To keep quality high, Findlay has had to prioritize. "We really have tried to step back and look at what we do with a clear-eyed assessment of what are the biggest risks the company faces, what is it absolutely critical that we accomplish, and what are some of the things that we've always done but maybe aren't so important in the grand scheme of things?" says Findlay.
Zynga Inc. GC Reginald Davis tries to root out unnecessary department practices before they become habitual. Davis knows that time is valuable, and he urges in-house lawyers not to waste it. He limits all internal meetings to 45 minutes and sets a clear agenda for each one at the outset. The GC also asks that department members use what he calls "good email hygiene." Instead of inundating each other with messages, Davis encourages lawyers to be more efficient with email use. "We end up spending all of our time reading email, if we're not more thoughtful about it," he says.
Like Findlay and Davis, most general counsel these days are scouring budgets to separate wants from needs. For respondents generating from $1–5 billion in annual revenue—the median expense-to-revenue ratio was 0.2 percent. Hard economic times inspired a top-down scrutiny of department expenditures that appears to be here to stay, even as the economy hints at improvement.
As a result, GCs are running their legal departments like businesses within a larger enterprise. To better align themselves with the goals of the company, more than 50 percent of respondents indicated that legal department compensation was linked to meeting business goals. Three-quarters of survey respondents also said they provide regular status reports to their business department heads.
When GCs meet with CEOs and other business leaders, they're talking more like businessmen themselves. HBR's Chung says that metrics play a key role in conversations with the business side. Whether their goal be defending current resource allocation or seeking an increase, GCs are using numbers to make their case. When GCs know their lawyers are overwhelmed, she says, data showing that their head count is well below the median compared to peers at the same revenue level "sends a powerful message."
Not all data-backed pleas will be successful, of course. DiLucchio says: "The business people also have pressure." In many companies he's even seeing business units pushing off some of their work onto the legal department. "It's not just legal work that's increasing," he says.
The rise in work expectations is having a negative impact on GCs' ability to manage outside counsel. For a decade or more, departments have tried to scale back outside counsel rosters in order to obtain more control of their relationships with those firms. The average number of law firms employed by companies with revenue of at least $5 billion dipped from 126 to 116 in this year's survey, after a rare increase the previous year. Despite the reduction, DiLucchio says, inside counsel are stretched so thin that "management of outside counsel doesn't get the attention it deserves."
Legal evaluation of current outside counsel performance also doesn't appear to be on par with that applied to internal lawyers. Cost, results, and understanding of the business were the top three criteria that legal departments used to assess outside counsel performance, but 71 percent of respondents said they had no formal review policies in place.
With all the scrutiny of expenses, it may seem counterintuitive that GCs wouldn't be more concerned with outside counsel performance. Traditionally, law firms and other external legal service providers have constituted about 60 percent of legal spending.
For surveyed companies with $100 million or more in revenue, the median percentage of total expenses that went to outside counsel and other external providers of legal services was 58 percent.
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