Go Beyond Siloed Legal Reporting to Manage and Mitigate Risk

Easy-to-use, clear, and comprehensive reporting functionality has evolved from a bonus to a must-have requirement for corporate legal teams evaluating legal technology. The pressure on legal operations to demonstrate improvements and return has led to reporting features being almost as important as the fundamental benefits of the software tool in use.

Using legal spend management software, out-of-the-box spend reports and user-friendly analytics wizards allow legal departments to monitor work in progress, measure actual spend, and forecast budgets accurately.

Organizations can analyze data across variables such as matter type, jurisdiction, or timekeeper seniority within a spend management tool. Legal operations use this data to decide improvements to ensure legal is contributing towards the business reaching its objectives. Such tactics borne from using data in this way include:

• Making better matter resourcing decisions
• Negotiating discounts
• Getting more value from firms
• Making the business case for hiring more internal staff

However, Legal Operations miss a trick when data analysis from a particular tool is used in isolation. This means that it is critical that Legal Operations look at reporting insights in combination with political, economic and regulatory information from the market sector. For example, legal spend budgets can become distorted during periods of significant regulatory change or through an uplift in litigation and/or regulatory investigations, creating outliers to regular activity. A clear view of how the underlying legal spend is trending for normal business-as-usual activities (based on matter types) will help the decision-makers support any budget changes. For example, when the European data protection regulation GDPR came in, many companies would have seen an increase in their legal spend as they sought advice to implement the new rules, thereby increasing their legal budgets.

Combining Legal Data for Better Risk Management

Where the in-house legal function is working closely and in partnership with the business units across the company, the range of information and data it holds will often put it in a unique position within the organization by having a holistic view of what is going on across the company. This data supports an awareness of what the business is doing and forms part of the historic corporate knowledge built over the years, such as previous contracts, decisions, and outcomes. Historically, this information was not in a structured electronic format, which meant any form of data and trend analysis or knowledge management was very manual and time-consuming.

With the increase in legal matter management, legal spend management solutions, and better document search and retrieval, there is a growing need and clamor for data processing, analysis, and knowledge management. Capturing basic contract terms and/or details of legal opinions in a matter management system provides a very simple knowledge management tool and a rich source of data. Other tools that will help provide data are solutions to create standard contracts, access to benchmark reports, and internal resources (finance reports, etc.).

The legal operations teams seeing the most value combine data from various technology tools to take their strategic input to the next level. One such area, which is of massive importance to the entire business, is the management and mitigation of risk.

A legal operations team that is carrying out data analysis on all the data at its disposal will be able to identify trends that will lead to a range of questions that should spark further debate, such as:

• How much work gets done in-house versus being sent externally?
• Are the correct processes being followed?
• Is the right level of technical support given for the type of transaction? Is there a change in the fee arrangements used?
• Is there growth in the types of transactions at a business unit or country level?
• Is one firm being used more than others for similar transaction types from a particular part of the business / legal team?
• How does the firm perform against others for similar transactions, both in price and performance?
• How does the business differ from market peers?
• What is required to manage a specific regulatory change?
• Are the in-house legal function and its staff compliant with the relevant regulatory authority guidelines, such as the Solicitor Regulation Authority (SRA), etc.?

Below are some examples of how the answers to these questions could demonstrate a change in the risk profile and appetite.

By monitoring the volumes of work, the type of work, who is doing it (in-house lawyers, external lawyers, or a combination of both), the time taken, the costs, etc., the legal operations team can better advise on the organizational design, support, and management of the legal function as well as the risk profile and the risk appetite of the legal function and in some instances the supported businesses. Comparing this data to benchmarks would highlight variances that help support any decisions.

A better understanding of the work (and who is doing the work) will help ensure that the legal function stays properly resourced and is not taking on activities better placed in other parts of the organization and that the appropriate processes, controls, and procedures are in place. This might cover such things as law firm engagement and/or payment of invoices by appropriately authorized individuals within the legal function. For the legal function and its in-house staff, this might include ensuring that they comply with the rules of the governing bodies such as the SRA, NALP or the Federal Bar Association in Germany.

A lack of the appropriate technical support (whether from work done in-house or by external law firms) on deals could lead to drafting errors and/or incorrect advice distributed, potentially leading to greater exposure to legal risk. For the more complex arrangements, it would be normal to see more senior lawyers engaged in the matter.

Spotting an uplift in a particular type of work (such as litigation) or activity (such as drafting) could indicate a lack of understanding of the contract terms within the front-line business areas who are requesting contract changes, bad working practices, poor standard documentation, or changes in the markets and/or economic climate (each of which also presents opportunities). Legal operations teams can help to mitigate these by highlighting trends and ensuring that the legal function:

• Delivers better training and communication to the business,
• Carries out regular reviews of standard documentation,
• Supports reviews of policies, practices, and procedures, and
• Develops a better understanding of the market.

Consistent use of one firm over others should raise questions. They may be competitive in price or have the appropriate skill sets. When analyzed against performance and cost, this may become self-evident, but if not, there may be other reasons to be investigated. As part of the legal operations team’s vendor management program, they should ensure that the firm maintains the right skill sets for their work, as this will help mitigate legal risk caused by a lack of technical knowledge and support.

A significant move to fixed fee arrangements with law firms is beneficial if a) both parties are clear on what activities should be covered, by whom, and when, and b) confident that the agreed pricing is fair and balanced. However, suppose the firm is not providing any supporting timekeeper activity data. In that case, it becomes difficult to know whether the firm is providing the proper technical support and whether the fee structure is still fair and balanced. A legal operations team can help ensure that the legal function obtains the best fee arrangements through regular firm reviews and enforcing governance of the billing rules. They can also ensure that the firm is providing the proper technical support for this type of work, as this will not be evident from the invoice data.

Capturing brief details of the contract terms and using software to create standard term contracts will allow the legal teams to identify contracts impacted by new regulatory changes. An example of this is the proposal from the Bank of England for banks to carry out climate change stress testing. Due to this regulation an awareness of the type of contracts and contract terms will become more relevant. A legal operations team that can quickly pull this information together can help support the business by ensuring the scope of work is understood and adequately resourced.

With the increase in cyber security and greater scrutiny by regulators who are starting to require more rapid, robust, evidence-based reporting, the need for greater use of these solutions is becoming more prevalent to avoid compromised data and eventual fines. Understanding what data goes to which supplier helps ensure that those suppliers have appropriate controls to manage that information in line with Information Governance and Records Management policies and procedures and that any breaches get promptly reported.

It is also worth noting that a lack of data in the legal systems is equally as insightful as it will show where parts of the business and/or legal function need to follow agreed practices and procedures. Using data from the legal spend management solution will help identify where within the organization external legal costs have been incurred and with whom, which can assist in building an awareness of the use of external legal support and potentially close any gaps or tighten any controls. Furthermore, using “gap” reports in the legal systems helps identify problems within the data that will distort any data analysis.

For legal operations teams to deliver process improvements and efficiencies, ensure compliance with policies and regulatory requirements, optimize their spend and manage risk, they should analyze the available data from all the data sources at their disposal. As they start to analyze all their data, instead of analyzing point solution data in isolation, they will begin to discover new trends and insights not previously seen or understood.

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