ACC report offers surprising observations on in-house trends

In-House Perspective speaks to in-house lawyers about the key findings – on subjects from diversity metrics to privacy – of the Association of Corporate Counsel’s (ACC’s) ‘Legal department management benchmarking survey 2023’.

Spending rose on corporate legal services, privacy overtook compliance as an in-house legal department’s most common function and diversity metric tracking is on the wane, according to the Association of Corporate Counsel’s (ACC’s) ‘Legal department management benchmarking survey 2023’.

Total spend on corporate legal services increased from $2.4m in the last year to $3.1m this year, the report shows, and although this rise occurred across companies of all sizes, the largest increases were driven by organisations with greater than $20bn in revenue.

Although legal spend has increased in many organisations, it still represents significantly less than one per cent of company revenue, says Tony Williams, Principal at Jomati Consultants and former managing partner at Clifford Chance. ‘This indicates that despite increased regulatory pressure, costs are being effectively managed, and organisations are managing much of their expenditure in-house’, he explains. This ‘should give pause for thought for external law firms as to the expertise that they bring and the value for money that they provide’.

For Williams, the increase in legal spend reflects the greater complexity of doing business, whether greater regulatory oversight or pressure for businesses to adopt environmental, social and governmental (ESG) principles. ‘Inevitably these have costs in both developing policies, monitoring compliance and reporting’, he says.

Privacy was ranked the most common business function directly overseen by in-house legal teams by 57 per cent of the report’s respondents – a rise of six per cent on the previous year. It overtakes compliance, at 56 per cent, which traditionally tops the list. ‘It is not surprising that privacy overtook compliance as the most common business function overseen by legal considering the ballooning of complex data privacy regulatory schemes across jurisdictions; the legal department is most ideally suited to advise their organization on meeting these requirements', says Susanna McDonald, the ACC’s Vice President and Chief Legal Officer.

The role of in-house lawyers has been changing for years, with counsel transforming from legal specialists to essential advisers to business’ strategies and operations, she says. ‘Good in-house lawyers manage risk proactively and find ways to enhance revenue generation. The increase in overall spend and the addition of privacy as part of the legal function support this continued trend’, adds McDonald.

The survey did show, however, that although many corporates have farmed out compliance to a separate department, those responsible for this function are still ultimately answerable to the chief legal officer. James Harper, Committee Liaison Officer for the IBA Corporate Counsel Forum and Head of Legal at LexisNexis, says it’s ultimately unimportant whether compliance falls under a different department. ‘How you structure it is not important. What is important is that the two teams – whether in one department or not – work closely together to ensure a pragmatic and practical approach to managing risk, educating the business and ensuring the growing levels of regulations and law is well understood,’ he explains. ‘Good cooperation will always beat organisational structure for me’.

The report highlights that the growth of legal operations professionals still remains incredibly slow, when set against the impact that streamlining operations – whether through improved process, the introduction of technology or otherwise – can have in moving lawyers up the value chain, says Harper. ‘The aim should be to take the lawyers away from day-to-day or mundane tasks, or tasks that can be automated, and place them where they can have the biggest impact. It perhaps shows that the world of legal ops still has some way to go to match the focus that operational excellence has in the rest of the business,’ he adds.

In terms of staffing and structure, 33 per cent of legal staff are not qualified lawyers, according to the report. This is remarkable, says Abhijit Mukhopadhyay, Website Officer on the IBA Corporate Counsel Forum and President (Legal) & General Counsel at London-headquartered Indian conglomerate the Hinduja Group. ‘To me, the percentage is very high. Given the kind of advice that legal departments give these days, I was expecting the percentage to be lower. Each lawyer supporting about 300 employees is also quite high,’ he adds.

The report shows a continued broadening of the role of corporate law departments, says Barrett Avigdor, Executive Director of the In-House Counsel Recruiting team with recruitment company Major, Lindsey & Africa. ‘New technologies create new and novel legal issues for businesses across industries’, she says. ‘In-house lawyers are ideally suited to help companies adapt to the changing legal landscape. We know from our in-house search practice that companies are looking for business-minded lawyers who use their legal expertise to solve business problems. The results of the survey support that.’

Only 21 per cent of corporates had diversity metrics and/or targets for outside counsel, and only 28 per cent required outside counsel to improve diversity. This, for Williams, was a surprising finding of the report. ‘Given the profile that this issue has received I would have expected this to be higher especially as organisations themselves are expected to report on such issues themselves and their supply chains, including outside lawyers, are often included in such reporting’, he explains.

Diversity metrics, if used effectively, do help to drive behaviour, in Williams’ view. With 28 per cent of organisations expecting outside counsel to improve diversity, but only 21 per cent using metrics themselves, there’s an implication that even where organisations themselves are insufficient in terms of diversity, they’re imposing clear and measurable targets on their outside counsel.

The number of companies that have diversity metrics and/or targets for their internal legal departments has dropped in the last year, even though this decrease is marginal in percentage terms, from 29 per cent to 28 per cent. For Harper, this is a surprising observation made by the ACC report. ‘Understanding your workforce and driving a diverse team, where everyone can authentically be themselves, is key to a well-functioning team’, he says. ‘That’s not special to Legal but broadly applicable across the business. And a general business rule is “if you track it, it will improve”.’