The legal departments of companies need to optimize their operational model in order to meet the needs of the management and to keep up with changes in the regulatory and digital environment, according to Big Four advisory company EY’s survey of 1,058 legal executives globally.
The research reveals that in the next two years, about 82% of companies are planning to cut their legal expenditure, despite the fact that the overwhelming majority of respondents (87%) claimed that the management’s needs for legal information has increased over the past five years.
Some 5% said they want to reduce costs by more than 20%, while 37% wish to reduce it by 11-20%, and 40% planning to lower expenditures by 1-10%. On average, executives in Europe want to cut spending by 9%.
“The legal departments, including those in Hungary, have to prepare companies for significant changes such as the paradigm shift caused by GDPR, the internationally implemented anti-tax-evasion plan (BEPS), the phase-out of the interbank lending rate (IBOR), or even American tax reform, not to mention the potential outcomes of Brexit,” noted Iván Sefer, managing partner of EY Hungary’s law office.
EY says that the area of corporate law is further complicated by the fact that companies are challenged in terms of internal resources. Approximately three out of five executives, some 59%, think that their company is struggling to attract and retain the appropriate experts and talents.
In addition, nearly two-thirds (64%) of respondents believe that decision-makers at their company are more likely to invest in much needed innovative technological developments in other departments, such as HR, IT, or even finance.
The digital development of law departments is hindered most by factors such as time pressures related to ongoing business-as-usual matters (36%) and budget constraints (32%), followed by lack of management skill or interest (28%), according to the respondents.
The research also sheds light on the issue of not spending resources wisely. On average, companies spend 27% of total hours on conducting routine compliance and low-value tasks across the legal function.
“In order to meet the requirements set regarding extra tasks and decreasing expenses, the leaders of companies must intensively integrate the law departments into the digital development of their businesses,” argues Sefer.
“For sustainable growth, decision-makers ought to focus on incorporating external advisors, hiring qualified workforce, as well as keeping and further developing their talented colleagues.”
A large number of companies are already using or considering to use of external help. The survey shows that while an average of 33% of businesses are already outsourcing a number of legal function processes, including legal entity management and compliance, about 41% would consider doing so in the future.
There are also shifts in procurement models, as businesses are starting to give increased consideration to alternative legal service providers and legal process outsourcers. The trend is particularly strong among smaller companies, as 60% with a headcount less than 1,000 say they are considering ALSPs and legal process outsourcers.