Managing budgets in big companies could be seen at the same time as art and as a challenge. And art should never be under pressure.
Managing legal budgets in big companies is even more challenging, relating to the fact that, as is well known, the legal department is still perceived by the management of companies as a “cost department.”
The bigger a company is, the stricter the forecasted and approved budgets are. On the other side, the bigger the company is, the more unforeseen events appear with a positive influence on legal budgets.
Last years’ events (the COVID-19 pandemic, the war in Ukraine) affected budget trends and the pressure over costs, including costs for legal departments is higher and higher. The number of assigned projects increased, and the legal challenges and legal environment are even less predictable.
How does an in-house lawyer deal with the assigned budget for a specific year? How does one correctly forecast a proper budget answering all KPIs requested by the company? How does one deal with so many uncertainties, offer the best quality legal services, and successfully manage the budget constraints? Can this be done without some pixie dust?
The costs that legal departments have are pretty much the same anywhere: personnel expenses, law firm fees, administrative costs, and costs registered within the legal budget in accordance with their destination but having other departments as consumers of this line of budget (notary costs, taxes to trade registry, stamp duty, etc.).
Here are some takeaways for success:
1) Accurate forecast of the budget before its approval for the next year: preliminary discussions with all departments registered as consumers of the legal budget and obtain a precise forecast for the costs that will incur next year. For example, a discussion with the marketing department to verify its intention to prolong the trademarks expiring in that year will help with a precise forecast toward budgeting IP costs.
2) Engage the legal team in forecasting the budget: with their involvement, legal officers will feel responsible and liable for the budget, working as a united team for this common project that they all agreed upon from the very beginning.
3) Ensuring, with support from the HR department, the retention of the legal team: retention is essential not for the budget itself only but will also support the budgetary constraints in two ways – legal professionals trained in law and business will be encouraged to strategically think, and to cooperate, ensuring good quality of their legal opinions toward their internal clients, stabilizing the costs with external law firms. To this end, the professional development of the legal team should be ensured by trainings, courses, or other educational forms of study and this should be a part of the company’s HR strategy.
4) Solid and adjusted cooperation with external law firms: effective work with external consultants is a key element for a healthy legal budget. A solid and long-term cooperation with the respective external lawyers as well as the ability of the in-house lawyer to communicate properly the scope of work are crucial for an honest and win-win cooperation within the budget parameters.
5) Strong argumentation for the legal budget in front of a board of directors: it is already known that in the last years, the role of a GC in a company increased in the sense that they received empowerment to ensure internally more difficult and complex projects, being confronted to deliver “more with less.” Therefore, a coherent and strong argumentation of the budget when, inevitably, the proposal is for the budget to increase will ensure the sustainability of the legal budget.
How does one deal with the unexpected? For all unforeseen projects with a high dimension that require significant unforeseen legal budget deviations, it is important to correctly designate the internal division or department of that company. The legal department plays the key support role in such a case, not only ensuring that the project is executed internally as much as possible (with all the diligence required to the highest standards) but also minimizing the costs with those projects without compromising the quality of the services.
Managing the legal budget is a task in itself, which for GCs could be a real burden considering that their role is primarily focused on defend the interests of the company in a legitimate climate and the “figures” pressure is not a learned skill in law school.
At the same time, the GC’s role is much more than ensuring the legitimate environment for the company’s business development. The GC, being part of the management of the company, has to be a good administrator of the money received to ensure the mission of the legal department. And with this aim, I consider it important to focus on the increasing costs requiring external professional support (e.g., GDPR involves a huge volume of work and external costs) and to try and compensate with great internal legal services. Ultimately, people make the difference in any kind of project, including in managing the budget.
By Mihaela Scarlatescu, Head of Legal and Compliance Director, Farmexim
