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LegalJanuary 07, 2022

How corporate legal departments should plan for 2022

This article was originally published in Legaltech News.

Corporate legal departments (CLDs) are looking forward to 2022 with optimism, particularly after the challenges of the past couple of years. But that optimism will only be realized through careful planning. Looking ahead, CLDs need to consider everything from budgeting to technology investments and many details in between. In this article, I’ll outline three considerations that should be top-of-mind as you plan for the year ahead.

Be systematic and smart with budgeting

Your budgeting process should follow a methodical, “scientific” approach that carefully examines your current mix of legal matters, how spend in those matters might change, the anticipated cost of any new matters likely to arise, and a “wild card” cost for any unanticipated matters.

Pay particular attention to “megamatters”—your largest matters. New research from our LegalVIEW® Data Warehouse shows that megamatters are so highly correlated with outside counsel spend as to be practically determinative. In fact, somewhere between 2.5 percent and 5 percent of all legal matters generate 80 percent of outside counsel spend in a typical organization. Fortunately, there shouldn’t be too many of these, so you can study each one carefully, starting with the biggest.

It’s also important for your legal operations teams to establish good lines of communication with practice group managers and, potentially, law firms. This will help teams learn the status of big matters and be able to anticipate matters that might be coming up next year.

All of this is a lot of work, but it is worth it. It’s also more accurate than just looking at what was spent over the last couple of years and adding 3 percent for inflation—which some CLDs still do.

Scope out cost savings—especially with outside counsel

When looking for savings, outside counsel and rack rates are good places to start. Always work to negotiate rack rates. Data show that 85 percent of law firms derive more than half of revenue from undiscounted rates. A lot of the CLDs paying those undiscounted rates are sitting on more bargaining power than they realize. Ask for the discount, and always negotiate rack rates.

And don’t use a higher-priced firm than is necessary to get the job done to your satisfaction. There is evidence—both anecdotal and statistical—that many in-house counsel reflexively hire the world’s top 100 law firms even when more affordable “regional” firms would do just fine. After all, you don’t need the A team for a “B” matter.

Make sure your technology investments pay off

Technology should be a part of your 2022 planning, but, like everything else, you need to implement it the right way for it to work for your CLD.

First, don’t wait until the last minute to shop around. Significant technology decisions, like what e-billing system to use or how to get all your contracts into a CLM system, can take over a year for organizations to make. Surely, it can be done more quickly with the help of experts, but in any event, the decision should not be hasty.

Second, consider not only the technology itself but how well it fits into your entire ecosystem, including parts of that ecosystem that go outside legal. Ask if the system is going to be able to grow with you—or whether it will become a hindrance you will need to switch off again in five years.

Third, look closely at the technology vendor you’re considering. How stable is it? What’s the background and expertise of the people behind the technology? Is the vendor going to make a good business partner in the long run?

Finally, consider practicality as much as cost and experience. Don’t be overly ambitious and try to boil the ocean with a single solution. If you go all-in on one system, it will become unwieldy at worst and create vendor lock-in at best. By choosing several solid systems instead, they can be integrated together and, if needed, more easily switched out.

These are not the only considerations you need to think about while planning for the year ahead, but they represent a good place to start. With careful budgeting, smart investments, and due diligence, 2022 could indeed meet your optimistic expectations.

Nathan Cemenska
Director of Legal Operations and Industry Insights

Nathan Cemenska, JD/MBA, is the Director of Legal Operations and Industry Insights at Wolters Kluwer's ELM Solutions.

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