Essay
Managing Risk with an Austerity Workforce
An article by Mark Harris.

Aside from the hopelessly clueless, everyone in the legal industry knows about the mounting pressure on general counsel to do more with less. Some may wonder whether today's austerity measures are simply a function of present circumstance or the mantra for a new era in corporate legal services. But GCs will tell you that escalating cost pressures are neither a fad, nor a trend.

They are a job. Their job.

The problem is that those same GCs have another job—their pre-existing responsibilities for reducing risk. General counsel have always been on the hook first and foremost for risk management, and in a world that is more complex and precarious than the one from just a few years ago, mitigating risk has also never been more important.

What's challenging is that these two very legitimate components of the general counsel's role—reducing cost and reducing risk—appear to be at odds with one another.

Why? I believe it's in large part because of the legal industry's obsession with what I call "the who" of delivering legal work. As lawyers, our quite appropriate obsession with reducing risk has morphed into a less helpful obsession with the idea that who we task with that challenge is all that matters.

Under this "who" logic, one dominated by pedigree, the industry splits hairs only lawyers would consider meaningful—as if where a law firm partner attended school 20 years ago is somehow relevant to a pitch for a client’s new business today. Pedigree isn’t random—there’s certainly something under there that has meaning—but the attention “the who” receives is out of proportion to its actual value. Especially given that there’s only one thing we can prove with certainty about pedigree: it's expensive.

So if a general counsel has less money to spend, it naturally follows that he or she will be hiring less pedigreed lawyers and, in the minds of most, less qualified ones. That feels like a zero-sum trade-off. And since quality is synonymous with reducing risk, the in-house lawyer who seeks to save money does so, presumably, at his or her own peril. Of course, no GC is against cost savings in the abstract, but you’re not going to find one who feels good about increasing the company's risk profile in the interests of austerity. This, I believe, is how the legal industry has arrived at a standoff on the question of its future, one defined by maximal consternation and minimal change.

Changing the “who,” after all, often becomes a slippery slope: "No longer may we use our New York firm for this type of matter. The new rules for outside counsel management say we have to use a regional firm for this or no firm at all. In fact, we have to use contract lawyers for that kind of work. No, wait, actually, we can't use contract lawyers for this any more, that task must now be outsourced to India." No offense to Indian lawyers, including those on my team, but the only reason the relentless march ends with them is that there's currently no one with a lower hourly rate. At least for now.

Don't fret, I'm not going to make the argument that cheaper, less pedigreed lawyers in Michigan or Mumbai are, in themselves, as or more qualified than a Harvard-educated lad. Who knows the answer to that question or how one would figure it out in the first place?

But I am here to say that we're asking the wrong question: In so many areas of delivering legal work, it's not the "who" but the "how" that we should care about.

The good news is that there are GCs, mostly from well-known companies, who are asking “how” and not “who”—and by doing so are finally ending this stalemate between cost and quality. These general counsel are breaking with historical notions of how we control quality in the first place, focusing on the application of process innovation, the use of technology, and the creation of tools that drive standardization, consistency of risk positions, faster cycle times, and increased efficiency. In this paradigm, the same constructs and behaviors that improve risk compliance also reduce cost.

Under the “how” logic, empiricism prevails over impressionism. Because the nexus between inputs and outputs is "how" instead of "who," performance can be measured and predicted. It's not clear how to predict the capability of a single, well-bred lawyer to evenly apply a company's preferred terms and conditions while working against deadline pressure, to respond rapidly to increasing work volumes, or to make a business client consistently grin with satisfaction. 

But a well-engineered work process populated with a mix of lawyers—all talented but with varying experience, pedigree, and geography—can be tested and measured on its ability to deliver on all of those dimensions and more. And since the emphasis is less about the individual resumes on the team and more about the architecture that holds it together, one can begin to forecast the expected outputs of such a construct if it were to expand and take on more responsibility.

Hewlett-Packard Company's legal department has recently done just this. Focusing on “how,” HP engineered a new delivery model for a portion of the legal work supporting its sales force. In addition to the introduction of technology that streamlines the company’s contracting process, HP has presided over the creation of new playbooks, better forms, reengineered workflows, and reconstituted teams, as well as a set of service, quality, and productivity metrics that, most importantly, calibrate compliance to HP’s desired risk posture.

This highly structured approach to doing legal work moves the needle most dramatically in areas defined by heavy transaction volume, where anecdotes of overworked senior lawyers are plentiful. A common story I hear in the field is of an exhausted senior lawyer, late at night on a conference call, structuring a complex deal while, on the side of her desk, simultaneously marking up a relatively straightforward contract pertaining to another business dealing altogether. That anecdote—which I guarantee has many readers nodding their heads in recognition—is the perfect storm of high-cost and high-risk, not to mention inhumane, legal process management. It’s almost perfectly wrong.

The solution is not more pedigree or more people. It’s a different approach—one that legislates that the overworked senior lawyer never sees this or hundreds of other similar contracts in the first place. Not unless and until the transaction has worked its way through an engineered workflow, in which a spry, fresh, less-pedigreed, and lessexperienced lawyer has taken his or her crack.

The less-pedigreed or less-experienced (and less-expensive) lawyer can easily follow a playbook and a protocol that permit him to apply, as needed, some standard deviation from the norm in a mundane document before being forced to escalate a narrow but important question up to his superiors.

This isn't heresy—it's business, and it’s inevitable. Focusing on "how" work gets done is a business-minded—as opposed to a legal-minded—approach that's leveling the cost vs. risk see-saw for the first time. That is to say, for the first time in the legal world. The concept of a process-led approach to delivering work is already deeply embedded in industries such as finance, IT, and human resources.

The HR industry took the longest of those three to adapt its practices. Jim Madden, then-CEO of Exult Inc., the company credited with pioneering this shift, described the HR profession in the 1990s as "believing its subject matter to be too precious and its deliverables to be too nuanced to ever allow smart process to compensate for adding the incremental 'smart' person." Today, nearly 50 percent of the Fortune 500 relies on re-engineered processes to deliver some or most of their HR services.

The legal industry has insulated itself from this kind of thinking in the past, in part because its inhabitants struggle to separate great results from hiring the smartest people in the room. It turns out that wrapping the right mix of people in a smart process can lead to better, nonzero-sum risk and cost results.

It’s time to ask ourselves if maybe the smartest people in the room are actually the ones who are a little faster to adapt the best practices of other industries.

- Mark Harris is the CEO of Axiom, a 900-person new model legal services firm that serves nearly half of the Fortune 100 across nine global offices.

 

(Originally published in Corporate Counsel, April 16, 2012)



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