The Point

Two surveys of general counsel reported in December offer identical descriptions of the budget crisis facing corporate Legal departments in 2023:

(1) From the legal system: most face increasing demands, and

(2) From the C-Suite: most face cost reduction demands.

In such circumstances, executive management usually asks Legal for some measure of cost discipline similar to what they ask of other corporate functions and business units. Too often, Legal reacts by threatening a game of “chicken” with the business side: give us the funding we want, or the company faces potentially catastrophic risk.

C-Suites facing intransigence from Legal should consider a tool used where an employee’s performance has slumped, but summary dismissal would be premature: a performance improvement plan.

This Matters to Your Business

According to the surveys of general counsel, the budgetary dilemma for 2023 is acute:

• “Collision Course: Rising In-House Workloads Run Up Against Cost-Cutting Mandates”, HBR Consulting (subscription required), and
• “79 Percent of In-House Legal Departments Report Strained Budgets … All 100 Percent … Report Increased Workloads!”, (FTI Consulting).

Forcing immediate, material budget cuts in corporate Legal could be as foolish as hair-trigger firing of a previously sound employee whose performance has declined. After all, the waste embedded in-house and in law firms’ traditional billing has accumulated over decades (see here, here, and here).

But, like the under-performing employee, corporate Legal is capable of providing needed risk protection at reasonable cost if given enough time to improve. Instead of fixating on implementation in the next budget cycle (typically one year), C-Suite leaders should consider negotiating with general counsel to adopt needed cost and operational efficiencies — while protecting the company from legal harm — through a performance plan that plays out over multiple budget cycles.

Because …

Generally speaking, general counsel’s efforts at economy and efficiency have been half-hearted and sluggish for years — and continue to be:

1. Many law firms have justified their failure to shift from the billable hour to fees based on value and performance “because the clients — including general counsel — just aren’t asking for it” (see here).

2. Few corporate law departments have “gotten around to” large-scale engagement of alternative legal services providers who can substitute sophisticated operations processes and technology for cheaper, faster, and more accurate work. (Commenting on an Altman Weil report that 95% of general counsel reported belief that use of such alternative legal services providers is the most effective tactic to reduce outside counsel spending, yet only 8.8% said that they were actually using them.)

3. General counsel express intimidation as a barrier to more robust negotiation of fees with law firms. Altman Weil’s 2019 Chief Legal Officer Survey asked “What obstacles, if any, do you face in getting greater discounts from outside counsel (check all that apply)”. Here are the top 3 answers:

(1) “Not enough buying power to negotiate more effectively — 52%

(2) “Law firms resist” — 49%

(3) “Don’t want to damage good relationships” — 34%.

…

While there are a small number of exemplary exceptions, Legal generally holds tightly to the status quo. The result for business is expensive. And unnecessary.

Immediate overhaul of this sluggish and inefficient corporate function is not possible. However, gradual but firm insistence from the C-Suite can move Legal into economy and effectiveness over time.

 Leaders in the C-Suite can use a performance improvement plan to light a fire under the attorneys who run Legal, achieving step-by-step over a few years what can’t be done overnight.