The Legal Capabilities of the Future

12 September 2016

“As CEOs plan their strategies to take advantage of transformational shifts,” the consultancy PWC suggested in their annual survey of CEOs “they are also assessing their current capabilities – and finding that everything is fair game for reinvention.”

This is not a new trend. Back when the in-house legal function was first taking shape, in the mid 90s, CFO’s recognised it was time to change the finance function. A confluence of demand for greater decision support, operating cost pressures and the opportunities presented by finance automation meant they had to rethink how they added value – or become obsolete.

For the next 20 years the buzzword for CFOs remained largely the same: Finance Transformation. As a result, finance moved from ‘the Accounts Function’ to the most powerful force in any business.

Soon HR, IT, Procurement, and most other core functions, caught the buzz and launched their own ‘transformation’ initiatives. The playbook was largely the same regardless of the function:

1.  Centralise and standardise all transactional activities (e.g. Accounts Payable, Employee Benefits, Help Desk, Indirect Procurement)

2.   Drive down costs and increase speed through process optimisation and automation tools (like Promotion Wizard)

3.   Reallocate resources to invest in ‘Strategic Partnering’ (i.e. drive strategic initiatives through decision support)

Legal, being a relatively new function, is only now starting to come to terms with what ‘transformation’ might mean. Given other functions have a 20-year head start, the GC’s have some catching up to do.

Fortunately, as the diagram below shows, most progressive GCs see unprecedented need and opportunity to initiate a transformation initiative.

The data, from research outfit CEB, shows that General Counsels are starting to think differently about the capabilities that make up their functions. There are several key lessons:

  •  There is a consistent shift in investment from the right (core legal capabilities) such as IP, Compliance and Contracts to the left (operational, strategic and talent capabilities) required to support innovation, and run a productive legal function.
  • When evolving the skill mix within their functions GCs must think less about the tasks that, historically, needed to be performed by a lawyer and more about the capabilities required in the future to deliver on strategy.
  • Legal teams dramatically overstate the importance of private practice skills such as contract negotiation, and understate the business critical skills of project management, technology innovation, talent development and preventative law.
  • Too few GC’s are focused on innovation within their function. Our research suggests that only 34% of in-house lawyers believe their GC pushes them to innovate
  • Only a handful of GCs have concrete strategies to bridge the greatest competency gaps and transform their functions

Perhaps most critically, ‘Legal Transformation’ will not only affect ‘who’ focused on in this article, but more importantly; ‘what’ the function does, and ‘how’ they do it.

Those GCs who don’t make the shift to new functional structures, locus of activity, and adoption of technology will be trapped in the cycle of lower budgets and greater workloads.

The few GCs that successfully navigate Legal Transformation will become key leaders in businesses that are increasingly based on IP, confined by regulations, and defined by legal complexity.

To support our clients on this critical initiative Plexus is investing in Research on Legal Transformation and Innovation. Please reach out to us for advice and support.