When Rich Konrath arrived at CNH Industrial, he wanted to prove a long-held belief about the management and strategic impact potential of legal teams. Konrath joined the global company that manufactures agricultural and construction equipment after stints at Caterpillar and the SEC. He was named vice president and general counsel of CNH’s North America region. He created an affirmative recovery initiative to prove his belief that legal could be a strategic partner. The initiative empowers the legal team to take a proactive, systematic approach to recovering revenues owed to CNH that would otherwise be lost.
In the past, Konrath had seen legal teams viewed as cost centers. “Legal was the place in the corner where you didn’t want to go,” he says. The function’s performance was evaluated on conventional terms like spend versus budget, head count, and outside counsel expenditures. “What I saw missing was the revenue that could be attributed to what legal departments do.” Lost revenue represented an opportunity to flip the traditional view of a legal team. Konrath wanted to take a group that had typically been seen as a cost of doing business and turn it into a strategic asset, a partner in the company’s business objectives.
Changing that perception and recovering revenue meant complementing the traditional role of the legal team—risk protection—by going on the offensive and acting proactively in ways that would bring value to the company and make legal a strategic partner of the business leaders.
“It’s often difficult to measure the value of risk avoidance, even if we know the value is there,” says Konrath. “Businesspeople measure numbers. I asked myself how we could do that as a legal team to measure our value.” Konrath knew lost revenue was a common problem among larger companies like CNH. He decided to devise a system that would recover it.
Recovering lost revenue isn’t a novel idea, nor is it what affirmative recovery is all about. Affirmative recovery is the idea of seeking to recover lost revenue in a proactive, systematic way that partners the legal team with leaders across the company.
Konrath saw several areas at CNH in which his team could add value by being proactive in recovering revenues. The key to the plan’s success was to approach those areas in ways that amounted to more than just fishing for money owed to the company. He examined each area of CNH’s operations and engineered systems to recover lost revenue based on the way each area operated.
For example, Konrath recognized early in his tenure that aggressively pursuing component suppliers for defective products and unpaid warranty claims could recover a lot of revenue for CNH, but he also knew that reacting to reports of unpaid claims wouldn’t get him what he wanted. Partnering with the procurement and purchasing teams allowed Konrath’s legal teams to proactively unearth situations in which CNH wasn’t getting the value it was owed as those situations happened.
After identifying key areas that could yield recoveries and putting his plans in place in each area, Konrath’s team educated the people working in those areas on what affirmative recovery was and how they could be involved. Konrath made a broad pitch to the company’s top managers in North America, including the CFO, COO, and all of the brand leaders. He gave presentations so that they could trickle that down to their teams.
A senior managing attorney on Konrath’s team serves as the program’s point person. The attorney and her team periodically meet with leaders in key areas of CNH to discover potential cases for recovery.
After collecting reports from collaborating departments, they bring potential claims to Konrath. The group then weighs the potential investment of time and resources needed against the likely amount of recovered revenue to decide which claims to pursue.
The results of the affirmative recovery program speak for themselves: nearly $20 million in recovered revenue in four years of operation.
Just as important as the number, says Konrath, is the ability for that number to be measured in a systematic way. “The key is really having a process that allows you to do more than just pursue these recoveries with your business partners,” says Konrath. “Measuring the recoveries that you get, tracking them year over year, and setting annual goals against the previous year’s performance is critical. That’s where you really demonstrate your value.”
Those goals are so fundamental to the affirmative recovery program that they have become part of Konrath’s performance review. The goal and the expectation it creates drive him and his team to pursue recoveries intelligently and aggressively. “It adds a quantitative aspect that legal teams haven’t really measured in the past,” says Konrath. “Sometimes I have to tell our management that this growth isn’t a hockey stick. Our performance goals are always a stretch beyond what we know might be coming, but we’ve had enough success to have to manage some of the expectations a bit.”
That success has earned Konrath and his team an additional reward: the wide-ranging impact he sought when he arrived at CNH, along with the change in perception of the legal department from a cost center that played defense to a strategic asset in CNH’s operation. “I think CEOs and boards of directors everywhere are realizing that legal can partner with them to achieve their company objectives. There has been a definite culture shift here at CNH about our role, and that has lead to an increase in credibility for the team.”