How Legal Departments Can Best Contribute to a Company's Performance

How Legal Departments Can Best Contribute to a Company's Performance

Published on : 05/11/2020 05 November Nov 11 2020

Legal departments are responsible for ensuring the legality and compliance of a company’s actions. Opinions are more divided, however, when it comes to assessing their contribution to a company’s performance. Lawyers are still seen as fussy people, a potential hindrance to business. This caricatural and subjective vision is the result of several factors, and it is by varying these factors that this image can evolve.

A legal department’s function within the corporate power spectrum

A well-structured legal department with a director who sits on the executive committee does not have the same weight as a department attached to the CFO or HRD.
Strategic management on one hand, and support services on the other, the position within an organization can have an impact on the internal consideration of the legal department.
Positioning of the legal department will therefore depend on senior management, as it is generally their vision as to which benefits are brought by the legal department.

The legal department: a true business partner 

Legal departments that are more proactive are perceived as providing more value.

Thus, legal departments occupying the position of business partner are better able to provide operational staff with effective solutions for risk control.

Some lawyers play a proactive role and are systematically involved with other departments in all their activities.  Others, on the contrary, are in reactive mode and will respond to requests from other departments on a more ad hoc basis.

Ideally, involvement by a legal department ensures better risk management and optimized performance.

Legal department’s piloted as a profit center

A degraded image, condemned to pay millions or even billions of dollars, are the consequences of poor risk management and can be colossal for a company dragged into a public trial.

In contractual matters alone, it is estimated that good management has a direct impact on turnover and expenses in the order of: 
  • 1 to 2% increase in revenues
  • 2 to 7% cost reduction
  • 30% reduction in administrative costs

 Source Aberdeen Study on the Benefits of Contract Management
Some legal directors thus want to position the legal department as a real profit center.
They set up indicators or KPIs to measure the gains linked to optimized litigation management: the difference between opposing party's claims and payments to be made in the end or, conversely, the difference between sums recovered and initial claims.

Legal teams that integrate operational issues

To contribute to a company’s overall performance, legal teams must have a detailed understanding of the company's strategic and operational issues.

Thus, in companies that manage large IT or industrial projects, contract managers will collaborate with project managers. They will thus identify legal risks and negotiations relating to various contracts to help optimize the project.

In commercial matters, the legal team is at the forefront of preparing well-crafted contracts that anticipate negotiation difficulties and facilitate the work of sales staff to finalize the signing of a deal.

For litigation management, legal teams communicate closely with financial management to provide for disbursements that will directly impact a company's financial results.

Define and communicate legal department KPIs

Valuing a legal team’s contribution also means measuring and communicating it internally.
It is therefore the head of a legal department’s role to set up performance indicators: quantitative elements on case management, budget for purchasing legal services, etc., and to communicate them internally.

In the end, it is the curiosity and willingness of lawyers to leave their legal comfort zone and move into "business", a less controlled and therefore riskier field, that will make it possible to change perceptions and have their contribution to a company's performance appreciated at its true value.

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