This is the second in a two-part series. The first segment examined how and why legal change derives from business digital transformation.
Business has often regarded the legal function as a corporate bottleneck and cost center. That’s because legal culture, education, indoctrination and language are different than other corporate business units. Lawyers have long operated by their own rules, timelines, and metrics— even when they are corporate employees. They rationalize their detachment from business as necessary to maintain professional independence, freedom from economic conflict, and preservation of their ethical standards. This chimera sustains their fit-for-lawyer-purpose paradigm.
Lawyers have constructed and zealously maintained a cultural, intellectual, philosophical, regulatory, economic, and educational moat that separates them from other professions, business and society. Competition was thwarted, professional autonomy was absolute, supply was controlled (both numerically and geographically), clients were treated more as supplicants than customers, and terms of engagement were dictated by lawyers.
Law was a guild perpetuated by the myths of legal exceptionalism and bespoke work. The profession’s “lawyers and ‘non-lawyers’” mindset personified law’s hubris and insularity. Internal diversity and multidisciplinary collaboration were eschewed. The legal profession defined “legal work,” and its practice became an end unto itself, not a means to achieve client objectives. Lawyers were the arbiters of their value and judges of their performance. Their purpose was to practice law.
General Counsel Are On The Front Lines Of Legal Change
General Counsel are in the vanguard of legal industry change. Most are not driving it but reacting to increasing pressure from the C-Suite that the legal function join in the enterprise digital transformation journey. That requires legal, among other things, to align with corporate purpose, create value, and contribute to an elevated end-to-end customer experience.
The legal department has long occupied a unique corporate position. It has been exempt from speaking the language of business; operating at its speed; adopting its processes, metrics, and fiscal accountability; and value creation. Most corporate legal departments maintained a detachment from other business functions—perhaps because they regarded themselves as professionals, not as a business function. Corporate legal departments typically operated as siloed, captive law firms embedded in the business but otherwise detached from it. Their small size, negligible budget impact, and “non-fee earner” role enabled them to operate as a discrete function within the enterprise. Digital transformation has changed that.
Digital transformation has altered legacy buy-sell paradigms and, in the process, fundamentally changed the way business operates internally and with its customers. Digital transformation is a team sport; multiple studies link digital success to cross-functional collaboration and data-sharing across the enterprise. Unsurprisingly, the legal function has been a digital laggard.
That is why the C-Suite is stepping in. The benefits of an agile, digital legal function extend far beyond its own internal efficiency and an ability to “do more with less.” A digital legal team can create significant enterprise value as well as improve customer (end-user) experience. The rewards for the agile, digital legal function mirror its impact on the enterprise. Legal has an opportunity to elevate its corporate standing, have a voice in corporate policy-making, and attract top talent in search of purpose-driven work and collaborative, innovative work environments.
The C-Suite Is Architecting A Fit-For-Business Purpose Legal Function. GC’s Are Tasked With Constructing It.
Business is the architect of a fit-for-business purpose digital legal function. The C-Suite is recasting law’s role and remit to align with corporate purpose and integrate with other business functions. The end game is enterprise value creation and an elevated customer experience.
General Counsel and their leadership teams are the general contractors overseeing the construction of a fit-for-business purpose legal function. It is not an easy assignment. GC’s confront a constellation of daunting challenges that include: downward pressure on budget, increasing workloads, widening portfolios, new risks, a talent war, and a dual role of proactive enterprise defender and value creator. Legal culture is the strongest headwind; there is enormous change resistance from most in their departments, large law firms, and legal institutions.
The 2021 EY Law Survey, conducted in collaboration with the Harvard Law School Center on the Legal Profession reveals the fiscal and operational challenges faced by corporate legal functions. Here is a sampling of the data:
- 75% of GC’s are having difficulty handling current workloads;
- The workload is projected to increase by 25% during the next 3 years;
- 88% of GC’s report plans to reduce their budgets in response to escalating pressure from the C-Suite and Board to do so;
- Among large corporations (>$20B annual revenue), the C-Suite mandated legal cost takeout has jumped from 11% in 2019 to 18% in 2021.
A recent study by The Digital Legal Exchange revealed the C-Suite’s changing legal remit is broader than financial and operational issues. The research found that 97% of business respondents said they wanted the legal function success metrics to be aligned with business goals. Nearly three-quarters (74%) of business respondents said it is important/extremely important for legal to create revenues and new market opportunities.
How can the legal function meet its formidable challenges? Short answer: not by preserving legacy legal industry paradigms. Legal-like business-must reimagine its purpose, role, and remit from the business and customer perspectives. This requires a long, hard look in the existential mirror and asking, “What purpose do we serve, what do our customers/end-users of our products and services need and expect from us, and how can we consistently exceed their expectations?” Most lawyers are not accustomed to posing these questions—business leaders are.
The technology, processes, models, data, resources, and capital exist to enable the legal function to meet its challenge and to turn it into opportunity. The legal function is not required to pioneer the digital journey; it can borrow from the experiences of its business colleagues who have already embarked on. These shared learnings will assist GC’s with the change management process. They will also kick-start the legal function’s transition from cost center to value creator by altering mindsets, automating and enabling legal professionals to focus on higher-value tasks, and promote integration with other business functions.
What Is Value Creation For Digital Businesses?
Value creation in the digital age is long-term and holistic. It involves not only profitability and satisfying shareholder expectations but also addressing the needs of customers, employees, and the supply chain. Environmental, social, and governance (ESG) commitment have also emerged as elements of value creation.
Value creation requires alignment of purpose—internally, across supply chains, and with customers. It is predicated upon trust, transparency, and a commitment to building a long-term relationship with employees, supply chain partners, and customers. It also involves a social compact with society and the planet to contribute to the common good and to be a better environmental stewards. These values create societal goodwill and a more positive view of the brand.
This is context for legal value creation. The process begins with a reassessment of the legal function’s purpose from the client/customer and societal perspectives. This requires a paradigm shift from law’s insular, homogenous, self-selecting, zero-sum, individualistic, male-oriented, risk-averse, conservative, precedent-bound, mindset to one that more closely resembles its clients/customers and the broader society. Technology and data enable the digital transition; human behavior and adaptability realize it.
An Agile, Proactive Legal Function Creates Value
Legal functions that are agile and proactive create value. They do so in their enterprise defender and business collaborator (defense and offense) roles. They also create value in other ways—a heightened sense of purpose that spawns productivity and innovation; an improved employee experience that promotes talent retention/attraction and reduces turnover; and a culture that promotes diversity, teamwork, and customer-centricity.
A brief explanation of “agile” and “proactive” provides a framework for the cultural and mindset shift the legal industry must undertake to create value. Agile functions are customer-centric, fluid, cross-functional, innovative, fast learners (think: dot connectors), collaborative, outcome-driven, inquisitive, passionate learners-for-life. They function as a team and have a shared purpose. These are not buzzwords but core elements of a culture committed to creating value for individuals, the entire workforce, the enterprise, customers, and society.
Proactive functions utilize technology, data, multidisciplinary expertise, and other resources to detect, deflect, mitigate, and/or accelerate the process of extinguishing corporate risks. Those resources and methods can also be marshaled to identify, pursue, and capture market opportunities that create value. Value generation is created by proactive enterprise defense and business opportunity creation. This is the paradigm for legal value capture. Here are some examples.
- Legal teams capture value when they are internally integrated. Legal practice is leveraged and enhanced by synergy with those engaged in the business of delivering legal services (“legal operations”). Value is created by enhanced efficiency, cost reduction, speed, freeing up resources from low-value, high-volume, repetitive work. This creates a foundation for cross-functional activity (integration with other business units) that produces even greater value.
- Value is captured when the legal supply chain is integrated with the corporate legal department. To optimize value realization, the legal function must operate as a unified, integrated team throughout the supply chain. Lawyer-conceived, artificial distinctions between provider sources (in-house, law firm, law companies, consultancies, etc.) are a drag on value creation. Fluid, integrated teams that operate seamlessly, have a shared purpose, share data, integrate platforms, and deploy the right talent/tool for the appropriate task capture value.
- Legal teams capture value by working cross-functionally with other business units to solve enterprise challenges and to identify and pursue opportunities. This applies both to integration with other business units on corporate defense (compliance, cybersecurity, HR) as well as opportunity creation (sales, marketing, C-Suite). The more the legal function integrates with other business units across the enterprise, the greater the value creation potential.
- Agile, proactive teams produce efficiency/productivity gains (value creation) by early risk detection/dispute resolution. This frees up corporate and legal resources for core, value-generating activities instead of engaging them in protracted, counter-productive legal work. The same principles can be applied to other legal activities.
- Value capture is achieved by a customer-focused approach to key practice areas including litigation, commercial transactions, and compliance-the three largest legal spend and lost opportunity areas. This involves jettisoning existing paradigms developed by lawyers and replacing them with customer-centric approaches. Digital litigation, for example, focuses more on dispute avoidance and less on the inevitability of protracted, invasive, costly, lost-opportunity filled, likely-to-settle-on-the-courthouse-steps legacy processes. When litigation cannot be avoided, the focus shifts to a compressed, accelerated, fact-gathering process and early case assessment and resolution. The same principles apply to contract management and compliance.
- Litigation finance offers another avenue for value capture. The third-party financial backing and tech and data-enabled case curation provides GC’s an opportunity to create value and enhance their relationship with CFO’s by monetizing legal rights without a significant outlay of capital. A recent Burford Capital Report found that 73% of financial officers report extremely/very extensive programs to return value to the business through affirmative litigation—but 46% report that these programs need improvement. The data demonstrates the new-found interest CFO’s are taking in the legal function and, more specifically, the different ways legal can create enterprise value.
Similar customer-focused paradigm shifts in contracts and compliance have produced value by fusing legal and other professional expertise expertise with technology and data to identify risk as well as uncover opportunity. Value creation is enhanced when the agile, proactive legal function collaborates cross-functionally with other business units in risk detection as well as opportunity capture.
- Products. The legal function is sitting on a gold mine of unstructured data that has immense value that can be monetized. In 2016, AIG created the Legal Operations company to leverage its vast internal data base to help external clients reduce legal spend. More recently, MerckMRK and a handful of other large legal functions have created software that has been so successful in its internal use that it is sold to third-parties. This is further evidence of the untapped potential of legal departments to commercialize their expertise, data, and technology and market it as a product. AI-backed companies like Bryter whose no-code solutions help solve internal challenges that drive value as well as external products that enhance value creation.
A digitally fit-for-purpose legal function will elevate the profession, expand the role and impact of the legal function, create enterprise value, and improve the customer/end-user experience. Legal professionals who “have too much work to ‘go digital’” are writing their own epitaph. Those that see the challenges posed by legal change as opportunities, embrace new ways of working, and learn new skills will reap the rewards of the digital legal function. So too will clients, customers, and society benefit from a fit-for-purpose digital legal function.
This article originally appeared on Forbes.com