what the course of the matter is, what resources will be devoted to particular aspects and cost it out. Do it like construction is managed."
But Rusanow is a little less confident in the power of Excel to handle such requirements. "It's very limited," she says. "You can be capturing the information, but there are limitations on its reporting capabilities."
Enter the white knight
When in-house legal teams are stuck for cash to improve their processes, law firms would be smart to step in and assist - especially in the current economic climate.
Rusanow says that when transactions and client billable work are slow, "it's the perfect opportunity for law firms to work on building their relationship with clients."
That may mean stepping away from the billable hours and instead working to develop some "hooks" to retain clients past one-off transactions.
Some lawyers may also have more time on their hands in the current market - an opportunity for them to participate in developing the knowledge-sharing function of the firm. "This is a prime opportunity to put your really clever lawyers to good use and keep them motivated," says Rusanow. "Work on your internal know-how, but at the same time, see what you can offer clients to help them manage the current climate too."
According to Harris, it can be as simple as opening the lines of communication to find out exactly what in-house clients want. "If you actually communicate with the client about what they want and where they are going, then you can develop a really good relationship in the current climate by actually addressing those concerns, rather than bunkering down and hoping the clients won't look at what you're doing."
But ultimately, says Moon, it may mean that lawyers and their firms need to step away from some age old habits and learn about the capabilities of technology. "The days of technology chauffeurs are long gone," he says. "It's like saying 'I don't drive a car, I have a chauffer', that's as silly with technology, as it is with a car ... Move on and get a driver's licence."
It could also be the only way to survive the journey, and safely arrive at the destination.
Peter Moon and Elizabeth Harris are speaking at the Victorian Corporate Counsel Day 2009