Managing a legal budget

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Learn how to manage a legal budget from a panel of expert in-house lawyers in this comprehensive guide and webinar.
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How to manage a legal budget

What is a legal budget? How should you manage it, what should you spend it on, and what common legal budget pitfalls should you avoid? We sat down with an experience panel of experience lawyers to find out.

The panelists discuss how they manage their legal budgets and the challenges they face. They emphasize the importance of flexibility and constant communication in budget management. They also highlight the need to quantify the benefits of spending more on certain matters and justify the additional costs. The panelists share their experiences with unexpected costs and how they handle them, including leveraging external counsel relationships and seeking input from other departments. They discuss the importance of consistency in budgeting across the organization and the need for transparency and collaboration.

Legal budgets: key takeaways

  • Flexibility and constant communication are key in managing legal budgets.
  • Quantify the benefits of spending more on certain matters to justify additional costs.
  • Leverage external counsel relationships and seek input from other departments to handle unexpected costs.
  • Consistency in budgeting across the organization is important.
  • Transparency and collaboration are essential in budget management.

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Legal budgets: introduction

Jennifer Tyson: Hello and welcome everyone. If you have just joined, welcome. Hello and welcome to the roundtable on managing your legal budget. We'll kick off with some statistics because we all love some statistics. So according to Thomson Reuters and Legal Value Network, not unsurprisingly, legal departments are increasingly under pressure to do more with less. 70% report higher matter volumes, but 66% say their budgets are flat or declining.

So in today's panel, we're going to have our panelists share a bit about how they manage their legal budgets, sort of any must-haves, nice to haves, as well as creating flexibility in the budget for some unexpected changes and no doubt we'll be thinking about that quote or statistic throughout. So of course throughout the session if you have any questions for today's panelists who I will introduce shortly, feel free to drop a question in the question, I think it's somewhere at the bottom, question tab below and we'll hopefully get to them at the end of the Q&A.

So as you can see, we've got an agenda for today, which I've just sort of mentioned some high levels, sort of a bit of breakdown, a bit about flexibility and challenges. Before we kick off, I'd actually like to ask you to complete a poll question. So hopefully that should be popping up now. Is your in-house legal teams budget changing this year? Yes, it's increasing. That would be lovely. Yes, but it's smaller or no, it's frozen. So if you could just answer that, and while you're doing so, I will introduce our panel. So first off, let's introduce our panel. We have Rohan. Would you like to introduce yourself?

Rohan Paramesh: Of course. Hi, everyone. I'm Rohan Paramesh. I'm GC at Pixel United. Pixel United is a global mobile video gaming publisher and developer. We're top five video gaming publishing developer globally. 3000 people, 21 locations around the world. Before this, I should also maybe add that this is my fourth general counsel gig in the technology sector and was a private practice lawyer in M&A before that. Lucky you.

Jennifer Tyson: And Johannes, can you give us a little intro as well?

Johannes Huhn: Yes, thank you. So I'm Johannes Huhn, GC at Habit. Habit is a flexible living operator. So we run furnished co-living apartments, hotels and apartments themselves in North America, Europe and Asia. We're one of the largest in the world. We have 330 staff members. I started five years ago in my first in-house role as sole counsel back then. By now the team size is nine.

Jennifer Tyson: Great. Last but not least, Mo.

Mo: Hi, I'm Mo. I'm VP, head of legal at XYZ Reality. XYZ and apologies for pronouncing XYZ, but we cater for American customers. That's been ingrained in me to do so. But XYZ, we design, develop and manufacture an augmented reality hard hat to be used in the construction industry. So basically a construction hard hat with a visor and you can project 3D holograms in your field of vision as you're walking around the construction site. My background is tech and IP.

I'm like the rest of my friends on the call and not the corporate M&A background for me. I, in what seems like a very long time ago in private practice, I trained in Field Fisher and then more time for private practice at Bird and Bird. But I've had a few in-house gigs now, mainly in pure tech companies. So Arm in Cambridge, Microsoft, TiVo, and then more recently startups, a startup called Today, which was kind of a competitor to Ocado. And now XYZ. And I am flying solo here at XYZ, it's just me at the moment.

Jennifer Tyson: I hear you. Well, that's great. And we'll obviously get to know all of you in a little bit more as well as your legal budgets. Teresa, do we have the results from the poll yet? They have not come through, but I'm sure the panelists will touch on those as we go through. So just thinking about the intros we've just had, we'll ask our speakers to actually walk us through their budgets in a little bit more detail.

Breakdown of legal budgets

Jennifer Tyson: So I'll start with you, Rohan. Could you talk us through the breakdown of your budget, but also if there's anything that is not included?

Rohan Paramesh: Sure. So quite simple, really, only four kind of key headings in the budget. And there's obviously lots of sort of more subtle and nuanced things below each one. But just taking them all in turn. Salaries, so overall comp packages for the team. That's obviously the lion's share in my case. My team is on the large side. So we've got 25 lawyers across the group that sit in my team. We, Pixel United is this group entity under which there are three operating businesses that we've acquired over the course of the last 10 or so years. So each of those businesses has a GC and a smallish team embedded within it. And those three GCs report up into me into sort of a group level. And so yeah, it's kind of the structure of our business.

Salaries capture, I guess, the lion's share. Outside legal advice, maybe unsurprisingly, the second largest portion. For us, in terms of outside advice, I know there's probably quite a broad scale of those participating today in terms of the amount of reliance they have on outside counsel. We're really global in the way we operate. We have 21 locations around the world. And our games are available. Like many digital technology businesses, we're available in pretty much every country around the world. So jurisdictional issues are often important for us in jurisdictions where we don't have legal expertise already in-house in our existing team, in my team. So outside legal advice is something material for us.

Then the kind of the two smaller segments are sort of software and operating tools as I've called it. So everything sort of legal ops related things, tools that make us more efficient as a team and that really play in particularly to sort of the global nature of the team. My team is split primarily between the UK, the West Coast of the US and Israel on the whole. And so we have tools that help us to connect better, to work together better, and to also manage all of our contracts and obviously that sort of repository of stuff. And then travel and entertainment, finally, travel is a big part of our business, like many global businesses. And having my team scattered globally in the way they are, three different continents, lots of different time zones, travel is very important to us, both in terms of exact team travel that we do, but also travel within the team. So that's also a small portion, but a really important one as well. And one that I fight hard for every year because I do really think it adds a huge amount of value. Great.

And things that are not there, sorry, on your other question, Jennifer, things that are not there, I would say that it's things unplanned for aspects of outside counsel spend, I would say is kind of the big thing, M&A litigation, things that you don't necessarily bake into your annual budget and your annual plan, but as and when they arise, you deal with them as you need to ad hoc and you find the budget from somewhere, but they're not baked into the budget as we start our fiscal year.

Jennifer Tyson: And we'll definitely come up a little bit more around flexibility and of course challenges that we all see daily, weekly, monthly. So just moving on to you, Johannes, perhaps you could talk us through the breakdown of your budget as well. And likewise, anything that's missing, it obviously appears a little different to Rohan. It’ll be interesting to hear what you have to say.

Johannes Huhn: Yes, I think it's even more simple with like only three buckets. It's the first year that salaries is the main driver that comes as the bigger team’s growing, the less we have to rely on external counsel. For I think the few years before external counsel was definitely the by far biggest one. There's a lot of real estate developers and the contracts are quite high value. So unless you have a specialized lawyer, which we now have a few in-house, we tended to go to external counsel for the lease agreements that we were signing and then a lot of the other stuff we did in-house.

One of the big things that's not really part of my budget, and I think we're touching on that later as well, is actually software and operating tools. There's a small bucket there. This is only covering chat GPT, I think PLC and a subsidiary management system, but the remaining tech items that we utilize, including Juro for example, are actually covered by the tech team. And so we found ways of reducing legal budget by making others want to cover it for us. And then the salaries and compensations split across two major restrictions in North America and Europe. And currently we're working on all the Asian work from Europe. So we're covering that there also to keep the budget a little bit lower. Salaries in Southern Europe are considerably lower than Singapore. Yeah, that's about it.

Jennifer Tyson: Great. Thank you. That's really helpful. And I'm sure we'll definitely touch on that sort of trying to sort of think about whom you might be able to share your budget costs with a little later. And finally, Mo, could you talk us through your breakdown, please.

Mo: Yeah, my color of circles is a little bit different to the others. As I mentioned, I'm the only lawyer here. So, well, I've been trying to convince the business to kind of reduce the external counsel portion and only very slightly increase the salaries portion. But it will show a bigger return on investment, I think. But yeah, it's I think this breakdown for everybody will be quite unique to the business. So not just in terms of the goods and services that your business is providing, but also, I guess, the setup of your business and what the primary motivations are in it.

So as I mentioned, we're a technology company, but we're in the construction sector. So there's two particular things I should highlight that. So patenting is a big deal for us. We wanted to get a lot of patents under our belt. So that's why there's a big section there. And I think I might be speaking out later on today, but I managed to convince our finance director that he should take a chunk of the budget from R&D and give it to me if patenting is going to fall under legal. So I've represented it here.

This is last year's breakdown of spend. But we did get a contribution, a large contribution from the R&D team's budget. And then compliance requirements. So this is specific for our business. We have to comply with PPE regulations, electronics regulations. And there's a lot of certification and testing that we're required to do. So that's why for our business, we have that big chunk there for compliance requirements. That does fall under legal. In certain instances, again, I've tried to convince people that it shouldn't be coming out of the legal budget spenders. There was, for example, health and safety site inspections. People said it's a legal requirement, so it's a legal cost. And I don't think it is or should be at all. It's a function of the business. It should, I would say, it falls under the cost of delivery. But there you go. I didn't win that argument.

Jennifer Tyson: We can talk offline after. Yeah. Yeah, so it's a tricky one, isn't it? Trying to sort of get, argue whose camp they sit in. I'm constantly having those arguments myself. So I guess having that quite different sort of visuals on how you sort of split your budgets, or I guess how they've ended up appearing to be split, it's probably worth us just talking a little bit more about building flexibility into our legal budgets and Rohan you did obviously touch on that briefly just now. So can perhaps I start with you, Rohan, how has the composition of an in-house legal budget changed over time for you? So I guess whether in your current role or previous roles it’d be really interesting to hear how that's changed over time.

Building flexibility into legal budgets

Rohan Paramesh: Yeah, absolutely and I think there has been change in the way legal budgets are constructed and the value placed on certain parts of legal budgets that looked like nice to haves maybe a few years ago and that are now widely accepted to be really important to fit in there. I think one thing, starting at the end, one thing that I touched on when I went through kind of the structure of our budget is travel and entertainment. That I think to many people looks like a serious nice to have as opposed to a must have.

But I think, and it's a little bit being in a global business where you have your team sort of scattered globally, Johannes, you were saying the same thing, you know, you've got team members around the world. I think obviously those issues are far more in focus in global businesses, but I just think that's really important. And as we've come out of COVID lockdowns into a hybrid environment, which many businesses are, we are, we're sort of two to three days in the office environment and the rest from home. All of this becomes in really sharp focus and you really start to place value on things that you might have placed less value on before.

And as I say, things that were nice to haves, you know, end up in the must have category. So I think there are, there's the evolution of the budget and what constitutes important cornerstones of a legal budget. I think there's an element of that. And then there's an element of flexibility as well. So you can only know what you know when you're constructing a budget for the year ahead. And so we, you know, we sit down, our fiscal year starts first of October. So we sit down August, September, lots of conversations, compare our budget and we think this looks really good and this is something we can get comfortable with even if we're not happy about it. It's gone through a 10% cut or whatever it is, in various iterations, but okay, it's something that I can get behind.

And then of course, however many weeks into the fiscal year, probably not that many weeks before you know it, you're sort of sideswiped by something and whatever it is, a piece of M&A, you know, a new matter, a new project, something new. And so I think remaining flexible throughout and having conversations about your budget throughout is really important in my experience. We look at it quarterly. So, you know, coming up to the end of every quarter, we sort of sit down with the finance team, think through things that are coming up. How do we want to re-forecast it? And then at the half year point, we have a proper kind of a proper new iteration of it. So a lot of conversations, quarterly is a particular check-in point.

But then at the half year point, you say, right, what do we know so far? Where are we tracking over? Where are we tracking under? And what's just new? What needs to be newly added in? And I think that's really important. I don't see how you can do it without that personally and having that constant discussion with the finance team, because the last thing you want is to come to the last couple of months of the year and say, well, we're just wildly over here or wildly over there. That just doesn't work for anyone. CFO is not going to be happy. Finance team is not going to be happy. No one's happy. No one's happy. So you don't want that scenario.

So I think looking, so in summary, looking at things that should be in your fighting for things that look like nice to haves, but you think are really important, I think is critical. And that you can do at the outset. And then as you go along, flexibility and constant dialogue around what's shifting, because everything is shifting on a daily, weekly basis and making sure you're kind of remaining joined up with a broader organization on that is really important. And showing transparency, I think unless you as the controller of the budget show enough transparency to other key stakeholders in the organization, it's hard to expect flexibility back and then that kind of level of planning and understanding that you need. So I think that's it's on us as budget owners, I think, to be really transparent and proactive in that.


This is an excerpt from the full transcript. To watch the webinar in full, click the preview at the top of this page.

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