You might think of corporate legal departments as a business within a business that provides legal services to the other business units within the company. Like any other business, it has operating costs necessary to fulfill its duties. A well-planned budget for these costs is crucial for General Counsels (GCs) who aim to be seen as strategic partners by their company’s executive leadership. Legal budgeting is the primary tool for GCs to navigate the costs of their team.

Our guide provides important tips and considerations to help you take your legal department’s budget to new heights.

Key Takeaways

• The challenge in legal budgeting for GCs is continually aligning the interests of the legal department with the interests of the company and its many business units.
• Personnel costs are the largest expenses of a legal department budget, and chief legal officers must pay attention to their personnel’s productivity matrix to manage this cost effectively.
• Data analytics on your legal spending is the only way to make informed and objective budget decisions.

Maximize Value through Legal Budgeting

As a corporate legal department, your primary goal is to add value to the company’s operations and support its core purpose. Your legal services are a means to an end, not the end product itself. By extension, your legal budget must align with the company’s objectives and add contribute to its commercial value.

GCs and other decision-makers must balance the needs of the legal department with the company’s overall interests. For example, hiring outside counsel for a litigation matter may make your in-house attorneys happy, but it may not be cost-effective for the company, given rising rates of outside counsel. Legal budgeting for GCs is about balancing this tension to keep both your legal team and the company’s stakeholders happy.

Optimize the Productivity of Your Legal Team

A simple method for finding value in your legal budget is to ensure the department’s spending matches its productivity matrix. The biggest costs for most legal department budgets are on the personnel who perform the many steps that go into a process. The range of these processes is drastic as you have repetitive and routine projects (e.g., organizing a data room for due diligence) and high-level legal analysis from your in-house attorneys or outside counsel (e.g., negotiating a purchase agreement).

GCs should attempt to maximize the productivity of their highest costs (i.e., outside counsel and senior attorneys) by limiting their time spent on tasks that others could complete at a lower cost. Options that GCs may have to accomplish this challenge of legal budgeting could be to:

• Adopt new technology or improve the use of current systems to drive efficiency through automation.
• Engage ALSPs and other legal process outsourcing companies.
• Hire a more diverse legal team with roles capable of handling administrative aspects of a legal process.

Keep and Analyze Your Legal Spending Data for Better Decision-Making

Legal budgeting is a never-ending marathon as opposed to a sprint. You are likely in a constant state of reviewing and adjusting your budget as new information comes in the door and priorities change.

Without good legal data analytics, you risk making budget decisions that lack objectivity and are influenced by personal bias or the whims of the C-suite. When this happens, the margins of aligning your legal department’s budget with value to the company could also narrow. Your data on legal spending could benefit from attention to two elements we discuss in the following subsections.

The More Detailed Your Spending Data Is the Greater Your Odds of Legal Budget Success

Look at your legal budget data. What does it tell you about your department’s operations? Many GCs and legal departments suffer from not having micro-level data points on their operations. For example, it is not enough to simply know how much you spent on outside counsel for intellectual property matters when weighing the choice of bringing the work in-house. You need to know things like:

• The nature of those IP matters (e.g., patent versus trademark or litigation versus regulatory filings).
• The costs per matter.
• Further insight into the costs for processes within a matter (e.g., post-application correspondence when registering a copyright or trademark).
• How often matters reoccur.

You can generate valuable insights into your legal spend data by carefully reviewing bills from panel firms and other outside counsel. With this knowledge, you can better understand the costs of a legal process and if improvements can be made. You may realize that the solution is not to hire in-house counsel after all, and you need to adjust your process for engaging outside counsel on these matters.

Maintain Knowledge of Legal Market Trends for Cost-Saving Opportunities

Besides analyzing your department’s legal spending, you need to stay informed of legal market trends to know how your operation costs compare. This information is helpful for knowing if you are competitive regarding items like completing legal operations or retaining talent based on compensation.

For example, do you know how your outside counsel spend compares as a percentage of total legal spend? Recent data suggests legal departments are starting to prioritize in-house spending as it represented 54% of total spend in 2022 compared with only 49% in the prior year.

Create a Reserve Fund for Unexpected Costs

Preparing for the unexpected is an important aspect of legal budgeting. Reserve funds are commonplace in most private and public sector budgets to cover surprise costs that insurance, or another form of recourse, does not cover. Legal departments can benefit from a reserve fund too.

For GCs, the challenge is differentiating between the ordinary legal expenses your budget should already account for and the extraordinary costs that are impossible to predict. Examples of costs that a reserve fund in your legal budget could cover include the following:

• Hiring costs for replacing unexpected departures.
• Force majeure events that require the engagement of new counsel (e.g., an insurance recovery claim following a natural disaster).
• The passage of new laws that impose added regulatory compliance for your company’s operations.
• Unusual litigation matters or transactions outside the ordinary course of business, such as a merger event.

Maximize Your Legal Budget with Morae

As a GC or chief legal officer, legal budgeting is an important duty. However, managing a legal department and practicing law can make it challenging to aspect this aspect of your role.

Morae’s legal spend management and e-billing specialists offer a resource for GCs who want to improve their legal budget but don’t know where to start or don’t have enough time in their schedule. We use multiple information sources to give you visibility toward the budget decisions your department faces in real-time and to identify immediate cost-saving opportunities.

Contact us today to schedule a consultation.