The Thomson Reuters Institute’s 2023 State of the Corporate Law Department report examines law department leaders’ key priorities for this year. The findings are the result of 1,569 interviews with professionals from corporate law departments of companies with more than $1 billion in global revenue.
Law department priorities
Compliance with changing global regulatory developments has become the top priority for many law departments. This is the result of new and changing regulations, and the potential for conflict among multiple jurisdictions over how they are addressed. The Thomson Reuters Institute recently explored these concerns around topics such as:
- Environmental, social, and governance (ESG).
- Changing securities regulations.
- Geopolitical tensions.
- Anti-money laundering.
- Cybersecurity.
- Digital economies.
- Data governance.
(see 10 Global compliance concerns for 2023).
Risk and litigation mitigation was second on the global list of law department priorities, once again tying into the influence that the changing regulatory environment has on today’s corporation. The cost of litigation has risen substantially due to factors including the increased complexity and cost of litigation necessities (such as e-discovery) and the rates charged by outside counsel. This is closely linked to the third-highest priority cited by corporate law departments: cost control.
In the UK, the top five priorities for law departments were:
- Commercial legal advice.
- Cost control.
- Compliance.
- Efficiency.
- Risk and litigation mitigation.
Law department spend
Managing and mitigating their companies’ overall risk and cost is a key component to departments’ broader cost-control strategies. Overall, far more law departments anticipate an increase in their legal spend in the coming year than anticipate it to decrease. Increased legal spend is a common trend across nearly every global region, key practice area and industry sector. There is growing evidence of corporate law departments shifting work among outside law firms as a way of managing costs and optimising the value and cost effectiveness that they are receiving.
Although law departments may be striving to control costs, that does not necessarily equate to reductions in overall spend. Rather, it likely means a search for cost-effective quality and value. Across the globe, generally one-third or more of corporate law departments expect to see an increase in their legal spend. In the UK, 35% of corporate law departments are planning to increase legal spend, while 31% are planning to decrease it.
Move to a guardian model
Broadly speaking, strategic priorities for corporate law departments fall into four main categories:
- Protective. Safeguarding the enterprise from risk.
- Enabling. Driving the overall success of the business.
- Effective. Delivering sound legal advice.
- Efficient. Making the best use of limited resources.
Many companies are experiencing a switch of focus from efficiency to protecting the business. As a consequence, there is a shift in law department mindset toward that of a guardian. This is demonstrated by the growing emphasis that law departments are placing on regulatory and compliance work, as well as on risk management. New regulations are pending or were recently enacted in varying jurisdictions addressing topics such as:
- Data privacy.
- Cybersecurity.
- ESG.
- Diversity, equity and inclusion (DEI).
- Cryptocurrency.
Corporate law departments are reporting that a smaller amount of their attention is being devoted to subjects such as improving their work processes and standardising and automating their workflows. This may be due to several factors. For example, process improvement and workflow efficiency has been a key area of focus for many years, and significant improvements may have already been made, so some softening of focus is inevitable. Previously, law departments that could not improve how they operated risked being a substantial drag on the broader business. Today, a much greater threat is potentially posed by regulatory changes.
Key areas of strategic focus
It is also important to note which strategies remain key areas of focus. These include:
- Cost control. Many departments are reducing external legal spend, bringing more work in-house, and prioritising which types of matters are pursued.
- Quality of advice. This remains the central role of the corporate legal function.
- Talent management (including recruitment, retention and training). Law departments continue to struggle to attract talent as many law firms are willing to pay high associate salaries.
- Business change. Today’s law departments are tasked with helping to guide growth, enable new initiatives and assist transformation, all while minimising the risk to the business.
Horizon scanning
In both the near- and long-term, regulatory changes feature heavily on what corporate law departments see as their biggest anticipated risks to the business. In the UK, the key risks highlighted were:
- Frequency and complexity of regulatory changes (30%).
- Currency or economic instability (22%) (the global average was 9%).
- Data privacy (17%).
- ESG and DEI (17%).
- Cybersecurity (11%).
It is perhaps unsurprising that UK departments report a higher-than-average level of concern about economic instability given the uncertainty around the long-term impact of Brexit.
Changes in ways of working
While exact best practices remain a work in progress, most corporate law departments globally have settled on some form of hybrid work arrangements for their staff. In the UK 93% of law departments use a hybrid model. In every region, full-time, in-office work remains the minority position, although that balance is much closer in some regions than in others. For example, in Asia-Pacific, there is near parity between hybrid working and full-time, in-office working. Full-time remote working remains uncommon, trailing even full-time, in-office work in every region except the US.
