Last year our survey of General Counsels (GCs) revealed that the majority of in-house legal leaders viewed themselves as the ‘conscience of the company.’
But that was before a recessionary environment tested the potential incompatibility of stewarding company values and operating in a cost-constrained environment. That was before the role of ‘conscience keeper’ came head-to-head with mandated budget cuts, amidst unhelpfully historic law firm rate increases.
Our second annual survey—set in the here and now of marketplace volatility—confirms again that the overwhelming majority of GCs still see themselves as the conscience of the company. But—and it’s a big but—those same GCs believe that a recessionary environment has already tested, and will more meaningfully threaten, their ability to fulfill that responsibility effectively.
Why? Because most GCs believe there is inherent tension between managing the legal department budget responsibly and simultaneously trying to uphold department values—tension that has been exacerbated by the economy. To that point, most of the legal leaders surveyed have already had to make tough decisions based on their dedication to their values, including decisions that negatively impacted company profits. Despite their best efforts to hold firm on standards, nearly a quarter say the looming recession has forced them to prioritize their budget over core values. Several others say they’ll be forced to further compromise if (or when) the climate gets worse.
That said, GCs are still fighting to uphold their most foundational ideals. Many have refused to work with legal providers, firms, and other partners who do not share their values. And, nearly all hold their legal teams accountable as well, tracking their work against a set of value-based success measures and KPIs.
How are these GCs staying true to their principles? Mission statements. The number of GCs with a legal department mission statement grew substantially this year compared to 2021: 78% of GCs now say they have one, which is an 18% increase from our previous survey. The focus of these statements has evolved as well, with emphasis moving away from a more general compliance with relevant laws and regulations to more nuanced areas including social, environmental, and human rights concerns, and being a good partner with company leadership.
The GC as the Conscience of the Company
The importance of GCs serving as guardians of enterprise values continues to grow. Nearly 9 in 10 (87%) view themselves as the conscience of the company – an 8-point increase from 79% in our 2021 survey. The percentage who strongly agree with this also increased substantially: from 38% to over half of GCs (51%).
With the “newness” of a pandemic in the rear-view mirror, one might have thought legal leaders would welcome a respite from leading the response on macro issues that challenge enterprise values. Instead, it’s the opposite—they have doubled down on their role as guardians of the organization. Given the novel and emerging risks facing companies and the increased importance placed on protecting brand reputation, it’s the right choice. But it’s also the harder choice, and one that a looming recession will only make more difficult.
We believe 2023 will be a critical year for GCs—one that will really test the ability of an in-house legal leader to simultaneously serve as an effective risk mitigator, budget-minder, and values defender.
Economic Challenges Require Compromise
Even in a non-challenging economic environment, nearly all GCs (99%) report there is inherent tension between managing the legal department budget and upholding legal department values.
Two-thirds (65%) of respondents say their legal department budget has been cut as a result of the economic conditions and ongoing volatility.
More than three-quarters of GCs (78%) fear it is likely their legal department will experience a headcount freeze due to the looming recession, and 62% are very concerned that volatility will negatively impact their department’s ability to invest in effective talent and resources.
A looming recession will absolutely test GC’s ability to manage the legal department effectively and cost-efficiently while simultaneously serving as the conscience of the company.
This is particularly true given how recent attrition and projected headcount freezes have and will impact the ability of legal teams to get work done. What can help GCs navigate the bumpy road ahead? The answer is mission statements: 99% of GCs agree that having a core set of legal department values makes it easier to weather challenges related to economic volatility.
What should those mission statements look like? They should be considered the legal department’s enduring North Star, with thoughtfully crafted values in a codified structure, which ultimately strengthens the team’s ability to adhere to those values beyond the team into the entire organization.
Economic Volatility’s Effect on Legal Team Mental Health
Despite the tumultuous past few years, 4 in 5 GCs (81%) are more concerned about their legal team’s mental well-being now than they have been in the past. The looming market uncertainty doesn’t add any optimism suggesting these statistics will improve anytime soon—at least not without ways to enhance support and resources creatively and cost-efficiently for the team in place. Over two-thirds of GCs (69%) say ongoing economic volatility has negatively impacted the mental health of their legal team. Nearly as many (60%) say the same is true of their own mental health.
Having a department mission statement seems to provide a buffer to help minimize the impacts of a downturn on the mental health of legal teams. GCs with a legal department mission statement are less likely to say that the economy (and the work challenges associated with it) has impacted their team’s mental health (64% compared to 84%*).
Some Value-Based Decisions Are Not Up for Debate
Despite the tough positions in which they’ve been placed, GCs aren’t blindly abandoning their department values, especially when it comes to hiring, staffing, and partnerships. This is likely because GCs believe that being a guardian of, and advocate for, values is essential to their role.
As a result, nearly all GCs (94%) have rejected working with legal providers who do not share their values, up from 87% in 2021.
Almost without exception, GCs (98%) track and hold their legal teams accountable against a set of value-based success measures. The percentage of GCs who do has increased by 12 points from 86% in 2021. More than half of GCs who’ve made difficult decisions (52%) have made the tough call to let go of firms and providers with whom they can no longer partner. Nearly as many (46%) have made difficult hiring or firing decisions based on their dedication to department values. The current state of attrition, projected layoffs, and headcount freezes only exacerbate the difficulty of adhering to departmental values.
The Evolution of the Legal Department Mission Statement
In precarious economic times, greater reliance on legal department mission statements may be key to GCs maintaining their value-based focus. Axiom’s 2021 survey, Corporate Conscience at Stake, underscored the valuable role a mission statement can play in a legal department’s ability to prioritize core values despite economic or pandemic-associated pressures. This year’s study suggests GCs are hearing that message. More than three-quarters of GCs (78%) have a legal department mission statement—a substantial increase over 60% in 2021.
The focus of these mission statements is evolving as well. In 2021, most mission statements focused on the basics—complying with relevant laws and regulations (45%). This year that emphasis has declined substantially to just 29% and has been replaced with a focus on areas like addressing social, environmental, and human rights concerns (38%—up 6 points) and being a good partner with company leadership (33%—up 9 points). Other focus points include maintaining legal team health and well-being (29%), developing legal team talent (27%), and promoting diversity and inclusion (26%).
The Bottom Line
GCs are at the center of a tug-of-war between protecting their organization against escalating jeopardy and the need to support its fiscal goals while simultaneously trying to mind and advocate for the values of the organization.
2023 will challenge GC’s efficacy at being the conscience of their companies, as they try to balance budget priorities and adherence to enterprise values.
What we’ve seen thus far demonstrates a reason for optimism regarding that efficacy: when the need for cost-cutting has collided with core principles, GCs have been adept at prioritizing the values on which to hold firm and identifying those which can be compromised. With respect to the former, a growing number of GCs are refusing to work with legal providers who don’t align with their values. In addition, and reflecting an even firmer stand than in 2021, nearly all GCs are monitoring and holding their teams accountable to success measures that they see as non-negotiable.
The optimism is, however, clouded by a concern about growing tensions as GCs face the confounding cost-cutting challenges presented by a recessionary economy.
What can they do to address this valid concern? Prioritize mission statements—but not just any mission statement. Smart GCs will focus on creating or transforming their mission statements to focus more intently on awareness of environmental issues, human rights, and collaborative partnership with company leadership.