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Legal Controls, Contracts & Organization

January 18, 2012

The most recent Association of Corporate Counsel survey shows that Chief Legal Officers have growing concerns about their ability to maintain business oversight and prevent potential legal exposures.

The 2011 survey confirms growing workload, but also reveals that many law departments have been able to increase hiring. The percentage feeling under pressure to cut budgets has dropped, from 74% to 54%. However, most continue to push for greater value from their external law firms and have introduced new charging models (though it is interesting that these new models appear to represent a low proportion of overall spend).

A majority of law departments (78%) include some number of non-legal staff.  The survey does not address specifically the extent to which contract or commercial managers are coming under the wing of the General Counsel, though IACCM benchmarks show that this has increased in recent times and is now the typical situation in the largest corporations. This appears to be a result of the concern that General Counsel have over their ability to have insight to the business, plus the challenge of workload. By consolidating the contracts teams within legal, they tackle three issues:

1) They gain control over one source of potential legal risk which can arise from contracts staff making unauthorized or (legally) unwise commitments;

2) They gain increased visibility to the business deals and trends;

3) They obtain incremental resources that are typically lower cost than hiring lawyers and can offer some relief to growing workload.

On this last point, recent benchmarking by Rees Morrison indicated a fully-loaded hourly rate of $193 for the average in-house lawyer. The equivalent average for an experienced contract manager (not administrator) is approximately half that number (based on the 2011 IACCM salary survey).  Since commercial contracts work represents 40- 50% of total workload in many in-house legal groups, there is significant potential to cut costs through more effective use of qualified contract managers. Case studies suggest that law department costs can be reduced by up to 15% through this means.

The benefits and the dangers of this consolidation have been the subject of previous blogs. If the General Counsel appreciates the differences between contract management and the role of the lawyer, it can be an effective partnering. However, if the motivation is primarily to increase legal control or eliminate an alternative source of commercial support, the long-term effects are more likely to damage business results.

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