Practical Law: Corp Legal as Partners: Finance Article


The finance team and legal: A relationship that matters

Sterling Miller

A company’s legal department should have — and needs — many friends in terms of its relationships with other key parts of the business. While many groups can vie for the role of legal's “best friend,” there is really only one clear winner: finance. If you think about it, the only two functions within a business that have a 360-degree view of the business are the finance team and the legal department — because of the unique vantage point both organizations possess.

They see pretty much everything going on in business, regardless of whether it falls under their purview or not. This is why both add so much value to the business and why they should be joined at the hip. Below, I discuss a few of the reasons this is true and what smart in-house lawyers are doing to foster and enhance the relationship.

Risk management

Every business needs to manage risk. Regardless of whether it is business risk, legal risk, or — more commonly — a combination of the two, the legal department and finance department will inevitably take the lead in spotting the risk, analyzing it, managing it, and reporting on it to the rest of the business. If legal and finance are not working together regarding risk, it is easy to see how that failure can negatively impact the business. Worse, if they are at cross purposes or engaged in a turf war, risk can get missed, misidentified, or conflicting views can cause disarray and bad decision making.

But when they work together, the company gets:

  • The benefit of rigorous analysis, both legal and financial
  • A well-needed dose of “writing smart” about risk; writing dumb documents is an entire area of risk in and of itself
  • Calm heads when things get turbulent
  • Proactive teammates who are used to taking charge and making decisions with imperfect information

Consequently, the legal and finance teams should be meeting regularly on risk analysis issues and processes to manage it and write about it.

Environmental, social, and governance

One of the hottest topics for in-house counsel over the past two years has been environmental, social, and governance (ESG) issues. The legal department tends to look at ESG from the legal compliance point of view. Finance usually sees it as a bottom-line issue both in terms of costs of compliance — or failure to comply — as well as the financial benefits the company can derive from a strong ESG program, such as stock price, sales, retention, etc.

These are just two sides of the same coin, that is, the need to comply matched with the benefits/costs of compliance. This is why finance and legal have such key roles to play in any company’s ESG plans. Few companies have formal departments managing their ESG efforts and though legal and finance are perfectly capable of managing their side of the coin alone, they are so much more powerful and cost effective when they work together and share tasks and responsibilities. ESG is one area where finance will likely look to legal to take the lead — take advantage of that to be proactive in bringing the right members of the legal and finance teams together on ESG planning and initiatives. 

Institutional knowledge

One cost that is often overlooked by business leaders is the cost of constant departures, turnover, or rotation of employees in and out of different groups and departments. The cost is the loss of institutional knowledge: a deep understanding of why things are the way they are, what has been tried in the past — successfully or not — and “who does what” deep in the bowels of the business.

If you have been in house long enough you know that whenever business leaders don’t know something about the company, they turn to one of two places: the legal department or the finance team. While other groups seem to experience endless rounds of new faces, the finance team and especially the legal team tend to have low turnover and many long-time employees. They bring deep knowledge of the company and the issues it has faced over the years to the table when assisting with legal work, finance issues, or strategic thinking. Without them, much of their knowledge would be lost at an unknown cost to the business.

When the legal and finance teams recognize this value-added benefit and work together to preserve their knowledge in formal or informal knowledge management systems, they create a safety net for the company to fall back on when the “new kids” don’t have a clue about what has transpired in the past, doomed to repeat epic failures but for the fact that legal and finance are there to save the day.

Three ways to foster a better relationship with the finance team

It’s easy to simply assume that the members of the finance department and the legal department will naturally gravitate toward each other — and in many cases this is true. But a smart in-house lawyer doesn’t leave critical relationships to chance and hope; they grab the bull by the horns and make things happen — they market themselves and the legal department.

Here are three things you can do to foster and strengthen the relationship between legal and finance:

  1. Include finance in the day-to-day operations of the legal budget and spending. One might think that having a member of the finance team fully looped into the legal department’s day-to-day thinking on spending and budgeting is an odd idea. Who wants that type of oversight? Everyone should.

    When the finance team is brought in early and understands what legal is spending money on, why it is spending that money, and why it selected the law firm/vendor it is using, they will better understand the thinking and the reasoning. Instead of questioning things after the fact, they can be part of the real-time decision making, buying into what legal is doing and why, and — most importantly — being an advocate for the legal team during the budget season or during the cost-cutting time.

    Making finance part of the team can truly pay off.
  2. Get them what they need, when they need it. As you probably know, administrative tasks are part of the job of an in-house lawyer. When it comes to finance, get them the information they need, done right and on time. Having a basic understanding of key business finance concepts is helpful here.

    Regardless of whether it is forecasting, accruals, surveys, or whatever, if finance asks for it — make it a priority. Most importantly, no surprises when it comes to the numbers. They will appreciate it and reciprocate!
  3. Include them in the fun stuff. Everyone likes to be included. At your next offsite, include a member of the finance team to present and then hang out with the legal team. If you are working at the food bank one day, ask finance if they would like to join in. If you are having a happy hour, include your friends from finance.

    To have a friend you have to be a friend.  Everyone likes to take care of their friends when they can. If finance feels that way about legal, there is no better friend.

I hope you see how critical the relationship is between finance and legal. There are numerous benefits to the company — and to each group — when the legal and finance teams are constantly communicating and cooperating with each other. If this is not the situation you find yourself in regarding your finance team, make the first move to break the ice.

Sometimes all it takes is one request for help in thinking through an issue to be the start of a beautiful friendship. If you have access to Practical Law, you have access to many resources that will help you align the legal team and finance team in ways that will benefit the business and both groups.

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