How to Stay on Budget and Increase Value between GCs & Outside Counsel

When it comes to managing an in-house legal department, most GCs create budgets based on their best assumptions on what the next year might hold. However, the current environment is demanding that GCs do thorough budget planning rather than just resting on marginal increases to what was done the prior year or on loose anticipation of potential legal challenges.

“It depends” will no longer cut it - and corporate finance departments are putting pressure on legal departments to anticipate budgetary needs with specificity. Furthermore, legal departments have landed at the center of an uncomfortable push-pull between shrinking revenues, in-house legal budgets and rising law firm rates. At a time when revenues and legal budgets are shrinking, legal departments will be required to be more specific as to how much money they need to work with in the coming year and to demonstrate a clear understanding of how those costs are allocated in real-time.

In a seemingly impossible situation for GCs, what can be done? The clarity that GCs need to plan their legal budgets and become aligned with outside counsel can be solved through a two-part approach:

Part 1: Know Your Data

The most important resource in budget planning is data. This is also the area where many legal departments are currently lacking. Without a strong sense of data, a legal department is unable to understand where, when, how and how much money is typically spent and/or how its outside counsel firms are performing.

Here are a few of the ways that data can drive budget planning for legal departments:

  1. Identify the overall drivers of a year’s legal spend, including recurring costs and outliers.
  2. Understand Outside Counsel Spend, including matter analysis, and time spent on matters and associated costs. 
  3. Leverage benchmarking data to understand how like-companies are spending money. 
  4. Uncover which firms demonstrate true competency in their industry. 

Part 2: Engage Outside Counsel as a Strategic Partner

There is a profound opportunity for GCs and Outside Counsel to take their relationship to a strategic level. With openness and transparency, Outside Counsel can lend value to its relationship with GCs by helping to minimize risk and anticipate legal department costs. Additionally, transparency in regard to the legal budget relationship with Outside Counsel services will not only enhance trust in the relationship, but enable both parties to carry out a successful long-term relationship that delivers value.

Speaking of openness, GCs and Outside Counsel will have to get on the same page in terms of what legal departments are willing and able to pay for legal services. The rate increases initiated by law firms contrast the shrinking budgets experienced by their corporate clients. 

This combination of data and communication with outside counsel is not only a means to make a budget, but to extract maximum value from the legal department - outside counsel relationship. As this article points out, “Stemming from the pandemic and the financial downturn, slashed budgets and increasing fiscal oversight mean that corporations need every dollar’s worth of expenditure to provide maximum impact.”

Are you ready to get a clear understanding of your legal spend baselines? If you are, reach out to us here.

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