Savvy companies are thinking about litigation as a revenue-generating activity—but many don't know where to start. We share the four steps in-house lawyers can take to develop a programmatic approach to assessing litigation and building effective affirmative recovery programs.
The inner workings of every business organization can be broken down into two categories of activities: Support functions and core functions. The support functions—things like legal, finance, and human resources—keep the proverbial house in order, while the core functions—things like operations and sales—generate revenue. Although core and support functions are equally important, they are almost always in tension with one another for the simplest of reasons: Core functions make more money than they cost, while support functions typically cost more money than they make. In terms of legal services, however, this need not be the case.
Corporate legal departments perform the critical role of protecting the enterprise from harm. Historically, this role has been viewed as a predominately defensive one, in which legal departments represent “money out”. In legal departments, cost management has translated into lean teams that work to avoid litigation as much as possible. However, there is only so much that cost management can do to help the bottom line, and forward-looking legal departments are thinking strategically about how they can proactively support their companies’ businesses. In some cases, that means in-house teams are working more closely with suppliers to avoid contract disputes altogether; in other instances, legal departments are developing internal processes or programs to pursue the company’s own claims in a coordinated way so that instead of being a cost center, the legal department becomes a contributor to the bottom line.
Increasingly, savvy companies are thinking about affirmative litigation as a revenue-generating activity with significant potential to increase financial recoveries and generate value. Yet many face challenges in implementing a strategic program to pursue affirmative recoveries:
- Internal roadblocks: Internal stakeholders outside the legal department remain unfamiliar with litigation as a corporate asset and may focus more on cost and other concerns.
- Reputational risk: Companies rely on a huge network of clients and vendors to generate profits, and must weigh the potential impact litigation can have on reputation and business relationships.
- Gaps in expertise: In-house lawyers are often recruited for their deep expertise in contract and M&A law to conduct the transactional work that businesses require—exceptional in-house lawyers may not have the litigation background necessary to assess the potential value of significant claims or judgments. And even in-house litigators are frequently recruited from defense-oriented practices and thus will not have experience representing plaintiffs, experience that is critical to a recovery program.
Starting an affirmative recovery program can feel like a big, unwieldy goal with many potential pitfalls. However, just as legal teams develop strategies for processing and reviewing 150-page contracts, or for defending the corporation in large litigations, they can likewise standardize the process of evaluating affirmative legal claims, and put in place an affirmative recovery program that will earn the support of the finance team and the C-suite.
Below, we discuss four steps in-house lawyers can take to bridge the knowledge gap and develop a programmatic approach to assessing litigation and building effective affirmative recovery programs.
#1. Ensure stakeholders understand the latent asset value of litigation
Unlocking the potentially significant value that affirmative recovery programs represent hinges on collaboration between the legal and finance teams, though many finance professionals remain unfamiliar with the concept. In the forthcoming 2022 Affirmative Recovery Programs Report, the senior legal counsel at a publicly traded reinsurance company acknowledges that the onus is on in-house lawyers to help educate their colleagues in the finance department: “Legal needs to do a better job of communicating value-add to the business generally.” The GC of a privately held property management company reiterates the imperative: “You are not doing your job as a legal department if you’re not working hand-in-hand with the finance department.”
In-house lawyers should be prepared to discuss the key concepts and benefits of an affirmative recovery program with non-legal stakeholders in mind. Fundamentally, pursuing meritorious claims in a coordinated way helps ensure that—when harmed—the company has a plan to be made whole. Often, this starts will helping finance colleagues understand how to think about affirmative claims as one more corporate asset class.
#2. Agree on an assessment process for evaluating affirmative litigation
When developing an affirmative recovery program, legal and finance teams should collaborate to consider a variety of factors:
- What claim types make sense for the business?
- What is the minimum claim value the business can support—and does it make more sense to pursue many smaller, related claims or fewer larger “unicorns”?
- Are there jurisdictions that are more or less favorable?
- Has the legal team identified the best possible outside counsel for various claim types?
- What potential reputational issues or other impact on business relationships (e.g., supplier or customer issues) may arise as a result of pursuing claims?
- Is outside funding potentially available?
As the managing director, litigation counsel, of a multinational investment bank notes: “If [meritorious claims] arise with any frequency, [legal teams] should implement some type of program to identify those claims and evaluate whether they are worth pursuing, particularly if the environment is one where those claims could be missed, resulting in a missed revenue opportunity. If there is a particular business with repeat claims, why wouldn't you put in place a system to evaluate these cases and your probability of success balanced against reputational risk, the likelihood of success, and value? Simply requiring the business to ask a standard set of questions will allow the company to benefit from affirmative litigation.” Creating an assessment framework upfront helps streamline the process of identifying and assessing claims and ensures that the legal team can create a complete and compelling package for the finance team’s evaluation.
#3. Leverage outside resources to value claims and remove cost and risk
Leveraging knowledgeable external partners can be a tremendous asset to companies in building a successful affirmative recovery program. They can lend expertise and insight to companies in developing a claims evaluation process, and in considering individual claims. A funding partner can also balance the risk associated with pursuing valuable claims and awards by offering capital resources that increase certainty around costs and capital flows. Burford partners with companies by supplying capital in one of two formats: Traditional fees and expenses litigation finance (in which Burford covers the ongoing costs associated with pursuing litigation) or monetization (in which Burford provides capital in a lump sum upfront that the company can use for virtually any business purpose—accelerating the company’s access to a portion of the claim’s expected outcome). In both cases, Burford’s capital is generally provided on a non-recourse basis—our investment is repaid only upon the successful resolution of the matter(s). Working with Burford gives companies access to the tools, and the capital, they need to be made whole without risk.
In addition, Burford can help companies overcome the expertise gap many legal teams face when pursuing affirmative claims. With well over a decade of experience in financing affirmative recovery and a team with more than four decades of experience combined, Burford has reviewed more than 10,000 legal claims in jurisdictions all over the world and worked with hundreds of lawyers in the process. Companies frequently partner with Burford to identify matters with the most potential, build litigation budgets, develop damages theories, and even identify top litigation counsel. And capital arrangements can be structured so companies can avoid the unfavorable impact litigation can have on business relationships or reputation.
Leveraging an external partner like Burford can also address the tension that exists in many legal departments between the goal of pursuing affirmative claims and the mandate to reduce costs. Fifty-six percent of senior finance professionals agree that legal departments should have commercial targets just like other departments, but many (46%) report a need for improvement in cost management programs. The ability to leverage outside resources to pursue claims means that legal departments can do more for the company’s bottom line with less internal expense.
#4. Socialize affirmative recovery program as a win-win for the business
Finding ways to identify and pursue recoveries can only benefit the business. After all, as an associate GC, corporate litigation, of an insurance company notes: “When we receive a recovery, it goes directly to the corporate treasury.” However, because companies have historically treated their legal departments as a cost center, many have an internal culture in which core functions tend to avoid legal if they can. Building a successful affirmative recovery program means reframing this narrative internally, and helping stakeholders across the business to view claims as potential assets.
Fifty-six percent of senior finance professionals agree that legal departments should have commercial targets just like other departments, but nearly half of them (46%) report a need for improvement in cost management programs. An affirmative recovery program that builds in collaboration with the finance department can position the legal department as a savvy contributor to the business—enabling in-house lawyers to demonstrate their ability to protect the company while contributing to positive financial outcomes. One deputy GC, litigation and employment, at a financial services company acknowledges the importance of self-advocacy among legal departments: “[We are] getting the word out that we are here for affirmative litigation as well as defensive litigation. If you have an issue, let us know and let us look at it. Over the past few years, we have been better about this. We need to make sure that business leaders have a place to go in those situations.”
The next strategic step taken by companies with successful affirmative recovery programs is to enlist leadership across the core functions to educate their own teams. Business units that are customer-facing are often the first ones to identify potential issues with contracts and other hiccups in a company’s relationships. When they understand a company’s affirmative recovery strategy and how it helps the business, the business units serve as a proverbial front-line for identifying potential claims worth pursuing and engaging legal to assess them.
Prepping for success
For companies to have effective, efficient recovery programs, legal and finance teams need to be aligned both on goals and the process for evaluating and pursuing potential claims, and they need to work together to help other parts of the business understand the value and the role they play. Lawyers can help streamline the process internally—and make the program easier to sell to stakeholders outside the legal department—by standardizing their approach to evaluating potential claims and packaging the business case for approval. And external partners can be valuable for expertise and resources, to legal departments to take their affirmative recovery programs to the next level.
 Unless otherwise noted, the quotes in this article are pulled from the 2022 Affirmative Recovery Programs Report.
 2021 Legal Asset Report: A Survey of Finance Professionals on Unlocking Legal Assets to Enhance Working Capital and Reduce Risk, available at https://www.burfordcapital.com/insights/insights-container/2021-legal-asset-report/.