Following on from our highly informative Risk and Litigation Report 2019, GC has partnered with Freeths once more to gather the opinions of over 100 general and senior counsel across the UK and Europe, to see how their approach to risk and litigation management has changed over a period that has tested even the most accomplished legal leaders. While undoubtedly a challenge, the Covid-19 pandemic also gave in-house counsel the chance to show their businesses just how useful they can be in a crisis; we also took the opportunity to examine how true this was, and how far the general counsel role has grown over recent months in response. Finally, our survey asked how legal teams felt they dealt with the lockdowns and subsequent shift to remote working.
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This partnership project with GC magazine is a valuable opportunity for Freeths to engage with senior in-house legal colleagues and to pool the latest thinking on how best to create value, in the face of ever increasing litigation and regulatory risks.
We’re fascinated to see this survey data, which aligns with what we’re seeing through our risk advisory work. We see more businesses focusing on preparing for unforeseen, high impact, strategic risks, which have the potential to materially disrupt the business. On the positive side, this data also highlights an increasing awareness that the more sophisticated approaches to legal risk management are starting to emerge as factors which have the potential to enhance business value and give a competitive edge. Undoubtedly, the pandemic and Brexit have played their part in this heightened risk awareness.
There are plenty of theories on how GCs can convert risk into opportunity and create value for the business – but how are GCs actually achieving these things in the real, commercial world?
This survey data, webinar, and the roundtable discussions that will follow, should give us all a fascinating insight into how successful GCs are in achieving results, despite the risks and pressures.
Working with GCs to convert that insight into proactive risk management strategies is something we excel at here at Freeths.
James Hartley, Partner and National Head of Dispute Resolution
(Hartley is recognised as a leading individual by The Legal 500 in the fields of commercial litigation and dispute resolution. He uses his litigation experience to help clients undertake and implement complex risk management strategies, most notably in the recent successful claim against the Post Office.)
Risk & Litigation Management
Risk and litigation management has become an essential skill for GCs. Boards are increasingly focused on preempting and minimising disputes and, as one respondent put it, ‘the responsible management of regulatory and compliance risks is a genuine competitive advantage that our management is acutely aware of’. Given the fact that the business landscape has changed so radically since the previous report, and that management varies across firms in different jurisdictions, GC took a fresh look at how general counsel now tend to deal with risk and litigation.
Our survey demonstrates just how important risk and litigation management strategies have become to corporate legal teams; all respondents said litigation risks and transactional risks, including contracts and projects, were part of their overall responsibilities. But the legal support they provide does not extend into other business areas, and GCs are not always aligned with their boards when it comes to the definition of risk. While only a third of respondents said that environment, social and governance (ESG) and corporate social responsibility (CSR) were part of their main responsibilities, all agreed that these areas are increasingly important business value metrics with an associated risk profile that in-house counsel are well-placed to manage.
Have the remarkable circumstances of the past 18 months given the impetus needed for a radical shake-up of how GCs are approaching their risk and litigation management, or is it business as usual? Based on the results of our survey, the latter is a more accurate statement; 60% of respondents stated that the events of the pandemic have not changed the order in which they prioritise the risks to the business. Of the remaining 40%, quite a number said their risk and litigation management has led to rigorous cost/benefit analysis in order to keep costs low; for example, one GC stated that the ‘challenging economic period requires us to now analyse, in detail, every single opportunity to save money’. Others pointed to changes such as placing greater emphasis on risks related to the pandemic, for instance prioritising the well-being of customers and colleagues.
While in-house legal departments are happy to manage risk internally, and in the main feel competent to do so, almost half of the respondents said they would benefit from external law firms providing more sophisticated and bespoke litigation risk advisory services as well as, if it was offered, dedicated financial cost/benefit analysis. For legal services providers who take pride in their risk advisory services, this may indicate an opportunity.
It also suggests that respondents are aware that improvements can be made in their corporate risk management, and the survey offers some insight into where these improvements can be made. 28% of respondents stated that they are reactive rather than proactive in terms of their risk management, while others were concerned that the many moving parts of their organisations are not working as one; 16% reported their risk management response to be wholly un-holistic in its approach.
‘We’re certainly seeing within our Dispute Advisory practice a growing awareness among corporates that decisions around litigation and regulatory situations need to be viewed as investment decisions – requiring cost/benefit analysis, and outcome scenario planning, that can be presented clearly and decisively to boards’. – James Hartley, Head of Dispute Resolution, Freeths
General counsel are now more likely than ever before to view their risk and litigation work in business terms and are expert at explaining this to other stakeholders within the business. As one GC eloquently put it, ‘Taking a sensible approach to risk, and having a mitigation strategy, enables the business to also take on appropriate risk, which can generate returns. All businesses take on a degree of risk and the key is finding the right balance to optimise these opportunities in order to not lose out to competitors’.
Other GCs agreed, with many focusing on how the ability to assess the merits and demerits of a case in its early stages allows for a cheaper resolution. As another GC stated, ‘from a cost perspective, gaining an early view of potential risks allows commercial decisions to be made well before expenses are incurred’. Others mentioned that being able to predict – somewhat – the cost that a case might incur as being a major boon to business-legal team relations, as the corporate side often appreciate being given a ball-park figure to be able to base their strategy around. Others still mentioned the importance of being able to avoid adverse consequences like claims and fines, and how effective mitigation efforts can also improve their company’s knowledge of the legal landscape and contribute to the good reputation of the company.
We asked respondents to score four metrics out of ten for how far they allowed them to demonstrate positive contribution to the growth and value of their business: enhancing the legal and regulatory risk profile of the business; horizon-scanning to predict and neutralise legal and regulatory risks to growth and profitability; quantifiable financial savings achieved through proactive, decisive and strategic resolution of issues and obstacles; and generating cash through the monetisation of meritorious claims or litigation by deploying external litigation funding solutions. This, also, demonstrates that general counsel still see their main contribution to the business’ bottom line to be as cost-avoiders rather than revenue-makers themselves. ‘Generating cash through the monetisation of meritorious claims or litigation by deploying external litigation funding solutions’ achieved far and away the lowest average score out of ten: 3.3. The other options, ‘legal and regulatory risk profile enhancement’, ‘horizon-scanning’ and ‘proactive, decisive and strategic resolution of issues’ received generally high average scores; 7.9, 7.3 and 7.1 respectively.
So much for the theoretical side, but how have in-house counsel actually been performing when it comes to avoiding risks before they develop? On the evidence of GC’s survey, one positive conclusion that can be made is that the in-house teams that have managed risk in a conscientious and responsible way over the last 18 months have been noticed and supported by their companies; more than half of respondents said that the pandemic has not impacted how adequately resourced their teams are. In a similar vein, 62% of respondents have not considered financing options to improve their litigation and regulatory risk management.
From Risk to Opportunity
Sixteen months after the order to work from home where possible, many of us have forgotten just how profound a shift in working practices it has been. But it is worth considering whether the changing approach to risk management within legal teams is part of a broader ‘post-pandemic’ shift in the way businesses are looking to safeguard long term stability. Intuitively, it seems that general counsel, given their risk management expertise and the analytical skills given to them by their legal training, could have been seen as ideal personnel to lean on for companies under the circumstances. The data appears to bear this out; almost half of respondents stated their greatest challenge of the past 12 months was increased responsibility, while only 15% answered that their role has not appreciably changed. This trend remained approximately the same across legal teams of vastly different sizes, indicating that general counsel at companies of all sizes have been relied on to fight fires for their companies in their hours of need. That they have been fighting fires is evidenced in the report as well; roughly four fifths of respondents reported they have been involved in litigation or regulatory activity over the past year.
But how exactly have in-house counsel seen their risk management and prevention responsibilities grow over the past year? A shade under half of those surveyed noted the greatest change in their responsibilities as an increased emphasis on unforeseeable or unpredictable risks; undoubtedly the Covid pandemic has shaken the business world into taking such threats more seriously. Interestingly ‘increased time with the board or taking on a board position’ was the second most popular way in which respondents have seen their responsibilities increase. Clearly, a significant minority of in-house counsel have raised their profile within their companies who have trusted them to safeguard them in a difficult business environment.
Those that weren’t afforded this increased level of face-to-face time with the board probably feel as though they should have been. An overwhelming majority of respondents, 93%, believe they work best as a combination businessperson and lawyer rather than as a lawyer first and foremost. With that said, most benefit from something of a separation of power with the board; 57% believe they work better as an independent advisor at arms-length rather than a fully-fledged member of the board.
‘In my experience, lawyers who are seen by boards as those who “grasp the nettle” in difficult litigation and regulatory situations, and who shape a strategy so as to gain some control, are the ones who are seen as highly valuable in the business – this applies to both internal and external legal teams’. – James Hartley, Head of Dispute Resolution, Freeths
The Covid-19 pandemic was an unprecedented business challenge that came at a time when uncertainty already gripped a UK business scene which was trying to get its head around the ramifications of leaving the European Union. That these should have changed the way in-house counsel operate seems elementary, but what have they meant in terms of how much legal work is outsourced vs kept in-house? Legal providers can take heart from the fact that results were even; half of respondents to GC said they would send a greater proportion of their legal work externally while the remainder said they would grow their in-house team in response. There is an interesting caveat to this, though; larger companies are far more likely to be relying on their in-house teams going forward. Of respondents with the largest in-house legal teams comprising over 25 members, two thirds reported they will be growing their in-house legal team as opposed to sending more work to firms. The thinking behind this tends to be based on cost. As one respondent put it, ‘While decisions will always be taken depending on work type, carrying out more work in-house generally tends to be more cost effective’.
Away from the nuts and bolts of specifically legal concerns, the day-to-day life of the average general counsel has changed markedly over the course of the pandemic and subsequent lockdowns. For most, the greatest change of all has been the need to work remotely for long periods. While there are perks to working from home, for example a decrease in commuting, greater flexibility and a better work and life balance, it does come with issues. The lack of face-to-face conversations and the drop in productivity some feel comes with not being supervised are perhaps chief among these. How do in-house lawyers feel the move to remote working has been, then? As it turns out, only roughly one in ten respondents reported a decrease in productivity when working away from the office. While this tenth of respondents may be facing obstacles in home working, such as an increase in distractions or lacking a good working environment, this does seem to be a resounding endorsement for remote working. Working from home does not appear to be hindering productivity noticeably, which more than explains why some employers are looking at making this a permanent change in the future.
The Covid pandemic and subsequent lockdowns were – hopefully – a once-in-a-lifetime business challenge that caught the vast majority of general counsel off-guard. How does the average general counsel feel they met the challenge? To find out, GC’s survey also asked the million-dollar question: would they have done anything differently about their strategy during the lockdown period if they were able to have the time over? Several responses focused on measures such as moving earlier, acting more proactively and being more conscious of how the pandemic would impact the demands of work. For example, as one GC put it, ‘[we would have] sped up getting the technology in place to permit home working at the beginning of the crisis’. Likewise, another stated ‘Planning for negotiating agreements with landlords on rent levels and review of office use’. In the main, though, respondents were pleased with how they handled the situation, and proud of how their teams rose to the challenge. ‘We identified the seriousness of the problem early’, recalls one GC, ‘and sent our employees into home working before companies were asked to do so by government. We even saw a boost in productivity soon after home working, and, now, we’re ready for the return to the office’.
‘Recalibrating resilience plans in light of the events over the last two years is now high on the corporate agenda, with more focus now on identifying and evaluating major shocks – including litigation and regulation – which might disrupt strategic objectives.’ – James Hartley, Head of Dispute Resolution, Freeths