Legal Spend Management at PE Firms: The year Ahead 2021 is with Hopes Anew

Mar 05, 2021 | Article

Senior PE legal leaders plan to gain more control over legal spend management with the use of the latest technologies. Here is a quick rundown from the recent studies.

The pandemic has created new pressures and challenges for PE firms across the globe such as the deployment of capital amid unprecedented economic and geopolitical uncertainty; meeting the rising stakeholders and customers’ expectations; raising the bar amid increased and strong competition; driving strategic growth, and creating value throughout the business cycle.

Further, the senior PE legal leaders were put under scrutiny for managing huge volumes of legal spend without a defined process or tools to do so. Let’s discuss the two major challenges – distributed accountability and cost overruns faced by senior legal leaders here.

Distributed accountability

Before understanding the challenges of the senior legal leader, let’s understand who is accountable for the decisions like instructing legal counsel, approving budgets, tracking costs on legal matters, and more in an organization. It is totally distributed as depicted.

Accountability breakdown: Team responsible for decisions/actions in an organization
Source: Apperio.com

When multiple teams [both internal and external] are involved and much of the ability to monitor, analyze, and manage legal spend, senior legal leaders cannot be expected to take sole responsibility.

To compare an apple with apples, granularity is required which is a huge challenge in this scenario. The minute details of every matter worked between deal teams and law firms are crucial to call it a day or say an apple as an apple and an orange as an orange.

Solution:

PE legal leaders should seek alternative means to gain visibility and manage legal spending. One way of achieving this is to equip teams with timely, accurate, context-rich data and insights by using technology.

Cost overruns

While legal spend management is a key issue, another strong botheration that prevails in the PE houses is the friction caused by cost overruns.

Budget breakdown: Things that run over the agreed budget in an organization
Source: Apperio.com

79% of PE legal leaders report that surprise legal bills that often come with little warning or a pre-emptive call creates friction between the legal team and the wider business.

The cost overruns are never restricted to a few areas. Invoicing delays, surprise legal bills, and other unpredictable issues weakens the legal leaders exact control over spend. Also, it impacts the reputation, relationship between legal and other teams, and external advisors as well
Will this status quo change in 2021?

Solution:

To improve the relationship among the teams, it is critical to improving the predictability, transparency, and legal spend management. Proactive legal spend management practices and implementation of modern cloud-based software will give a real-time view of the status and spend.

What 2021 holds in store for PE senior legal leaders?

Draconian levels of control are a definite NO! A strategic input is the way out for this fast-paced with high-throughput PE industry. The studies suggest that -

  • 76% of PE leaders will negotiate discounts for surprise bills
  • 74% of PE leaders will delay payment on legal bills that do not match the expectations
  • 72% of PE leaders will challenge individual products in law firm invoices
  • 78% of PE leaders will introduce robust processes
  • 74% of PE leaders will optimize their spending in 2021
  • 69% of PE leaders will use advanced data analytics and other technologies

This benefits all parties involved in the PE firm including the law firms. Let’s hope 2021 will bring all these changes and many more.

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