Legal as a Business

The Shift of the Legal Department from Business Function to Business

Legal departments have historically been considered a function of the business; an area which requires funding to deliver on client (in this case, business partner) needs, and an area which does not directly generate revenue for the organization. However, in recent years there has been a shift in how Legal departments are viewed. It is no longer enough to simply deliver on what the client is asking for – instead, Legal departments need to create and deliver the value that the client needs. This transition from business function to business is the cornerstone of modern legal operations. Client needs are changing, and legal needs to provide more value, and evolving value, to keep up with client demands.

This shift has necessitated that Legal looks for opportunities to streamline their processes, decrease rework, and identify opportunities to create value. However, making these changes is not a quick fix. Despite being a necessary component of the business, Legal has always been a black box; an entity which is not clearly visible or understood from the outside. Decisions are presented to Legal, but it is not evident where that information goes, or how funding is allocated.

Under this veil, Legal has been operating as a reactive entity. The business will make a decision, the Legal department will be informed of the decision, and Legal is responsible for accommodating that decision. How that decision is accommodated is not clear; it simply enters the department and comes out the other side. Legal is not fully understood and not well integrated into the business.

It is no longer enough for Legal to operate under this veil, as a function of the business. Legal must now show value to the organization and create value for their clients. But why has this shift occurred? What necessitated the change from Legal as a business function to Legal as a business?

Delivering More Value with a Reduced Budget

Organizations are always looking for ways to save money, and whether this takes the form of budget cuts, downsizing, or outsourcing, the first areas to be targeted are the supporting functions, or those areas which do not directly generate revenue. These areas traditionally have included departments like Technology and HR, but Legal has begun to fall into this category as well. To accommodate this cost-cutting, Legal departments are required to adjust. Creating more efficiency within the department becomes critical; it both streamlines processes and adds value.

The issue though, is that efficiency can not be measured and improved when we can’t see how Legal operates. How can organizations make changes to Legal, and improve Legal, without understanding it? The solution to budget cuts and cost saving becomes transparency. What is the Legal department doing, and how are they doing it? What is their spending, and how is it allocated? How is information moved within the department? Only once these questions are asked and answered are organizations able to understand and improve upon Legal’s efficiency.

Meeting Resourcing & Knowledge Demands in a Globalized World

The ever-increasing number of tools and vendors available has enabled organizations to see how Legal can operate and where the department can provide value. Whereas in the past Legal required human labour, today there are countless service providers with tools that help leverage all kinds of functions. These solutions often replace the need for staff, have the potential to save substantial amounts of money and time for the organization, and remove the likelihood of human error and risk.

Along the same vein, globalization has resulted in organizations working across cities, countries, and continents. Each jurisdiction has their own laws and requirements, and the knowledge expertise to work in these varying jurisdictions requires external resourcing. Knowledge capital must be employed to address change and growth, and outsourcing is necessary to fill this need. But the implementation of tools and knowledge capital requires integration within the department, as well as collaboration with other tools, individuals, peripheral departments, and external partners.

The question becomes, how can we know what tools and knowledge capital we need when we don’t know how Legal operates? How can we adequately implement without understanding the department’s functions and workflows? Transparency, again, is paramount. The organization needs to understand how Legal works and where it’s pain-points are; only then can it develop and improve upon efficiency. The lines have become blurred, and to determine the best option requires transparency.

Circumventing the Legal Roadblock & Building Operational Efficiencies

Legal departments have traditionally been a time sink. Decisions are made by the business, and Legal is required to weigh in on those decisions after-the-fact. This increases the timeline after the decision is made, and any changes or objections made by the Legal department further slow the process. Legal ramifications must be understood before the decision becomes reality. This is true for many facets of a business – HR, deals, purchasing, finance, marketing – Legal’s interpretation is necessary with them all. So, when the due diligence of Legal is a serial process instead of a parallel one, it costs the business both money and time.

This raises the question of how to remove the Legal roadblock. How does the department adjust to stop slowing down the project? The solution is to improve operational efficiency by moving Legal up in the decision-making process. Instead of providing Legal with the decision and awaiting their response (potentially resulting in throwaway effort), Legal must be involved in the actual decision making. Having Legal function as a stakeholder reduces turnaround time, reduces time spent after-the-fact, and allows projects to be analyzed along with the process. Ultimately, when Legal due diligence is completed in parallel with a project, it reduces risk to the organization.

To make these adjustments to Legal’s operations requires that the Legal department joins the conversation and collaborates with their peripheral departments. Legal must understand what is going on around them, and the other departments must understand what Legal’s role is, as well. Once again, transparency is the critical factor in establishing this shift. And we need to look at this shift in two ways; from the Legal perspective, projects have historically been under a veil, as well. To have Legal act as a stakeholder, Legal can no longer be left in the dark, either.

Unveiling the Legal Department

Ultimately, the shift of Legal from a business function to a business is due to several factors, but the first step in making the transition lies in transparency. Legal departments can no longer operate on their own, as an enigmatic but necessary function within a business. They must be recognized and analyzed, so that the organization can understand what value they currently deliver, how they deliver it, and where that value can be improved.

In our next articles, we will dive deeper into the problems which have necessitated the shift from Legal as a business function to Legal as a business.