EY survey finds company legal functions are feeling the squeeze

02 September 2019 Consultancy.asia 4 min. read
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Close to eight of ten companies in Singapore are planning to decrease their legal spend in the coming two years according to a new survey from Ernst & Young – and at an average of nearly 10 percent.

A new global report from professional services firm Ernst & Young has found that more than 80 percent of the companies surveyed are planning to reduce their legal function costs over the next two years, with the ratio of those in Singapore intending to do so just shy of that figure. Globally, more than forty percent in turn were forecasting a reduction in spending upwards of 10 percent, with the average worldwide falling above that mark at 11 percent.

Taking the pulse of more than 1,000 senior legal practitioners from businesses operating in 25 jurisdictions worldwide, nearly nine out of ten meanwhile reported that their legal function had undergone a moderate to large increase in demand for management information over recent years. Their response according to EY’s Global Law Leader Cornelius Grossmann highlights the opposing forces which are likely to continue squeezing legal operations even further.

“In the face of heightened demand from the business for legal support in a rapidly changing regulatory environment, the findings support the generally acknowledged position that legal functions are increasingly being challenged to do more with less,” Grossmann states. “New operating models will need to evolve to address these challenges. Courageous innovation will enable legal functions to drive true value in company-wide transformation initiatives.”

Reduction in legal spend in next two years

As a breakdown, the 11 percent average of intended budget cuts balloons out to 15 percent for businesses with a legal headcount of above 1,000, while geographically those in North America will be the hardest hit with an expected average drop of 13 percent. The Asia Pacific, together with Europe, meanwhile, can expect the least impactful reductions at an average of 9 percent, with Singapore on par. The landscape however may not be so straightforward.

“Singapore respondents appear to be less willing to significantly reduce their cost on legal function,” EY’s Asia-Pacific Law Leader Dmitry Tetiouchev notes, before issuing a qualification. “There are various reasons for this: some legal functions here are already operating on leaner models with limited options to cut back further, while others may not have the full knowledge on the available options to reduce costs effectively and without disruption to business-as-usual”.

One clear option, forwards EY, is the potential increase in engaging external providers as the dual pressures of rising workloads and demands for cost reductions drive businesses to reevaluate their operating models. With two thirds of legal departments reporting that at least 20 percent of their time is spent performing routine or low value, it is not surprising then that three quarters overall are either currently outsourcing or would consider doing so in certain areas.

Time spent doing low-value legal tasks

When it comes to juggling competing pressures and maximising resources, the other area for consideration is of course an investment in technological innovation. Most of the practitioners surveyed felt that legal hadn’t benefitted from innovation to the degree that other departments such as HR, IT and Finance had. And while over 95 percent believed in the importance of innovation, certain barriers to implementation remain, budget constraints and business-as-usual pressures high among them – and especially so in Singapore.

Yet, those businesses that change their operating model to capitalise on technological advances, the firm says, may well find cost reductions in addition to operational efficiencies. Pointedly though, nearly 30 percent of respondents further cited the “lack of management skill/interest” as an innovation roadblock. Here, EY argues that legal functions need to be able to better educate management on the benefits and value innovation could bring, and ensure that they’re aligned with wider company objectives.

“New legal technology products and solutions appear in the market every day, making the matter of choice even harder to achieve. But technology and innovation are only two components of the broader legal function transformation,” concludes Tetiouchev. “To benefit from this transformation, there should be a clear understanding of legal operations strategy and how it aligns to that of the broader organisation, what the function is trying to achieve and which problems to solve.”