Five years ago, the legal team at Liberty Mutual launched a program to help the insurance company’s corporate customers reduce their litigation costs. The result has been better customer retention and a marketing pitch to new customers because of the goodwill the legal team’s work created for the company. 

“We were able to turn the legal department into a value driver and not just a cost center,” Kiran Mallavarapu, the company’s executive vice president and head of its legal operations, said in a webcast hosted by the Corporate Legal Operations Consortium and legal software company Priori.

The legal team has also become a value-creator at online retail giant Wayfair by leveraging its compliance technology to help improve the customer shopping experience, the company’s legal tech chief, Andrew Moffett, said in the webcast. 

“So, when customers come onto the Wayfair environment and our marketplace, they have the expectation of high quality products and the best experience,” Moffett said. 

Legal value creation

The effort by Liberty Mutual to help its customers cut their legal costs was an extension of what the legal team was already doing, Mallavarapu said. 

“As part of our mandate, we analyze our legal spend, like many do in their operations,” he said. “So, four or five years ago, we asked ourselves, ‘How can we drive value to our end customers?’”

One of the answers the team came up with was taking the legal spend analysis the company was already doing for itself and doing it for its corporate clients.

“We can provide them with [an analysis] of legal spend across geographies, product lines, type of risk,” among other things, he said. “Through custom dashboards, they were able to understand the origin of where some of these costs were coming from and what they could do differently.”

The service enabled the company to establish deeper relationships with its corporate customers and help them put in place discount rate programs for outside counsel, among other cost-cutting measures.

“It created stronger relationships with our existing customers and increased customer retention – because now we can show them data and insights of their own spend that other competitors can't do – and using these in marketing services to attract new clients,” he said. 

The Wayfair initiative created value by leveraging what the legal team was already doing to comply with global regulations, like those that enforce against lead-based paint or use of child labor in products or fraudulent online reviews.    

Moffett said the company was already using software to track compliance globally, which helped it ensure its customers were only being offered products by compliant companies — a customer satisfaction selling point. 

The software also enables the company to react quickly if a product is recalled, so if a recall is issued from any government across the globe, the automated process manages that. 

“If [a recall] ever does happen, we have a streamlined communication to our customers to ensure they’re aware of any of those issues,” he said. 

The compliance software, in other words, is a part of the company’s effort to build a customer base satisfied with its shopping experience, he said.

Cost pressure

Becoming a value driver is high on the minds of legal teams, Farrah Pepper, chief legal innovation counsel at Marsh McLennan and CLOC vice president, said in the webcast. 

She pointed to a survey finding 42% of legal teams working under a cost-reduction mandate and 78% prioritizing cost controls. 

“That’s a lot of teams, and it’s a reflection of the ... pressing need to adapt our strategies for managing legal spend,” she said. 

The flip side of value creation is cost cutting, and there’s a systematic way to go about that by using matrices, Basha Rubin, Priori’s CEO, said in the webcast. 

Rubin shared a white paper produced by CLOC and Priori that showed how matrices can help legal teams decide what services to invest more resources in and which ones to look at on a case-by-case basis.

Using a cost-benefit matrix, legal teams can identify operational changes that create a high benefit at low cost, like eliminating reports of little value, and those that create a low benefit at low cost, like automating infrequently used tasks. Those are both changes the teams should look seriously at implementing, because they can produce benefits without incurring a lot of costs. 

At the same time, they should look carefully at other changes identified in the matrix that create a high benefit but at high cost, like adding a contract lifecycle management tool, and those that create a low benefit at high cost, like changing outside counsel for purely relationship-based reasons. That latter one should probably be avoided.  

Another matrix Rubin presented looks at sourcing changes based on the risk and complexity of the work being done.  

If the work is low risk and low complexity, like high-volume NDAs and document review, it can make sense to use a tech-enabled solution for those or have alternative legal service providers or legal processing outsourcing providers do the work. If the work is low risk but high complexity, like patent management, policy development or due diligence, it can make sense to use boutique or regional law firms, which tend to charge less than BigLaw firms, ALSPs or in-house resources.

If the work is high risk but low complexity, like corporate immigration work, compliance monitoring or non-routine contract preparation, it can make sense to use specialized firms of any size or the in-house team. And if the work is high risk and high complexity, like bet-the-company litigation, high value M&A or crisis management, teams should rely on BigLaw and in-house senior leadership. 

In sum, there are two ways for in-house legal leaders to respond to cost pressures. They can look for ways to turn the legal team into a value creator for the broader organization, and they can invest more in, or cut back on, services based on how much value they provide the legal team.