Why boards must focus on legal transformation now

Hindrances to risk management and business partnering abilities

Risk management is the area that CEOs expect to implement the most changes over the next three years.1 Yet, the aforementioned law survey found that a large proportion of general counsels lack confidence in their department’s ability to identify, measure and handle the risks faced by their organization. More than half of the organizations report a lack of access to accurate and up-to-date information on their legal entities. This lack of transparency reduces the legal department’s visibility of the tax and corporate governance risks that its organization may be facing. Almost two-thirds say they do not have all the data and technology needed to respond to a data breach, highlighting exposure to cybersecurity, compliance and data privacy risks.
 

Furthermore, 92% of Singapore respondents in the law survey say they do not systematically track contractual obligations. Standardization in the contract creation process and monitoring of contracts for deviations from standard terms are also not the norm. Such process management gaps and the underuse of technology may limit the organization’s risk oversight and potentially create a wide range of risks that permeate corporate supply chains and client relationships.
 

As the prolonged effects of the pandemic continue to impact the global economy, a strong focus on enabling growth and eliminating any inefficiencies and barriers that may hinder revenue recognition or business opportunities is imperative. The law survey suggests there are opportunities for improvement in this area — an overwhelming 99% of business development leaders in Singapore note that inefficiencies in the contracting process have slowed revenue recognition, and a third report that these inefficiencies have actually resulted in lost business opportunities.
 

To support revenue growth, legal departments need to be aligned with their business partners. However, only 58% of general counsels in the law survey report that their department’s day-to-day work is aligned with the broader business strategy and 35% say their department is effective in adding value to the business. These findings, combined with those suggesting increasing workloads and time spent on routine tasks, reveal that many legal departments lack the bandwidth to support their business partners strategically because of day-to-day responsibilities.
 

These shortfalls in data, risk management and business partnering capabilities may result in a lack of requisite information for the board to effectively fulfill its risk oversight and governance responsibilities over strategic business decisions

Need for technology and the right sourcing mix
 

Greater use of technologies, such as machine learning, artificial intelligence and automation, can help improve productivity and accuracy for legal departments, saving considerable time and cost. However, the law survey found that only half of legal departments have increased technology use over the past 12 months. While many reasons, including a lack of access and capabilities, account for why legal departments struggle to implement new technologies, one stands out. Ninety-seven percent of general counsels say the inability to get buy-in from the C-suite has made it challenging to secure budgets for investments in legal technology.
 

Besides technology, organizations can also benefit from analyzing, refining and optimizing processes. Yet, the law survey suggests organizations are struggling — 88% of legal departments in Singapore struggle with the adoption of new processes and only 25% say they have the data needed to optimize the department.
 

Finding the right sourcing mix of external counsels, insourcing, technology and co-sourcing is important. As legal departments encounter challenges with traditional delivery methods, such as managing external counsels and insourcing, many are looking to new solutions. Notably, there is a growing appetite for co-sourcing strategies using alternative legal service providers. Eighty-five percent of general counsels in the law survey say their department uses such services — up from 54% of respondents in 2019.
 

Legal departments that use legal managed services report being significantly more confident in managing complex risks, according to an EY report in 2020, Realizing the benefits of legal managed services. Their in-house counsels are able to focus on higher-value work as selected high-volume work is moved to legal managed services providers. This in turn improves morale and appears to help in recruiting and retaining talent.
 

Those that leverage alternative legal service providers enjoy extensive use of process management and technology, which, among other benefits, allows risks to be managed more granularly. They also gain greater access to data and transparency over processes, which enables them to identify and manage risks in new ways. Unsurprisingly, the aforementioned legal managed services report noted that legal departments already using alternative legal service providers are seeking to expand their use.

In the post-pandemic business environment, legal departments that boldly transform risk management, leverage technology and revise sourcing strategies will stand out for aligning with the overall business strategy and helping their organization grow. At the same time, boards must understand the challenges faced by their legal departments and provide them with the support to transform and operate efficiently.
 

Boards should consider the following questions: 

• In what ways may the legal function be perceived as a bottleneck for the company’s revenue growth? How can it support business growth more robustly?
• What higher-value activities can the legal function own versus high-volume ones that can be co-sourced or automated?
• Is the legal function providing robust reporting and insights on risks faced by the organization?
• Are lawyers embedded into the leadership team at the business unit or operating company level?
• Are there ongoing digital transformation initiatives within the organization that can benefit or integrate the needs of the legal function?