When you can’t answer basic questions, you can’t be a credible business operator. And a GC is there to be a business operator, contributing to the business and its strategy. How can you hope to have a seat at the table if you can’t even demonstrate that you know what’s happening in your own house?Stéphanie Hamon
1. Lawyers speak with words, finance speaks with numbers
Leon: “The fundamental tension at the heart of the relationship between the CFO and GC is that they are looking at the legal function very differently. The GC sees it qualitatively, whereas the CFO sees it quantitively. You’ll never find someone in the finance team who says, ‘Wow, they’ve really provided some great legal advice’. They’ll say, ‘It came in £10,000 over the provision we put in for that matter’. That’s the constant battle.”
Simone: “It’s never quite that simple. A CFO can certainly appreciate the difference between a Magic Circle law firm and the High Street (not least because they have exactly the same split in professional services between the Big 4 and lower-tier players). It’s also absolutely part of the CFO’s role to understand risk in the business. So their job is not just about limiting spend, it’s making sure that spend is going into the right areas and that the company still functions effectively and optimally.”
Stephanie: “Legal is also to blame. They are often unable to articulate where their value lies. Also, lawyers are often really bad at understanding the business of accounting; for example, they don’t realise that underspending represents as poor management as overspending. So I think there are shared issues on both sides about not understanding what the other is trying to do.”
2. The greater structural challenge is that GCs are responsible for internal spend, CFOs also see external spend
Stephanie: “My team (at Barclays) was initially created because my GC wanted to run his function like a business. He examined his internal costs, but quickly realised that 75% of our spend was on external law firms. The COO was under increasing pressure from the CFO to cut headcount, yet that was the wrong place to focus attention: there was far more to be gained by managing external spend. But there is a relationship between the two – a direct correlation. Cut one, and you will affect the other.”
Simone: “A CFO should appreciate the nuance between internal and external legal resources. They must understand the commercial imperatives that drive internal headcount and external spend. I do horsetrade with our GCs: I want to know the BAU, transactional work that it makes sense to bring in-house, as against the specialist areas for which we will always need specialist advice and which will prevent the business from falling over. It’s an annual negotiation for the budget and then a quarterly discussion for managing the forecast.”
Stephanie: “In the past we had headcount constraints and ended up sending a lot of work externally. Yet Barclays will always be in the mortgage business – so why would we not conduct transactional mortgage matters in-house? We were able to put the business case, both financially, but also that in-house skills keeps knowledge and experience in-house too.”
3. Not everybody wants a panel, not everybody wants the same panel constituents
Leon: “I had aspirations to just find the two best full-service law firms I could call on. But I quickly realised: it doesn’t matter whether they’re Magic Circle or US law firms or the lower tiers; no one firm can do everything, and no firm is at the top of their game for every discipline.
“Instead, invariably you find the best person in the best law firm, you build a relationship with them, and if they then go to another law firm, you can go with them. So it’s just happenstance that you end up with a particular firm. I moved away from panels because they often over-promise and under-deliver; instead for me it’s relationship led, work led, and sometimes involves plenty of luck, too.”
4. Data is in the interest of both GCs and their law firms
Stephanie: “I realised there was a complete lack of trust between Barclays and its law firms. It was astonishing: many of these firms had been working for us for years, yet there was always an adversarial feeling. That’s not healthy: to drive change, we need to be having tough conversations; and we can’t have those tough conversation if there’s no trust.
“So we decided to share our data with our panel. We were committed to dramatically reducing the size of our panel, but to make it worth their while participating, we also committed to ensuring that 95% of our budget went to panel firms. Any panel firm would be confident that they weren’t just making up the numbers. We even shared with them their share of wallet. It becomes clear to a law firm where they should invest their resources in order to raise their revenues, rather than applying to join panels which don’t even match their skillsets.”
5. Legal departments might not own the agenda, but they can own the response
Stephanie: “As a legal department, you’re a taker of demand: you don’t create the demand, but you can’t turn it down either! And we all know that it’s a bit unfair to ask legal teams to control the cost of their function when they can’t control the demand. But that tension will always be there. Therefore, we should also always be seen to deliver efficiency across that budget. That’s what we achieve by sharing reporting and dashboards with our finance counterparts. It’s helped us to reposition the conversation and to move from being reactive to a very different dynamic where we’re bringing the best evidence of funding efficiency to the table anywhere in the business. We can show the CFO, HR etc. exactly what levers will influence spend.
6. To bring finance and legal together, give them the same data
Simone: “Finance people like predictability and clear communication. If you’ve not just got the data, but also you’re using the same shared data as your legal team, then any confusion is eliminated, You’re using the same lens: we can understand the numbers and they can understand why they spent it.”
Stephanie: “That’s a crucial part of the challenge. Initially when we started our reporting, it took a lot of work to reconcile, so took it on ourselves to provide the finance team with the same visibility and reporting as we enjoyed in the legal function. It meant we could not only explain the big headline numbers, but we could share the roles and responsibilities in changing those numbers.”