2023 Budgeting Trends

As legal departments across the country wrap up budgeting season, one thing has become clear: the volatile economy and potential recession have had a profound impact on the way CFOs, GCs, and other legal leaders are approaching spend in 2023.

While most GCs typically prefer Precedent-Based Budgeting or incrementalism, many have been forced to turn to Zero-Based Budgeting as they prepare for a possible economic downturn. What other trends have emerged out of this year’s budgeting season, and how will these trends impact legal departments in 2023? Zach Abramowitz, host of the Higher Bar webinar series, hosted a conversation with Whitney Stefko, Founder and CEO of Pollinate Legal, and Tom Stephenson, Director of Legal Operations at Credit Karma, to discuss current budgeting trends and the impact these will have on legal departments in 2023.

Legal operations is playing a bigger role when it comes to budgeting

One of the biggest trends to emerge out of this budgeting season is that legal operations is playing a larger role in the budgeting process. “Finance and legal both want to use the budget wisely, but they don't always work cross-functionally,” Tom explained. Within many companies, Tom continued, “legal operations is now working directly with the general counsel or chief legal officer to partner on financial planning and to develop, monitor, and administer a budgeting strategy, which not only considers the goals of the organization, but really sets the direction for the in-house legal team when it comes to hiring, how much we're paying our outside counsel or law firms, ALSPs, and ways that we can cut costs.” Legal operations is also playing a much bigger role in how legal departments’ money can be spent most effectively.

Legal departments are in “slash” mode, focusing on optimization

Legal departments across the country have already started to lay off staff and are implementing hiring freezes. “We're seeing what many people refer to as ‘trimming the fat’ at larger corporations,” Tom continued. Companies are reducing headcount across the board, and it’s important to keep in mind that “legal is not a unicorn.”

“The one thing legal operations has really been trying to emphasize over the last couple of years is that we are just like every other business unit within a company. When a company slashes their budget or has hiring freezes or layoffs, it's applicable to the in-house legal team, too,” Tom elaborated. “So we are seeing this slashing mode, these hiring freezes and these layoffs, and it's really incumbent upon legal operations to stay close to the legal leadership and to have their toes dipped in finance, HR, and all of the other operational stakeholder departments to be able to see what is happening on the ground while being involved in conversations about the future, and taking that intersection and really applying it towards smart strategic financial decisions.”

Whitney offered an alternative perspective: “We are seeing some of the ‘slash’ mentality depending on the industry, but there are other players that are not slashing and are more focused on optimization.” She continued, “A lot of strategic initiatives are being built around optimization. There is this desire to recognize that perhaps the way to play this potential economic downturn is not by reducing bodies or just slicing costs on outside council spend or other line items, but actually evaluating how to optimize people, processes, and technology.” For different legal departments, this could mean anything from elevating legal operations professionals to bringing in flexible legal talent through an alternative legal service provider like Axiom. “There are opportunities to take a look at what you're doing in terms of where you are and where you're going and making sure your roadmap matches those optimization goals.”

Legal leaders are having to strike a balance between retaining talent, economic uncertainty

Economic uncertainty is nothing new for legal leaders, but this time, many of them are handling it a bit differently. As Whitney explained, “You have to slow down to speed up.”

She continued, “The bigger corporate legal departments in these spaces are really starting to be more intentional about how they are approaching potential budget cuts and potential head count cuts.” Many legal departments are and will continue to struggle with attrition, posing a dilemma as they work to strike a balance between trying to retain their legal talent and the economic uncertainty they’re facing within their companies. According to a recent Axiom survey of 300 US in-house counsel working at organizations with a minimum annual revenue of $1M, a strong majority of in-house counsel (57%) are open to a new position, with another 14% saying they are actively searching for a new position right now. Of those not actively searching, most (53%) report it’s somewhat likely they’ll look for a new position within the next year.

The bottom line is in-house counsel aren’t satisfied with the current state of affairs, and even among those who are, resignations are going to continue. GCs and other legal leaders must remain mindful of this as they move into 2023.

Legal leaders are paying more attention to data through the lens of matter management

Legal leaders shouldn’t only be leveraging data to make predictions; Tom suggests focusing on the wins that are happening “behind the scenes” of the data instead. “It's not just scratching on the lighter data surface by making sure there's no block billing or that invoices fall within the date of service,” he shared. “But if your billing guidelines say you must do X, Y, or Z, it's more about following through on that. Now, that may involve a different process or taking the data outside of a platform, and you have to really set yourself up for that. But think about the cost savings that could be found on those, especially while we're in this tough budgeting season.”

Matter management will be especially important for GCs and other legal leaders in the year ahead. The year 2023 is expected to bring about law firm billing rate increases of 7-8%, according to a recent Wells Fargo report.

There is a bigger emphasis on forecasting

Tom explained forecasting as connecting the savings with the personnel. “When it comes to forecasting,” he shared, “I know that most legal operations people are solely focused on the outside council spend, but quite frankly, looking at the intersection of people and services is how you can best get aligned and also make sure that you get ahead of it when you need to either add or subtract from your budget.”

For information about how to implement Agility-Based Forecasting in 2023, read Axiom’s digital whitepaper, 2023 Legal Budgeting: Budget Building for a (Potential) Recessionary Economy.

View a recording of the webinar here, or contact us to learn how to become an Axiom client or lawyer.