How Law Departments Can Survive Or Even Thrive In The Event Of A Coming Recession

The pandemic’s global economic and human impact has created new challenges for in-house legal teams. Supply chain disruptions, sharp increases or decreases in consumer demand, and the impact of uncertainty surrounding remote work options have pushed in-house legal teams to rethink the work they are doing and how they are doing it.

It is widely anticipated that the U.S. economy is headed toward a recession. Consumer prices and the cost of living are rising, and when coupled with a tight labor market, hiring is becoming even more challenging for many industries. As these stresses affect companies, their in-house legal teams also suffer a significant impact.

Economic downturns

The impact of changing business practices on legal teams depends on the businesses they support. For example, some companies may chase riskier customers, possibly resulting in an increase in contracting and litigation volume. Other companies may respond to a drop in consumer demand by aggressively cutting costs, forcing general counsel to find ways to generate savings quickly. These challenges present legal leaders with opportunities to demonstrate their ability to think and act as effective business leaders.

Business-focused approach

In a business downturn, the general counsel must adjust legal strategy in a way that is aligned with the business yet continues to anticipate and manage risk appropriately.

The legal team needs to be part of the solution that allows the business to survive and thrive during and after this period of upheaval. The most successful legal teams will use this opportunity to align more closely to the business and become nimbler and more responsive than before. In-house legal teams that demonstrate the ability to truly solve business problems rather than simply identify legal issues will be well positioned to weather the current economic turbulence.

Like any good business leader, a general counsel should make decisions about how to respond to economic changes based on data. When there is pressure to cut costs, it is easy to point to legal as a cost center and demand an across-the-board reduction. It is up to the general counsel to focus on the value delivered by legal and make informed decisions about how to continue delivering that value in a more cost-effective way.

Conducting an audit of the current coverage your team is providing—and who is doing which work—is a good starting point.

You want to ensure you are leveraging talent and technology to deliver services as efficiently as possible. By categorizing work based on the level of legal complexity, need for understanding of the business and level of risk, you can make informed decisions about how best to deploy resources.

It’s very difficult to conduct these audits internally. The legal department does not have the objectivity or the time to do them, and the human resources team is not familiar enough with the details of legal work to categorize it accurately.

To help you to maximize this opportunity, an external expert can conduct the audit, categorize the work, and provide recommendations for how best to align people and technology to do the work.

The expenditure on an outside consultant to conduct this type of audit should be more than offset by the savings generated by redistributing work to the lowest competent level and by the retention of high performers who will benefit from seeing more strategic work.

Agility and adaptability are key. As you design a response to current economic changes, you want to put in place solutions that can be scaled up and down to respond to future changes. This means identifying and working to retain your key people, utilizing contract lawyers and outside counsel where appropriate, and leveraging technology, such as artificial intelligence-driven matters management systems or data-driven vendor software. Upheaval creates opportunity

Market changes and pressures put stress on businesses and the legal departments that support them. Legal leaders who take a passive approach generally end up looking less like business leaders and more like managers of cost centers that are ripe for budget cuts. Developing and implementing a business strategy for your legal department can help you navigate current market turbulence and come out with a stronger, more agile legal team. It also positions the general counsel as a business leader, not just a lawyer.

Here is a checklist to help you develop a smart business strategy to help your legal team navigate an economic downturn:

1. Start with data. Conduct an audit to know who is doing which work. Scrutinize your outside counsel spending as well to look for opportunities to push work to a lower-cost resource. Gather data to inform and support your decisions.
2. Analyze your team’s value proposition. Economic upheaval drives changes in the business and in what the business needs from legal. Be sure you are clear on the value that legal brings to the business, and focus resources on the highest-value-add activities.
3. Be sure you identify your key players and keep them engaged. Your strongest performers are the people who will get the team through difficult times and provide agility to respond to more changes ahead. Be sure you know who those people are and give them the kind of work that keeps them engaged and growing.

This story was originally published in the October/November 2022 issue of the ABA Journal under the headline: “Silver Lining: How law departments can survive or even thrive in the event of a coming recession.”