In-house lawyers move out of the shadows
Simply sign up to the Technology myFT Digest -- delivered directly to your inbox.
The “department of no” is an unfortunate label often stuck on in-house legal teams. They are the ones blamed for stifling colleagues’ innovations because of their cautious outlook and hesitant decision-making.
But that is changing, thanks to a combination of challenges requiring acute legal insight, and the emergence of new tech tools that put powerful analysis in the hands of companies’ lawyers.
There is still a legacy to fight against, however: they tend to command less attention than other parts of a business, even when they comprise as many people as a small law firm.
Janet Taylor-Hall, chief executive of Cognia Law, a legal services provider, sums it up: “The legal department was often seen as a hallowed black box where no one really understood what they did.”
Now, however, expenditure on legal activities is coming under scrutiny and departments are increasingly run as an integral part of a business. Already playing greater roles in shaping and influencing the rest of their companies, in-house lawyers are branching out into new and important areas of business — such as environmental, social and governance (ESG) commitments.
“If we look at ESG, that has changed the role of the general counsel (GC) and they became very relevant during the Covid-19 pandemic,” says Taylor-Hall. In some cases, “they are becoming the voice of conscience in the business”, she adds.
A 2022 study of chief legal officers by the Association of Corporate Counsel, a professional group, found the proportion reporting to the chief executive has risen to 80 per cent in 2022, up from 64 per cent in 2018. Almost a quarter of chief legal officers are now responsible for ESG, up nine percentage points from 2020. The report points to the Covid-19 pandemic and to challenges for business on matters such as diversity, ESG and sociopolitical questions as factors increasing demand for guidance from chief legal officers.
Repositories of company information
The increasing use of technology — electronic billing or contract management software, for instance — means in-house legal teams are also becoming repositories of company data and information.
The information they can collect has wide potential: from revealing whether the business is making the best use of its intellectual property portfolio, to keeping track of which lawyer is working on which piece of litigation.
Mick Sheehy, partner at PwC Law in Australia, notes the big shift by in-house legal departments towards using new technology to generate data. Analysis of such information can reveal emerging trends — and even give early warning of wider problems, such as growing numbers of new lawsuit claims or complaints.
The information allows in-house lawyers to manage business contracts throughout their gestation, as well, rather than being brought in to negotiate a deal at the end.
Additionally, the lawyers may use data to analyse the risk of certain contract clauses for certain customers, for example, and to assess how far the terms differ from the company’s standard contracts.
These represent significant advances. When legal departments had to use the same IT as the rest of the business, there was nothing “fit for purpose,” says Sheehy. Now, thanks to new and more sophisticated legal tech tools, “the department can get control over the life cycle of a contract”.
“GCs are spending less time on business-as-usual, day-to-day activities and more on strategic focus,” Sheehy says, adding that they are helped by legal departments’ increasing ability to alert colleagues about issues and trends.
Taylor-Hall says: “They might work with the sales team or procurement and sit down with them and work out templates and contracts or negotiating guidelines together.”
A 2021 report by the Corporate Legal Operations Consortium (Cloc), a professional association, found that more legal work is shifting in-house. Some 66 per cent of those questioned said the legal department was seen by their organisation as fully integrated into their strategy and business objectives. Only 3 per cent said the in-house legal department was thought to provide strictly legal advice.
Paul Lanzone, executive vice-president at legal tech company UnitedLex, and a former head of legal projects for UBS Bank, says the new kinds of insights gleaned from data are important to a business. “A lot of legal departments are like the glue of the organisation because they touch so many areas of the business,” he explains.
But, to be truly useful, the legal data must be both consistent and integrated with data in the rest of the business, he suggests. IT tools, such as those for robotic process automation — where software robots cross-check the quality of data across different areas of business — can help achieve consistency. “The bots can produce a report which would take someone weeks and they can do it in minutes,” Lanzone says.
Daniel Reed, chief executive of UnitedLex, says companies may be overlooking the value that in-house lawyers can contribute. But he also admits that a typical tech entrepreneur, for instance, probably does not “wake up and think about how the legal department can drive value”.
Also, data that can provide “insight into flares and friction points”, is relatively new, he points out, and legal teams are still working out how to make the best use of it. For lawyers, there may be career opportunities that come from adding more to the bottom line.
Nevertheless, Reed warns that equipping legal teams with new digital tools is about more than implementing technology: “A company can’t just buy a software tool off the shelf and think all the problems will go away,” he says.
Four case studies
The 600-strong legal and compliance team at the south-east Asian bank has made a concerted effort to ensure its lawyers are fluent in using technology and data in their daily tasks. Within certain segments, use of data analytics has cut the time to take on new customers from two weeks to one day. Real-time data also helps monitor customer risk better than static reports. The bank says this approach is both more effective at identifying risks and has resulted in a significant reduction in the legal team’s workload. The team has a close partnership with the technology and operations teams in the bank to deploy solutions at scale, such as artificial intelligence (AI) for automated contract review or chatbots to answer legal queries. In the two years since launch, the chatbot has resolved almost 40,000 queries and freed up 3,000 hours of lawyer time.
With a focus on collecting, analysing and using data smartly, the legal team at this IT services company is able to generate business insights for the management team, such as overviews of existing and anticipated sales and operational risk. To achieve this, it has boosted its use of an AI technology known as robotic process automation. Three bots are currently in development: one to share data between the finance and legal teams’ software tools; another to audit data quality on the legal team’s matter management system; and a third to generate data-driven insights for legal and the business, aggregating it with managers’ viewpoints. Having clean data and being able to integrate with the systems of the whole business allows the legal department to show where it is helping generate revenue.
A greater focus on customer experience prompted the cloud software company to merge its legal operations, contract negotiation and legal procurement support teams into one unit — allowing it to cut the time it takes to anticipate and respond to customer concerns around privacy and other issues. The team is currently implementing a single contract that will cover all its products and services, significantly reducing the time required to close a deal. Once a contract has been negotiated, the customer will have the flexibility to add additional products and services without further involvement from legal. The new contract is 60 per cent shorter than the average length of VMware’s previous contracts.
The Australian bank’s legal department established a transformation team in 2017 to ensure that it would be a driving force in the company’s shift to digital. In the team of more than 200 staff, some 16 have strategy, transformation, operations, digital and knowledge roles. Initiatives include training in the use of data to analyse trends and identify root causes of legal risks facing the business. Recently, 200 lawyers participated in a training programme designed to improve remote working habits and boost both their effectiveness and personal wellbeing. Following its success — with reported increases in productivity and job satisfaction — other business units are undergoing the same training.
Methodology: RSGI, a legal industry think-tank, highlighted these four teams based on frequency of appearance in the FT’s Innovative Lawyers reports, and status of their rankings, reinforced by third-party market commendation and research into: how the teams deliver value to their organisations; use of data and technology; and improving processes.
What makes a smart legal department? Eight key features to look out for
1. Resourcing: legal work is separated into complex, similar and standardised tasks, with the latter outsourced either to a managed services centre or a third party. In-house lawyers focus on strategically important tasks, often while embedded in business units or dedicated centres of excellence, and a multidisciplinary legal operations team handles everyday business.
2. Processes, including contracting: integration of legal and business processes makes it simple for business colleagues to call on the internal legal function, often via self-service. Processes are automated, and contracting — the most common legal process — is made smooth and fast thanks to smart, short and simple contracts and an integrated contract management system that links to core company activities such as sales.
3. Data-centric: the legal department provides business and management insights to the senior executive team. For instance, by collecting, structuring and linking legal data to company data, the team can predict frauds or other risks in the business by using analytics or robotic process automation. Data informs relationships with external counsel via automated requests for proposals, e-billing and digital feedback. Contract clauses are turned into data.
4. Metrics: the legal team is able to demonstrate its value as a revenue-generator using metrics that focus on commercial outcomes rather than legal inputs, with results that are regularly shared with the business. The metrics quantify value such as time to market, sustainable product or service design, and money saved by avoiding mishaps. Essentially, the metrics show revenue generated or costs avoided, thanks to the legal team’s contribution.
5. Transparency: legal has both a clear view and control of internal workloads and external legal expenditure via techniques such as dashboards or efficient allocation of work to the most appropriate and available personnel, whether within or outside the legal function.
6. Alignment: legal supports the aims of the business, with: integrated product and legal teams; legal and compliance tending to work as one team sharing data; and legal working closely with procurement and supply chain functions.
7. Risk management: Risks are graded and explained via easy-to-understand frameworks to ensure that all the lawyers and contract professionals are empowered to work according to the company’s risk appetite, and with an awareness of potential reputational impacts.
8. Talent: a smart legal team knows that transformation starts with people and encourages its lawyers to embrace new approaches by considering how reconfigured processes and new technologies could benefit the business as a whole. It also offers systematic coaching and mentoring.
List compiled by RSGI