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Focus On Legal Spend Reduction Amplifies

Legal spend reduction
Legal spend reduction

A sharp focus on the buying and management of legal services isn’t new news to many corporations in the US & Europe, but in the APAC region it is rapidly becoming a topic of discussion for many legal teams and their CFOs as cost pressures mount across most industry sectors during this economic recession.

To understand more about what we can expect to see in this region as legal costs and budgets come under the spotlight, I spoke with Dr. Silvia Hodges Silverstein, CEO at the Buying Legal Council, an international organisation for professionals tasked with sourcing legal services and managing legal service supplier relationships.

The buying and management of legal services is an area that Silvia has been researching and working in for the past 20 years and led to the founding of the Buying Legal Council in 2014, which now boasts a very strong member base across the globe.

“For a long time in many companies, legal used to be exempt from the intense cost scrutiny that pretty much all other areas of companies had been facing for numerous years or for decades,” said Silvia.

This is no longer the case.

Rise of the legal procurement movement

For the US and Europe, it was the Global Financial Crisis that was the catalyst to the increased focus on legal spending.

According to Silvia, it was during the financial crisis that CEOs, CFOs, and boards started to look at all sorts of different cost savings areas and they initiative legal procurement opportunities and brought in trained buying professionals.

Fast forward to 2020, with an economic recession impacting most industries and organisations, the focus on costs is heightened and legal budgets will not be immune from the scrutiny of CFOs.

“I think that COVID and the recession that we are now facing and probably continue to face for a while is likely to cause a second wave of cost-cutting with the help of procurement professionals,” said Silvia.

Shift to an active approach to legal spend management

According to Silvia, the APAC region is likely to take a similar path to what other regions faced post-GFC.

“It is really about moving from a more, laissez faire or passive management approach to legal spend, to a more active approach to legal spend management and so, I suspect, you will see much more engagement with outside counsel, more hiring of alternative legal service providers, perhaps also more sophisticated scoping of legal work,” said Silvia.

Developing more strategic partnerships with law firms that will benefit both the firm and the client will also be on the agenda.

“So, we’re not just about asking for bigger and bigger discounts, but … how can we work together and how can we make this a win-win,” outlines Silvia.

“In order to have any staying power and be sustainable it needs to be good for both the client as well as a legal service provider,” she advised.

Cost reduction initiatives are becoming more common

In the APAC region, legal procurement and cost saving initiatives have traditionally been limited to setting up legal panels and negotiating discounted rates, however there are many other tools in the legal spend management toolkit that form a best practice approach.

“There are a number of the procurement tools that are commonly used from things like negotiating discounts to issuing and enforcing outside counsel guidelines – almost everyone does that; issuing RFPs has become very common in our industry; negotiating alternative fee arrangements have become much more normal in many markets; requiring e-billing has become quite standard; establishing panels or preferred lists of providers is a pretty common approach as well,” shares Silvia.

Pre-matter scoping is another area that research highlights as experiencing a lot of growth along with the application of legal project management, and increasingly data analytics.

“Anyone working in procurement is as well served by understanding what the possibilities are [in the legal function] and then using them for your organisation,” said Silvia.

Invite procurement to the table

For General Counsel who are tasked with reducing their legal spend, they don’t need to go it alone and should reach out to their procurement colleagues to provide support and to lead initiatives.

“There’s lots of best practices out now – legal procurement is no longer pioneers land. So, there are lots of tried and tested things, understand which tools are out there, but really see what has worked and translate that into your marketplace,” said Silvia.

Procurement can step up and learn the legal category

“Unless the GC is already a fan of procurement and happy to work with procurement, I think that the procurement department or the procurement professionals tasked with legal and tasked with assisting legal, really need to make themselves indispensable for the legal department,” shares Silvia.

“They need to listen and understand: what are the things that they are struggling with? How do they currently approach the buying of legal services? Are they any parts that they don’t or might not like doing?

“Very often it is the negotiations about price, so they can offer their help and do the things that they are very well trained to do, whereas legal might not be trained to do that or they might not want to do it,” said Silvia.

The parting message from Silvia to procurement professionals looking at the legal category is one of encouragement.

“Show what you’re able to do, show some successes and gain in-house counsel, the legal department, as your friends and colleagues.”

View the full video interview with Dr. Silvia Hodges Silverstein below and follow Lawcadia on LinkedIn or subscribe to our newsletters to stay up to date with our Fireside Chat series.