Fighting Rising Legal Costs

First of all, a careful review of legal costs can be good for the bottom line. I would go so far as to say that there is not a single large or medium-sized corporation in America that couldn't shave its legal expenses without any loss of efficiency or increase in liability. Second, and more important, the failure to look at an organization's legal expenses— which is to say, a failure to examine legal practices—can prove to be dangerous to one's business health.

In today's environment, the specter of a government inquiry confronts every corporation. Should that inquiry occur, the questions and demands will follow thick and fast. Corporations that have prepared themselves legally in a systematic manner will be best prepared to deal with such an unpleasant event. Among a regulator's first demands is for documents—every single one that applies to the issue under investigation. There is always a deadline, usually no more than 30 days. Even a couple of decades ago, that was a heavy burden for a corporation.

But in the electronic age, it is a staggering one. As we all know, email traffic within organizations nowadays is like rush hour on a Los Angeles freeway. Even though most messages are irrelevant to an investigation, all of them must be reviewed and then handed over. This can increase the amount of paperwork during a regulatory procedure by a whopping 10 to 15 times. Needless to say, legal costs can skyrocket.

Companies whose lawyers have set up carefully organized email archives will be best prepared to handle this situation. Those that don't have an archive will be plunged into a crisis mode—and find themselves facing enormous legal bills as they scramble to catch up. An archive system is an upfront cost, of course, and many companies may object to that. But which is cheaper—paying a handful of people to maintain a systematic archive year-round or paying a small army of lawyers for 30 days of panicky catch-up work? More important, which is more likely to reduce errors and minimize liability?

A successful archive system is an all-or-nothing proposition. For it to work properly, everyone from the top to the bottom of the organization has to understand the rules and cooperate fully. Holdouts or malcontents can create a world of trouble if their actions mean that key documents can't be located in a timely fashion or can't be located at all.

One way to help achieve the right level of cooperation is to draw up a protocol on the archiving of documents, both paper and electronic, and require everyone to read and sign it—including, yes, the directors. Some training sessions would make the protocol even stronger. That kind of rigorous system can help identify problem areas and problem people. And it will provide a solid answer if regulators confront directors with the question, "What have you done to ensure the integrity of your organization?" In short, a well-thoughtout protocol for the archiving of documents is one form of liability protection.

What are some other steps that savvy corporations can take to lower legal costs without increasing liability? One that I would put high on everyone's list is a careful review of who is doing the work—and for how much. Every company of any size needs outside legal counsel, especially when the work involved is highly specialized. The question is, how many outside firms are being used, and are they the right mix?

I know of corporations that have as many as 150 law firms to which they send work, when they could get along with two or three. The indiscriminate use of outside firms actually weakens one's buying power in the legal egal costs are a fact of marketplace. A highly selective approach can strengthen it. Directors would be wise to ask tough questions on this subject and insist on changes if the answers are unsatisfactory.