Management of litigation, like management of most business processes, begins with a business plan and a budget. In this case, prior to trial, when a company seeks an appropriate law firm to represent it, it needs an acceptable litigation plan and budget. Law firms many times will try to push back on the request of a budget, claiming legal costs are hard to predict. This, of course, is not the case. Experienced lawyers, whether in the United States, Europe, or Asia, are very familiar with the legal costs in their own geographic region as well as costs and expenses associated with the particular issue, such as patent litigation or class actions. Certain costs may be hard to quantify, such as defense litigation costs (which may depend on how aggressive a plaintiff is in trial), but for the most part, law firms can provide a litigation plan and budget using approximate or ballpark figures.
Effective management of litigation and therefore outside legal spend will depend on a well-prepared litigation plan and budget. This, in turn, depends on the proper identification of potential litigation issues and a plan for potentially adversarial proceedings. Questions that should be asked when discussing the plan and budget with outside counsel include:
Is this matter an actual or potentially adversarial proceeding?
Will this matter result in potential commercial litigation?
Will this matter result in potential regulatory litigation?
Will this matter lead to governmental litigation?
Kinds of Actions
An accurate litigation plan and budget will depend on the nature of the proceeding or legal matter at hand. Such matters can be classified as follows:
• Antitrust and trade disputes
• Bankruptcy and creditor actions
• Class actions (product liability, etc.)
• Labor and employment
• Governmental inquiry/informal visit
• Government enforcement proceedings
• Administrative tribunals
• Internal corporate investigations
Certain costs will be associated with the nature of the dispute. For instance, commercial litigation costs will be dictated by the cost of discovery, including: depositions, interrogatories, production of documents and things, and physical examinations, etc. Costs involved with regulatory proceedings will involve governmental investigations and internal corporate investigations and perhaps parallel proceedings, criminal as well as civil litigation.
Litigation Management Tools
Litigation management depends upon the in-house legal team or risk manager actively assessing and managing litigation by using an effective litigation management process. The litigation management process should utilize management processes as well as LRM tools.
For a corporation to effectively manage litigation, management needs to understand its role as litigation manager. If it hands over the entire litigation management process to the outside firm representing it, the costs will, of course, substantially increase! The law firm must be managed! The risk manager, corporate manager, or in-house lawyer (General Counsel, etc.) must understand his or her role as a litigation manager. That includes use of management functions and LRM tools.
• Effective coordination of legal defense efforts to avoid duplication of costs
• Coordination of use of witness and discovery
• Serve as the central site for all facts, positions, and decisions in legal issues
• Development and implementation of a defense plan
• Internal assessment of facts
• Point of contact for regulators
• Litigation budget
• Coordination of documents
• Use of employee interviews
• Use of defense plan
• Early case assessment
• Alternative fees
• Outside billing guidelines
Only through the regular use of legal risk management tools can a company or organization effectively control its outside legal spend, especially when dealing with litigation.
The other day I had lunch with a friend who was lamenting the fact his company’s sales team continued to ink deals without any regard for risk. When he asked them why they continued to do so, the reply was “that’s the way we have always done things.” Unfortunately, many companies continue to plod along doing business without regards to risk. In fact, many companies fail to look at operational risk which can lead to disaster down the road. In order for a company to succeed it not only has to a sustainable business model but it has to constantly review its risk processes. After all, what happens when the current business model does not work anymore? What happens when the risks outweigh the benefits of continued standard corporate operations? Maybe it’s time to re-examine your risk management processes. Do they really work?
When talking to your staff or to other departments, how often have you heard the phrase “That the way we have always done things.” Just because corporate processes have been done one way doesn’t mean that the best way or even in todays’ fast changing world- the right way. Even after 2008 many companies continued to use the failed metrics that got them into trouble in the first place. Even the credit markets haven’t changed as much as you would think after 2008. Why?
I truly believe that once processes are created in a corporate or bureaucratic environment, it is as if the processes have been set in stone. They are very hard to change. Even if the world around the company has changed. It is human nature to accept what has been done in the past. Few people want to “rock the boat” even if the proverbial boat is actually sinking. Companies get into real trouble because of this. What happens if the company’s business model actually is out of date or its business plan is no longer viable? Just because it worked in the past doesn’t mean it will work in the future.
I therefore caution everyone not to blindly accept the current risk management processes in place. Risk managers as well as in house counsel and other managers should be challenging risk management metrics on a regular basis. Counsel should be auditing departments on a regular basis. Does that compliance program really work? Maybe it did 5 years ago. But what about today?
Remember, if local or national laws have changed maybe the current processes are out of date. If the products that your company manufactures or the services it provides have changed maybe the internal processes surrounding the review of those products and services are out of date. What about the current social environment? When reviewing your current product liability review processes have you factored in the new risks created by the Internet of all Things? These risks are real. Are you ready for them? Does your current business model still work or is it outdated? What about data privacy laws?
It is a fundamental truth that all things change. Of course, some things change faster than others. Regardless, don’t rely on your old or standard risk management processes to continue to provide the same level of comfort they did in the past. Continue to review and to modify them if necessary. And don’t think that just because “that's the way things are done” your company should continue to operate as usual.
Today, many in house lawyers and managers still think of risk management as the department that manages insurance policies. Some may in fact think that risk management also encompasses handling bad publicity or maybe even covers a disaster recovery plan. Many in house lawyers, as well as some corporate managers don’t believe risk management is part of their job description. However, given the globalization of business, the increased volatility of today’s business climate and the changes in social media that has increased communication tenfold, risk management is now part of every manager’s job description, including the in house lawyer.
The main role of in-house counsel in corporations or legal entities is now, of course, to mitigate legal risk in connection with the sale of products or services provided by the company. In essence how the company protects its success will be based in part on its ability to manage, control, and minimize legal risk, especially in a litigious society such as the US marketplace. Legal counsel must take an active effort in developing strategies, systems, and processes that will minimize the legal risks faced by the company on a daily basis. The area of risk management for in house counsel has become so large it can now be labeled “Legal Risk Management” or LRM.
What is LRM? Legal risk is the probable occurrence of a future event or non-event that will have a negative impact on the company that could result in law suits, fines, investigations, crisis, reputational harm, financial harm and of course the destruction of the company’s brand or even the company. Legal risks and business risks intertwine to such an extent that business risk have legal impact. Therefore, in house counsel must become involved in the day to day management of business risk itself and think in terms of risk analysis. The lawyer must use tools to not only identify risk but provide a qualitative analysis a risk’s probability and its impact on the company’s objectives and bottom line. Various tools include risk map, use of processes such as interviews of key personnel, procedures involving review of industry guidelines, internal procedures, risk diagrams, etc. What risk analysis has been developed to gauge the safety controls in the manufacturing division’s product design protocols? How does the R&D division handle the potential risk of defective parts and materials?
It is time that in house counsel realize they are in fact legal risk managers. The law department of a corporation can serve it well by playing a substantial role in the corporate wide management of risk by proactively managing potential risk instead of just reacting to it. By working with cross corporate teams to manage risks through corporate governance, compliance, loss control, review of HR processes or product safety concerns besides just purely legal issues, a corporation’s law department increases its value to the company.
By controlling and managing legal risk, an organization is able to control its future. Without adequate LRM processes, a company is exposed to claims, lawsuits, fines, and investigations. Not a day goes by where some governmental investigation or lawsuit is not reported in the local newspaper. These days it is a common occurrence. Therefore, it is imperative that an organization and its in house legal team understand that by managing legal risk it can control its’ future. Therefore, it is imperative that an organization understands the role that LRM plays in an organization.