A challenge faced by all organisations is how to go about managing legal spend. On the one hand, you want to focus on growth, and on the other hand, you know you need to manage your risk. You want legal services to be “fast, transparent and price-predictable”.  

The economic downturn will increase the already gathering momentum and pressure to move from time-based fees to fixed fees and other non-time-based fee arrangements (like retainers). The legal teams of many organisations (like BigTech) are growing and for good reason. Organisations often ask “How much should we be spending on legal and compliance?”.

If you think compliance is expensive, try non-compliance.

Many clients share the same problems or requirements to meet the same regulations. By doing it together with others, clients do it quicker and cheaper than going it alone. This is why we will be offering various web-based programmes and running various webinars during 2020.

Why should I spend on legal at all?

Because it is better to put a strong fence ’round the top of the cliff than an ambulance down in the valley. By putting good contract templates in place you are better able to understand your responsibilities and deliver upon them. There are fewer disputes as you understand your obligations.

How much should my organisation be spending?

Some of the factors that will influence what percentage of turnover you spend on legal are:

  • The nature of your business. Is it complex or simple? Do you negotiate bespoke deals with multiple customers or suppliers, or are you providing identical services to multiple clients.
  • Where you are in your business cycle. Are you just starting out? Do you already have contract templates in place? Are you redoing your website? Have you developed new products to sell?  Are you finding that you have experienced a number of disputes recently? Are you employing new teams of people?
  • The nature of your industry. What are your industry’s legal requirements?

We came across this very useful industry legal spend benchmark report that will give you a sense of what organisations spend on legal. The Winter 2017 Global Legal Department Benchmark Survey explored six key legal department benchmarks for 17 different industries. Data for this report was collected via an online survey sent to clients of Major, Lindsey & Africa and those who have participated in previous Benchmark surveys. Metrics measured include:

  • Total legal spend as a percent of revenue
  • Lawyers per billion of revenue
  • Internal spend as a percent of total legal spend
  • Internal spend as a percent of revenue
  • External spend as a percent of revenue
  • Cost per lawyer hour

In-house or out-source?

Another question is whether or not to employ your own in-house legal team or rather out-source the work to a law firm (we like the term out-house legal). By having an in-house legal team, you have significant control and management over your legal expenditure, in that your costs are salaries. But what you might find is that your internal resource doesn’t always have the specialist expertise required for particular tasks. Another risk of in-house legal is that if your employee resigns you run the risk of losing institutional memory. With a small legal team, it is almost impossible for in-house legal to keep abreast of the legal developments across specialist areas.

Out-sourced legal means that you have access to a variety of specialist expertise that varies in costs, meaning that you’ll be charged for the right level of experience. You can also request that you get fixed price quotes for each piece of work, which means that you have certainty about what each issue will cost you. A further benefit is that with a larger team understanding your organisation, the loss of a single resource through resignation is unlikely to impact you as significantly.

What is the difference between legal and compliance?

In an ideal world, you should have someone focusing on each of these. They are different functions and require a different way of thinking. Governance, Risk and Compliance (GRC) are also three concepts that are often talked about at the same time.