Legal departments aren’t typically beholden to the same productivity requirements as the rest of a corporation’s business functions. However that paradigm is slowly shifting. Since the Great Recession, corporations have been more proactive in reshaping their legal departments from cost centers to value generators, and one of the most useful tools at their disposal is litigation finance.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
Legal departments aren’t typically beholden to the same productivity requirements as the rest of a corporation’s business functions. However that paradigm is slowly shifting. Since the Great Recession, corporations have been more proactive in reshaping their legal departments from cost centers to value generators, and one of the most useful tools at their disposal is litigation finance.
As reported in Chief Executive, in the wake of the Great Recession, CEOs and GCs began scaling back on the expensive hourly billing model in an effort to cut costs. As a result, in-house legal departments grew, as corporates began to rely more heavily on their own attorneys for routine work. According to a survey by the Corporate Legal Operations Consortium, corporations with $10B or more in revenue maintain an average of nearly 300 full-time legal department employees.
As the cost-cutting trend escalated, it wasn’t long before GCs began to see their legal departments as a potential means for generating revenue. In a now-famous 2010 report, Dupont General Counsel Thomas Sager claimed that revenue generation is “our job as lawyers within the company.”
It’s small wonder, then, that GCs are beginning to reach out to litigation funders in growing numbers. According to the Law Gazette, as funders’ costs of capital decreases, in-house counsel’s interest is rising in tandem.
“Inevitably in-house lawyers and an increasing number of chief financial officers and financial directors within businesses are discussing funding directly with us,” said Rosemary Ioannou, managing director at Vannin Capital. “This is only going to increase, and the number of funding opportunities coming directly from businesses to funders is likely to rise exponentially.”
Burford managing director Craig Arnott concurs: “We expect there to be a growth in corporate interest in funding, as GCs continue to proactively embrace litigation finance as a go-to tool to manage risk and cost, as well as to reduce the uncertainty around litigation budgets. We expect a number of corporates to look to the use of portfolio-based litigation finance, to not only provide an assurance about the reliability of capital sources, but also to be offered better terms.”
