How Are Legal Teams Responding to the Economic Downturn?
By David McVeigh
Rising interest rates. Inflation. Stock market volatility. A war in Ukraine. If earlier this year you were hoping that 2022 would be the year of ‘back to normal’, you may be disappointed. Zach Abramowitz’s discussion with Axiom’s Senior Client Advisors Laura, Charlie, and Susan highlights how these issues are impacting the legal industry and legal departments.
On July 20, 2022, Killer Whale Strategies Founder and legal startup investor Zach Abramowitz discussed the impact of the economic downturn on legal departments with Axiom’s Senior Client Advisors in the latest installment of The Higher Bar webinar series.
Senior Client Advisors at Axiom utilize both their in-house and law firm experience to help optimize legal departments, assist with budget constraints, and strategically tailor legal department training and development needs, succession planning, and in-house engagement and retention efforts. The webinar’s panelists included:
- Zach Abramowitz (moderator), CEO, Killer Whale Strategies; Investor in Legal Startups
- Laura Yens, Senior Client Advisor, Axiom; Founder & Managing Partner, Padrona Payments; Former GC, Lending Tree
- Charlie Sandel, Senior Client Advisor, Axiom; former GC, American Eagle Outfitters; Regional General Counsel, Levi Strauss & Co.
- Susan Jacobson, Senior Client Advisor, Axiom; former GC, Paylocity; DGC, Cardinal Health.
What is the state of mind of in-house professionals and GCs in terms of assessing the economy today?
Charlie and Susan liken the mindset of GCs and other in-house lawyers to waiting at a yellow light. “I think that there is a caution, a feeling of not knowing what's to come, or a hesitancy to extend the job offer or grow the legal department,” shared Susan. She continued, “That's what I'm seeing at this point. Just a lot of uncertainty, and I think that's trickling down from the C-suite to the GC. Everyone's sort of pulling back and waiting and focusing on true priorities. They’re waiting on some of the projects that were nice to have but not must-haves.”
Charlie concurred: “It's not really easy to generalize what's happening with all of our clients, but I think Susan's right; it's a bit of a yellow light flashing right now.” He explained further, “I would describe it as cautious optimism. There are still things that folks are looking to execute. There's a lot of capital in this market. There are transactions that are still happening. The caution is there, and folks are deferring some of the things they might otherwise like to do. But they're also seizing opportunities to execute things that are going to position them well to compete going forward.”
Laura’s experience in the financial services industry echoed what the other panelists shared. “We see caution in the financial services industry from a legal department perspective. There’s more of an examination of the budget and spending for the second half of 2022 and going into 2023.” Legal departments are closely examining open headcount and whether certain positions really need to be backfilled. Some are questioning whether certain positions can be combined. The tone seems to be cautious pessimism. “If there are other strategic initiatives within the legal department itself, I think those are being more closely examined, and many legal departments will likely postpone those,” she concluded.
Are there differences from industry to industry? Are certain industries reeling more than others?
The financial services industry has already seen companies cutting staff. Laura shared the examples of Coinbase and Gemini and explained how part of the issue those companies experienced is that they grew too quickly for the Crypto space. “I think we look at financial services as a more conservative industry,” shared Laura. “For example, financial institutions like banks have always been conservative in their hiring. So, I think, again, they're the ones who are just examining their budget more closely at this point.”
Law departments have been busier than ever during the pandemic, but they haven’t been able to recruit enough people to do the work.
Susan shared that in the life sciences industry, “some of the smaller companies are trying to get funding. They may be feeling the squeeze a bit more now because interest rates are going up, and maybe some of their funding has dried up a bit. But in general, I'd say in life sciences, it’s more of a ‘yellow light’ situation.”
For many industries, the situation is reminiscent of the 2008 financial crisis, but that doesn’t mean the playbook for handling the situation hasn’t changed.
In Charlie’s opinion, “People are writing new playbooks all the time to deal with these ever-changing conditions.” In 2008, companies were, perhaps, more fiscally conservative than we’re experiencing today. “People are still being asked to do a tremendous amount of work and respond to a tremendous amount of pressure, opportunity, and risk, which are coming from very different angles,” Charlie continued, “and so, they're turning to resources, whether it's technology or using a flexible legal service provider like Axiom to help them get more done with less.”
He shared an example of how he recently met with a team from a large enterprise technology company, and they explained they are having to get more creative and flexible, two major themes that seem to recur, regardless of industry. “That's kind of the playbook right now,” Charlie elaborated. “It's green-lighting things with a strong ROI in terms of managing risk and opportunity and pausing on those things that folks can defer for now. That's kind of the playbook everyone seems to be leaning into – technology and resources like Axiom to help get things done efficiently.”
Are companies pressing pause on strategic initiatives?
Another key difference between the market conditions of 2008 and what we’re experiencing today is that, currently, we’re not actually in a recession yet even though it might feel like we are. Unemployment numbers are still relatively low, and according to an ACC study, environmental, social, and governance (ESG) issues—as well as technology and legal operations—are still vital initiatives for legal departments.
“Companies are being pressed to take positions on ESG issues as well as diversity, equity, and inclusion (DE&I),” Charlie explained. “They’re having to ask themselves questions like, do we have a diverse enough board? Are we articulating our environmental vision? Are we actually doing what we say we're doing, and are we reporting on that?” He clarified that it’s even broader than ESG and DE&I, though. “It's really broadly stakeholder activism. Companies are under pressure from their shareholders, their boards, and their employee base to take a position on social issues.”
Companies must navigate these issues while continuing to face pressure from their employees about whether they can work remotely, taking a stance on recent legislation, and more.
“ESG is really not one of those priorities that can be paused at this point,” Susan elaborated. “It’s sort of got its own momentum. There are rules in place now where ESG has to be reported. I think that is one initiative that will not slow down at publicly traded companies.”
However, strategic initiatives related to legal operations and legal technology may be a different story. “I have heard from some clients that's been paused. It's a large expense and a very large time suck on the legal department. That’s in addition to the budget issues. There's also concern that it draws people away from day-to-day work where their resources are strained already. So the idea is, let's kick that down the road a little bit and just wait on it,” Susan shared.
Zach’s experience has been a bit different: “I got two inquiries from two different companies that had failed contract lifecycle management (CLM) implementations and were asking for a referral of who they can get to help them clean up the mess. I thought that was interesting because I would've thought that those kinds of initiatives, especially implementing a CLM system which is a huge task, would've taken a backseat. It was interesting to see not just that companies are still looking, but companies that have had bad experiences are still moving forward.”
Susan explained that could, perhaps, be because those companies already spent so much time and so many resources on the CLM. “It's really a question of where you are in the life cycle management of implementing a new technology across the department. If it's already been implemented and it's not working well, do you try to fix it?” She questioned.
“You don't want it to just be a complete failure from a sunk cost perspective, but I think if you are just now looking at implementing it, that's when you're pressing pause on it for now,” Laura added.
How is the economic downturn affecting remote work?
“Some financial services companies are viewing this as an opportunity to say to their employees: ‘Look, you do need to come back to the office a few times a week.’ Others are happy with allowing them to remain remote for the most part. It's been quite mixed,” explained Laura.
A remote workforce can result in cost-savings, as companies can cut back on real estate, but that’s only in the long term. “It depends on how locked in they are to their leases in different buildings, so I'm sure that plays a bit into whether they are requiring employees to come into the office,” Laura continued. “But again, financial services, typically speaking, is a more conservative, more traditional industry. They're more inclined to require at least a few days to a week in the office.”
The life sciences industry is similar. “The larger life sciences companies are pretty traditional in that way, too,” Susan added. “I am seeing most of our clients back in the office two or three days a week. I am seeing, particularly with some of our Axiom talent, some of our folks being a little more anxious, wanting to make sure that they have the next thing lined up and maybe not being quite as choosy as they were.”
This trend is happening on a larger scale, too. The current economic climate has caused a slight shift in leverage at some companies. “I'm seeing a little bit more willingness to go back into the office, and perhaps that's because people are a little more worried about long-term job security,” Susan concluded.
Are legal departments really going to lay off the talent they worked so hard to hire?
Zach posed the question: Are legal departments in a position to cut staff when hiring has been so challenging, or are they going to do everything they can to retain talent?
“This is a big challenge our in-house teams are facing,” Charlie shared. “We do hear our clients talking about that quite a lot. They’re asking, how can we retain the folks we’ve invested in and keep them happy and engaged?”
Axiom is part of the solution. “We can help companies that are struggling with that,” Charlie continued. “Some of these companies’ team members want to be working on more strategic things. They want to be working on things that will help with career development. Axiom can provide attorneys who can come in, take some of the work off their plate, and allow them to focus on the more strategic things that make them excited, keep them engaged, and help the clients retain them and develop them for bigger roles down the road.”
View a recording of the webinar here, or contact us to learn how to become an Axiom client or lawyer.
David McVeigh, Chief Executive Officer at Axiom, has over 30 years of experience in business leadership, management consulting, and private equity portfolio company management. Prior to Axiom, he served as Gartner, Inc.’s Executive Vice President, Global Business Sales, and as a member of its operating committee. There, he led a global sales organization responsible for $650M in revenue of subscription-based research and advisory services. Prior to Gartner, Mr. McVeigh was a Managing Director at Hellman & Friedman, an Operating Partner at The Blackstone Group, and a Partner at McKinsey & Company. David graduated from Columbia University with a Master of Business Administration (M.B.A.). He also holds a master’s degree in Chemical engineering from Stanford University and a bachelor’s degree in chemical engineering from Lafayette College.
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