The Shifting Landscape
In the face of mounting challenges, GCs are confronted with a pivotal question: How can their legal departments evolve to meet the ever-changing needs of their businesses while simultaneously driving efficiency? In today's landscape, efficiency isn't just a goal; it's a necessity.
While cost-cutting mandates are near universal, a surprising trend emerges: GCs anticipate an approximate 9% increase in legal spending on law firms and in-house hires. This discrepancy doesn't go unnoticed, as corporate leaders express their concerns. The executive leadership team doesn't merely seek cost reduction; they envision a legal department that actively enhances business value.
Yet, the GCs' perspective on the "ideal" legal department structure diverges significantly from the rest of the C-Suite. Three predominant models emerge:
The Centralized Legal Department: All legal staff report directly to the GC, regardless of region, business unit, function, or legal practice area.
The Hybrid Legal Department: Some lawyers report to business or geographic management, while others report to a centralized legal department under the GC.
The Decentralized Legal Department: All legal staff report to regional or business unit heads, with a potential dotted line to a centralized GC.
Digging deeper, variations such as centralized-leaning hybrids and decentralized-leaning hybrids play pivotal roles in shaping the landscape.
Navigating the Contradictions
Management's desires often differ from those of GCs. CEOs and CFOs favor decentralization, visualizing the legal department as a commercial function that drives business value. This trend has spurred the rise of decentralized legal teams, where lawyers work alongside their business clients. This model is believed to align legal goals with commercial targets, enhancing speed, reducing time-to-close, and accelerating revenue.
As a response, a striking 98% of GCs are actively implementing or planning structural changes within their departments. However, they navigate a challenging dichotomy: the allure of decentralization versus the wisdom of centralization.
Unveiling the Risks
Amid the perceived benefits of a decentralized approach, significant risks loom:
- Inefficiency: Duplication of legal competencies and inappropriate resource allocation, coupled with reduced bargaining power with external vendors.
- Lack of Visibility: A dearth of transparency into overall spending and lawyer utilization.
- Ineffective Risk Mitigation: Prioritizing commercial incentives over standard legal practices amplifies risk.
Such risks exacerbate the core concerns of GCs: resourcing, cost control, and risk mitigation.
Charting a New Course
Amid the complex landscape, a beacon of clarity emerges: the centralized-leaning hybrid organization. This model capitalizes on centralization's strengths while embedding lawyers within the business—bridging the gap between legal and commercial needs.
Nearly two-thirds of GCs advocate for the ideal legal department structure, encompassing approximately 15% of the in-house team embedded into the business. A centralized-leaning hybrid empowers lawyers to comprehend both business and operational requirements while ensuring central legal oversight.
Seizing the Opportunity
The time for action is now. Amid the impending wave of decentralization, GCs hold a window to transform their departments. While those embracing central-leaning models are still in the planning stages, this window is closing rapidly.
To fulfill the role of value enablers that management envisions, GCs must take charge, harness compelling data, and champion a legal department structure that truly serves business needs: a centrally leaning hybrid model.
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