Strategy & Operations » Legal » Why CFOs should push for legal transformation

Playing a key role in executive leadership, and having their hands on the purse strings, CFOs are often central to discussions on how to how companies respond to changing market and regulatory environments, and the investment decisions necessary when large-scale business transformation is required in response.  

But when it comes to the legal function, many CFOs find they lack the skills and the training to make the necessary judgements on resource allocation, technology enablement and risk mitigation.

So a toolkit is required for analysing how the legal function can provide greater enterprise value, helping identify what a business needs to do and leading conversations with others.

 As legal spend has become material and can have an impact on the company metrics that influence analysts ratings, it is in a CFO’s interest to take on a leading role with managing and transforming the legal function.

 For many years, legal departments were deemed “untouchable”, protected from the pressures other departments faced to improve, evolve, streamline, as if somehow different rules applied to this part of the business.

 But now Heads of Legal are expected to fully participate in enterprise-level initiatives to streamline and digitise their own departments, as well as advising how the wider business redefines legal’s involvement and value contribution.  More and more General Counsel are comfortable embracing these concepts, but others need motivation and acceptance of change from their executive colleagues.  

Taking the initiative

CFOs can start the process of challenging the status quo and start demanding this sort of organisational transformation from their legal teams.   Translating their own experiences is a good way in for a CFO to open conversations with General Counsel about embracing transformation, as the finance team will have been through the hoops already.  

They can then offer a simple, diagnostics process for working out what the legal team should be doing to align itself more closely with the needs of the business and its changing direction of travel:

 

Step One: understanding the Business Drivers for change – translating business, competitive landscape and industry changes to the legal department.  

-Key changes in the company strategy, culture, structure and initiatives

-Competitive landscape and industry influences

-Legal industry innovation and developments.

 

Step Two: identifying Value Contribution – defining and evaluating the legal department’s value contribution in business terms

-Business criticality and current performance

-Prioritization of legal work by business impact

 

Step Three: Resource Strategy – evaluating how to source the different layers of legal service, and deploy technology, to improve delivery.

-Distribution of resources by practice area, level/type and geography

-Resource strategy for alignment with business drivers and business impact priorities

-Technology ROI for supplementing internal and external legal resources

 

Before the value contribution of the legal department can be assessed, it must first be re-defined. A common but outdated assumption is that the legal team is there to deal with protection and risk reduction – the classic old school view that “Legal is there to keep us out of trouble”, or to be the company’s police department. But take the routine, commoditisable work off their plate, and there is so much more value they could be providing to the company. An in-house legal team that delivers real value will:

-be aligned with the company strategy in their approach to all their work, helping to push the business’s strategic objectives and honing competitive advantage;

-be pro-active in smoothing commercial interactions with supply chain partners and customers, maximising business agility and speed, making sure the business is slickly aligned with vendors and suppliers and being nimble in how contracts are written and negotiated;

-be creative in thinking how they can help streamline their role in all the business processes they are part of.

This is the opportunity and CFOs should be pushing their GC colleagues to focus on it, because this is how the legal team’s value to the business is maximised.

Decisions concerning large-scale investments in legal technology are challenging without a clear articulation of how enabling the legal team’s efficiency can create enterprise value.   A business case needs to be articulated that outlines hard and soft benefits for the long-, medium- and short-term.  

New technologies are continually emerging and judging at what point in a new technology’s maturity a company should pull the trigger and dedicate resources to embracing it fully, isn’t easy.  In addition to cost-cutting benefits, emerging technologies should offer value by enabling legal resources to be more efficient, measuring trends and changes in volume of legal work, and analyzing the content of legal work to inform better business decisions.  

Of the executive leadership team, CFOs are well positioned lead these discussions and create the motivation for change through cost savings goals with an emphasis on more strategic engagement from the company’s law department.