Fitting legal in to the annual business cycle
All organisations have an annual cycle of business planning, budgeting and reporting. What form this takes will depend on the nature of the organisation and the sector it operates in. The legal team will need to be actively involved in the cycle to ensure that legal activity is identified, budgeted and resourced appropriately as part of the overall business planning and budgeting process.
If in-house lawyers are not involved in planning and budgeting processes, organisations may overlook the legal consequences . This can result in difficult discussions and decisions down the line. Early involvement can help avoid some of these pitfalls.
Involving legal in business planning
It will be obvious to you that the legal function should always be involved in your organisation’s planning and decision-making. However, it may not be as evident to all of your colleagues.
For example, where the organisation is planning an initiative that involves repetition of processes followed in previous projects, colleagues may, understandably, feel they have a handle on the business and legal risks.
However, it's surprising how easy it is to miss material factors, particularly those that have a greater significance second time round, where their importance was underappreciated in the first place or where the law has changed since the last time around.
Early legal involvement is sometimes unwelcome. Some colleagues may assume that your role is to over-emphasise the risks and place legal obstacles in their way. Or even that you’d oppose a new initiative completely.
Reluctance to involve your team could be down to how it operates and/or communicates to colleagues about itself and, therefore, how your colleagues regard it. Is it seen as a reactive, operational function or a proactive team central to strategic planning and activity? If you feel key people misunderstand your role as an in-house lawyer, take steps to change this.
After all, there are few things more frustrating than dealing with problems that you know your early involvement could have averted.
Here, then, are our five top compelling reasons that’ll help you make your case for early involvement in your organisation’s annual business cycle.
1. Better risk management
The role of the General Counsel and in-house lawyers in relation to legal risk has evolved. Where the focus was previously on operational aspects such as contract wordings and corporate policies, it’s now on risk in the wider and more pervasive context. It encompasses all legal liability and compliance issues across the organisation.
There is no one definition of legal risk although the International Bar Association has spoken of it in these terms:
‘The risk of loss to an institution which is primarily caused by (a) a defective transaction, (b) a claim (including a defence to a claim or a counterclaim) being made or some other event occurring which results in a liability for the organisation or other loss (for example, as a result of the termination of the contract), (c) failing to take appropriate measures to protect assets (for example, intellectual property) owned by the institution, or (d) change in law.’
With this in mind, you can help your organisation:
- Identify legal risks, including compliance and liability risks and those arising from business plans and initiatives;
- Calibrate the risks. This may be straightforward in relation to regulatory compliance, for example, but could be less so when assessing the organisation’s risk tolerance. You can help set this; and
- Manage the risks. This is about developing strategies, plans, processes and policies and the legal and other resources to deliver them - risk management done properly costs money but it costs less money than would be spent if the risks were not managed
Without you at the table, how will the organisation know that it has identified the legal risks associated with its plans? The fact that it's 'repeat business' is no excuse because even small changes can have material impact. And if the legal or regulatory environments have changed, it's important to take any new laws and standards into account and ensure they’re interpreted and applied correctly.
This is an area where you can add - and be seen to add - real value. And there are legal risk management tools and processes available to help you.
2. Better resource planning
As part of its business cycle, your organisation will need to assess what resources it’ll need. However, unless it builds legal risk management into those plans, it won’t be able to identify the associated resources. For example, a harder regulatory environment may see a need for more legal support. If this hasn’t been factored in, you may have to reallocate resource at the expense of so-called lower value work, make a case for extra resource or improve efficiency in your department.
So, mapping the legal risks in at the early stages allows you and your colleagues to get the right resources in place at the right time.
3. Better budgeting
The annual budget cycle for the next period will begin well in advance of year end. Budgeting is an integral part of the business cycle and the organisation won’t want expensive surprises. The better you understand the legal implications of your colleagues' plans, the easier it will be to argue for and to allocate the appropriate legal budget.
If you hold this budget, you’ll need as much detail as you can get. You’ll want to avoid a demand for legal resources in mid-year that you struggle to meet - and that could have been planned for in advance.
If the legal spend budget is allocated among different business units, try to be involved in setting those budgets as well as your own. This includes external as well as internal legal costs, whoever incurs them.
4. Better review and monitoring
The organisation will monitor and review budgets and performance against objectives and targets at business unit and board level. By getting involved at business unit level, you’ll get early warning of any previously unforeseen legal risks that may arise.
This means you can deal with them in a timely manner, instead of allowing them to hang around until the next annual planning cycle.
Once your business colleagues understand the value of your involvement, they'll want you involved in their future strategic decision-making.
5. Better strategic planning
Increasingly these days, organisations are looking for the legal team to be commercially aware. Great legal teams position themselves as business partners, not simply reactive advisers. However, to be taken seriously by the top table and be involved in strategic planning, you’ll need to prove your worth. Four effective ways to do this are to:
- Show how the law affects the organisation’s activity. If management get things wrong, revenues and brand reputation are at stake and, sometimes, there can be individual liability;
- Focus on value. Deliver business results and present them in a way senior management understand. As well as highlighting savings or liabilities avoided, look for ways to generate revenues. Legal teams are expected to innovate just as much as any other business unit nowadays;
- Employ and train. Recruit the right lawyers and train them on an ongoing basis in business and communication skills and emotional intelligence; and
- Integrate and educate. Build strong relationships with leaders and managers in your organisation. Show them what good legal services look like and how you can contribute to their success. Be proactive, hone your judgement and build your business knowledge.
Fitting legal into the annual business cycle alongside all of the other departments in your business should be expected and welcomed. As an in-house lawyer, you’re well-placed to make a significant contribution to your organisation’s strategy. However, you could be undermined if you’re not participating at all levels of the business planning and budgeting cycle. Be ready to set out the value you can bring and make your case for being involved.
To read the next article titled 'Leading vs doing: thoughts on leading a team' click here.