Reduce your company’s legal exposure and expense
- November 1, 2007
by David Faulders
How often have you complained about your company’s legal expenses? Do you feel hostage to these high legal expenses, or have you tried to reduce such expenses?
As legal fees continue to increase, more and more executives are looking for ways to manage their companies’ legal requirements with a continual focus on the company’s return on investment. They often undertake critical analyses of legal and compliance processes, looking for effective ways to minimize the company’s legal exposure and expense. No matter what size company or industry, most companies can achieve the greatest benefit through improvement on the methods by which they employ counsel (whether in-house or outside counsel), practice preventive law and use technology.
Employment of counsel
There are many ways for executives to maximize efficiency when using legal counsel, including:
• Conducting a request for proposal (“RFP”) process. Law firms that compete for business will be more likely to provide lower rates and may include creative fee proposals.
• Developing and enforcing an effective attorney retention policy that dictates the outside counsel relationship and includes requirements regarding billing procedures, rules for travel, pre-approval requirements, strict guidelines regarding multi-teaming projects and budgeting processes for litigation.
• Managing litigation expenses by aggressively limiting unnecessary discovery and performing cost benefit analyses to decide if settlement or alternate dispute resolution is a better option.
• Analyzing routine legal tasks performed by outside counsel and determining whether the tasks can be performed without — or with minimal — counsel involvement. Procedures or “how to” guides can be implemented by the company to allow support staff to complete routine tasks that are otherwise performed by legal professionals. Routine tasks that can be internalized are numerous, and could include preparation of contracts, filing of mechanics’ liens, closing of routine loans, preparation and filing of SEC Forms 3, 4 and 5, and preparation of corporate minutes, routine resolutions and consents.
Many companies have often found it economical to hire in-house counsel in non-litigation areas such as contracts, transactions, securities and employment law. If the anticipated quantity of work doesn’t justify a full-time attorney, a company can retain an experienced part-time general counsel to get the benefits of a seasoned “in-house” attorney with the substantial cost savings and flexibility of an independent contractor.
A 2004 study by Altman Weil Inc., a leading national legal management consulting firm, demonstrated that in-house counsel can provide value in a number of ways. Their services cut legal costs by about 30 percent and helped increase their value through knowledge of the business and by helping the company prevent legal issues.
One of the most important, yet neglected, areas where companies can reduce legal exposure and expense, is through preventive law — for example, the implementation of correct compliance procedures to minimize legal actions. The Altman Weil study suggests that preventive law results in a minimum of a 10 percent to 15 percent savings. Indeed, establishing appropriate processes is cheap insurance compared to the costs of penalties, fines and litigation that the company can encounter if it has weak or non-existent compliance programs.
Each industry, of course, has its unique regulatory and compliance issues. Nevertheless, common issues that affect most companies include ethics, environment, labor and employment, product liability (including consumer credit regulations) and intellectual property. More recently, the Sarbanes-Oxley Act has mandated stricter corporate governance requirements for publicly traded companies, and many believe that some of these requirements will become the standard for privately held businesses. Chief among these requirements is the obligation for companies to implement comprehensive ethics and conflicts of interest programs to help reduce the number of corporate misdeeds.
Here are a few important preventive law projects a company’s management should consider to minimize costly actions against the company:
• Establishing effective corporate governance guidelines, including document retention/destruction and whistleblowing procedures;
• Periodically reviewing the company’s employment policies and practices to ensure they are effective and up to date;
• Periodically reviewing the company’s standard contract forms to ensure they incorporate recent changes in law and include provisions that are consistent with the company’s current risk profile;
• Performing an intellectual property review to verify that the company is not infringing on any patents, trademarks or copyrights or in violation of any licensing agreements, including computer software licenses.
Technology helps companies interact more efficiently with their counsel and creates savings in time and expense. Some technologies — including electronic billing, knowledge management, and software to facilitate document review and storage — permit rapid dissemination and manipulation of data, allowing for more efficient management and planning by the company. Other technologies — including e-mail, portable wireless communications (with e-mail connectivity) and the use of collaboration-enhancing extranets — permit increased accessibility to the company’s counsel.
Here are examples of how these technologies can increase efficiency.
• E-Billing – Requiring outside counsel to bill electronically in data formats compatible with the company’s systems will permit the company to process the invoices efficiently and store and retrieve historical data in strategic detail for management purposes.
• Wireless handheld devices for accessibility — Counsel using handheld wireless instruments (with phone and e-mail connectivity) are readily accessible.
• Use of software, such as Adobe Acrobat (PDF), for efficient document review and storage — This type of software facilitates the review of documents by permitting electronic comments and annotations. It also permits e-filing — a method of filing documents using electronic format rather than a traditional paper format. Using this technology reduces courier and copying fees, use of paper, and staff time.
• Extranet for online collaboration — Companies and counsel can use extranets to collaborate on joint product development efforts, provide legal training to company employees, provide information to or access services provided by counsel, and share news of common interest with each other.
Many companies have plenty of “low hanging fruit” when it comes to improving efficiencies that will reduce both legal exposure and expense. By implementing a few simple processes, these companies can reduce both their legal exposure and significantly reduce their legal expense.