The legal industry hasn’t always been known for its rapid adoption of changes. In the wake of COVID-19, however, it’s been forced to come to terms with new realities in the legal world.
It’s tempting to attribute the shifting legal landscape to the transformative effects of the pandemic, but these changes have been in the making for a long time; the pandemic just made it imperative for general counsels and legal departments to recognize them.
With that recognition, legal departments can choose to resist change or embrace it — we firmly believe the latter is the sustainable strategy for long-term growth. Here are the major ways we see legal departments changing and how to make the most of that change.
Contract services are more important than ever for managing risk
Legal departments exist in large part due to their ability to protect the wider organization from risk. Risk management is the watchword of general counsels.
The trouble is, traditional risk management is more about risk transference. For many, a low-risk contract is one with boiler-plate clauses that seek to push as much exposure as possible onto the counterparty. In the normal course of business operations, these clauses may escape the parties’ notice, but when a crisis does occur, contract counterparties are in for a nasty surprise. This sours business relationships and invites litigation that may cost more than what boiler-plate risk management clauses were meant to save.
Now that the pandemic has disrupted supply chains and upended business relationships, many organizations are starting to see litigation, complaints and reputational damage because these contracts weren’t crafted to mitigate damage in a realistic fashion.
There’s a better, more adaptive and agile way to build contracts that actually manages risk, rather than transferring it onto the counterparty. In the past, developing and managing nuanced contracts that keep both parties satisfied was a project with an infeasible scope. Contract management services, however, mean that we can truly manage contracts that preserve business relationships and avoid costly litigation.
Driving commercial value
While the original function of the legal department was to manage an organization’s risk, modern in-house counsels are capable of delivering real commercial value to the broader organization.
Often, the legal department is seen as a necessary cost center. In reality, by leveraging their contract management skills with technology, general counsels can help save their businesses revenue.
According to McKinsey, businesses are losing a massive 9 percent of their annual revenue to hidden leaks in their contracts: poorly crafted terms and conditions, disputes over pricing, inefficient contract change management and similar bad practices poke holes into a company and its business relationships, draining them of the revenue they’d otherwise be earning.
Considering that a typical Fortune 1000 company has between 20,000 and 40,000 active contracts at a given time, resolving these leaks appeared to be an impossible task. That thinking held true for a long time, but today, artificial intelligence, optical character recognition, natural language processing and other technologies mean that managing those tens of thousands of contracts is not just feasible, but necessary to remain competitive.
Digital transformation is now a requirement
Digital transformation projects may provoke skepticism in change-resistant legal departments.
Incorporating fast and constantly evolving technology into every aspect of your organization might seem like a dubious proposition, but even the constitution gets amendments.
In contrast with law firms, legal departments have an advantage when it comes to these technology projects: They’re not going to have the option of foregoing digital transformation. A full 70 percent of companies either already have a digital transformation strategy in place or are in the middle of working on one. Given that digital transformation projects are, by definition, company-wide, legal departments won’t be exempt from them.
The results of Bloomberg Law’s legal operations survey shows that legal departments are steadily becoming more tech-enabled. Roughly two-thirds of in-house counsels claimed that the use of legal technology is increasing at their organizations, that it’s resulted in better workflows and that it’s given them more time to focus on high-level tasks.
These outcomes, however, aren’t automatic. We’ve written before about how challenging it can be to do digital transformation right, especially when it comes to the legal sector.
Legal departments that can withstand culture shift will thrive
These changes aren’t on the horizon anymore — they’re here. But the question of whether legal departments have the culture necessary to rise up to meet these changes is another question.
For better or worse, a department’s or company’s culture has typically had years or even decades to set in. In many ways, learning to use a new technology is an easier task than changing a technology-averse culture. When preparing your legal department to roll with the punches, there are five key steps you should follow.
1. Evaluate your current culture: Any plan for culture change needs to begin with an understanding of the current culture. This will show you what aspects of your departmental culture are strong and should be reinforced, what needs to be reformed and where you can expect to find resistance.
2. Align your culture to your organization’s strategic goals: Legal departments don’t exist in a vacuum. It’s true that you need to prepare your department for the rapidly changing world, but that also needs to be done within the context of your broader organization’s strategy.
3. Secure stakeholder buy-in: This can be challenging, especially if your department and broader organization have settled deeply into their comfort zone, but change won’t happen with widespread resistance or apathy. Ask your people for ideas and feedback, get them involved and demonstrate that you value their input.
4. Communicate: People don’t like surprises, especially when those surprises change the way they do work. Keep your department informed about new initiatives and strategies. If a stakeholder gave you valuable input, let them know. Be transparent about problems and explain the plan for overcoming them.
5. Exercise emotional intelligence: The legal discipline may have a reputation for rational thought, but experienced general counsels know that emotions sway people’s actions all the time. Change is inherently intimidating — how your people feel about that change will affect how they respond.
You don’t have to go it alone
Preparing legal departments for the new normal isn’t an overnight process, especially if your department hasn’t undergone a change management project in the past. Over our more-than 15 years of experience, Exigent has supported numerous legal departments as they optimize their workflows and prepare for cultural shifts. We understand the importance of aligning change to your organization’s business goals. Learn more about our past optimization projects here, or reach out to an expert to talk over how you can prepare your legal department for change.