New Research Shows Businesses Increasingly Open to Reframing Legal Department from Overhead to Capital Source

Rhea-AI Summary

Burford Capital releases research showing businesses' changing views on litigation portfolios and the growing importance of legal finance. The study highlights increased investment in litigation, alignment between GCs and CFOs on innovation, and the role of legal finance in optimizing outcomes.

Positive

• Businesses are investing more in litigation, with 43% of GCs expecting a 25% growth in litigation spend over the next five years.
• GCs and CFOs are seeking innovation for the legal department, with 55% of businesses having or planning an affirmative recovery program.
• Collaboration between legal and finance is seen as crucial, with a shared desire to reframe the legal department as a capital source.
• Legal finance is recognized as a valuable tool, with 73% of respondents having used or considering legal finance to increase business value.

Negative

• None.

Insights

Financial Analyst

The shift towards recognizing litigation portfolios as potential value sources represents a significant change in corporate finance strategy. Traditionally, legal departments have been viewed as cost centers, but the increasing trend of litigation financing suggests a transformation towards capital sources. This shift implies that companies are now more willing to invest in litigation, expecting a return on investment from successful outcomes. The research indicating that 43% of GCs expect litigation spend to grow by at least 25% in the next five years could signal an expansion of the legal finance industry and impact the balance sheets of businesses engaging in such activities.

From a financial perspective, the use of litigation finance can mitigate the risk of costly legal battles by transferring some of the financial burden to a third party. This could lead to a more efficient allocation of capital, allowing businesses to focus on core operations while still pursuing legal claims. The alignment of GCs and CFOs in seeking innovation and cost management in the legal department suggests a strategic approach to legal finance, which could lead to enhanced financial performance and shareholder value.

However, the disparity in decision-making between in-house lawyers and finance professionals highlights a potential area of friction. The effective integration of legal finance strategies will require strong collaboration between legal and financial departments to ensure alignment with overall business objectives. The long-term implications for businesses adopting legal finance include potential shifts in risk management strategies and a reevaluation of how legal outcomes contribute to the company's financial health.

Legal Expert

The increasing openness to legal finance tools reflects a broader trend in the legal industry towards innovation and value generation. Legal finance, or litigation funding, allows businesses to pursue litigation without the immediate financial burden, as the funding company assumes the costs in exchange for a portion of the judgment or settlement. This can be particularly attractive during periods of economic uncertainty, where cash flow management is paramount.

As businesses become more sophisticated in managing their litigation portfolios, they may seek to leverage this asset class to enhance their financial position. The research suggests a growing recognition of legal departments as strategic partners in business rather than mere cost centers. This repositioning could lead to a reevaluation of in-house legal teams and their contributions to the overall business strategy.

Moreover, the discrepancy between the views of in-house lawyers and finance professionals on the extent of collaboration needed in litigation decision-making could have implications for corporate governance. Ensuring that litigation decisions are made with a comprehensive understanding of both legal and financial implications will be crucial for companies seeking to maximize the value of their litigation portfolios.

Market Research Analyst

The independent research commissioned by Burford Capital reveals a growing market for legal finance services, with a substantial number of businesses either currently using or considering the use of such tools. This trend is indicative of a larger market shift towards alternative finance solutions within the legal sector. The potential growth in litigation spend and the interest in affirmative recovery programs suggest a market opportunity for legal finance providers.

Understanding the attitudes and expectations of GCs and CFOs is critical for legal finance firms as they develop their offerings. The research highlights the importance of cost management and outcome optimization, which can inform the development of new products and services tailored to these needs. Legal finance companies that can effectively demonstrate value to both legal and financial stakeholders are likely to gain a competitive advantage.

The market for legal finance is still evolving and as it becomes more mainstream, there could be increased regulatory scrutiny and a need for standardized best practices. Companies like Burford Capital, which have established themselves early in the space, may benefit from first-mover advantage but will also need to navigate the challenges of a maturing market.

NEW YORK, Feb. 20, 2024 /PRNewswire/ -- Burford Capital, the leading global finance and asset management firm focused on law, today releases new independent research demonstrating that an increasing number of businesses are recognizing litigation portfolios as value sources and are becoming more open to tools that help them reframe the legal department from overhead to capital source.

In the nearly 15 years since Burford's inception and in the wake of the last great recession, how businesses view their litigation and arbitration portfolios has drastically changed. Pressures on cost management have been persistent through turbulent economic times, Covid, supply chain constraints, geopolitical tensions and slow economic growth in major economies. To better understand how in-house lawyers and finance professionals expect these dual issues of cost management and value generation to evolve in the years ahead, Burford commissioned independent research with 400 GCs, heads of litigation, senior in-house lawyers, CFOs and other leaders responsible for litigation decision-making in their companies.

Highlights from the research include:

• Businesses' already significant investment in litigation is growing: 43% of GCs say litigation spend will grow at least 25% in the next five years.
  
  
• GCs and CFOs are aligned in seeking innovation for the legal department: More than half of businesses (55%) either have an affirmative recovery program (18%) or intend to build one (37%)—making it all the more important that best practices are in place to manage costs and optimize outcomes.
  
  
• GCs and CFOs agree that collaboration is needed but differ on its extent: 70% of GCs and CFOs say it is important that the legal department find new ways to recover value—signaling a shared desire to reframe the legal department as a capital source. However, three times as many in-house lawyers as finance professionals say the decision to pursue potential claims is generally left to legal with little input from finance.
  
  
• Legal finance is a key tool and finance has an important role in leveraging it: Almost three quarters (73%) of all respondents say their organizations have used legal finance (39%) or would consider doing so (34%), and more than two thirds (67%) of finance professionals feel that legal can increase its value to the business by using tools like legal finance.

Christopher Bogart, Chief Executive Officer of Burford Capital said: "The trend of 'corporate finance for law' is growing, as confirmed by this research and our own business, given that more than 50% of our commitments are now with corporates. That's due to the impact legal finance can have on reducing the impact of litigation on the P&L and business leaders' desire to use their capital to maximize shareholder value, not pay lawyers. This marks our 15^th year in business – and while the legal field is generally slow to change, this research reinforces that CFOs and GCs are thinking about their legal departments differently, and Burford is laser-focused on helping companies reframe the legal department more as capital source than overhead."

The Litigation Economics: CFOs and GCs weigh in on best practices in optimizing legal department value survey can be downloaded on Burford's website. The research was conducted by GLG from December 2023 – January 2024.

About Burford Capital

Burford Capital is the leading global finance and asset management firm focused on law. Its businesses include litigation finance and risk management, asset recovery and a wide range of legal finance and advisory activities. Burford is publicly traded on the New York Stock Exchange (NYSE: BUR) and the London Stock Exchange (LSE: BUR), and it works with companies and law firms around the world from its offices in New York, London, Chicago, Washington, DC, Singapore, Dubai, Sydney and Hong Kong.

For more information, please visit www.burfordcapital.com.

This announcement does not constitute an offer to sell or the solicitation of an offer to buy any ordinary shares or other securities of Burford.

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SOURCE Burford Capital

FAQ

What is the focus of the research released by Burford Capital?

The research highlights businesses' changing views on litigation portfolios and the growing importance of legal finance.

How much do 43% of GCs expect litigation spend to grow in the next five years?

43% of GCs expect a 25% growth in litigation spend over the next five years.

What percentage of businesses have or plan to have an affirmative recovery program?

55% of businesses have or plan to have an affirmative recovery program.

What is the key tool highlighted in the research for optimizing outcomes?

Legal finance is recognized as a key tool for optimizing outcomes.

Who is the Chief Executive Officer of Burford Capital?

Christopher Bogart is the Chief Executive Officer of Burford Capital.