Aiming to do more with less
Alex Ridout
During a slowdown, what processes can in-house lawyers implement to effectively manage internal legal departments?
Since the sharp decline in oil prices in mid-2014, the oil and gas industry has experienced a prolonged downturn and this has impacted all businesses in the supply chain. Similarly, that impact has been felt throughout each business including in the legal departments. A short dip in business performance could perhaps be discounted but the extended slowdown forces in-house lawyers to re-think the ways that they run their departments and handle their workloads. At a challenging time for the industry as a whole, the lawyers are also expected to manage legal risks within the business with fewer resources as everyone looks to cut costs. Difficulties arise from the fact that legal risks do not decrease during a market downturn, arguably they increase as companies dust off contracts and are more contractual.
The first place that companies typically turn to during a cost-cutting exercise is its workforce and we have seen reductions in workforces across the oil and gas sector. It may seem counter-intuitive to other managers but it might actually be a time for hiring staff within the legal function as businesses tend to be more litigious during a down cycle as they work to preserve their assets. I encourage my team to think of the legal budget as a total package and in-house lawyers need to decide which functions and initiatives to concentrate on, and which should be outsourced or stopped altogether.
Regardless of whether or not the legal department size will change, there will be a strong expectation that the lawyers will take on additional responsibility. Based on my experience, in-house lawyers enjoy taking on work which may take them out of their comfort zones. It is an opportunity to develop or expand their technical skills which may be complimentary to existing capabilities. A corporate lawyer being asked to handle restructuring work can enhance his or her knowledge of the potential pitfalls of a corporate transaction.
Effective processes can contribute to streamlining the management of a legal department. Investment in planning and procedures will help to quantify the impact and likelihood of the key legal risks to the business and proactive solutions work best at controlling costs. A prime example is an embedded risk management process around contract claims; deciding to settle a contract claim at an early stage may – on the face of it – feel like surrender but the unpredictability of litigation combined with a drawn-out, costly battle which consumes significant amounts of management’s time could be more damaging. As Daniel Gerber says, “In-house counsel must balance the duty they have to represent the client vigorously and arm outside counsel with the weapons necessary to combat hard-fought litigation within economic reality...”
Finally though, the legal department have to manage external law firms to deliver the best value to the business. Forcing the firms to absorb costs on their invoices can generate ill-will and may have a negative impact on quality; a better approach is to work with the firms to find ways to provide better value for money, i.e. raising productivity and quality without increasing cost. Offers to provide seminars and training are common in this market, as are the use of temporary secondees. Fee arrangements need greater thought – what may have been acceptable previously may not be appropriate during a downturn. What kind of work is being outsourced and what is the key driver – is the company looking for cost certainty? Will there be repeat work? Has the scope of services been clearly defined? As in-house lawyers, we rarely look for absolute certainty, just the reasonable and risk-based answer based on the surrounding circumstances; some external service providers that I have worked with have struggled to understand this.
These are challenging times for anyone that works in the oil and gas industry and no less so for the legal department. We lawyers must share the burden and a more structured and planned approach can help us navigate the difficult times and be ready for the recovery which will inevitably arrive. Let it be soon!
Columnist: Alex Ridout, general counsel & company secretary, Lamprell
