8 minute read 5 May 2021
Colourful hot air baloon

How to build a resilient, value-adding legal function

Authors
Anup Kollanethu

Partner, UK Head of Legal Managed Services, Ernst & Young LLP

Passionate about mentoring, developing high performance teams and mental health. Father. Committed to the passions of his children, such as gymnastics, ballet, football, cricket and singing.

Philip Goodstone

Partner, UK&I Head of Law, Ernst & Young LLP

Passionate about developing people, building teams. Loves new ideas, different ways of thinking. Committed, besotted husband and dad. Life-long Liverpool fan, golf novice, cockapoo owner.

8 minute read 5 May 2021

General counsel needs to transform their legal function particularly in times of change. Find out how to do that effectively.

In brief

  • EY research finds that most companies in the UK are making changes to their legal functions like never before. 
  • General counsel (GCs) have a desire to be more closely aligned with C-suite level priorities and strategy.
  • Opportunities await those in-house legal teams who embrace change.

General counsel clients are facing unprecedented levels of change in every aspect of their work. This is borne out by our newly published global survey, which finds that legal functions worldwide are under intensifying pressure from boards, CEOs and CFOs to operate differently. In response, law department leaders are striving to reinvent their operating models and align more closely with C-suite priorities. 

These complex challenges for today’s GCs may feel daunting, but they also present significant opportunities to reimagine the legal function and play a more strategic, value-adding role. Our conversations with clients, together with our survey findings, show that legal transformation is a priority in most organisations. There is compelling evidence that the ability to lead change will be a defining quality of the successful GC in the 2020s. 

The leadership agenda

The UK findings from our worldwide survey of over 1,000 law department leaders are consistent not only with the global picture, but also with the C-suite views highlighted in our global CEO Imperative Survey 2021. As we emerge from the pandemic into a likely K-shaped recovery, where some will thrive and others will fight for survival, CEOs and boards are having to map out radically different strategies and invest in transformation. Yet, only 44% of UK law department leaders say their day-to-day work is aligned with the corporate strategy, and only half believe their function is effective at adding value to the business. When it comes to transformation, 86% of UK companies report that they are making changes to legal operations, but 98% cite difficulties with securing budget for necessary technology investments. 

Legal functions are clearly struggling to get the support they need for investment. There could be many reasons for this – competing investment demands, lower level of understanding of the function and its role or, in some cases, just a historic perception issue – but whatever the reason, more investment needs to be secured in order to deliver the transformation needed. This does not need to be the in-house counsel’s future. In many organisations, the combined disruptions from Brexit and COVID-19 have thrust GCs into the executive spotlight, providing them with a much more influential role and an opportunity to demonstrate the legal function’s value. 

Looking ahead, the legal department clearly has a continuing role, not only in protecting the business from future crises, but also in realising the strategic agenda. The pandemic has prompted a general reimagining of what happens in businesses and a more nuanced sense of where value is derived, raising existential questions about corporate purpose and values, accelerating the environmental, social and corporate governance (ESG) agenda, and sharpening the focus on employee wellbeing, diversity and inclusion. These are all areas where the legal function can contribute significantly to long-term value. 

To cement their place among the top decision-makers, GCs now need to demonstrate they are adding value in new ways closely aligned with the business’s strategy and purpose. They must maintain the rigour, objectivity and independence that come with their profession, but at the same time adopt a commercial mindset, understand the drivers for change and argue a compelling business case for investment in the legal function.

Drivers for change

Volatility and uncertainty are arguably greater now than at any time in living memory, so it is not surprising that our research shows risk management is a top priority for CEOs. However, confidence in managing risk is alarmingly low in UK legal departments: across four key areas, two-thirds of GCs report that they are not confident in managing risk. Only 39% are confident in their department’s ability to address sudden changes in the business environment, and a tiny 9% report themselves to be very confident in managing political changes. 

Managing risk

39%

of GCs are confident in their department’s ability to manage sudden changes in business environment.

Inadequate data and technology seem to be the biggest causes of this crisis of confidence: more than two-thirds of UK GCs say they do not have the technology they need to do their job. Yet our research shows that 61% of CEOs are planning to make significant investments in data and technology. The question for the legal function is – how can we persuade the CEO to give us our fair share? 

Cost remains an issue, and with ever-increasing volumes and complexity of work, the old adage of ‘do more with less’ rings true in many law departments. Half of the large UK companies in our survey say they are aiming for savings of at least 20% over the next three years and overall, 81% of law departments are planning to reduce costs. Our findings show that the only route to making significant savings is by reshaping the legal operation: greater use of technology, optimised processes, and the right balance between in-sourcing and use of alternative legal service providers (ALSPs). 

Innovation is a further change driver. The transformation programmes of the past have tended to focus on finance, HR, IT and supply chain, excluding legal. There is enormous catch-up potential for those willing to embrace it. Our findings show that 69% of law departments currently lack the data and technology needed to optimise operations and 83% lack the skills to automate. Yet two-thirds see greater use of technology as presenting significant cost-saving opportunities. Contracting is a particular pain point: 99% of business development professionals say they face challenges with it. 

Key areas for change 

All of these findings call for transformation – a term we don’t use lightly. This is not just about improving operating efficiencies and effectiveness. The times we live in call for fundamental changes to the role the legal function plays in the business, its nature and ways of working. 

The impact on individuals in the legal team will be huge – and we believe that a key area of focus should be on people, culture and the talent proposition. Our survey shows that in-sourcing continues to be seen by many as an opportunity to reduce costs, but with 53% of GCs reporting that employee morale has suffered due to increasing volumes of low-value work, we question whether this is sustainable. To attract and retain talent, the legal function must provide interesting, high-value work; a cohesive, engaged team, and the satisfaction gained from delivering on the company’s purpose and strategy.

Another focus area should be the use of – and relationship with – external counsel. Our survey finds that more than half of legal departments want to reduce their spend on law firms, and that around three-quarters are now using ALSPs in areas, such as contract management and employment law. Almost a quarter are using ALSPs extensively – and it’s noteworthy that these departments are eight times more likely to say they want to expand their use. As well as an enhanced ability to manage risk, the use of ALSPs brings significant cost benefits. In contrast, the potential for cost savings on traditional legal advisory services is relatively low: only 11% of law department leaders believe that negotiating better rates presents significant cost-saving opportunities.

A further imperative for change is the way services are delivered to internal customers, with more focus needed on the user experience. If the legal function wants to shed its image of being a remote department and blocker, and instead position itself as a business enabler, it is essential to create a good user experience. Approaches such as self-service offer opportunities here: our study finds 17% of contracts are now self-served, but the overarching priority is to build relationships across the business and understand your customer.

The transformation journey

Against this background, what do GCs need to do?

  • As in any journey, they need to be clear about where they want to get to. They must paint a picture of the destination, then persuade their people and stakeholders to go there with them. Defining what good looks like will be critical: a legal function that understands and protects value, operates as a strategic partner and business enabler, and is a resilient, flexible and efficient operation. Also, setting out ‘how we will know when we have got there’ – what are the goals, the key performance indicators, the benefits? These must be woven into a compelling business case and used to secure vital investment, resource, and buy-in from key stakeholders. 
  • Develop a practical roadmap: this is not a quick fix or a six-month project but an ongoing, potentially complex, multi-year programme of change.
  • Finally, they need to find a travelling partner who has the knowledge and experience to support them at every stage of the journey. 

A clear vision of the law department of the future is taking shape: value-adding, responsive, technology-enabled, and closely aligned with strategy and purpose. Creating such an organisation should be the direction of travel for every GC. The time to embark is today.

Summary

The vast majority of UK companies are making changes to their legal functions, as general counsel (GCs) strive to align more closely with C-suite level priorities and transform operations. Our research highlights the drivers that make legal function transformation imperative. We set out the strategic priorities and roadmap for the journey to the law department of the future. 

About this article

Authors
Anup Kollanethu

Partner, UK Head of Legal Managed Services, Ernst & Young LLP

Passionate about mentoring, developing high performance teams and mental health. Father. Committed to the passions of his children, such as gymnastics, ballet, football, cricket and singing.

Philip Goodstone

Partner, UK&I Head of Law, Ernst & Young LLP

Passionate about developing people, building teams. Loves new ideas, different ways of thinking. Committed, besotted husband and dad. Life-long Liverpool fan, golf novice, cockapoo owner.