Quarterly

In recent years, in-house lawyers have been increasingly looking for ways to add value to the legal department. Recent research commissioned by Burford reveals that GCs see a commercial role for legal, expect their law firms to help them generate value and see legal finance as a tool for success.

A lot has changed since we were in-house lawyers in the early 2000s. What hasn’t changed is the desire of GCs and other senior lawyers to add value to their organizations and to transcend the outmoded view of legal department as “just” cost centers. But in the years since we worked in-house for, respectively, an internet company and a Fortune 50 company, doing so has gotten a whole lot easier. This is in large part thanks to a shift in how in-house legal teams are increasingly sharing cost and risk with law firms and legal finance providers, thus reducing the expense of the legal department while increasing its ability to generate liquidity.

In our many conversations with GCs, it’s clear that legal departments today are focused on having a positive commercial impact on their businesses. In companies large and small, GCs are interested in finding creative ways to work with their law firm and legal finance partners to achieve better outcomes for their businesses.

To understand how in-house lawyers seek to drive value from the legal department, Burford commissioned independent research in June 2022, seeking feedback from 300 GCs, heads of litigation and senior in-house lawyers in the US and UK responsible for their companies’ commercial litigation.

Key findings from the survey are highlighted below.¹

GCs see potential to grow their commercial role  

Over half (54%) of GCs say that the legal department adds value to the business by pursuing recoveries through litigation or arbitration, and an even larger majority (69%) say that identifying new ways to add value to the business is key to the success of the company.

It follows that affirmative recovery programs—formal efforts by a legal department to recoup damages via affirmative litigation when the company has been materially harmed —have become increasingly common. Indeed, two of three GCs report that their companies have an affirmative recovery program.²  

Still, many see opportunities to improve, with over half stating that they need to build infrastructure and process to effectively add value through meritorious affirmative recoveries.

Clients expect outside counsel to provide guidance on cost-management and risk-sharing solutions

GCs put a premium on the role that external partners can play: 71% of in-house lawyers say developing relationships with external partners is important to their individual success.[1] For law firms, one of the keys to developing (and maintaining) a strong relationship with clients is to be conversant in cost-and-risk sharing solutions and to educate clients on all of the options available to reduce legal costs and risks, including legal finance.

Law firms have a major opportunity to deliver on clients’ interest in meritorious affirmative claims and legal finance. Six in ten GCs say either that their panel litigation firms have spoken to them about legal finance in the last five years (32%) or that the firm’s doing so would have contributed to the company success (28%).[2] Clearly, law firms must be ready to talk to their in-house clients about legal finance and other risk-sharing tools.

At the inaugural ILFA conference, Steven Greenspan, Corporate Vice President and Chief Litigation Counsel of Raytheon Technologies, one of the world’s largest aerospace and defense manufacturers, disabused the conventional wisdom that a company as large as Raytheon would not be interested in legal finance.[3] He also expressed his expectation that the company’s outside counsel understand the legal finance industry and consider possible financing arrangements for the company’s litigation matters. Greenspan’s perspective is a clear reminder that in-house leaders increasingly expect their outside counsel to be ready to advise and educate them on the availability of legal finance.

Law firms that are knowledgeable about alternative cost and risk reduction structures like legal finance are better able to broaden their service to clients that have meritorious affirmative litigation claims. Further, by engaging in conversations about the client’s needs, law firms can present themselves as innovative solution-providers and be better positioned to proactively solve business problems and win new business over the long term.

Legal finance is poised to play an increasingly important role in GC success

When companies have been harmed as a result of misconduct by others, legal departments should be able to present a path to recover losses through litigation or arbitration.  But GCs are often hindered by economic hurdles like  managing costs and predicting accurate budgets.

By partnering with a legal finance provider, GCs can reduce or eliminate the cost and risk of litigation, whether on a single-case basis or as part of a larger recovery effort. Legal finance also enables companies to control the timing of cash flows relating to their litigation assets.

Although use of legal finance by corporations has grown significantly in the 13 years since Burford opened its doors,, it remains the case that more GCs are aware of legal finance than have used it. Today, almost six in ten say either that they considered legal finance partners in the last five years (30%) or that doing so would have contributed to the company’s success (29%).  

While almost half of in-house lawyers are very aware of traditional legal finance for fees and expenses, only a quarter are very aware of monetizations, which provide companies capital via an acceleration of a portion of the expected entitlement from a pending claim or an unenforced judgment or award. And only a third are very aware of portfolio financing, an especially useful and popular form of legal finance which diversifies and reduces risk and costs across a pool of meritorious claims. Directionally, this indicates significant remaining growth potential and a need to better educate the market about available finance solutions.  

Solving GC challenges in the short and long term

Although the research did not touch on the current economic climate, it’s likely that a looming recession and continuing uncertainty across sectors will put further pressure on in-house legal departments. Having survived both the post-dot com bubble of the early 2000s and the “great recession” of 2008-2009 as in-house lawyers, we’re all too familiar with those pressures. 

Finance solutions can help GCs in both the short and long term. In the short term, if a company has a pending claim or unenforced judgment or award and wants to reduce costs, it can shift the fees and expenses associated with the case to a legal finance provider—resulting in immediate expense relief. If a company would prefer an immediate injection of capital, a GC can work with a legal finance provider to accelerate (monetize) a portion of an expected entitlement from pending high-value claims, judgments or awards.

In the long term, legal finance providers can provide capital to fund multiple company litigations and arbitrations (including defense matters) in a single portfolio funding vehicle. This can help GCs manage cash flows associated with the legal department and often results in better pricing for the capital.

In these ways, legal finance can be an important tool for GCs looking to add value to the legal department and ultimately to their larger organizations. And given GCs’ commitment to evolving how they add value and a legacy of ongoing innovation in the legal finance sector, we’re confident that we will continue to see still more creative uses of legal finance by leading in-house lawyers.

About the authors

Aviva Will

Co-Chief Operating Officer

+1 212 235 6820

awill@burfordcapital.com

Aviva Will is Co-Chief Operating Officer of Burford Capital with overall responsibility for its global marketing, origination and underwriting activities. Top ranked by Chambers, she is responsible for building the teams and investment function that have fueled Burford’s growth. Before joining Burford in 2010, she was a senior litigation manager and Assistant General Counsel at Time Warner Inc., where she managed a portfolio of significant antitrust, intellectual property and complex commercial litigation, and a litigator at Cravath, Swaine & Moore.

David Perla

Co-Chief Operating Officer

+1 646 849 9410

dperla@burfordcapital.com

David Perla is Co-Chief Operating Officer with overall responsibility for Burford’s global marketing, origination and underwriting activities and is a member of the Management Committee. He is an entrepreneur and legal industry leader with expertise in building high-growth legal and technology-driven businesses.