The Smarter Legal Model – overview &

data update from client engagements

January 2014

Trevor Faure, Partner, Global Leader

Legal Services, Ernst & Young Global

trevor.faure@uk.ey.com / +44 7802 595053

Page 2 The Smarter Legal Model: more for less. ©Trevor Faure 2010. All rights reserved.

Coverage

Compliance

Client Satisfaction

Internal

Head Count

Net Cost (incl. legal fees,

fines & business losses)

As defined by stakeholders (C-suite, shareholders, internal clients, regulators, legal staff, customers, etc.).

• The Essentials - substantive legal work product: contracts, transactions, litigation, licences, policies, corporate

governance, subject-matter specialisation, advice, negotiation, drafting, etc.

• The Enablers - execution of legal operations: business involvement, management of external counsel, training of

clients, FAQs, processes, knowledge management, legal research & education, administration. budget management.

Adherence to all applicable laws,

regulations, third-party rights, codes

of professional practice, contracts,

licences and performance of all

related obligations.

As assessed by clients.

Key Performance Indicators such

as: contract turnaround times,

meeting project deadlines,

successful litigation / dispute

outcomes, responsiveness,

expertise, clarity & precision of

drafting & advice, proactive support

& training, client empowerment,

alignment with business objectives,

user-friendly work product

(templates & processes, etc.).

Full-time equivalent legal staff

employed including non-qualif ied

support staff and contractors.

• The cost of Internal Head Count and external legal

services, law f irms, expert witnesses, outsourcing,

knowledge/matter management systems.

• The cost of failure: e.g. contract liability claims,

unfair dismissal compensation, regulatory f ines, civil /

criminal compensation, legal cost awards.

Page 3 The Smarter Legal Model: more for less. ©Trevor Faure 2010. All rights reserved.

Coverage: 50%

Compliance: Several incidents

Client Satisfaction: 7/10

Head Count

< X

Net Cost (incl. legal fees,

fines & business losses)

> $Y M

Average Performance of 250 leading legal departments Measured & Analysed: the False Economy Model

Page 4 The Smarter Legal Model: more for less. ©Trevor Faure 2010. All rights reserved.

Coverage 25% to 80% Compliance: 500% GMI improvement

Client Satisfaction: 3/10 to 9/10

Head Count X

Net Cost (incl. legal fees, fines & business losses)

$Y M – 30%

Typical improvements achieved under The Smarter Legal Model

Page 5 The Smarter Legal Model: more for less. ©Trevor Faure 2010. All rights reserved.

Measuring Coverage: does the Legal function actually have a list of the essential legal work and responsibilities agreed with the stakeholders? [250 leading legal departments, May 2013]

57%

43%

No Yes

66%

34%

No Yes

Essentials - substantive legal work product: contracts, transactions, litigation, licences, policies, corporate governance, subject-matter specialisation, advice, negotiation, drafting, etc.

Enablers - execution of legal operations: business involvement, management of external counsel, training of clients, FAQs, processes, knowledge management, legal research & education, administration. budget management.

Page 6 The Smarter Legal Model: more for less. ©Trevor Faure 2010. All rights reserved.

Measuring Coverage: to what extent does the internal & external Legal function cover the legal essentials and enablers for all stakeholders in all jurisdictions? [250 leading legal departments, May 2013]

Under 25%

25% - 50%

50% - 65%

Above 80%

22%

20%

27%

11%

Covera

ge

% of Legal Departments

Page 7 The Smarter Legal Model: more for less. ©Trevor Faure 2010. All rights reserved.

Measuring Compliance & Net Cost: how many serious compliance incidents have occurred during the last six months (i.e. those resulting in significant penalties/legal fees)? [250 departments, May 2013]

None

1 - 5

5 - 7

Over 10

34%

54%

7%

5%

Num

ber

of C

om

plia

nce I

ncid

ents

% of Legal Departments

Page 8 The Smarter Legal Model: more for less. ©Trevor Faure 2010. All rights reserved.

Measuring Client Satisfaction: What is the level of Client Satisfaction with the Legal function (self-estimated or surveyed)? [250 leading legal departments, May 2013]

1 - 2

3 - 4

5 - 6

6 - 8

9 - 10

1%

8%

18%

54%

19%

Satisfa

ction R

ating o

ut

of 10

% of Legal Departments

Page 9 The Smarter Legal Model: more for less. ©Trevor Faure 2010. All rights reserved.

Measuring Head Count: does the Legal function have an adequate level of staffing? [250 leading legal departments, May 2013]

Yes

No

27%

73%

% of Legal Departments

Page 10 The Smarter Legal Model: more for less. ©Trevor Faure 2010. All rights reserved.

Measuring Net Cost: the level of external legal spend is.... [250 leading legal departments, May 2013]

too Low

just right, Goldilocks!

too High

unknown, to be honest

18%

25%

44%

13%

% of Legal Departments

Page 11 The Smarter Legal Model: more for less. ©Trevor Faure 2010. All rights reserved.

Previous State

Coverage: 52% of Legal Essentials & Enablers

Compliance: Several costly incidents

Client Satisfaction: 6.5/10

Head Count:2.4 Lawyers per $Billion

ABC Revenue:

Half the Industry Median.

Net Cost:0.38% ABC Revenue:

15% above the Industry Median

PLUS $20-150M Compliance Fines.

Real world example: ABC was overspending due to lack of controls and inadequate legal coverage. Rationalizing law firms, systematising processes and improving internal talent

saves up to One Third of the true total ABC legal spend and minimises Compliance losses.

AnonBusinessCorp

Future State

Coverage: 80-85% of Legal Essentials & Enablers

Compliance: Few incidents

Client Satisfaction: 8/10

Head Count:4 Lawyers per $Billion

ABC Revenue:

Responsive, Proactive

& Strategic.

Net Cost:0.26% Revenue

20% below Industry Median

PLUS ABC revenue upside from

contract management and leverage.

Page 12 The Smarter Legal Model: more for less. ©Trevor Faure 2010. All rights reserved.

“Drawing heavily on management theory, economics, and

organizational psychology, and rooted also in his extensive practical

experience as an in-house lawyer, Faure offers a set of tools to help

reduce costs, increase legal coverage, improve compliance, and

increase client satisfaction. [H]e casts aside the traditional, often

fraught, commercial relationship between law firms and their clients

and replaces this with a species of partnership arrangement, under

which the business interests of the in-house lawyers and their

external advisers are much better aligned”.

Professor Richard Susskind from “The End of Lawyers?”

www.uk.practicallaw.com/about/morefromless

“Like Malcolm Gladwell’s Tipping Point and Jim Collins’ Good to

Great, Faure’s The Smarter Legal Model is the rare book that will be

read with equal interest and appreciation by both practitioners and

academics. It is destined to become an important part of any

conversation about the role of law and lawyers in the global

economy.“

Professsor David B. Wilkins, Harvard Law School

“He shows...the holy grail of business productivity... Bursting with

ideas, his book is a "must read" for business people and the lawyers

who work with them.”

Ben W. Heineman, Jr., Former GE Senior Vice President for Law

See Bloomberg TV: Modernising legal services & Law Firm

Business Development OR YouTube: “Trevor Faure Bloomberg”