However, that optimistic outlook didn’t necessarily translate into new tech adoption, as fewer small law firms adopted new technologies in 2022 than in either of the previous two years. What small firms did focus on, however, was supplementing and formalizing technologies that had been recently adopted, such as video conferencing platforms that were pushed into use during the pandemic. Further, there’s reason to believe that as small firms anticipate a business boom in 2023 and beyond, business development and marketing upgrades are firmly on their radar.

Just 41% of small law firms adopted new technologies in 2022, according to the report, which was down from 50% in 2021 and 45% in 2020. That decrease in new tech adoption may largely be a function of technology budgets that were static — 78% of small law firm leaders said their budget for legal-specific software in 2022 was unchanged from the year prior, and similarly 82% said their budget for non-legal-specific software also was unchanged. A higher proportion of firms had reported increasing budgets for both types of software in 2021.

A more status quo state of being didn’t surprise Stephen Curley, former chair of the American Bar Association’s GPSolo Division and principal at the Connecticut-based Law Offices of Stephen J. Curley. At his firm, technology spend largely focused on bolstering the use of recently adopted technologies, such as Zoom, Curley says.

“Some of the investments that I made back in 2020 that were more or less done in an ad hoc or an emergency basis, I just backed up,” Curley explains. “I didn’t branch out into something new or different come ‘21 and ‘22.”

Focusing on business development & marketing

When small firms did plan tech investments, however, the report found that business development & marketing priorities played a bigger role than ever before. For example, the percentage of firms planning on purchasing billing & invoice software rose from 6% in 2021 to 18% in 2022. The firms investing in marketing software or a firm website, meanwhile, rose from zero of the 80 respondents in 2021 to 14% of respondents in 2022. These shifting tech priorities mirrored a rising goal for small firms: To grow the size of the firm, which respondents ranked as their top firm goal for the first time.

Part of the reason for these increases could be simple: the emergence of a larger potential client base since the pandemic, Curley notes, adding that previously, as an attorney located in Stamford, Conn., he focused his business development & marketing efforts on clients in his immediate vicinity and out of his local courthouses. Now, with virtual meetings and remote court proceedings, it was possible to take on business in other areas of Connecticut, such as in the state capital of Hartford.

“The reach of a solo who has expertise in those areas isn’t necessarily confined to where you can drive or get to on a Monday morning, when it might have been five years ago,” Curley explains. “Now you can have a more statewide practice, and you can be competitive in other regions of the state that you wouldn’t have otherwise been able to thoughtfully do.”

Curley doesn’t see remote proceedings ending any time soon, indicating that he was planning on continuing to invest in video and other related technologies. Indeed, the report echoed this point: More firms than ever before (73%) said that more than 10% of their initial client meetings were done remotely. More than two-thirds also said they preferred having marketing events, product trainings, and sales & renewal conversations with outside vendors in a virtual setting. And while the proportion of firms with more than 10% of attorneys working remotely dipped slightly from 2021, the survey still reported more than half of firms (60%) with that level of attorney remote work.

Taken together, the report paints a picture of small law firms that are conscious that changing business development and legal practice strategies is necessary for the evolving legal world and are solidifying their efforts to do so.

Not surprisingly, this technology adoption is not only taking place among younger, potentially more tech-savvy attorneys, but also among more seasoned attorneys who find themselves at the frontlines of technology now that the virtual legal world has proven to not be a fad, Curley says. “I think, to a degree, those who didn’t throw in the towel and are still practicing are going to find themselves more and more wedded to it by choice or otherwise.”

And particularly among attorneys who are a decade or more into their career and may be at the peak of their revenue-generation power, it’s even more crucial to keep up with the changes. “If you’re not up to speed on that technology, you’re losing your edge and you’re losing the ability to maximize the most productive years in your career,” Curley adds.

A tax department operating efficiently can go beyond providing compliance work and instead make the shift to being a proactive business unit that provides the company with tax and business guidance to mitigate risk and improve profitability. However, leaders and department heads must first understand where their department stands before thinking or wishing to become proactive.

For example, how does a corporate tax department leader know whether the department is proactive or reactive?

Being proactive — creating or controlling a situation by causing something to happen, rather than simply responding to situations after they have happened — means that the department should be organized in such a way that even though all external factors cannot be controlled, the mechanism in place can help plan for the unknown or the out-of-left-field happenstance.

The nature of the types of work done by the corporate tax department and how that work gets done is under almost constant change — the recent local, national, and international regulatory changes is just the latest example. The use of technology also has collapsed borders, allowing individuals and companies alike to traverse with ease. Like the individual, many companies can stretch into parts of the world that would have been only accessible by a few large corporations in the past.

Yet, along with this ease of crossing borders, there is a complexity in navigating it, especially for doing business. Companies can grow by reaching customers across the globe, but the cost of doing business brings challenges, such as having to work within the legal and financial systems in which the customer is located.

Corporate tax department leaders must not only navigate the tax laws of a nation, state, and local government but now increasingly must deal with multi-nation rules, especially if their companies have customers around the globe.

Some corporate tax departments might find it hard to believe that they are not proactive simply because part of the nature of this department is to predict their company’s tax liability and ensure it remains tax compliant while paying the necessary amounts of tax.

Of course, there are some telltale signs that a tax department is not operating efficiently and therefore isn’t proactive. Taking a look at these four areas can help department leaders make a proper assessment.

1. Process management

Departments that use a systematic approach to ensure adequate and efficient business processes are in place are engaging in proper process management to better align business processes with strategic goals. For corporate tax departments, there may be different ways in which data is collected, reports filed, analysis provided, and feedback given back to the business that all may seem to work. However, if they rely primarily on manual work and are multi-stepped (to the point that it takes weeks and months to complete), it may be worth asking some questions of the department’s process management.

Indeed, does process management even exist within the department? Can it be articulated clearly, shown to work repeatedly, and stand on its own? Does it only work for the individuals that helped create it, or can someone new step in and have it work the same way? If the answer to these questions is no, proper process management isn’t in place.

2. Data management

How does the department gather data? Does it feel like a version of the Hunger Games that requires seeking, finding, negotiating, and trying not to step on a land mind? Is this a manual process, collecting various spreadsheets from around the business and then entering the information into the department’s management systems? Or, can the tax department software be integrated to extract data from other part of the business? Is it seamless? Manually processing data significantly increases the chances of error, makes it challenging to verify data sources, potentially creates a tax risk, and is time-consuming.

And yet, even when technology is employed, it’s only as good as its users. Leaders should assess whether current technologies are efficient or actually are creating more work or processes for the department. Often staff — whether incorrectly trained or simply preferring to use their own methods — utilize just certain parts of a software program and rely on manual labor to do other tasks.

In these cases, workers time is not being used efficiently. Further, not having proper data management systems in place also causes bottlenecks in the work flow of department as employees wait for pieces of data in order to move forward. These inefficiencies can create a potential opportunity for risk, such as missing or incorrect data that leads to erroneous results.

3. Compliance & reporting

How long does this process take? Quite often, reporting is the final step in the process and as such, can be significantly impacted by how well or how poorly the previous process were conducted. Again, if there are many manual steps here, it will likely result in wasted time and resources while increasing the chance of risky mistakes.

4. Analysis

Corporate tax departments have always been an advisory to the business by the very nature of their role in providing tax planning. However, this role has increased as departments are now expected to provide insights into tax implications related to deal-making, mergers, business divestitures, and environmental, social & governance (ESG) initiatives to name a few. For departments that aren’t functioning optimally, leaders will find that they cannot provide useful or beneficial advice to the larger businesses because departments themselves lack the bandwidth and resources needed.

Tax departments and their leaders should strive to manage processes and data efficiently and effectively. By utilizing automation and having a clear mindset about the role of the tax department within the organization, a leader can improve the department’s work process, relieve the stress on overworked employees, and provide invaluable information to the business to make it more profitable.

Indeed, this kind of transformation within corporate tax departments has happened, led by leaders who have recognized and adjusted to the new realities of the business and taken advantage of improved technology and process management techniques.

This process then kicked off a volley of communications — internal and external — and necessitated forwarding emails, PDF letters, and spreadsheets for analysis and follow-up. The legal operations team provided some central support, but this was often challenging because data limitations made it difficult to account for past rate increases and freezes across different firms. Overall, the efforts felt somewhat ad hoc and very time-consuming.

“It has always been important to us to get this right,” says Antony Klapper, Deputy General Counsel in Product Liability & Regulatory at VWGoA. “We want to be fair to our law firms, whom we view as trusted partners. At the same time, we must manage our company’s finances responsibly — and execute all of this efficiently with a leanly-staffed team.”

Trisha Fletcher, Legal Operations Specialist at VWGoA, emphasizes these points as well. “Collectively, our team had a strong desire to find a better way to do this.”

Taking a new approach

The VWGoA team launched a new initiative to process rate increase requests more effectively for 2022 and beyond — one that would ultimately win them an ACC Value Champion Award.

The first step, the team decided, was to establish a more centralized, uniform approach. This would be managed by legal operations with strategic guidance from legal leadership. Of course, there would still be coordination with in-house counsel, but in a more efficient way — built around a centralized process, featuring stronger use of data analytics, benchmarking, and core decision governance from leadership.

The next step then, was to improve the in-take process. Outside law firms were asked to submit their rate increases within a designated window of time and through a common portal. This allowed the team to consider them all together, performing side-by-side comparisons of similar firms to ensure more consistent treatment under then-current market conditions. This commonality also enabled the use of greater analytics capabilities to assess past rate increase history, as well as internal and external benchmarking comparisons.

Within this framework, the team also began examining firms’ compound annual growth rate (CAGR). A law firm’s billing rate CAGR shows a multi-year view of the firm’s rate increase history, accounting for past increases and rate freezes. Standardizing the figures this way enabled better side-by-side comparisons across the portfolio, and showed which law firms were high or low outliers based on their multi-year rate history.

The VWGoA team also found it very helpful to use data to model the dollar impact of the requested increases per timekeeper for the coming year. This was instrumental in identifying the most impactful requests in order to focus on managing costs.

Seeing the benefits

Through this new approach, VWGoA legal leadership and legal operations were able to implement more effective governance and decision logic to streamline the rate decisions in light of portfolio metrics and company financial considerations. By streamlining and consolidating the process, they freed up considerable hours that their staff had previously spent responding to rate increase requests as they came in, managing them all through one common workflow. They saved further time be setting auto-approval thresholds for certain rate increase increments.

In the end, the projected savings for the coming year were significant, with rate increases for various timekeepers, for example, trimmed to about one-half of the increment originally sought. The VWGoA team devoted particular attention to adjusting high outliers and managing the impact on budget in a sustainable way.

Beyond time and money savings, the team built a process that leveraged better data to drive better decisions. The result is a strong business case showing how those in legal can use technology and data more effectively to increase productivity and execute against business metrics.

From law firms’ perspective, understanding the data that informs a client’s financial position is a helpful way to focus their rate increase conversations onto a productive end for both sides.

“We recognize that, in this economy, many clients are facing challenging headwinds,” says Susan Vargas, Partner at King and Spalding. “As trusted partners, we are glad to talk about goals and metrics to strengthen our relationship in mutually beneficial ways — and we welcome informative data to help us do that.”

However, does your tax & accounting firm know precisely what its work limit is? And can you say with certainty how far under or over that limit the firm is operating at any point in time during the year? If not, then “capacity planning” may be the management concept you’ve been looking for.

What is capacity planning?

Put simply, “capacity planning is the process of determining the maximum amount of work an organization is capable of completing during a specific period of time,” says Heather Sunderlin, a senior consultant in Thomson Reuters’ Tax & Accounting group. “If I have a one-cup measuring cup, it can’t hold a gallon of water — and the same holds true with accounting firms.”

During tax season, for example, many one-cup firms take on a half-gallon of work and hope there’s no spillover, even though a mess is inevitable. However, a firm that has engaged in capacity planning already knows exactly how much work it can handle given its existing client base and staff capabilities. There is no need to guess, and when crunch time comes, managers don’t have to bite their nails and hope their staff can rise to the occasion — because they will already know the answer.

With that knowledge comes control and power.

“Knowing with certainty how many billable hours are available and whether the firm is over or under their maximum capacity can help firm leaders determine when they need to hire people, and at what skill level,” Sunderlin explains. “It can also help managers understand how to delegate work more efficiently, and, if the firm has identifiable skills gaps, whether [those gaps] can be filled through learning and development.”

Capacity planning also can help in giving firms a long-term look at their strategy going forward, she adds, noting that “capacity planning can force a firm to take stock of its current client base, determine whether to off-board clients that are no longer a good fit, and on-board clients that are more closely aligned with their ideal client persona.”

In these and other ways, a firm that engages in capacity planning has much better information available to help it execute its business strategy and manage its growth, Sunderlin says, adding that in this way, staff burnout also can be avoided and morale improved.

What does the capacity-planning process look like?

The goal of capacity planning is to figure out how many billable hours are available at each level in the firm, and how close (over or under) the firm is to hitting that number. The basic process looks something like this:

1. 1. 1. Determine the number of available hours at each level of the firm by counting the number of total hours (i.e., number of staff x 40 hours/week x the number of weeks), then subtract holidays, paid time-off, short workweeks, and other non-billable time commitments.
      2. Determine how many of those available hours are realistically billable.
      3. Calculate the firm’s total capacity by multiplying billable hours at each level by the number of staff members at that level. For example, if the Total Available Hours for each staff member during the busy season is 600, and 95% of those hours are billable, the total billable hour goal for each employee at the Staff Level is 570. If there are five employees at the Staff Level, then the firm’s Total Capacity at the staff level for the busy season is 5 x 570 = 2,850 hours.
      4. To determine whether the firm is under capacity (can take on more work) or over capacity (cannot take on more work), you simply need to know how many hours employees have been assigned during the busy season and compare the target number. The same process can be repeated for managers and senior-level executives.

Project management is key

To get those numbers, however, reliable project management (PM) is a must.

“PM allows a firm to see what work is scheduled in a given time frame, which is critical for capacity planning calculations,” Sunderlin says.

Indeed, one key indicator that a firm could benefit from capacity planning is if they aren’t managing projects, tasks, budgets, and assignments, and don’t have numbers available for calculating capacity. Because if a firm doesn’t have those numbers, says Sunderlin, “it means the firm likely has no idea what their workload is in relation to their actual capacity.”

If the firm has accurate capacity-planning data, however, Sunderlin says a firm’s management can:

• • • make more informed hiring decisions;
    • delegate work more efficiently;
    • develop training to fill skills gaps;
    • evaluate the quality of its clientele; and
    • develop a better barometer for overall stress and morale in the workplace.

Not a one-and-done solution

For capacity planning to work, however, Sunderlin cautions that it “should be a continuous and ongoing part of the management process, not a one-and-done calculation.”

A firm’s capacity isn’t static — it is always fluctuating, she explains. Some people get sick. Some work faster than others. Some get bogged down by problem clients. Some work too hard for their own good. By gaining an understanding of these variables over time, capacity planning makes it possible to ensure that employees aren’t overwhelmed, and it also helps firms avoid the trap of “taking on too much work and hoping it will all get done, somehow, some way,” which is a perfect recipe for unnecessary stress, Sunderlin says.

“Ultimately, capacity planning focuses on a firm’s most important assets, which are its people,” she explains.

Interestingly, however, while larger firms also are seeing greater weakness in non-transactional practices, midsize law firms are finding real strength, which suggests that clients might be shifting work based on cost.

And it is upon that suggestion which we offer the following.

Inflation takes its toll

As the US Federal Reserve tried to tackle inflation over the last several months by raising interest rates, the cost of doing transactional deals, such as mergers, debt refinancing, or real estate transactions, greatly increased. And the uncertainty of the impact of those interest rate increases, and the specter of additional increases really killed clients’ appetite for those types of transactions, which then hurt law firms as well.

So, it’s not surprising in this first graphic that Am Law 100 firms are struggling so much, simply because transactional practice work is such a big part of their overall practice mix.

A comparison of overall demand growth from Q3 2022 to the same period in the prior year shows that both the Am Law 100 and the Am Law Second Hundred law firm segments had negative growth of -2.9% and -0.6%, respectively, while the midsize law firm segment had 1% positive growth. While much of this is due in part to the transactional area’s weakness, this trend is also seen in individual non-transactional practices that shouldn’t be impacted by the same macro-economic factors. And that suggests something more must be at play, and the other part of the story involves the level of growth in worked rates and how (or whether) those rate increases are being felt by clients.

Where the work is getting done

Around midyear, a statistic from Thomson Reuters Market Insights began making the rounds that showed about half of legal clients had adjusted their law firm rosters within the past year. So, you don’t have to go too far out on a limb to suggest that clients, in this inflationary environment, may be gravitating to lower-cost law firms, especially as rates continue to rise even as demand falls.

In Q3, we saw that law firms, regardless of size, raised their rates an average of 4.8%, roughly keeping pace with the first two quarters of the year. However, when we looked at data from another independent source — Thomson Reuters Institute’s Legal Department Operations (LDO) Index Survey, published in October — we get a vastly different perspective.

The LDO Index, which surveys corporate law department leaders and relies on Legal Tracker’s data, shows that these clients were seeing substantially less rate increases across the board than the LFFI data suggests. In fact, far from seeing a 4.8% rate increase law firms are charging year-to-date, corporate clients regardless of size have reported that the real growth rate they had experienced was much less and even was negative in some cases

How could this be? For the answer, we need an example to illustrate the phenomenon.

In this hypothetical situation, we can see how corporate clients could be deciding from which segment of the legal industry they’re purchasing their legal services. To illustrate, let’s say you’re a large corporate client and you have three law firms on your roster: one from the Am Law 100, one from the Am Law Second Hundred, and a midsize law firm.

Each one increased the rates it charges you for legal work (using current market benchmarks), with the larger firm requesting a larger increase of 6.9%. The Second Hundred firm increased its rates by 4.6% and the midsize firm by 3.7%.

However, if you, as a legal client, begin to shift your work matters downstream even a bit — say by moving 5% of your work from the Am Law 100 firm and 5% of work from the Second Hundred firm to the midsize firm, which would see its allocation increase by 10 percentage points, you could see a substantial cost savings. Indeed, you would be allocating more work to the firm that charges $311 per hour, rather than the ones charging $523 and $748 per hour, respectively.

That means, you would see the actual rates you are paying for legal services fall by 0.8%, as the chart shows, rather than experience rate increases nearer the industry average of 5%.

This strategy — applied more frequently throughout 2022 — may begin to explain our industry wide data divergence, as clients reported smaller or negative growth in their rates compared to the average law firm’s worked rate growth of 4.8% recorded in the third quarter and YTD.

Given this — and taking into account the shift in demand by law firm size segment, plus the high portion of clients that said they were adjusting their law firm rosters — it all seems to provide strong evidence that clients have begun shifting their legal work to lower priced firms, such as midsize law firms, and are likely to continue doing so into the future as more and more corporate law departments look to do more with less.

As a result, visibility into supply chain actions and outcomes has catapulted to the top of many corporate wish lists — but many business leaders become frustrated when their operations and technologies don’t deliver. Still, experts say, better visibility into corporate supply chains can be achieved, but only if companies are willing to think about their sustainable supply chain initiatives in a more innovative way.

According to a September EY report on sustainable supply chains, visibility has become one of the top priorities among supply chain leaders. Of the 525 large corporations surveyed, 58% said that increased end-to-end visibility in their supply chain was among their top two priorities in both the past two years and the upcoming two years. However, despite that desire, just 37% of supply chain leaders reported achieving supply chain visibility over the past two years, indicating a large gap between the desire for more visibility and the progress many organizations are practically achieving.

Rae-Anne Alves, ESG & Sustainability Supply Chain Leader at EY Americas and co-author of the report, said that visibility is the key first step to compliance. “When companies are thinking through their supply chain and trying to make it more sustainable, they need end-to-end visibility to know is what is happening,” Alves said. “Companies are lacking the transparency that they need from their suppliers through logistics, especially in areas outside of their four walls.  Achieving this transparency will give them the visibility they need across their supply chain.”

Recent research from the Thomson Reuters’ Market Research & Competitive Insights team mirrored these findings. In interviews conducted with senior leaders of US-based companies charged with tracking ESG efforts, large numbers of companies say they have established dedicated ESG efforts but collecting data and measuring those efforts remains disconnected and lacks consistency.

The issues in raising visibility

When it comes to trying to raise the visibility of supply chain practices and outcomes, many corporate leaders have run into an unfortunate reality: the difficulty of gathering and mingling data that lives in disparate systems. One public company ESG head explained that a common supply chain review pulls data from systems as broad as risk management and operations software, human resources software, and procurement and supplier-oriented software.

Combining all of these types of data into one truth remains difficult. “I don’t even know how they collect their data,” said the supply chain head of another public company. “Every vendor has their own process.”

This problem is only increasing as companies are beginning to scale up the types of data that they collect, EY’s Alves added. To take a firmer grasp on their supply chain, many companies are looking to catalog not only emissions from scope 1 (directly owned by the company) and scope 2 (indirect use of energy the company purchases), but increasingly scope 3 emissions that result both up and down the company’s value chain as well. Indeed, the more a company’s data collection scope expands, the more complex the visibility question becomes. Many supply chain-centric software providers have arisen in recent years to try and compile and display all of these data sources, however, currently, there is not a leader that has captured a substantial share of the market.

Some companies have been able to achieve more supply chain visibility, becoming sustainable supply chain “trailblazers” with an “extreme focus on transparency”

“It’s unclear yet whether there will be a provider that is able to deliver the end-to-end capability needed for a digitally network-connected supply chain,” explained Gaurav Malhotra, Partner and Americas Supply Chain Technology Leader at EY. “There are many factors that have to come together, versus just a singular platform from a control tower or visibility standpoint to enable the orchestration.”

Instead, many companies have tried to apply other technological fixes to the issue, often without much success. “Almost everything is run on Excel. It’s truly terrible,” a public company’s supply chain head told Thomson Reuters Institute. “We have very few tools for environmental stuff. Everything is reported through Excel, everything is measured in Excel, everything is rolled up in Excel and it’s extremely inefficient because we have all these different teams.”

Supplying more visibility

Still, some companies have been able to achieve more supply chain visibility. EY’s report designated certain companies as sustainable supply chain “trailblazers” and noted that one of the traits they have in common is an “extreme focus on transparency” through which “[t]hey can significantly or moderately peer into Tier 2 and 3 supply networks.”

EY’s Malhotra said these leaders often undertake two simultaneous shifts to aid this transparency. One involves automating individual supply chain functions so that they can run more efficiently and be consistently reliable. The second involves integrating those individual functions and making sure their output data is portable to enable the needed effective real-time communication, both internally and with external supply chain ecosystem partners.

Currently, he explained, most supply chain networks are “not digitally integrated in their true sense” because they operate in multiple stages. Data is processed by one organization that controls their section of the supply chain ecosystem, then it is transmitted to be able to be consumed or processed by other organizations. While Malhotra concedes that it takes “time and effort to ultimately get to a mostly autonomous state,” he believes combining, integrating, and automating these steps will be the future of supply chain management.

“What we have found is that some leading companies have moved towards an integrated process and singular platform that allows the right level of visibility, orchestration and actioning with their supply chain network partners,” Malhotra said. “Enabling trust, effective execution and accountability with the overall network in play, resulting in a highly efficient, highly integrated, differentiated and reliable supply chain.”

Leading companies are also pushing for data standardization among common supply chain suppliers, Alves added. Many sustainability frameworks are available, and increased regulatory attention continues to add more complexity. Increased standardization can make supply chain data more actionable, and auditable, potentially lowering a company’s risk profile. When asked about top supply chain priorities for the coming year, the ESG head of one public company was clear: “We want to make sure that we have auditable processes in place, that the data is sound.”

However, Alves added that for sustainable supply chain measurement and reporting businesses are “definitely not there yet.” As both public and regulatory attention in the space continue, expect that visualization into supply chain processes and data will become even more important, and leading organizations will continue to invest resources and personnel to get their supply chain data house in order.

Yet, mistakes, data breaches, and data exposure tend to happen when people communicate and share information digitally, and firms need to make it as straightforward as possible for employees to leverage modern UC tools while remaining compliant and secure.

“Increased reliance on simple, easy-to-access but unauthorized chat and text platforms will pose a significant challenge for many types of entities operating in our markets. Internal compliance programs must adopt internal controls consistent with this new landscape. Firms must inculcate a culture of compliance at all levels of their organization to mitigate the risks associated with using unauthorized chat and text platforms.”

— Kristin N. Johnson, commissioner, US Commodity Futures Trading Commission (CFTC), September 2022

In its 4th annual survey report on modern communications compliance and security, security and compliance software firm Theta Lake highlights the complex challenges faced by those professionals tasked with maintaining compliance, security, and data privacy within firms and companies. The report is based on the views and experiences of more than 500 compliance and security professionals from the heavily regulated financial services, healthcare, and government sectors across the United States, the United Kingdom, and Canada. The report provides a snapshot of how communication platforms are being used and the issues with which organizations are struggling and can help organizations benchmark their own practices and expectations against those of the wider industry.

Heightened regulatory focus on modern communications

The survey findings come against the backdrop of fines of more than $2 billion already levied by the US Securities and Exchange Commission (SEC) and the CFTC for failures of organizations to capture, retain, and supervise communications. The situation underscores that a lack of visibility and oversight is one of the biggest risks faced by firms in a modern hybrid workplace. For example, the survey showed that two-thirds (66%) of financial services leaders believe employees are using unmonitored channels, posing heightened compliance and security compliance risks.

“As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications.”

— Gary Gensler, chair, SEC, September 2022 

The crackdown on non-compliant communications is the clearest indicator yet that regulators have lost patience with firms that have yet to address supervision and record-keeping risks that were exacerbated by the pandemic.

Attempts to offset these risks is made harder by the limitations of legacy supervision and archiving approaches, which also pose real risks and costs to businesses. As a case in point, 39% of survey respondents cited gaps in coverage as a top challenge with their existing archiving tools, while only 9% reported having no issues. Another 45% said they needed to be able to selectively archive written in-meeting communications like chat without having to record the video or audio. A mismatch between legacy tools built for email and today’s workplace, where 81% use chat and 63% use video equally or more than email, has created critical gaps in records. It has also put a spotlight on dated compliance tools that are unable to capture, retain, and supervise dynamic communications data.

“The time is now to bolster your record retention processes and to fix issues that could result in similar future misconduct by firm personnel.”

— Sanjay Wadhwa, senior associate director of enforcement, SEC, September 2022

As a result, organizations face growing challenges to both enable communications across the platforms that employees and customers use while deploying technologies to appropriately capture, retain, and supervise these interactions to meet regulatory obligations.

“The [survey report] findings show just how integral modern communication platforms have become in today’s workplace, but there’s a lot of catching up to do when it comes to the compliance and security tools currently being used. The more than $2 billion in fines is the biggest wake-up call yet that compliance and unified communications teams need to be in lockstep to ensure a comprehensive approach to record-keeping and supervision.”

— Stacey English, director of regulatory intelligence, Theta Lake

Proactive compliance needs modern tools

The views and experiences of survey participants highlighted numerous challenges that organizations need to overcome in order to stay safe and compliant in an increasingly complex communications environment.

Organizations are seeking specific capabilities in modern compliance tools, including the ability to capture contextual information such as reactions, emojis, GIFs, edits, or deletions as well as features like whiteboards. Tools also need proactive compliance functionality, including the capability to automatically post disclaimers and remove problematic content.

“Let me be clear here: I am talking about more than putting together a stock policy and giving a check-the-box training. This requires proactive compliance, and this type of approach has never been more important than today — a time of rapid and profound technological change.”

— Gurbir S. Grewal, director, SEC Division of Enforcement, October 2021

Unsurprisingly, the control environment across all organizations is varied and complex, as approaches evolve to meet the rapid and constantly changing nature of communications and regulatory expectations.

Some 66% of survey respondents in the financial services industry are using documented usage policies as controls, with 65% using internally built platform controls, and 62% using specialist software to enforce policies. Almost half (45%) of organizations take a more draconian approach, however, by disabling features to limit the risk of new channels. Perhaps not surprisingly, the most frequently disabled features are camera functionality, file sharing, and screen sharing.

In the short term, bans and blocks may work as a control. Given that the features being disabled are essential, however, it is only a matter of time before employees circumvent such policies — an observation reinforced by the recent regulatory enforcement action.

Organizations need modern compliance and security technology to give them the confidence and assurance to unlock the value of the platforms in which they have invested, rather than disable them, allowing staff and customers access to the features they want to use.

For more, you can download a copy of Theta Lake’s 2022 Modern Communications Compliance and Security Report here

The end goal of Shearman Analytics, says Glenn LaForce, the firm’s Global Director of Knowledge and Research, “is really modernizing firm systems.” After he and his fellow tech leaders joined the firm in early-2019, they enacted a plan to remove and replace legacy tech systems within a three-to-five-year window, re-architect them with a data link at the center, then be able to filter that data in and out across the organization “to provide greater transparency, decreased cost, decreased risk, [and] increased profit.”

Even if the concept may sound simple, the execution is anything but. The Shearman team is still executing the Shearman Analytics modernization program, only recently undertaking some larger-scale implementations after focusing on the firm’s underlying tech infrastructure and data governance. Indeed, Chief Knowledge and Client Value Officer Meredith Williams-Range jokes that over the last several years, the firm was not “bringing the sexy back — now we’re getting to the sexy.”

On the way, Shearman learned some lessons about implementation that other firms can model. Here are the six steps of the Shearman Analytics model that the team undertakes at the beginning of every tech implementation project.

1. Governance — Law is a heavily-regulated industry, after all. Before actually implementing a piece of technology, Shearman says it’s crucial to determine what regulations will cover its use. “Do we need any new policies in place? How are we going to regulate this data? How are we understanding the governance aspects of that?” Williams-Range says. “Because if you put technology in place with zero governance, it is a crapshoot at that point.”

2. Change management — Before actually starting the technical work on implementing technology, Shearman begins its communication strategy around why it is making the change early. Williams-Range dubs this an “engagement plan,” which solicits more active feedback than a training or communications plan. “If it’s going to take them out of their norm day-to-day, we have to have an engagement plan to do that,” she says.

Lawrence Baxter, Shearman’s chief technology officer, agrees, adding that leadership backing is crucial to affect change. “We don’t do stuff without sponsorship,” Baxter explains. “You’re going fail, and you work harder than you thought.”

3. Rip & replace — With the baseline governance and change management underway, now comes the beginning of the technology portion, specifically how to remove a legacy technology system and replace it with something new. By necessity, this comes with a technology analysis of not only how the new system will work, but also how it will interoperate with the firm’s pre-existing technology stack. “It’s an octopus with 42 arms that are the other systems. So you have to look at it holistically, otherwise you’re going to lose a leg,” Baxter notes.

4. Process analysis — Simultaneously with the technology change, Shearman analyzes whether the new technology will change firm processes and how the firm’s employees actually extract value from the tool. Or as Baxter puts it, “If you throw technology at a bad process, you just end up with a really fast bad process, right?” The firm will map out what type of processes interact with the piece of technology; and if any can be re-architected to provide more efficiency and less risk, the firm will map out a plan to begin that change. “Wherever possible, it is easier to change your processes to fit the technology as opposed to changing the technology to fit your processes,” he adds.

5. Data analysis — This type of data analysis is less tracking the metrics of the tool’s use or its ROI, and more the actual data that the technology uses. Determining what data is actually being utilized can provide an opportunity to dispose of data that could provide another risk vector for the firm. Williams-Range notes that with Shearman’s recent financial system implementation, “we are literally going point-by-point of data. Why is it here? ‘Well, because it’s always been.’ That is not the answer. The answer is, should it be here? Is this the right placement for this? Is this the golden source for that data architecture, and should it go somewhere else?”

6. Architecture — Finally, the technology team determines the method of implementation and what is driving the technology on the back-end. Increasingly, the answer is the cloud. In recent years, the firm has implemented a new global background based on SD-WAN [Software-Defined Wide Area Network]; Office 365 across the organization; and an Azure-based active directory single sign-on.

Jeff Saper, Shearman’s Global Director of Enterprise Architecture and Delivery Services, says the firm’s tech leadership intends for the cloud to continue to be the architecture answer moving forward. “We had the very similar mindset of saying, it gives us greater agility,” Saper says. “We become less reliant on capital expenditures and more reliant on agile services.”

In this week’s podcast available on the Thomson Reuters Institute channel, we speak to Suzanne Offerman, Senior Product Manager at Thomson Reuters, about how this current environment in which companies that import and export goods must operate has become an ever-evolving puzzle to solve with shifting paradigms that some might say are moving at speeds not previously experienced before.

Of the companies surveyed in the Global Trade Report, many reported more significant concerns arising around retaliatory taxes and fees for those companies in the United State and the United Kingdom. In fact, more than 60% of US companies and about 40% UK and European Union companies surveyed said tariffs were greatly impacting their businesses. At the same time, companies doing business in Asia saw supply chain risk as a significant concern.

Given changing sanctions regimes and regulations, companies exporting from Asia must exercise caution in selecting with whom they do business. Indeed, companies utilizing Asian vendors in their supply chain are now required to know more than before about the identity and labor practices of their suppliers.

Talent & trade

To keep pace with the new and evolving landscape, companies are looking for new and additional trade management professionals to increase their available pool of expertise, skills, and technology prowess. In regard to talent, Offerman says in the podcast that the role and requirements of a trade manager are quite different now than they were when she started in the industry.

You can access the latest Thomson Reuters Institute Insights podcast, featuring a discussion about the recent Global Trade Report 2022: Turbulence Tempered with Technology, here.

In the podcast and in the Global Trade Report, Offerman points out that there is a list of must-have skills for today’s global trade managers. “The technical know-how of an engineer, the legal sense of an attorney, the carefulness of an accountant, the organizational skills of a project manager, the business acumen of an executive, the cultural awareness of a diplomat, and the communication skills of a leader that says a lot — and that’s one that’s supposed to be one person,” she explains, adding that this description underscores the importance of this role and how global businesses are coming to rely on trade managers to mitigate and manage more of the day-to-day operations of trade.

As the podcast explains, this situation has left global businesses challenged as to where to find the right talent and skillset to fill these roles. Businesses have looked at consulting firms, colleges, and even competitors to find the right professionals, but that has proven daunting.

Offerman explains that historically, someone got into global trade management by coming up the ranks within a company’s supply chain, working at a warehouse and then being promoted while receiving hands-on training throughout their employment. Now, universities are offering undergrad and graduate global trade classes (or eLearning classes for working professionals), alongside the study of such subjects as trade law, for example.

The technology solution

In regard to technology, the Report showed that more than 80% of the companies surveyed said they need technology to solve many of the issues they face today — a fact made all the more clear by recent events. “Because of the severe disruptions in supply chains and international trade, companies realized they couldn’t get their goods just from sourcing from one country,” Offerman says, adding companies learned they needed to move production to another country in the region or closer to their own home base. Thus, companies were pressured to come up with point solutions for specific regions.

However, Offerman says in the podcast, this may not be the best solution, and she urged companies to move to a holistic approach by using technologies that cover the entire supply chain, not just specific problem areas or regions.

Indeed, the need for the right technology goes far beyond increasing efficiencies — it’s needed to keep pace with governments that are increasingly leveraging more technology in order to gather more information and collect taxes and tariffs. “Companies cannot focus on only one aspect, talent, or technology but must be intentional at all aspects of trade in this way,” Offerman notes. “It is talent plus technology that get you to the finish line.”

In fact, as the podcast demonstrates, one will drive the other. To compete for the necessary talent, the technology that companies need to utilize will be a factor in attracting the very type of trade management professional with the skills they need. No one wants to work on outdated software or equipment, of course, especially when it can impact their quality of work. Therefore, any investment companies make in trade solution software that keeps them in compliance will also ease additional work processes and drive further efficiencies.

Trade compliance rules and work will not get less busy, Offerman explains in the podcast, it’s that businesses will grow and evolve along with the regulatory space. And that means that companies must enable their top professionals with the right technology in order to stay compliant and competitive.

Episode transcript. 

At the same time, a parade of collaboration technologies such as Microsoft Teams and Slack began to take even more prominence, creating new touchpoints for law firms to track and measure.

The result has seen an explosion of customer relationship data to help firms make decisions and better establish connections with their clients. In order to best take advantage of this new paradigm, however, it’s still important to utilize both this new data as well as a more traditional, personal touch, said panelists at the Thomson Reuters Institute’s recent 5^th annual Emerging Legal Technology Forum. The key, of course, is finding the right balance.

The data in hand

Joy Cruz, Director of Business Intelligence & Data Analytics at management consulting company RSM US, said during the Forum’s panel, Ascendant Engineering: Emergent Techniques in Data Analytics and Strategic Account Management, that some of the common metrics that law firms should be using to measure their client relationships haven’t changed: profitability, productivity, client satisfaction, realization rates, and related data “bringing that whole story together in terms of understanding what you have, what you’re doing, how you operate historically, [and] what you can do.”

But what’s different since the pandemic is that data sources have exploded, meaning that even knowing where all of the necessary data resides is an even harder challenge than ever before. For a law firm trying to gather a response for an RFP, 85% of the time may be spent hunting for the relevant answers, Cruz estimated. And while many law firms are talking about executing a data plan, many firms can’t even take the first step of having insight into their data.

“The goal is to flip that so it becomes easily accessible to you.” Cruz explained. “One of the things we’re missing is that we’re not able to do the analysis piece yet, because it’s not available to you.” Indeed, without the data gathering step, “you’re making decisions based off of data that’s provided to you, but that might not be the full story,” she added.

Panelist Olalekan (Wole) Akinremi, a partner at law firm Deeth Williams Wall, noted that from his days on the corporate side, clients have already begun to take that step in evaluating their outside firms — particularly when it comes to tracking costs. He said that tech-enabled analysis can better look into outside counsel time and billing, contracts, and automation to free up time for more complex matters that are becoming more commonplace. Law firms also can take cues from their clients about how to use data to augment their arguments, Akinremi noted.

For example, “you can also go to management and say, we have two paralegals handling 1,000 requests, we need more support,” he said. “The proof is in the results.”

With the rise in data-driven decision-making, however, can come a tantalizing misstep: Over-reliance on data at the expense of other tools in the relationship-building toolbox. Panelist Philipp Thurner, CEO of relationship management software company Nexl, said that while raw data figures certainly help, “that might not tell you the quality of the relationship.

“Data can tell a story,” Thurner added. “But you can have one data set and can tell a million different stories from it.”

Thurner gave the example of counting email interactions: a hundred emails back and forth between a firm and their client could be construed as a strong relationship, particularly if those emails are increasing over time. But if those emails are surface-level interactions or about administrative tasks, the raw number may not reveal a relationship on rocky ground. “How do you judge a relationship?” he asked. “I think it’s up to us as human beings.”

Where data & relationships collide

In a later panel, titled Journey’s End: Maximizing Value in Client Experience, the discussion elaborated on that general premise. Suzanne Donnels, Chief Business Development & Marketing Officer at law firm Davies Ward Phillips & Vineberg, said she has noticed a difference between corporate clients who are actively involved in the firm/client relationship, and those purely focusing on data. “It’s harder for Davies to compete when you’re dealing with procurement departments, [because] they’re just looking at a number next to a name,” she explained, adding that a closer relationship means differentiation with “understanding their clients and the business that they’re in, and really figuring out solutions.”

Panelist Janet Sullivan, eDiscovery Counsel and Global Director of Practice Technology at White & Case, agreed with Donnels, noting that success metrics will inherently be different for different clients. Her firm’s strategy is called LIFT — Local Information, Firmwide Transformation — which establishes a standardized firm goal of how to drive success, but with the flexibility for bespoke solutions for each client.

To actually measure whether a firm relationship is successful, Sullivan said that repeat business is of course important, but that is just the baseline metric. What can set a firm apart, she said, is consistently gauging and collecting those success metrics throughout the life of a matter. “Not waiting until the end to say, ‘How did I do?’, then having to do a post-mortem and go back to all the things we might have done wrong.”

Sullivan admitted that it can be a fine line between asking for this data while not placing an undue burden on the client; however, there’s more than one way to tackle the issue depending on the type of data that’s needed.

However, panelist Fernando Garcia, who has served as General Counsel for a number of smaller legal departments, noted that law firms should approach this process with caution because of the time and personnel resources needed, as well as another hidden danger in soliciting client feedback.

Firms then need to respond to what they’ve learned, Garcia explained. “Be careful when you ask,” he said. “Because you’re going to get answers, and you have to act on those answers when you get them.”

You can learn more about how to create the kind of partnerships that will drive the strategic, financial, and operational priorities of your corporate law department here.