Introduction: “Run Legal as a Business!"

Roger Strathausen, Kai Jacob, and Dierk Schindler

Abstract

The authors argue that the new legal function will shift from a paradigm of security to one of opportunity; that future corporate lawyers will no longer be primarily negotiators, litigators and administrators, but that instead they will be coaches, arbiters and intrapreneurs; that legal knowledge and data-based services will become a commodity, and that analytics and measurement will be key drivers of the future of the profession.

In Franz Kafka's short story “Before the Law”, a country man requests entry into the law. A doorkeeper responds that he cannot allow the man to enter the law at that time. So the man waits his whole life to gain entry, and when he is finally near death, he asks why all these years no one else ever requested entry into the law. Only then the doorkeeper tells him that this gate had been intended specifically for him, and that after the man's death, the gate will be closed.

Kafka's story expresses a general feeling of alienation typical for the Zeitgeist at the beginning of the twentieth century. It also conveys an image of the law as opaque, mysterious, and inaccessible. People want to understand and access the law, but the law is guarded, and the doorkeepers decide if and when people can enter.

R. Strathausen

Dr. Strathausen Consultancy, Berlin, Germany

e-mail: dr.strathausen@gmail.com

K. Jacob (*)

SAP SE, Walldorf, Germany

e-mail: kai.jacob@sap.com

D. Schindler

NetApp B.V., Schiphol-Rijk, The Netherlands

e-mail: dierk.schindler@netapp.com

© Springer International Publishing AG 2017 1

K. Jacob et al. (eds.), Liquid Legal, Management for Professionals,

DOI 10.1007/978-3-319-45868-7_1

Lawyers in the past have very much acted like the doorkeeper in Kafka's story. Emphasizing their institutional role and their certified qualification, they have guarded the law and minimized risks and costs of non-compliance.

It is normal for people to put themselves at the center of things. And in enterprises, it is the task of leadership, and the purpose of organizational design and process engineering to use this natural pre-disposition of individuals to create the largest value for the organization as a whole. Bundling legal competencies in one department creates economies of scale, and one might say that Legal contributes to the overall efficiency of the organization simply by being a centrally funded function. After all, it would be much more costly to allow each line of business to have its own fully staffed legal department.

Also, many lawyers choose to work in large organizations precisely because these organizations allow them to focus on internal client relationships and on legal subject-matters instead of on revenue and costs. We have heard corporate colleagues say that, if they had wanted to become business men and think about numbers more than paragraphs, they would have opened their own law firm.

And while it is true that lawyers need freedom to work holistically and satisfy clients' needs, it is not the whole truth. It is perfectly legitimate for executives and senior partners to demand, in the name of company owners and shareholders, that legal be run as a business. Increasing both efficiency and effectiveness is expected of Human Resources, Finance, IT departments and other central functions—why should Legal be different?

The traditional self-understanding of lawyers as doorkeepers and isolated case workers has created not only legal silos in many companies, but also redundancy of back-office work within these silos. As doorkeepers, lawyers often exhibit a mentality averse to innovation and resistant to change.

Today, Corporate Legal is changing. Legal departments are downsized, manual tasks are automated with intelligent software and workflows, and new business models appear around outsourcing and shared services, causing thought leaders like Richard Susskind to reflect on the end of lawyers and the future of the profession. Underlying this change are business trends and the usual ups and downs of markets. Certainly, in the aftermath of the 2008 financial crisis, this continuous volatility of global markets forces legal departments to be agile and innovative in their operations. And increasing internal cost pressure, in turn, requires continued sim­plification and automation of legal processes and efficient service delivery.

It is important to realize, however, that the ongoing change in macro-economics and its impact on the business models in the legal industry is of a more fundamental and long-lasting nature than normal economic cycles, and it affects the very essence of the legal profession. Globalization and the internet have created a dynamic that exponentially increases complexity and demands fast reactions to change. In a highly complex and constantly changing business environment, Legal can no longer remain simply a doorkeeper of the law; instead, Legal needs to lead and pro-actively further the business!

The fast development of information technology is both a driver and an enabler for the changing role of Legal. IT systems not only automate and streamline work processes; they also provide the basis for measuring all aspects of the business and balancing the conflicting goals of agility and control.

To get a seat at the executive table, Legal must change its mindset, its roles, its services and its mode of operation. Further down, we present four theses on the Future of Legal.

Often when we talk to corporate lawyers about the future of legal and the role of IT, we encounter a mixture of disinterest and fear. In working on the concept for this book, we discussed the possibilities of increased efficiency through legal software with a colleague working as a corporate lawyer for a German DAX company. As he listened to our ideas, his face became more and more skeptical. In the end, he frowned and said that he was not sure if he should endorse our initiative—he felt that the focus on efficiency could endanger his own job.

This reaction seems quite common for many corporate lawyers. The profession does have a tendency to ignore the change, hoping it will go away by itself, like so many corporate initiatives in the past, from LEAN to Knowledge Management, have appeared in Legal—and then disappeared again without leaving much of a trace.

By ignoring the benefits of IT, lawyers actually hurt themselves. Increasing workloads and lack of resources are already the biggest challenges in corporate legal departments. Lawyers are flooded not only with service requests from internal clients, but also with more and more administrative tasks consuming a large amount of time and effort. The complexity of legal work requires concentration, and the interruptions caused by the continuous influx of e-mails and phone calls pertaining to other matters make it difficult to deliver high quality documents on short notice.

One way to address the issue of increasing workload is to define clear client engagement rules and intake criteria. Another way is to increase lawyers' compe­tency in time and project management through training and professional develop­ment.

The most effective and sustainable way for lawyers to free up time and get back in the driver seat is the use of software. Legal Case Management (LCM) and Contract Management Solution (CMS), for example, are only two examples of software solutions that enable the scaling of legal operations by creating an information-base for the preparation, execution, and follow-up of legal case work (LCM), and for the handling of written contracts for all lines of business and across the whole contract lifecycle (CMS). The possibilities of IT-support for Legal are virtually limitless—but instead of using workflows, apps and platforms, still lawyers prefer to collaborate via phone and the exchange of emails.

When Legal is run as a business, we believe it will be a huge step towards Legal becoming a strategic partner of corporate executives, and for the whole legal profession to regain economic momentum. In order to spark the interest to contrib­ute, to foster a discussion and to provide some initial structure for the book, we put the following four theses in front of our potential authors, when we sent out our call- for-papers:

1 Thesis 1: The Legal Function Will Shift from a Paradigm of Security to One of Opportunity

For decades, lawyers have been educated and trained to be reactive. Legal is triggered from outside and usually becomes active after something has happened, when there is a legal need—when clients ask questions, when contracts must be closed, when claims are made. No plaintiff, no judge. Lawyers then analyze the situation and provide advice on compliance and the mitigation of risk. This reactive attitude grew out of management theories and the managed organization of the twentieth century. In a fixed structure of hierarchical positions, everybody knows his and her exact role, and future tasks are expected to be very similar, if not identical, to present tasks.

Yet the managed organization is a relic of the past. The agile organization of the future will be much less hierarchical and much more tolerant of complexity. It will consist of self-organized teams defining their tasks according to abstract company goals. These autonomous teams will establish networks and fast feedback-loops along the value chain and constantly re-align in response to changing environments.

In such an agile organization, Legal can no longer remain passive and wait for issues to be brought before it, like a court waits until there is a case to be decided. Instead, Legal will have to become pro-active, combining legal expertise with business acumen to seek out new playing fields and provide value to external and internal clients. Complexity and ambiguity will be the natural state of business, and Legal will help master uncertainty by providing options and suggesting alternative paths of action.

Under the current security paradigm, however, legal work often is a zero-sum game. The goal of negotiations and litigations is to “win”—more security for one side means less security for the other side. Under the opportunity paradigm, lawyers will cooperate to create win-win results. Documents will be produced online and collaboratively across departmental and organizational borders. Lawyers will edu­cate clients and enable them to think legal at the outset of business endeavors. Lawyers will help avoid the emergence of conflicts by setting proper expectations and moderating diverging interests, and they try to resolve conflicts before they turn into litigation cases and go to court.

2 Thesis 2: Future Corporate Lawyers Will No Longer Be Primarily Negotiators, Litigators and Administrators— They Will Be Coaches, Arbiters and Intrapreneurs

A Legal departments operating under the paradigm of opportunity instead of security will change the role and the tasks of lawyers. A good example for an area in which lawyers are increasingly acting as pro-active coaches and arbiters is Contracting.

Contracts and contracting are becoming more performance and outcome-based, shifting away from risk allocation and price towards risk sharing and value. Contract management is booming—as a software product, as a corporate service, and as topic of academic research. Business professors analyze similarities and differences of organizational contract management practices. Non-profit think­tanks like the International Association for Contract & Commercial Management (IACCM, representing over 40,000 members and more than 8000 international companies) calculate the business impact of inferior contract management, estimating an overall revenue loss of 9.5 %. And contract management professionals start communities of practice, exchanging ideas and learning from each other on how to create value through contract management. There is truth in the words of an Fortunate 500 CEO who claims: “If you are not in control of your contracts, you are not in control of your business.”

As part of the agile organization, dynamic contracting describes a new contracting mindset with wide-reaching effects for contract management. Instead of competing for maximum protection against all possible risks, legal parties engaging in dynamic contracting put business cooperation and common goals and outcomes in the center of contracting. The whole of the contract becomes more important than its individual clauses which may be adjusted and augmented as needed at a later point in time. Values, guidelines and principles replace endless fine print and imaginary bones of contention.

Dynamic contracting enables parties to adjust contract contents to changing situations. Reality is always more complex than any argument, and actual events often differ from what even experts predicted. No disclaimer, no single clause, or single contract can 100% ensure the achievement of unilateral goals. It is the totality of an organization’s contracting landscape and its underlying contract management structure, processes and tools that will ensure mutual benefits of contacting parties within and between organizations.

Besides being coaches and arbiters, future lawyers will also be intrapreneurs. The term intrapreneur is derived from entrepreneur, an innovative person pursuing new opportunities and leading others to realize a vision. The Austrian economist Joseph Schumpeter defined entrepreneurship as creative destruction. Such creative destruction also happens within organizations—like entrepreneurs, intrapreneurs must sometimes tear down what exists in order to create something new.

Lawyers become intrapreneurs when they seize business opportunities and influence the perspective of executives and other stakeholders. For example, work­ing with external law firms and managing them for value might be seen as an intrapreneurial task. The financial crisis has heightened corporate sensitivity towards third party costs and the actual value delivered from external counsel. Lawyers engaging with external counsel need to define clear criteria for what, when and how to outsource; they should follow a Request for Proposal (RFP) process, build a RFP database, compare prices of outside counsel, and negotiating success­based fee arrangements.

3 Thesis 3: Legal Knowledge and Data-Based Services Will Become a Commodity

Like other disruptive innovations, the information-enablement of legal departments will make some legal jobs disappear. Most administrative back office functions around managing and processing data, for example, can be done more efficiently by machines than humans. And separating routine and high volume activities from high value legal activities improves the allocation of limited legal resources and increases service transparency.

Shared Service Centers (SSC) are a proven way to scale operations and reduce the workload of senior personnel and expensive experts. At the same time, SSC establish a clear career path for junior staff. Shared services rest on a unified service delivery platform. For each service in the portfolio, a process model must define which activities are strategic and should be kept in the (global or regional-local) legal line function, and which activities are executed by the SSC; client engage­ment, service level agreements (SLA) and escalation paths between experts in Legal and the SSC must be defined with clear KPIs; the SSC funding model (e.g. central budget, co-funding above a base load, pay-per-service) need to be decided; roles, responsibilities and interactions between the SSC front-office (client engagement) and back office (service delivery) must be clarified, and SSC hubs in low-cost countries must be identified. Legal Process Outsourcing (LPO) companies have been entering this market niche quite successfully in the recent decades.

Bringing about such change and actually information-enabling legal departments and creating shared services is by no means trivial. Making Legal lean by standardizing and automating recurring activities requires a thorough understanding of subject matter, work processes and IT capabilities. To encourage knowledge sharing and usage of best practices beyond teams and departments, Legal must also actively communicate and market its services and provide easy access to collaboration sites.

Underlying shared service centers is software which often must be customized to fit specific needs. Yet when it comes to legal software development, many organizations today suffer from a knowing-doing gap. On one side are legal experts, considering their work too complex to be executed by a machine, and on the other side are IT teams, unable to gather the required information to build programs that could ease the lawyers' work. Even if IT and the legal department do jointly define functional blueprints, technical specifications and programming work, the end result often is not as expected. Traditional software development usually lacks clarity or business formalization, takes too long and consists of too many isolated phases to create value for the clients.

For example, a specialized legal team at SAP, a global software company, ran their “business” on MS Excel for more than 5 years because their efforts to develop a simple case management solution together with internal IT failed. Using a rapid prototyping approach with frequent feedback loops between legal experts and developers allowed a specialized team to build such a solution in only 12 man days—from start to finish!

When software is used intelligently, it bridges the gap between those who know and those who do. Software opens up time for lawyers to think, and thinking creates opportunities for new legal services and jobs. While legal knowledge is ready-at- hand and can be searched in databases and shared in communities, lawyers will still be needed to apply this knowledge in varying business contexts and to communi­cate emphatically with people. Gathering facts to get a holistic understanding of the situation, weighing interests and claims, seeing the general in the specific, and the specific in the general—these legal skills will be more valuable than ever in the agile organization.

Basically, lawyers of the future must be able to translate legal into business, and business into legal.

4 Thesis 4: The Legal of the Future Will Measure Everything It Does

The Legal of the future will deploy strategic tools such as the Balanced Scorecard approach to design service portfolios and measure service impact in terms of clients, costs, processes, and learning. The legal department of another large software company uses, for example, a 3-year strategy and a scorecard with 30 indicators spread across seven headings (Economic, IQ and IP, Software and Additional Services, Citizenship, Inter-Operability and Anti-Trust, Operational Excellence and People and Culture) to tie its activities to business goals.

In partnering with the business, Legal will deploy the client engagement model that works best in any given situation. In some cases, it will make sense to define practice areas, and let the lawyers engage directly with the clients; in other cases, it will be smarter to assign Legal business partners to division or line of business and let these business partners orchestrate the access of clients to legal services. Partnering with the business generally means to integrate lawyers and legal procedures as much as possible into corporate or local governance, product and infrastructure activities. For example, significant business unit teams should include a lawyer as a participating member; lawyers should have a formal role in the development of new products or services and contribute to annual business unit plans; and the law department should review major policy decisions before they are announced.

In all these activities, Legal can improve its performance and its organizational standing by developing metrics and actively communicating and marketing its achievements. Possible key performance indicators (KPI) include the revenue generated through legal deal support, vendor expenses reduced, operational costs saved (e.g. through process automation), compliance fines avoided, risks mitigated, litigation cases won, and many others.

People will continue to be Legal's most important assets. It is time to acknowl­edge, though, that traditional performance management has failed. It makes little sense to define individual and team objectives once a year and then never revisit them again until the next annual performance review. Since the business environ­ment constantly changes, the once-a-year performance management approach forces employees to either turn off their brain and simply ignore changing conditions, or to adjust to new situations, thus deviating from defined goals at the risk of upsetting their bosses and losing their bonuses.

Gallup reports that 51 % of corporate employees are not engaged at work, and 58 % believe that their current performance management approach drives neither employee engagement nor high performance. Employees need feedback on their work all year around, and not only, or even primarily, from their managers, but from the people they work with, most importantly from their internal and external clients. And the metrics used to assess performance must themselves be based on relevant and current data, and they must be adjusted to changed circumstances.

In agile organizations, many people management positions will become obso­lete. The online retailer zappos with 1500 employees, for example, in 2015 abolished all people management positions in the company, arguing they are no longer needed in an organization driven by talented employees and self-aligning work processes. IT systems manage data and processes, people engage in their jobs, and teams perform.

Legal departments can optimize the return on their human capital by promoting leadership and improving overall engagement across the whole talent management process, from recruitment to learning, performance, compensation and succession. Measures may include conducting employee engagement surveys; establishing clear job profiles and career paths; regularly assessing individual skills and competencies (e.g. negotiation, communication, time and project management, etc.); measuring output and client satisfaction; ensuring healthy work-life balances, and others.

The lawyers of the future are business-minded and well aware of the challenges in their profession. They are leaders, not doorkeepers, they lead by example, and they are eager to learn from each other!