Implementing Legal Shared Services: Mitigating Risk
The paramount roles of the legal function are to protect the company’s rights and advocate the company’s interests. A key dimension to consider when investigating legal shared services is not necessarily cost or customer satisfaction, but risk. Risk is typically invisible, it is the accidents that one eventually sees, and risk is not always appreciated on a daily basis.
Shared services presumes a significant amount of independence and authority on the part of business units. In a shared services environment, businesses typically at least have a say on how much service is required based on their judgement on what is best for their business. This raises many questions:
- Do they see and/or control all risk?
- Is risk limited to a particular business unit?
- Can the business properly assess the value of legal services if the principal benefit derived is risk reduction?
In a sense, this is an issue for all shared services; creating smart customers who know how to best derive value from the services provided. There are many examples where companies have investigated legal shared services and then opted for the traditional approach. However, there are also many companies that have very effectively applied the shared services approach to delivering leveraged solutions to their clients.
There are several potential bases for leverage in legal services:
- Dispute avoidance: Sharing of practices and/or practitioners
- Alternative dispute resolution: Leveraging expertise at settlement negotiation, mediation, arbitration and proposing alternatives to expensive and protracted litigation
- Case management: Matching counsel available
- Subject matter expertise
Billing arrangements for outside counsel
- Discounted fees
- Negotiated hourly rates
- Contractors vs. law firms
- Electronic messaging capabilities
- Document storage and management systems
- Matter management systems for tracking hours, outside expenses, etc.
The remainder of this article will provide learnings from those companies that have successfully adopted shared services for portions of their legal support:
- Dealing with the discretionary nature of shared services when the service is legal
- Full utilization of internal staff and mix between internal and external
- Technology to reduce cost and allow geographic dispersion, that is distance between lawyer and client
- Performance metrics ideas
- Learnings for legal organizations that have moved from a central staffing to a shared services organization, such as headaches to watch out for or questions to ask about probable situations
DISCRETIONARY NATURE OF SHARED SERVICES
A key first step in defining shared services is segmenting specific services based on whether the businesses have any discretion regarding the service delivered. Those services that are non-discretionary for the businesses (governance services) should be separated from those that are discretionary and potentially leverageable. Discretion can have many dimensions including:
- Whether to use a service
- Amount of service
- Cost of service
- In-house vs. outside counsel
Governance services should be provided by a staff that is separate from shared services as the non-discretionary aspect is in direct conflict with the customer partnership required in a successful shared services environment.
Representative examples of non-discretionary (governance) law services
- Corporate annual meeting preparation and board resolutions
- Political action committee management
- Mergers, acquisitions, divestitures and joint venture legal support
Representative examples of discretionary (leverageable) law services
- Litigation/arbitration management
- Trademark management
- Antitrust/competition law counseling
Segmentation of services as discretionary/non-discretionary typically involves input from both corporate staff and the businesses. Only those services identified as discretionary should be candidates for inclusion in shared services. A leading practitioner of law shared services indicates that this separation has resulted in improvements in efficiency and service quality. Much of the work that had been taken to a central committee to ensure proper legal input was obtained for major decisions is now performed by an empowered network of lawyers which reduces cost and increases lead times. Once the work to be included is identified, efforts should focus on how to most effectively and efficiently staff, deliver and manage the services.
FULL UTILIZATION OF STAFF/MIX BETWEEN INTERNAL & EXTERNAL RESOURCES
Managing the internal resources of a law shared services organization can be similar to running an outside law firm or consulting firm. The following provides insights around some key resource management decisions required.
Geographic deployment: Should lawyers be co-located and remote from clients? Should they reside on client sites?
Two service delivery models have evolved as shared services practitioners have deployed their legal staff.
In one model, lawyers are co-located with their clients to ensure closer partnership and greater alignment with the day-to-day business issues. In this model, the lawyers still maintain their reporting relationship to the legal services group to maintain their objectivity. This model leverages technology and information access to ensure knowledge is shared while emphasizing the client-lawyer relationship. In some cases, locations are based on the volume of work (e.g., an asbestos litigation specialist may be located with the business with the greatest amount of work, but still support other businesses as needed). This model is most often used when in-depth knowledge of the business is required for optimal service delivery.
In the second model, lawyers are concentrated at a single location to ensure more efficient and effective transfer of learnings. This model tends to place greater emphasis on leveraging the law staff skill sets. This model is similar to the outside legal counsel model and primarily used when depth of expertise in a given specialty requires greater emphasis than specific business knowledge.
Aligning skill levels to work: Leveraging resources across a broader client base should allow better alignment of resource skills to the service provided
In a shared services environment, where clients have discretion over service costs, it is imperative to assess the level of skills required to deliver services. Solutions adopted by legal shared services practices include increased utilization of paralegal staff and using non-legal staff as appropriate. For example, one company found that prior to shared services implementation each business had their attorney conducting ethics training. The shared services developed an ethics training program and then identified a training professional to deliver the materials at a rate more aligned with the work skill requirements.
Utilization: Not all attorneys will be 100% utilized on a daily, weekly or annual basis
Shared services can bring a significant increase in administrative activities to provide more information the customer; increase client communications develop a greater business focus. Specific plans should be targeted at reducing internal staff meeting time, reporting activities etc. in order to offset the increased administrative activities required under shared services (e.g. timekeeping, business plan). Best practices are targeting for non-managerial attorneys to spend no more than 10% and managerial attorneys no more than 15% of their time on administrative activities. In addition, another challenge is meeting variable customer demand while meeting budget constraints. This most often is achieved by establishing a balance between fixed-cost internal resources and variable cost outside resources.
Balancing internal and external resources
Outside counsel can serve two purposes: provide additional support during peak demand and/or provide expert depth in specialties not often required.
The level of outside counsel support required is defined based on the nature of work and level of support required. Some common trends have been evolving regarding work internal vs. outside resources.
Internal attorneys typically are used when:
- Their knowledge of the business gives them a competitive advantage over law firms
- Knowledge of business needs, objectives and company policies/procedures translates into better prioritization and more efficient service delivery (lack of learning curve)
- Services are core legal services (e.g., operations counseling, occupational health and safety counseling, liability avoidance/minimization)
- Services are not core, but of strategic nature (M&A, corporate restructuring)
- Services are most cost effectively provided internally (e.g., real estate, remediation, finance)
- Managing outside counsel. Litigation case management should remain internal as law firm incentive can be in conflict with strategies to achieve early resolution
Outside attorneys typically are used when:
- Services have common requirements that firms can leverage across their client base
- Unusual or non-recurring work that does not have sufficient volume to justify dedicated staffing
- Litigation is involved
Legal shared services groups closely manage their outside support in terms of the quantity and type of support acquired. Shared services groups report internal resources at 35% - 50% of total legal spending. This can increase to 50% and higher when viewing total legal less litigation expenses. Leveraging resources across broader client groups has increased their ability to use more cost effective resources such as contract lawyers and temporary paralegals. One former head of a shared services operation reports that they have had great success using contractors from dual income families who want to practice law, but would like to avoid time required in a large firm. These contractors have offices and clients often are unaware that they are a contractor.
TECHNOLOGY TO REDUCE COST AND ALLOW GEOGRAPHIC DISPERSION
Advances in technology provide a broader range of options for providing legal support. Technology can enable improved communications, knowledge sharing and project tracking and management. The following highlight various uses of technology to enable greater leverage of resources:
A variety of technologies provide opportunities to maintain attorney-client relationships from remote locations and sharing of knowledge. Some of the technologies in use include: e-mail, video conferencing, NetMeeting software.
Information networks and databases provide improved capability to access accumulated knowledge. One large legal department has implemented a law information sharing network (LISN) to enable electronic creation, access, tracking and storage of information and documents globally. These networks, also referred to as brief banks, enable the organization to accumulate and increase access to its entire knowledge base. A key concern in doing so is ensuring adequate protection of this strategic information and having contingent arrangements (e.g., local law firm contacts) in the event of system problems. They are also making this information selectively available to outside law firms for dissemination of consistent data.
Benefits of the LISN system described above include:
- Reuse of critical knowledge/expertise (subject to edits for local jurisdiction)
- Reduced duplication of effort
- Increased use of best practices
- Reduced response time
- Greater opportunities for peer review
The overall impact of LISN is higher quality document production with reduced cycle time. This has made a positive impact on customer ratings of consistency, reliability and service satisfaction.
Access to a variety of information sources can be leveraged through the internet. Law departments are increasingly using home pages as a starting point to attorney and client access to required information. Client access may be in the form of frequently asked questions, organization charts, standard forms or checklists of things to consider/address when faced with an issue. These homepages often provide direct links to access pertinent cases, federal and state agency proceedings and other information sources located at various worldwide web sites such as Westlaw.
In a shared services environment, clients often are aware of their costs and expect greater discretion over these costs. Most shared services law practices have implemented systems to better manage projects, track costs and electronically bill for services and even tasks. Implementation of electronic task-based billing allows systematic verification of invoice data and allows analysis and modeling to identify areas/processes where significant cost savings can be realized.
PERFORMANCE METRICS IDEAS
Performance measurement in a shared services environment typically involves two main areas of focus:
- Cost effectiveness
- Customer satisfaction
Cost per hour of internal legal support is the most commonly used measure of cost effectiveness. Internal attorneys should be less expensive, given the lack of profit motive, managed utilization and minimal marketing expense. An important use of this measure is to learn whether the company’s compensation is out of line with local market prices. For example, in certain industries everyone who has 15 years may get a certain level of compensation that may be higher than rates externally available.
Other cost effectiveness measures most frequently cited are based on an annual survey of law departments conducted by PricewaterhouseCoopers. These measures include:
Total spend & staffing
- Legal spending as % of revenues
- Outside counsel spending as % of revenues
- Inside legal spending as a % of revenues
- Total # of law department staff per billion dollars of revenue
Inside/outside resource mix assessment
- Inside spending as % of total spend
- Total inside spend per attorney
- Fully-loaded inside hourly cost
Internal staff mix
- Legal assistants per attorney
- Secretaries per attorney
- Total support staff per attorney
- Secretaries per legal professional (i.e. attorneys and paralegals)
Components of internal legal spending
- Personnel costs as a percent of total inside legal spending
- Operating expenses as a percent of total inside legal spending
- Overhead & occupancy as a percent of total inside legal spending
Components of outside legal spending
- Litigation costs as a percent of total outside counsel spending
- Lawyers pre 1000 Ees
Direct feedback and satisfaction input is a key component of the client partnership element of a shared services environment. Most leading legal shared services measure customer satisfaction on an annual or semi-annual basis. Questions typically included are designed to ensure alignment of resources with those services most important to clients, to prioritize areas for improvement and to provide some insight on the nature of change that would increase customer satisfaction.
The following are lessons that companies that have implemented law shared services believe should be addressed during a shared services assessment:
- Recognize that different parts of the organization require different levels of service. Shared services should meet just their needs and nothing more (e.g., do not try to impose the same minimum to all customers)
- Must ensure working on projects which are important to the business and working on them in the right order. Should develop a process that involves the business, patent dept, R&D and other functions as required.
- Must develop a clear understanding of the customer’s business and the impact of deliverables on their business performance
- Law department should develop or call upon "brokering" skills to effectively manage the spend on outside counsel
- Try to get some work out of the organization (e.g., patents never used, internal group reporting)
- It is important to assess and balance the mix of staff skills to the work performed