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The CFO’s Role in eDiscovery: A Guide for the eDiscovery Watchdog

The CFO's Role in eDiscovery

The CFO’s role in eDiscovery is knowing enough to ask the right questions.

The Chief Financial Officer or CFO’s role in eDiscovery is perhaps the most often overlooked—a peculiar oversight considering the CFO’s responsibilities and the size of the slice of eDiscovery in a company’s legal budget. The math is quite simple: corporate budgets get shredded at worst and severely impacted at best by legal costs. And legal costs for any company with significant litigation today are impacted by eDiscovery. If you are a CFO, even a rudimentary understanding of the eDiscovery process will enable you to ask the right questions and potentially save your company from financial ruin. Here are 3 key areas where knowledge of eDiscovery will help you do just that.

Budget-wise, Legal expenses are often a black hole. You may have a team of attorneys inside your company on salary, but they will often hire outside counsel and vendors in the event of multiple concurrent issues, a product-liability lawsuit, due diligence review, major human-resources issues, or similar legal events. But there is often little or no control over those external legal costs, and rare is the company with a legal department that generates revenue.  For most of us, legal work is defensive and a cost only, which makes it even more important to keep a close eye on eDiscovery expenses—they can drive the other, larger legal fees.

Take a product liability case for instance: the amount of electronic data from all the executives, salespeople, design, and production employees who touched the product directly affects the number of expensive hours the legal team spends combing documents for the smoking gun. A crucial part of the CFO’s role in eDiscovery is having a basic, fundamental knowledge of the most common eDiscovery charges your company is paying to manage that electronic data. You don’t have to be an expert, but you should know enough to keep your eye on a couple of the most common and negotiable charges.

General questions a CFO should ask:

  • How much are we paying our attorneys in hourly legal fees for basic legal tasks or routine eDiscovery data management? Can we be more efficient in how we use our high-priced legal talent?  Which tasks can be effectively and more economically outsourced to alternative legal-service providers at substantially lower rates, without sacrificing (and potentially even improving) quality?
  • Can we save substantial costs by leveraging our legal spend for multiple matters with a single-source eDiscovery partner?
  • Can our in-house legal team be more productive and cost efficient through the adoption of automated systems and other modern legal technology solutions and workflows?
  • Are we wasting substantial time and money internally on tasks like litigation hold notifications, custodian questionnaires and custodian interviews that could be automated to remove nearly all human resource costs and improve defensibility?

Area-specific questions a CFO should ask:

Online Data Hosting & Storage

  • How much are we paying per-gigabyte and per-user for online data hosting and data storage to give our legal team access to the information they need to prepare our case?
  • Do we control our data hosting and storage decisions and related costs, or are we allowing outside counsel to select individual platforms for each new legal matter?
  • Can we better manage our data hosting and storage costs (and better protect the security of our data) by standardizing on one reliable platform with a single provider that all our outside counsel can access?

Data Processing

  • Have we created a consistent process so that our data collection and processing tasks have become defensible, efficient business processes, helping control costs internally and externally? Or does each new legal issue spark a chaotic fire drill with unpredictable costs and disruptive business practices?
  • Are we pairing human and artificial intelligence to quickly eliminate the noise and efficiently identify the truly important documents (for counsel to review), or are we allowing counsel to sort through a flood of unrelated and unimportant documents—at our expense?

Document Review

  • Are we overspending on expensive search-term negotiations and manual reviews instead of using the latest advanced analytics tools and machine learning systems? Do we have experts culling document sets at the outset of the case and reaping the savings from the reduced number of documents throughout the rest of the eDiscovery workflow?
  • Are we over-paying outside counsel to conduct document reviews–even complex privilege or GDPR reviews and redactions? Could these reviews be more efficiently, more accurately, and less expensively handled by an eDiscovery review team who specializes in these services and can leverage the latest in artificial intelligence and machine-learning solutions?

2. The CFO’s role in eDiscovery includes making informed decisions about insurance options.

The CFO may also be the one responsible to mitigate liability for the company through risk management. This includes making sure the company has the appropriate amount and type of insurance to protect against catastrophic loss. Without question, adequate Errors & Omissions, Product Liability and Property and Casualty insurance are critical tools in funding a serious litigation. Managing the expenses tapping the insurance limits is almost as important. For a CFO concerned with maximizing shareholder value, as well as the immediate financial health of the company, defending a product liability suit without insurance threatens it all.

Successfully combatting a suit requires time and the ability to last. For a CFO tasked with long-term business and contingency planning, a plan for minimizing legal expenses improves the probability of having the resources to survive today and flourish tomorrow. Minimizing legal costs by keeping an eye—a sharp one—on eDiscovery expenses can go a long way toward achieving that goal.

Some basic questions a CFO should ask when evaluating proper insurance coverage:

  • How many active cases is the legal team managing now?
  • How many active cases do we expect to manage in the future?
  • What were the legal costs associated with past litigation?
  • Are historical costs likely to change in the future, and do we have enough insurance to cover those costs?
  • Do my insurance carriers provide any incentives for standardized or automated legal solutions that can reduce costs and/or protect the company?
  • Are my limits and retention appropriate for my risk?

3. The CFO’s role in eDiscovery involves interacting with staff at all levels of the organization.

CFOs are usually expected to engage with others at all levels of the organization, providing strategic recommendations to senior management and fostering collaborative relations with external partners. The CFO oversees the Controller’s managing of the legal budget and/or purchase of insurance as discussed above. Regarding financial planning, the CFO collaborates with the organization’s GC or CLO. When it comes time to purchase eDiscovery solutions, if not making the purchase decision, the CFO should be able to provide strategic recommendations to the decision maker whether a board, the GC, President or CEO.

Questions a CFO should address about other members at the organization:

  • Are my GC and Controller in agreement about legal costs and services rendered?
  • Have my GC and Controller reviewed historical and forecast legal expenses such that deductibles and coverage limits are appropriately set for the following?
    • Professional liability
    • Business property
    • Workers’ compensation
    • Product liability
  • Are the other C-levels at my organization sufficiently equipped with the information they need to make sound judgements about purchasing the right eDiscovery solutions for the company?
  • Has the Legal Department taken control of their legal spend, especially eDiscovery costs, to ensure that the company is getting an adequate ROI on its legal spend? Are we leveraging to the degree feasible our legal spend across all company legal matters, taking measures such as selecting a single eDiscovery partner that will provide discounts for total volume of services provided across all legal matters?

In short, the CFO’s role in eDiscovery is to QUESTION. According to Harvard Business Review, questioning can “mitigate business risk by uncovering unforeseen pitfalls and hazards.” Most CFOs have plenty to juggle and simply do not have time to develop the detailed knowledge of eDiscovery that would enable them to ask all the right questions. However, gone are the days where C-level executives can shrug off legal and eDiscovery costs as something for the lawyers or IT to deal with. eDiscovery comprises a sizable portion of any corporation’s legal budget, and that portion is not shrinking any time soon.

A little bit of eDiscovery know-how goes a long way. Not only will some basic knowledge help you understand where your money is going, but it will show you where eDiscovery can help you stop over-spending on some of the common inefficiencies in the eDiscovery process.

BIA has been an eDiscovery watchdog for our corporate clients from the very earliest days of our industry. Our focus is on helping corporate clients get control of their eDiscovery processes and related expenses. We know how to help our corporate partners at every step, not just by protecting them from out-of-control legal costs, but by building defensibility and data security throughout the process as well. 

For twenty years we have been asking and answering questions—of ourselves, of the eDiscovery industry, and for our clients. We can help you to ask the right questions and interpret the answers to best fulfill the CFO’s role in eDiscovery at your organization. I invite you to reach out today.

Contributors: David Decker, Maureen Murchie

David Decker, COO

David Decker, COO

David Decker has more than 30 years of operations leadership experience, both with Fortune 500 giants and nimble boutique companies. He has a proven track record of improving margins, heightening productivity, and streamlining processes. David has extensive experience in corporate finance, strategic planning, acquisitions and growth, operations management, human resources, cost control and project management.