1. OPERATIONAL MANAGEMENT IN THE LEGAL DEPARTMENT
1.1. What does IKEA have in common with a legal department?
You may have been to an IKEA store. What can you observe about this store? Firstly, there are organized shopping aisles, through which, like a river, a stream of buyers floats without intersecting with one another, seeing the entire range of products. Secondly, there are standard-sized goods that are easy to pack without taking up much space. The third observation is in regard to the location of shops. If it is a large Ikea store, then it is usually located on the outskirts of the city, and if it is a design studio, then it is likely to be located in some popular place in the city center. In addition to such obvious aspects, there are also hidden, but critical elements of the business process that make IKEA the way we know it. This is a reliable supply of stores with goods (supply chain management), a built-in system for monitoring the availability of products on shelves and in warehouses (capacity management and inventory management), quality control of service (quality control), and, finally, a system of staff motivation for continuous improvement (job design and operations improvement).
Most likely, you have already thought about the similarities the management of a business unit and a legal department. Let us analyze what the company's legal department would look like if you looked at it like an IKEA store.
First, the lawyers of the company (or chief legal officer) daily receive series of questions from employees of other departments and from the company executives (internal clients). Although they do not queue at the checkout and do not “shop around” the legal department, choosing “which legal advice they are most interested in today,” they are no different from buyers in a store. They have a request for a particular legal service, and they expect it to be satisfied by the legal department.
Secondly, by consulting with an internal client, negotiating with a partner's representative under a contract, and even appearing in court, a lawyer creates a product (in the form of a consultation, contract, or resolved conflict) that is “purchased” by his company. And if you look at the entire line of such legal products, you can see that a significant part of these artifacts can be standardized. The process of their "production" can be organized to ensure their efficiency, stability, and predictability (after all, we all love when we get what we expect to buy).
Thirdly, if we are talking about a big legal department that provides support for the business of a large holding, then we will most likely see the organization of geographically-distributed legal support centers. If it is a head office of a large company with numerous departments, including HR, finance, procurement, sales, then, as a general rule, it will have more lawyers than a single plant. In the first case, we are likely to see a large department with lawyers who practice various areas of law. In the second case, we will see “generalists” who are able to solve most of the legal issues that arise within the plant. At the same time, if a lawyer attached to a plant faces some specific legal issue, it will turn to the head office for additional support. There is a clear analogy here with large shopping centers (legal departments of head offices), where you can buy everything (get support on any legal issue), and small corner stores (lawyer or legal department of a plant) where you can quickly buy only the essentials. Such similarities between legal departments and shopping centers are the result of the same business processes in these seemingly different organizations.
First, like shops, legal departments depend on their suppliers (supply chain management), although suppliers for legal services are not wholesale companies, farmers, or factories, but external law firms, IT companies (developing technological solutions that increase the efficiency of legal services), training and education providers (training legal staff), recruitment agencies and universities (providing high quality staff).
Secondly, legal departments have (at least they should have) control over the headcount. There should not be “too many” or “too few” lawyers to provide legal services to internal clients (capacity management and inventory management).
Thirdly, ensuring a reliable quality of legal advice and expertise of contracts, litigation work is a duty of the general counsel. Although quality control over legal services may look completely different from checking the quality of products laid out on the supermarket shelves, the goals of these controls are the same.
Finally, no professional manager of a legal department neglects such processes as employee engagement and continuous improvements. For a legal department – with lawyers being a main asset and smart advice as a basic product – this process (job design and operations improvement) is a key one.
1.2. What is the operating system of the legal service?
Now let us imagine the operating system of the legal department, which would include all the main elements of legal services (Figure 1).
Figure 1
As a service function, legal support works for a client. A client consumes the legal product, he evaluates the legal support, and, in fact, provides lawyers with work. But who exactly is the client for an in-house lawyer? What products does inhouse lawyer create? How to measure the quality of this product and efficiency of the legal "machine"? We will talk about this in detail in Section 2, which describes basic principles and instruments of client-centricity for legal departments.
As part of a company, the legal unit has a specific organizational structure. Since form always has an impact on content, the structure of the legal department determines how the legal support function operates. Centralized and vertically integrated departments work quite differently from the flat structures. None of the organizational structures is better or worse than the other, but any organizational form should be compatible with the external environment where the legal function works. At the same time, this environment is determined by the nature of legal tasks that come from internal clients, the level of information transparency within the company, the degree of digitalization of processes, and expectations of both key managers of the company and clients. This element of the legal operating system is considered in Section 3.
Staff is a driving force and the essence of any legal department. Legal support staff may include both professional lawyers and support operations staff who do not have a law degree[1]. Managing this element of the legal operating system involves application of such practices as hiring, motivating employees, developing their skills (both “soft”, i.e. behavioral, and “hard,” like legal research and drafting skills). This element of the operating system is discussed in detail in Section 4 of this book.
There is no need to talk about the role that technology plays today in business and management. Legal support processes are no exception. The Fourth Industrial Revolution would have a remarkable impact on lawyers.[2] As a result, Legal Tech has been developing in recent years, becoming one of the most discussed topics in the legal area. Obviously, the smart application of technologies in legal work can significantly increase its effectiveness. At the same time, inconsistent application of IT solutions that now flood the market can do more harm than good, disrupting existing business processes (albeit not ideal, but working) and creating additional, unrecoverable costs for the company.
Whoever owns information owns the world. This catchphrase attributed to Nathan Rothschild is fully relevant to the legal department as well. To a large extent, what lawyers sell to clients is information about laws and the practice of their application. If a lawyer does not have enough information, he will not be able to create a high-quality legal product. His consultation may be based on an outdated version of the law, the contract he prepared may not cover all aspects of the planned deal, and its position in court may not consider the latest higher court decisions. That is why information management, or knowledge management, is one of the key tasks of a legal department leader.
Business processes are at the heart of any operating system. Without structuring the interaction between employees working in the same company, without defining the goals of the operations or division of responsibility between different departments and outlining all the parameters of the products (such as timing and quality), it is impossible to ensure effective business operations. This fully applies to legal practice. Process management is the key skill of a legal manager. We will talk about "lean management” practice in legal processes, as well as knowledge management, in Section 5 of this book.
In his book Reinventing Organizations, Frederick Laloux noted that the development of an organization is limited by the development of its leader. This is fully relevant for the legal department. A strong leader creates a strong department that can work more efficiently and effectively. But what is leadership in a legal department? What skills should the ideal head of a legal department have? What key tasks should he solve to make the legal department one of the leading teams in the company? We will talk about it in Section 6, the final section of this book.
[1] According to a Thomson Reuters survey conducted in 2020 among legal departments, professional lawyers on average made up about 60% of the number of legal departments. URL: https://legal.thomsonreuters.com/en/ insights/reports/legal-department-operations-index-fifth-edition-2020 (accessed: 26.10.2021).
[2] See: The Future of Jobs Report 2018. URL: http://www3.weforum.org/docs/WEF_ Future_of_Jobs_2018.pdf (accessed: 23.10.2021).
1.3. Key operational goals of the chief legal officer (CLO)
As noted above, while he manages the legal department, the CLO creates an operating system. This is the main task of the leader of the legal department, and no one can do it except him. But what exactly is this task? If we apply an analogy from the general theory of management, by creating an operating system for a legal department, its leader strives to achieve operational excellence, which can be represented in a diagram (Figure 2). Let us consider each of the indicated operational priorities of the legal department.
Elements of operational excellence
Figure 2
When lawyers work as fast as a Ferrari
As all business processes are being accelerated, highly responsive legal teams are becoming more and more desirable. Speed is paramount both for standard legal services, including contract expertise or claim management, and for complex legal products, such as M&A transactions or Eurobond’s issuance. The mandatory duration of legal services may be prescribed by an SLA (service level agreement), which is more applicable to standard legal services, or by a client's expectations, if a lawyer’s work is associated with a non-standard legal request. For instance, the typical contract examination cycle can vary from several hours (as in the case of sales contracts that generate the main revenue of the company) to several days. In turn, the expected timing of a major transaction can be extremely aggressive (as a rule, it is). In order to meet the deadline, lawyers can spend the last days in round-the-clock negotiations and drafting sessions. Speed is of the essence in such cases. Perhaps we can say that there is no legal service that is “too fast” and, as a rule, a quick response from the lawyer is valued more highly than one that needs to be waited for. At the same time, in general, the lawyer's work is just one of several different links within the chain of business processes. Therefore, a smoothly agreed-upon contract may not result in a quick purchase of raw materials if other departments involved in the approval process are not as prompt. In such a case, the legal service, although being rendered quickly, will not lead to the main business goal. To reduce such risks, the manager of the business process (in this case, the process of purchasing raw materials) must ensure that all departments involved, including lawyers, work efficiently. The manager can do it either through SLA or applying KPI (key performance indicators) tools to motivate all participants in the process move quickly.
When can clients rely on lawyers?
Let's imagine a situation when a police investigative team comes to the company's office early in the morning. The officers pass through security unhindered, go up to the floor where the company's management is located, and hand the CEO a search warrant. First of all, the CEO will likely contact the CLO. And here it is critically important for the chief lawyer to answer the call in order to give the first recommendations to the CEO on how to respond to the investigator's requirements, take over the interaction with law enforcement officers, and involve leading specialists in working with criminal cases, if needed. The head of the company must be sure that he and the company can get necessary legal support at any time. Reliability and availability are the key features of legal support. An urgent request from the construction department regarding an important contract for building a new plant, a negative publication in a federal newspaper that needs to be urgently refuted, an unexpected meeting of the CEO with the partner's shareholders scheduled for tomorrow morning, which lawyers have to take part in and prepare a list of key issues for discussion — all these cases demonstrate that internal clients need to be able to rely on legal department.
“Quality means doing it right when no one is looking.” -- Henry Ford
Let’s discuss the quality of legal services in more detail. Unfortunately, the quality is a less obvious feature than timing and reliability. The classical theory of operational management postulates that the high quality of service is based primarily on its conformance to the expectations of the client. Let's consider a situation when an in-house lawyer turns to an external law firm. As a rule, in-house lawyers turn to external lawyers (1) when the legal department lacks required resources, (2) when specialized legal competencies are required that are not available in the legal unit (for example, antitrust law, custom law, tax law, foreign law issues), or (3) when they need an authoritative opinion to back up a position already taken by the legal department itself.
The first case occurs when the headcount of a legal department is limited. In such a case, the in-house lawyer is seeking “good enough” legal services, which will protect him from failure and ensure that the work requested by an internal business client is done – not such a high standard.
In the second situation, when the client lacks competence in a particular area of law, his expectations from the law firm are the least clear, since he does not know the specifics of the issue and can only make general requests for the law firm’s service. Likely, he will be satisfied if the services are simply rendered at the right time, in a form familiar to the client and cheaply.
It is most difficult to assess the quality of legal services in the third situation, when the client – the in-house lawyer – requests verification of his point of view by an independent law firm. In this case, an external consultant is usually expected to solve a legal problem in a way the client prefers, even if it contradicts prevailing practice and even law. If the external law firm can do this, it is very likely to satisfy the client. In such a situation, there is a great temptation for the lawyer not to disappoint the client with “bad news” about existing legal risks or with a conservative view on the client's position in court. Will such a service provided by an external lawyer be of high quality? In practice, in-house lawyers prefer to work with law firms that they can rely on to uphold their opinions.
The problem of quality control is also relevant for legal services provided by in-house lawyers, whose clients are employees of a business unit and the company's managers. Unlike the situation in which the client is an in-house lawyer (for a law firm), the client from a business unit, as a rule, has no idea how to qualify or legally formalize his idea, business agreement, or business operation. But he has a clear idea of how this arrangement or operation should look and work in practice. He just needs the implementation to be free of legal risks. To tackle this problem, the internal client goes to the legal department, from whom he only expects "legal clearance" of his plan. At the same time, the business client, as a rule, does not have legal qualifications and must rely on the expertise of the in-house lawyer. Therefore, if the lawyer's position coincides with the expectations of the internal client, i.e. does not create obstacles to the implementation of his business idea, he will be satisfied with the legal service. If the position expressed by the lawyer does not coincide with the client's expectations and significantly complicates the implementation of his plan, he will probably not be happy with the legal service.
If a business client is not satisfied with the recommendations received from the in-house lawyer, he can double-check the position by getting an alternative opinion from another lawyer of the company (although, the CLO should prevent such an opportunity), by asking someone in a position above this lawyer to look at the question again (up to the CLO), by insisting that an independent law firm's opinion be requested, or (if it is allowed by the company's processes) or by ordering a legal opinion from a law firm himself. If, because of such re-examination, a solution that suits the client is not found, the in-house lawyer should do his best to explain all reasons that the internal client’s idea cannot be realized (at least legally) and demonstrate high level of empathy, trying to put himself in the client’s shoes and proposing some alternative ways to approach the problem.
At the same time, it is worth bearing in mind the balance that must be maintained between the actual expectations of a client and the efforts that an in-house lawyer invests in serving the client. We will talk about this in detail in the section about client-centricity, but here I would like to emphasize the following important idea: The chief legal officer, like any other manager who sets product development process, must distinguish between such qualities of greater and lesser importance to the client; qualities of lesser importance to the client may be considered more important by the lawyer (the area of "Excessive product quality", shown in the diagram below in Fig. 3). These qualities relate to the external form of a legal opinion, the detailed references to regulations and applicable laws (usually not important for clients), training materials that are not requested by customers, etc. As soon as a lawyer satisfies his client’s minimum requirements, further investments in improving the qualities of the legal product usually do not lead to increase in its demand from customers or their evaluation by clients.
At times, qualities associated with a legal product may be of the essence for the client, but the lawyer underestimates their actual importance. For instance, it may be a term within which legal services have been provided, clarity of recommendations and positions proposed by lawyers (usually complicated by legalese), sometimes it's just doing additional legal work not requested by customer, but necessary for the case. If the head of the legal department (law firm) knows how to distinguish these qualities, his services will be highly appreciated.
Figure 3
An interesting view on the balance between quality and a client’s expectations is described by Felix Oberholzer in the Harvard Business Review[1]. Bearing in mind that corporations can be too focused on financial performance, the author proposes that they pay more attention to the actual interests of their stakeholders by taking the following steps:
1. Identify all stakeholders of the business, including clients, suppliers, employees, and communities.
2. Find their actual needs, preferences, and interests, which drive them to buy the company’s products and services, supply it with necessary materials, work for it, support its initiatives and ideas.
3. Focus on areas and actions which are most important for all groups of the stakeholders.
Like the companies, lawyers can confuse the priorities of their clients. For instance, usually clients prefer speed and clarity of legal opinions over their completeness, referring to the highly professional language of lawyers as “legalese.” The CLO must pay specific attention to the balance between resources which in-house lawyers spend on such tasks and the importance of this work for the internal client and for the company as whole.
[1] Oberholzer-Gee F. Eliminate Strategic Overload. HBR. May–June, 2021.