Axiom Survey Reveals CEOs and GCs Disagree on How Best to Structure the Legal Department
Survey report offers 6-step blueprint for optimizing legal organization structure to maximize value creation and minimize enterprise risk
NEW YORK, Oct. 5, 2023 – There is tension between CEOs and GCs with respect to how the legal department should be structured, according to findings from a new survey report by Axiom, the global leader in high-caliber, on-demand legal talent. The report, "Is My Legal Department Best Structured to Meet the Needs of My Business?" reveals that CEOs want GCs to decentralize their departments, as they believe it will better align legal roles to commercial targets, thereby incentivizing speed, driving efficiency, and simplifying commercial processes. As a result, 71% percent of GCs surveyed are planning to decentralize their team. The problem is that GCs don't agree with these changes. According to the survey, two-thirds of GCs prefer a more centralized structure. They are, nonetheless, moving forward with departmental redesign to assuage C-Suite requests and be more favorably viewed as a strategic partner to peers.
The report outlines three primary legal models:
- The Centralized Legal Department: All legal staff report (via solid line) to the GC regardless of region, business unit, function, or legal practice area.
- The Hybrid Legal Department: Some lawyers report to business/geographic management, while other lawyers report to a centralized legal department managed by the GC.
- The Decentralized Legal Department: All legal staff report to regional heads, business unit heads, or other non-legal functional heads, though this may include a dotted line to a centralized GC.
Findings reveal that 73% of legal departments are currently centralized, 23% are hybrid, and only 5% are decentralized. However, the findings also show that the overwhelming majority of GCs are planning to move from a centralized model to a more decentralized model at the behest of the CEO.
"Despite the prominence of the centralized model, many CEOs have recently become attracted to a more decentralized model for their organization's legal department," said David McVeigh, CEO, Axiom. "These executives envision the legal department as a commercial function—one that drives economic value for the business. And so there has been a burgeoning trend toward a decentralized legal team, in which lawyers are co-located with their business clients."
McVeigh continued: "Putting my CEO hat on, I understand the underlying driver of this push to decentralize. CEOs and functional/regional business unit leaders sometimes perceive legal to be a commercial blocker—a department that doesn't quite understand commercial pressures and can't meet speed requirements. The issue is that when you start decentralizing, there are many more disadvantages than there are benefits, including lack of visibility around enterprise risk, duplication of resources, and inconsistent legal processes."
According to the survey, most GCs believe that among all the models, a centralized-leaning department:
- Optimizes in-house and external spend
- Has the strongest corporate governance and universal legal operations standards
- Allows for great flexibility in the deployment of resources
- Best mitigates risk
- Enables greater efficiency across business units and geographies
Conversely, GCs know that for all the perceived commercial advantages of a decentralized approach, there are risks that should be deeply worrisome for GCs and any CEO concerned with operational effectiveness, the top three of which they rank as follows:
- Inefficiency: Legal competency duplication and/or inappropriate resources for novel needs and an elimination of purchasing leverage with outside vendors
- Lack of Visibility: Limited transparency into overall spend and/or lawyer utilization
- Ineffective Risk Mitigation: Risk increases when commercial incentives are favored over standard legal practices
In other words, the survey reveals that GCs believe a decentralized structure exacerbates their most pressing pain points (resourcing and risk mitigation) without solving for the CEO's cost control goal.
The report presents GCs with an alternative to decentralization: creating/maintaining a centralized-leaning hybrid model in which most lawyers remain under a centralized structure, but with approximately 15% of the in-house team embedded within business units. In this model, GCs can staff their legal departments with a core team of generalists and support them throughout the business with a virtual bench of flexible legal talent. GCs can leverage this bench of "always-on" lawyers, who combine legal experience with knowledge of in-house issues, while being far more cost-efficient and consistently available for ad-hoc needs.
"A centralized-leaning hybrid legal department that leverages flexible lawyers is a 'best of both worlds' solution," said Ashlin Quirk, GC, Axiom. "It can provide the flexibility, efficiency, commercial acumen, and speed needs that CEOs really want, without sacrificing the visibility and oversight GCs need."
The report also offers GCs an important 6-step blueprint for navigating departmental structuring and resourcing conversations with their CEO:
- Partner with Fellow C-Suite Executives: Collaborate closely with CFOs and other executives.
- Identify and Review Advantages and Disadvantages: Thoroughly analyze the pros and cons of centralized and decentralized models (as outlined in the report).
- Propose an Ideal Compromise: Advocate for a centralized-leaning hybrid organization.
- Staff the Centralized Departments: Focus on a core team of generalists rather than specialists.
- Support with Flexible Legal Talent: Augment lawyers with a cost-efficient virtual bench of on-demand legal professionals.
- Leverage Technology: Implement technology solutions to manage and optimize spending and resources effectively.
The survey, which was conducted by Wakefield Research, surveyed over 200 GCs across a wide range of industries.
Axiom is where legal teams go to find the right talent for everything from ongoing in-house matters to complex outside counsel work. Too many lawyers and legal departments are stuck in a forced compromise. Legal departments have high standards when it comes to finding the right talent and getting the right value. And top lawyers want to get more control over how, when, and where they practice. Axiom shares and meets the higher standards of its clients and lawyers– connecting mid-market and Fortune 500 companies with the world's deepest bench of experienced, specialized legal talent. Axiom. Higher standards welcome. www.axiomlaw.com
Hazel RamirezPlat4orm PR