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Resource Allocation: The Most Important Role of the
CLO Today
Mischa Kowall, Associate Counsel, The Katz Group Joe Milstone, Co-Founder, Cognition LLP Ganesh Natarajan, President & CEO, Mindcrest Inc. David Skinner, Co-Founder & President, Gimbal Canada Inc.
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An outside firm that behaves like in-house counsel
Lawyers with best-of-breed credentials
Low overhead structure
Integrated with legal and business teams
Corporate Law Departments Traditional Law Firms Cognition LLP
6
Lean practice management advisors A new paradigm for prosperity in the business of law
Helping in-house counsel deliver added value in
less time and at less cost.
•Improved efficiency
•Faster turnaround time
•Lower overheads
•More predictable legal spend
•Stronger relationships with external counsel
•Greater client satisfaction Lean Six Sigma / Process Optimization
Professional Development
Session Goals • “Level-set” on current challenges and
constraints faced by corporate counsel
• Equip corporate counsel with a more comprehensive toolkit of options and solutions
• Inform on realities and myths of PO/Six Sigma, AFA’s
• Expand thought process on extracting value from internal and external legal relationships
• Assess experiences and opinions of industry leaders and experiential corporate counsel
Overview of the Session 1. Linkage with CCCA Spring Sessions
2. The Corporate Counsel Predicament (or opportunity)
3. The Value Funnel as a Base Plan
4. Service and Solutions Alternatives
5. Strategies in resource deployment
6. Maximizing relations with resource providers
Why we’re stuck
• Susskind: – Converging factors of demand versus resources,
technology solutions, liberalization of market
– Corporate counsel complicit in lack of change
– Opportunities to emerge
• Faure:
– Smarter legal model: optimizing the coverage, headcount and total cost triangle
Expert Services Model
Creates core competency leverage by pushing work to the
lowest level of competency with the capability of providing the optimum level of service in a cost-effective manner
General counsel moving from provider of service to a project
manager amongst several providers, internal and external
“At worst, functions that are not research, development, production, sales, marketing, distribution and so on are regarded as superfluous bureaucracy and subject to reduction with no theoretical minimum level, almost irrespective of the consequence. At best, the corporate lawyer can transcend such a calculation by adopting commercial methodology and translating legal services to mirror the “front office” activities, using the same world-class business tools used to achieve higher efficiency in all other parts of the enterprise.”
Trevor Faure, The Smarter Legal Model: More from Less
Tony Jomati, After the Golden Age: The New Legal Era
“This belief (that you shouldn’t buy on price) has long circulated in the legal market, just as the IBM cliché has. But, given the choice between two relatively equal service providers (of which there are many) and one offering a more collaborative, risk-sharing and in short, a less expensive service, a buyer may be well advised to take the better priced offering. The anti-price argument preyed on the idea that high cost equates to high status and quality, therefore less expensive legal products were necessarily worse legal products. However, this argument entirely omitted the fact that a more efficiently run law firm can be equally as good quality, but less wasteful of a client’s money.”
The Challenges Facing CLOs
• Being everything to everyone
• Tight budgets
• The need for greater budget predictability
• Resources
• Staying current
• Managing efficiency and controlling costs
• Organizational barriers to change
Historical Tomorrow? Today
Outside
Counsel
Outside
Counsel Outside
Counsel
In-House
Counsel
In-House
Counsel
In-House
Counsel
LPO LPO
Evolution of Corporate Counsel
Huge, Bet Company
21
LEGAL SERVICES LANDSCAPE
IN-HOUSE •Governance and risk management •Compliance programs •Litigation management •Transactions •Contracts •Manage service providers
OUTSIDE COUNSEL •Core Services (Litigation, Complex transactions, Compliance law, Securities) •Value based billing •Client relationship development
LPO PROVIDERS •Litigation support •Contracts management support •Compliance process support
In Your House Already
• Existing headcount
• Better use of paralegals
• Non-lawyer integration
• Equipping the business
• Scoping your own work SOW
Straying Outside
• LP-Off
• LP-On
• Contract lawyers
• Virtual law firms
• Alternative model law firms (dispersed)
• Traditional law firms
• Products, technology and managed service solutions
24
OUTSOURCING FRAMEWORK Low context/High expertise
( #3 – Outsource last) High context/High expertise
(core to the client)
Audits, Reports and Governance Contractual Risk Analysis Maintaining Contracts in Audit Ready State Complex Litigation
Contract Enforcement Partner Management/Vendor management
Low context/low expertise (#1 – outsource first)
High context/Low expertise (#2 – Outsource next)
Contract and Subcontract Review and Management Contract review and abstraction Electronic Contract Repository Creation / Maintenance Outsourcing Due Diligence and Transition Change Management/Certification Management/Software License Management Litigation Standard document review for relevance, privilege
Contract Management - Policies, Templates and Playbooks (Creation phase) Template creation and maintenance Negotiation Playbook Creation / Refresh - Drafting and Negotiations RFx Support Contract Drafting and Negotiations Support Approval/Escalation Routing Litigation IP litigation, government investigations
Products and Managed Solutions
• EDiscovery
• Project/Litigation Management
• Contract Management
• Technology Solutions
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LITIGATION STATISTICS
• Satisfaction with outside counsel
– E-discovery 21%
– Budget forecast reliability: 16%
– Overall cost management: 14%
– Pricing and alternative fee flexibility: 17%
• Alternative fee arrangements have increased to 62% in 2011
– Blended rate, capped, contingent, fixed fee, performance/rewards based fee
• Litigation spend
– Under 500k: 34% (company size is under $100M)
– 500k to 1M: 13%
– 1M – 5M: 30% (1/3 company size is over 1B 1/3 between 100-999M)
– 5M – 10M : 12%
– 10M or more: 11%
27
IMPACT Deficient contract approvals processes
Un-auditable contract paper trails
Poor contract and exposure analysis
Increased legal and financial risk
Poor contract visibility and control
Lost savings, profit and revenue opportunities
The average Fortune 1000 company maintains between 20,000 to 40,000 active contracts (according to the Institute for Supply Management).
Many contracts are still languishing in file cabinets, being managed with very limited technologies, or being managed using manual processes due to complex software and technologies (according to a study by Inside Counsel).
CONTRACTS MANAGEMENT CHALLENGES
Results from In-House Counsel Survey
• 6% use document assembly automation for contracts
• 23% use CMS for executed contracts • 9% had any form of CMS integrated with CRM • 25% view CMS process as a competitive
advantage • 2/3 stored in physical or electronic filing
cabinets
offshore captives
distributors
affinity partners
agents
brokers
subcontractors
affiliates
suppliers
50%
COMPLIANCE RISKS – 3RD PARTIES
40-60% of your revenue
requires 3rd parties
3rd parties can deliver tremendous
value
Cost savings
Reduce headcount
Provide better service
Greater efficiency
Be more nimble
Using Lean Six Sigma to Drive Efficiencies
• Introduction – The context and what Lean Six Sigma is
– What is Lean Six Sigma for Lawyers
– Four goals
• Process optimization through Value Stream Mapping – Understanding process optimization and its goals
– VSM as a tool
• An example: optimizing the process to protect an invention
Using Lean Six Sigma to Drive Efficiencies (cont’d)
• The Value-Add Pop Quiz: Think about your day – What percentage is spent re-working something
someone else has done? – What percentage is spent doing something someone
else has to re-work? – What percentage of what’s left do you spend on
activities that do not add value?
Using Lean Six Sigma to Drive Efficiencies (cont’d)
• Three Value Criteria
– Does it alter the material?
– Is the client willing to pay?
– Is it done right the first time?
How alternative service providers structure fee arrangements or provide alternatives to the billable hour
Time and Material
Hourly (criticisms: cost plus, inefficiency, penalizes productivity, not value-based)
Full Time Equivalent (FTE)
Transaction Based
Per document
Per agreement/lease
Per file
Per function
Contingency, satisfaction-based (all or part)
Project Based
Fixed fee, decoupling and fixing
Purchased Hours
Fee caps, blended rates
Process optimization: more customizable structures and more accurate fixed fees
• RFPs and moving away from the billable hour
• Disaggregation
• Process optimization and LSS
Strengthening Relationships between Corporate
Counsel and Key External Constituents
Leaders: Mischa Kowall Joe Milstone David Skinner
Advice to Give Your External Advisors to Give Better Value
• Be relevant
• Seek alignment of interests
• Be efficient and transparent
• Communicate...but not too much
• Be creative
Follow-up: