The transformative power of litigation funding for GCs
Legal departments could turn cost to profit with the right approach to litigation funding, says Vannin Capital's Chris Smith.
At Vannin, we spend a lot of time engaging with GCs, understanding the businesses they support and seeing how we might be able to help. The message that we hear from them is clear and consistent: they are being required by their boards to deliver more results with less money. This both reflects the pressures of our modern, globalised economy, but also reveals what is already well known to those in-house, that senior management view their legal team as a cost centre which needs to be closely controlled and, with few exceptions, lawyers as business blockers rather than enablers.
Before: too costly, too risky
When it comes to pursuing litigation (or, indeed, arbitration), a typical conversation between a GC and FD is likely playing out as you read this article. They tend to follow a predictable pattern. The GC will explain the facts of a claim, what it will cost to pursue it and the risks of being unsuccessful. The FD will be concerned about the impact this will have on the overall legal budget for the year, the risk of cost overruns and the claim being unsuccessful. Unless there are compelling reasons to pursue the claim – for example, it is of strategic importance – it is likely that it will be left on the shelf and no further action will be taken. This is frustrating for the GC and, from a business perspective, means that the potentially significant value trapped in these claims is not being realised.
After: no upfront cost, no risk
But what if that conversation could play out differently? What if a GC could tell his FD that a claim can be pursued with no upfront cost and no risk? With funding, a GC can tell his FD exactly that as it allows claims to be pursued with no upfront costs and no risk. If the claim is unsuccessful, it has cost the GC’s company absolutely nothing. If the claim is successful, then the GC’s company will pay to the funder a percentage of the damages (or a minimum multiple of funds advanced) in exchange for financing the claim. Funding removes the typical roadblocks that GCs encounter in their companies when they are seeking to bring claims.
But removing the roadblocks to a single claim is only the beginning. The real power of funding is that it enables GCs to pursue every meritorious claim they would like to and deliver cash right to the bottom line. This can be transformational: rather than being perceived as a drain on their company’s resources, GCs will actually be generating profits instead.
GCs looking to enhance the performance and profile of their in-house teams (and their own career prospects) would be wise to spend some time understanding the litigation funding market. Funding offers the potential for GCs to turn their departments from a cost centre into a profit centre, a change which is likely to be viewed very favourably by senior management, and that’s why it really is a “no brainer” for GCs.
Chris Smith, Vannin Capital. For further information go to www.litigationfunding.com