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.