Author - Nitin Jain, Partner
As many General Counsels (“GCs”)/ Legal Counsels are a part of Board Room meetings and in the current circumstances one of the key topic of discussion is that of overall cost reduction and reduction in budgets. Each department Head is expected to reduce cost of their department by various ways and means, same is the case with legal function too.
Many organizations by this time of the year get their budgets for the concerned financial year (“FY”) finalise. However, due to the outbreak of the Covid-19 pandemic, the organizations are now revising all their current budgets for the FY 20-21 and the only way to sustain for organizations is to reconsider and reduce their budgets since the actual revenue lines have been impacted qua the estimated revenue. It applies to all functions/ departments of the corporates including In-house legal. An In-house legal department would be considering for minimum 30% to 40% reduction in their overall costs including outsourcing cost.
Tips to deal with Cost reduction:
In this Article, I am planning to the cover the most common pain points, the General Counsels/ Legal Heads/ In-house legal teams would be facing during these unprecedented times regarding cost reduction and few tips and food for thoughts on dealing with the same.
- Negotiate hourly fees: GCs at this point in time are having an upper hand and while interacting with various laws firms in India and overseas, they can explore opportunities to get discounted rates agreed for the entire year, with whom they are planning to engage in near future, at all levels from Partners to Associates. This would eventually result in substantial reduction in cost.
- Exploring option of blended rate: Depending upon the areas of expertise of the lawyers and involvement of Partner vs. Sr. Associates/ Principal Associates, GCs should consider exploring the blended rate and negotiate with these firms for blended rates. This too would help in achieving the aim of cost reduction.
- Identification of potential dispute in current times & legal costs associated with it: GCs shall start identifying potential disputes whether related to commercial, employment or other cases arising due to Covid -19, at organisation level, since they have the first-hand information and may estimate the legal costs attached to it. This would enable the organization to evaluate whether to pursue litigation or explore out of court settlement, on a case to case basis. In any event, this will help in budgeting such litigation costs as well.
- Time to explore technology: Various organizations are busy on a day to day basis in their routine work and may not able to explore and compare various technology tools which are beneficial to the organization whether from the cost perspective or from process point of view, such as contract management, billing software, litigation management, compliance management, etc. These are the times to negotiate and get the best of the tools at most competitive prices and implementation of such tools across the function in a swift manner having more time to analyze and interact with cross functional teams.
- Learning & knowledge sharing sessions including Online courses: In the current times, when the organizations are going through a challenging phase, knowledge enhancement can play a vital role for the In-house legal teams to deal with the situation by themselves. Now a days, webinars are being conducted all across the world on various topics and various eminent speakers, who are experts in their fields, are available and share their profound knowledge at minimal or no costs. Similarly, there are various online courses that can be accessed either free or by at negligible fees. This seems to be a golden opportunity and the GCs may drive individual team members, depending upon their need, skills or area of improvement and mentor them to take up these webinars/ courses to enhance their knowledge. In fact, In-house teams in bigger organizations having practise wise division (M&A, Litigation, IPR, Contracts Specialist), may have cross learning programs, which ultimately helps the individual to take up a larger role when the time comes.
- Is Manpower reduction really the Answer? Each organization is currently facing manpower reduction issue. In-house legal teams may support in assisting and calculating the financial exposure of reduction in manpower, especially in current times together with the HR team. They may also help in advising legal ways in reorganization and restructuring of manpower (assist in evaluating cost of legal separation & its consequences versus retaining those employees on different terms) at various levels in a legal compliant manner.
- Explore out of court settlement in old pending Company’s litigation: Many private litigations with third parties whether service or manufacturing industries are pending in each organization. GCs can take an opportunity and evaluate financial risks and utilize these times in negotiating disputes on without prejudice basis and see if at all out of court settlement can be arrived at. In the present Covid-19 situation, this would be win-win for both sides for Company’s as well as their customers, vendors, service providers, supplier, etc. This would save litigation costs and of course, parties could consider exploring new opportunities in future.
- Empowering Gen Y with more responsibilities: In many organizations, a GCs’ responsibilities is multi-fold and covers various territories. This also demands their higher attention by frequently travelling to these locations and interacting with various stakeholders. In current times, GCs should empower GenY in their organizations to deal with crisis situations on their own, of course by backing them up, as and when needed, but nurture their talent, so that it would help each member of the team taking up more responsibilities in coming years and deliver more for less.
- Explore Costs reduction @ cross function & cross sectors: GCs and their teams should continue to interact across different functions in their organizations and of course across sectors to find out more about who is doing what and how are they overcoming these challenges. They may be able to contribute or may be able to adapt some of the practices.
- Is outsourcing a tool for reduction in Costs: Each Organization is having different needs, depending upon where the ultimate legal functions fall within the Organization. Some of them are being headed by GCs, Company Secretaries and others by Chief Financial Officers of the Organization. Depending upon the requirements, they should evaluate costs of deploying in-house resources vs. costs of outsourcing, what is more beneficial to the Organization and accordingly decide the way forward.
These are few thoughts emerging from the current times, I am sure as we move forward many more innovations and adaption of new practices will emerge to work more efficiently and optimization of costs in In-house legal function.
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