ACC Docket 41 October 2011

In the current business environment, it is critical that cor-porate legal departments help achieve the right business results in a cost-e!ective manner. The need for opera-tional e!ectiveness and cost e"ciency has increased sig-nificantly in recent years as the impact of global economic, political and regulatory challenges has added pressure to contribute meaningful and measurable value from all as-pects of the business. In fact, today’s legal departments are expected to deliver bottom-line results similar to the operating units they support. How best to realize these re-sults is a subject on which many books and articles have been written. We believe that many of these works focus on cost and people allocation while ignoring the fundamental analysis of “what” a legal department is doing and, more importantly, what it should be doing, as an essential first step to achieving improved performance.

FIRST WHAT, THEN WHO :

Optimizing Workload Allocation & Resource Management

BY RICHARD ROTHBERG AND KEVIN BLODGETT

ACC Docket 42 October 2011

a level of discipline and commitment that typifies the best business leaders, including those highlighted in Jim Col-lins’ work.

WHAT: Categorizing and prioritizing legal work

The legal department’s mission is gen-erally to serve the organization through:

(1) business support (e.g., advising, negotiating and drafting), and

(2) business protection (e.g., managing risk and facilitating compliance).

In the language of a corporate bal-ance sheet, the mission is to maximize the left (or assets) side and to minimize the right (or liabilities) side. To boost its performance of each of these roles, the legal department needs to have a thor-ough understanding of the tasks or units of work that should be performed and how (or whether) those tasks or work units support the organization’s busi-ness priorities. In our experience, the

best way to gain this critical understanding is to analyze and understand each type of work performed by the legal department and to determine its priority relative to the department’s, and the company’s, overall goals.

Compiling an inventory. Systematic performance of this analysis begins with an “inventory” of the types of work performed by each department member as well as by outside counsel. This inventory can be compiled based on interviews, workload studies, historic billing records or other available data sources. The inventory should con-sider not only work that is being performed currently, but future expectations based on anticipated developments in the business or legal environment (e.g., planned mergers or expansions, proposed regulations, new lines of business, etc.). The more complete the inventory, the better the GC’s understanding will be of the work that is being performed or that needs to be performed. For new GCs, this analysis provides invaluable insights into workload allocation and resource usage. For additional practice tips for new GCs, see the sidebar: “Practice Tips for New General Counsel.”

Categorizing work based on effort and value. The analysis does not end there, however. The next step is to ensure that the work being performed is work that actually should be performed by the legal department or under its auspices. The most effective way to do this is to categorize the types of work by:

“First what, then who”One of the most respected authors on

this general topic is Jim Collins, who, in his book “Good to Great,” brings to bear years of empirical research in the area of management strategy and practice. The book’s focus is on identifying the key characteristics that distinguished com-panies that achieved superior results and sustained them over the long-term from similarly situated companies that failed to “make the leap” from good to great.1

One of the primary factors that separat-ed these great companies from the mere-ly good ones revolved around having the right people in the right roles. Collins explains that the best executives he and his team studied followed an approach of “First who, then what.” That is, first get the right people in key leadership and other positions in the organization; then, together with that team, determine the organizational strategy and the support-ing operating model. This philosophy has proven to be effective in the business and departmental reorganizations with which we have experience. Indeed, bright, focused and purpose-fully organized people are a necessary foundation for both strategy and tactics in any organization.

But when it comes to running a legal department, we believe the order of approach must be flipped. We offer the following approach to any general counsel (GC) or chief legal officer (CLO) who wants (or has been mandated) to lower costs and increase operating performance and effi-ciency: “First What, Then Who.” “First What, Then Who” embodies a strategic approach to managing legal depart-ment resources, both internal and external. At its core is a rigorous focus on the tasks or units of work that must be completed to achieve the department’s standard mission of providing high-quality, cost-effective legal services to its business clients. Once it is determined what these units of work are, they should be assessed based on the associ-ated level of complexity or effort, and the potential value or risk to the business. From there, educated decisions can be made as to who is best suited to manage or complete the work from a resource perspective.

We admit that this approach isn’t groundbreaking, but it is time-tested and proven to yield significant cost savings, operating efficiencies and superior results. The challenge for today’s legal department leaders is to conduct this type of analysis and to make it part of the department’s operat-ing model, as opposed to a one-time project. This requires

RICHARD ROTHBERG is vice president, Americas, of Dell. He is responsible for Dell’s sales and operations in North and South America, and for the legal

support of Dell’s Global Consumer, Small & Medium Business, Public, and Large Enterprise segments. Rothberg joined Dell from Caterpillar Inc.’s European headquarters in Geneva, Switzerland, where he was a senior corporate attorney. Prior to that, he worked in the United States for Caterpillar Financial Services Corporation and at IBM Credit Corporation. Rothberg started his legal career at Rogers & Wells, a law firm in New York. He can be contacted at richard_rothberg@dell.com.

KEVIN BLODGETT has nearly 15 years of experience as a practicing attorney, most recently serving as general counsel and executive vice

president, administration of Dynegy Inc. With Huron Legal, Blodgett focuses on improving performance and reducing costs for corporate law department clients. During his tenure as general counsel, his legal department was widely recognized for its operational efficiency and for implementing technology tools, outside counsel management strategies and other data-driven initiatives resulting in significant cost reductions. Prior to joining Dynegy, he was a corporate associate with Baker Botts LLP in Houston,. Blodgett can be contacted at kblodgett@huronconsultinggroup.com.

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similarly situated legal departments categorize their work types. These additional layers of input will help offset “silo” thinking and ensure a more reasoned and holistic categori-zation of matters.

The proof is in the pudding. Performing this inventory and prioritization can generate some eye-opening results. For example, the GC may discover that an inordinate amount of effort is being spent on work that has relatively low value to the organization. This may be because: It has always been done that way; it is being done at the request of a business client; or simply because the person perform-ing the work is good at it and likes to do it. The inventory and prioritization process may also show significant gaps — work that is important to the business, but not being done. For example, in one department of which we are aware, the business leaders emphasized the provision of strategic advice and counsel from in-house counsel, but the legal department spent the majority of its time negotiating routine contracts and handling other tactical matters. This misalignment was unearthed by the group categorization process and provided the legal department with a clear case for change in terms of prioritizing its time, effort and the type of resources required. In another department with which we have experience, a new strategic direction by the company led to an analysis of what skills were required

(1) Effort — what is required to complete the work in terms of time, experience or expertise?; and

(2) Value — to what extent does or could the work impact the organization either positively (such as completing a strategic acquisition) or negatively (such as financial or reputational exposure often represented by a key piece of litigation)?

These two broad measures serve as the axes of a matrix into which each particular matter or unit of work can be slotted, allowing the GC to assess its relative priority in the overall context of the organization. We believe that this analysis is essential to ensure that the legal department is actively fulfilling its charter and handling the work that most benefits the business instead of simply “responding” to each client request, which may be immediate but not neces-sarily most important. Figure 1 below illustrates this matrix.

Ensuring a broad perspective. While these classifica-tions are a bit subjective and will likely vary from company to company, they can be quantified with some degree of clarity. For example, effort can be based on the relative number of hours spent on a particular task or its com-ponents. Similarly, value can be based on the amount of dollars at issue or the degree to which the organization’s reputation could be negatively impacted by an adverse result. Here, it is imperative that a breadth of perspectives be applied to ensure that the classifications are made in alignment with the overall business objectives. We tend to believe that all of “our” work is of the highest value, and requires the highest level of expertise and sophistication. To balance this natural tendency, and to provide an in-formed calibration process, we recommend gathering and applying input from the relevant leadership teams, both within the legal department and of the applicable business units. Benchmarking information can also be useful in this context to provide a “sense of the market” as to how

• Invest the time to get to know your team of resources, both internal and external, and the manner in which work is allocated. Transition workshops and introductory one-on-ones are well-received and allow for solicitation of informed views and input.

• Clearly articulate your vision for the legal department and your expectations for all team members.

• Establish a 90-day plan that includes a detailed work inventory and categorization analysis.

• Ensure that business leader input is obtained as part of your workload assessment and any go-forward decision-making processes.

• Evaluate all aspects of the legal department’s service delivery and cost model, including relevant benchmarking information.

• Understand the legal department’s operating model and whether supporting processes and technologies are in place.

• Assess the measurement and reporting capabilities of the legal department, including their alignment to key departmental and individual performance indicators.

Practice Tips for New General Counsel

Corporate Finance Mergers and Acquisitions

Product Liability Defense Energy and Agribusiness

Life Sciences Intellectual Property

Bankruptcy/Financial Institutions Commercial Litigation

Intellectual Property Real Estate

Securities Litigation Employment and Bene!ts

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ACC Docket 46 October 2011

are determined, the next step should be to align the skills and costs of available resources with each particular piece of work. Starting with the available resources, a broad perspective should be taken to ensure that the resource with potentially the best “fit” for the work is not omitted. Internally, the list of possible resources should include at-torneys, paralegals, administrators, assistants, analysts and other in-house personnel. Externally, a similar list would include outside counsel (with thought given to particular levels of attorneys and other outside counsel support re-sources), contract attorneys, non-attorney service provid-ers and vendors (e.g., discovery experts and document reviewers) and offshore providers. Each resource provides a unique skillset and price point that should be considered on a matter-by-matter basis to ensure maximum alignment and the most efficient use of that resource.

In general, high-value, high-complexity matters should be handled by the most skilled resources, and low-value, low-complexity matters should be handled by lower-level, lower-cost resources. Work that is high-value but not complex (for example, certain high-revenue contracts), or conversely, is low-value but complex (for example, certain litigation tasks) can be done by a mix of skilled and lower-level, lower-cost resources, with the decision in many cases driven by the company’s culture or experience with the particular piece of work at issue.

To see how this works in practice, Figure 2 below uses the Illustrative Work Categorization Matrix from Figure 1, with sample matter types listed in each of the four quadrants.

Lower left quadrant. To explicate this concept, let’s begin in the bottom left quadrant. Here, we often see “routine contracts” sourced almost exclusively by in-ternal legal staff, although not necessarily by attorneys. By “routine contracts,” we mean the day-to-day com-

and prompted a reorganization in which lawyers with significant experience in intellectual property and software were added. Ultimately, the process can drive the clarifica-tion and formalization of roles and responsibilities, identify needed skill set expansion or training, and otherwise pro-vide the guiding framework for improving or refining the legal department’s scope of services.

Perhaps more importantly, by categorizing each mat-ter based on the effort required and the overall value to the business, a “line in the sand” is established around which a strategic resource strategy can be developed. Logic dictates that the expertise and cost of a resource should closely align with the type and scope of work assigned to that resource and the value of that work. The following is a discussion of a best practice approach to developing a value-based resource strategy that leverages the categoriza-tion process described above.

WHO: Strategic selection of internal and external resources

With a good understanding of the work to be done and how it aligns with the company’s business priorities, the GC can begin to make determinations about the type and level of resources that are best suited to perform the work.

Should it be handled by the legal department, if at all? At the outset, it should be determined whether some of the legal department’s current workload should be reverted to the business or added to the department’s “stop doing” list. For example, in many companies, an attorney will create, review and negotiate each and every non-disclosure agreement (NDA). This may be justified for NDAs relating to major M&A transactions or significant pieces of intellec-tual property. Otherwise, for more routine NDAs, particu-larly where there is a high volume of such agreements, a strong form agreement could be made available to the rel-evant businesspeople for engagement and negotiation with the counter-party. If a major legal issue arises, an attorney could provide his opinion and perspective — a much better use of his time than creating and reviewing every page of the subject NDA.

As for the “stop doing” list, it is not uncommon to find legal departments performing tasks that simply don’t need to be performed. One frequent example is reviewing advertis-ing materials. While this certainly involves risk and requires legal input, much of this activity ends up as fact checking and proofreading, which do not require any specific legal training or fall within the remit of giving legal advice. Ensuring that the work actually needs to be performed by or under the auspices of the legal department is a condition precedent to the development of a resource allocation strategy.

Aligning resources to matter types based on effort and value. Once the proper legal department work areas

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ACC Docket 48 October 2011

company on an individual basis, these cases are typically not well suited for in-house counsel who are focused on performing the “highest value” work. The better option is often to use outside counsel for these cases under the supervision of mid-level in-house lawyers, supported by lower-cost resources for the more routine aspects of the litigation. These lower-cost resources might include outside vendors or lower-cost internal resources.

Upper left quadrant. Higher-value, lower-effort work as depicted in the upper left-hand quadrant of the matrix is similarly best allocated to a combination of skilled resources and lower-level, lower-cost resources. An example of this for some companies is intellectual property work. At companies with a large load of IP work, preliminary patent searches might be leveraged to paraprofessionals or even outsourced, for example, to free in-house attorney time for higher-level IP work.

There is no absolute “right” rule about which types of work should be allocated to whom. When GCs understand the work that needs to be done and its relative value to the business, they can make informed decisions about who should do the work in light of available resources. In to-day’s environment, most legal departments are not funded

mercial and operating contracts that keep a business go-ing. While crucial to the business, they are considered “lower value” for purposes of this analysis because of the relatively low risk or value of the individual con-tracts. Because of the volume of the work and the level of interface required with the business, it usually makes sense for this work to be performed in-house. The specific internal resources used will vary depending on the level of the contract. Commodity agreements that can be based on templates may be overseen primarily by paralegals or contract administrators, with attorneys becoming involved in the event of a proposed deviation from established terms or exceeding pre-determined dollar limits. Even these can be minimized by creation of “playbooks” or other guidance that provide accept-able alternatives for repetitive issues. In-house lawyers will take the lead in dealing with agreements with more complex issues or in periodic review and revision of standard templates.

Upper right quadrant. By contrast, high-value, high-effort work as depicted in the upper right quadrant is typically performed by the most skilled external or internal resources. For example, a company typically will hire expert outside counsel to handle “bet the company” litigation or a major acquisition, with the involvement and oversight of the GC or other senior members of the legal department. The nature of these matters and their potential to materially impact the company’s bottom line necessitates experienced (and, in many cases, high-cost) resources. The legal depart-ment’s direct involvement in these types of matters can vary based on internal skill sets and capacity, among other factors.

Lower right quadrant. Higher-effort, lower-value work, as depicted in the lower right-hand quadrant of the matrix, might include the majority of non-material litigation encountered by companies. These cases may require a considerable amount of time and expertise to handle effectively, yet may ebb and flow in terms of vol-ume. When coupled with their relatively low risk to the

• In terms of context, keep in mind that the legal market is facing a significant increase in competitive forces, as value and predictability are becoming key issues for general counsel.

• A relationship of trust is typically a condition precedent to a successful alternative fee arrangement.

• There is no “one size fits all” alternative fee arrangement for all legal departments and/or all occasions.

• To be effective, a fee structure should incent the desired behaviors and results on a matter-by-matter basis (e.g., predictability and/or amount of fees, firm performance, matter outcome).

• The best alternative fee arrangements present a “win-win” proposition for the legal department and law firm.

• Don’t allow “analysis by paralysis” to set in and prevent your usage of alternative fee arrangements. These arrangements are a bit like performance metrics in that some experimentation and trial-and-error is likely needed over time to produce the optimal results.

Developing and Implementing Alternative Fee ArrangementsThere is no absolute “right”

rule about which types of work should be allocated to whom.

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age. And GCs can ensure that work is done by the right level of resource within the selected firms (and therefore billed at the appropriate rates) by creating benchmark-based staffing leverage models, which can be communicated to outside counsel and enforced via the retention agreement, outside counsel guidelines and regular review on a matter-by-matter basis. Work can further be leveraged to the appropriate level resource by “unbundling” some of the more repeti-tive, commodity-type work and sending it to non-attorney vendors, sending it offshore, or even keeping it in-house if the economics or other factors so warrant. Certain aspects of M&A due diligence review and litigation would seem to be primary candidates for handling in this manner.

Alternative fee arrangements. Of course, the legal de-partment can minimize its involvement in issues related to outside counsel’s staffing leverage by moving away from the billable hour model. Fixed fee arrangements or other alter-native fee arrangements can be structured to put the risk of inefficiency on the law firm. These arrangements can also bring certainty to the legal department regarding its fore-casted spending. For example, we have seen SEC reporting work, corporate governance advice, employment advice and certain repetitive litigation matters (such as consumer cases) assigned to a law firm based on a fixed monthly or annual fee. In the case of the advice-based engagements described above, these fixed fee arrangements included an unlimited amount of dialogue with and counsel from the outside law firm.

On the subject of alternative fee arrangements, there is a tremendous amount of information available in the legal marketplace today. While this article is not meant to pro-vide an exhaustive discussion of these arrangements or the trend away from the billable hour model, we’ve provided some practical advice in the side bar: “Developing and Implementing Alternative Fee Arrangements.”

WHO: Managing the selected resourcesAs we mentioned at the outset, the challenge is to make

the “First What, Then Who” analysis part of the legal de-partment’s operating model rather than a one-time project. Active management of the selected resources, including periodic evaluations within the department and among outside providers, will build on the foundation of the original analysis. For internal resources, a clear organiza-tion structure and defined roles and responsibilities are the first steps. Established performance standards and regular, formalized feedback and evaluation of legal department personnel with legal and business leaders, as well as two-way communication, will help ensure that the right work is being done and will flag potential areas for improvement or needed work reallocation. Externally, communication of defined roles and responsibilities, the desired outcome

to provide blanket coverage of all possible legal issues; the job of the GC is to determine which issues must be ad-dressed with those limited resources the department has at its disposal.

Sourcing and managing outside resourcesDetermining to send certain work to outside resources

doesn’t fully answer the “who” question. From there, answers to the following should be considered: Should it be sent to outside counsel or to other external vendors, or to a combination of the two? If outside counsel is appropriate, which firm or type of firm should be selected? Which firm resources should be used? How should the fee arrangement be structured? And how should those firm resources be managed to ensure that the right result at the right cost is incentivized and received?

Strategic sourcing of outside resources. Many com-mentators have opined on the outside counsel selection process and the trend toward law firm convergence, preferred provider programs and the like. In our opin-ion, choosing which counsel to use boils down to the same principles discussed above: selecting the right fit relative to the effort and value of the work. The right fit is a function of the right skill set, location, and price point as compared to the effort required for the work and its relative value. So, for example, a sophisticated, specialty firm might be appropriate to handle complex, high-dollar litigation, whereas a less expensive firm is typically more appropriate for routine litigation or other “commodity” work.

This is a strategic process, and, as with the allocation of work done in-house, principles of work consolidation and leveraging to the right level resource should be applied. For example, similar matters can be consolidated with one firm when appropriate, resulting in potential work efficiency as well as providing the opportunity to maximize buying lever-

When GCs understand the work that needs to be done and its relative value to the business, they can make informed decisions about who should do the work in light of available resources.

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and guidelines is crucial. Providers’ performance against these expectations can be managed through budgeting and periodic actual-to-budget reports, firm scorecards, and, of course, a candid two-way dialogue with a focus on continu-ous improvement. We believe in the old adage that “what gets measured gets done”; a robust performance manage-ment process provides a much-needed level of transparency and illuminates opportunities for improvement in terms of both costs and results.

Making the ongoing commitment With this approach, and taking the steps to allocate

work to the right resources according to the effort and value associated with the work itself, legal departments can achieve significant cost savings and operational ef-ficiencies. For example, Dell’s continuing evolution toward a solutions company has required ongoing evaluation by the legal department of the skills and resources required to effectively support the business, while at the same time, successfully reducing overall costs. Similarly, at Dynegy, outside legal spend was reduced by approximately 50 per-cent over the course of two years through a convergence of outside law firms, establishment of fixed price arrange-ments for several work streams, and enhancement of processes and tools used to manage those firms and their handling of legal matters.

But the task is not easy, and it is important that it not be perceived as a one-time event or project. Completing the initial inventory requires a strong commitment from legal department management that is communicated at all levels of the organization, and to outside counsel and other external providers. Making the indicated changes in work allocation can be even more difficult, as resistance to change is frequently encountered. Discipline and commit-ment to continual improvement is required to achieve suc-cess. In times of limited resources and high expectations, there is no more important role in determining the success of a legal department.!

Have a comment on this article? Visit ACC’s blog at www.inhouseaccess.com/articles/acc-docket.

NOTES

1 See Jim Collins, Good to Great: Why Some Companies Make the Leap … and Others Don’t, (HarperBusiness 2001).

ACC Docket• Strategic Management of Technology and Resources

to Increase Attorney Productivity (Sept. 2010). www.acc.com/docket/strat-mgmt_sep10

InfoPAKsSM

• Organizational Effectiveness: The New Imperative for Developing a World-Class Legal Department (July 2011). www.acc.com/infopaks/wcld_jul11

• Strategic Planning: Why a Plan Is Needed and How to Develop One (Sept. 2009). www.acc.com/infopaks/strategicplan_sep09

Presentation• Designing a Forward-Looking Legal Department

(May 2011). www.acc.com/forward-ld_may11

Value Practice• ACC Primer — Using a Structured

Process to Allocate Work (Dec. 2010). www.acc.com/value-based-staffing-primer

Committees• ACC Law Department Management Committee.

www.acc.com/committees/ldmc

Article• Putting Together a Powerful Project Team (May

2011). www.acc.com/power-team_may11

Alliance• Consider using legal staff from ACC Alliance

partner Robert Half Legal to optimize resource management. ACC members can save on project attorneys and paralegals. Visit www.acc.com/alliance for more information.

ACC has more material on this subject on our website. Visit www.acc.com, where you can browse our resources by practice area or search by keyword.

ACC Extras on… Optimizing Workload Allocation and Resource Management

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