October 18, 2019
October 18, 2019
Contributor: Jordan Bryan
Legal departments that are too conservative may neglect organizational needs and underdeliver on objectives. The key is to take smart risks.
General counsel (GC) in all industries are grappling with a challenge that has serious implications for the organization and for legal departments: In-house lawyers are often providing guidance that is too conservative at exactly the time organizations must accept more risk to achieve and maintain growth.
This makes it difficult to deliver on a core mandate: Supporting the business in taking smart risks that support growth and fuel innovation and competitive advantage.
The disconnect carries a heavy price tag. When legal guidance is too conservative, business decision makers are:
“Gartner research revealed that overly conservative legal guidance — in other words, guidance that does not align with the business’s risk appetite — creates a loss of $672,000 in value per lawyer annually for the median legal department,” says Stephanie Quaranta, Director and Team Manager, Gartner. “With median department sizes of 26.5 lawyers, that’s a loss of $17.5 million to the organization each year.”
Why is this happening? From tariffs to new regulations to industry disruption, organizations face an environment characterized by unprecedented levels of uncertainty. “In this environment more than ever before, success depends on the GC and the legal department providing risk-aligned guidance in quickly evolving terrains,” says Quaranta.
When facing unpredictable situations, human nature is to play it safe. In addition, in-house lawyers are trained to be conservative, so it’s no surprise that when asked about the guidance they provide business decision makers in today’s uncertain environment, only 13% of lawyers reported being comfortable taking risks.
Read more: Prepare Your Legal Department to Support Digital Initiatives
As the environment in which lawyers provide guidance changes, they must rely less on knowing the right answer and more on their risk-taking know-how, the transferable set of practical knowledge and skills that enable lawyers to provide risk-aligned guidance. To build their know-how and provide risk-aligned guidance, lawyers need four key things:
Although most legal departments are effective at providing lawyers with access to relevant subject-matter expertise, less than 40% are effective at the other three components. In fact, only one-quarter of legal departments embed effective structure into lawyers’ risk analysis.
Learn more: Leading the business to take smart risks for growth
Improving risk-taking know how is not something that lawyers can do on their own — this requires intervention from the GC and legal leadership. Leaders must:
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Recommended resources for Gartner clients*:
Taking the Right Risks to Grow: Key Findings From Gartner’s 2019 Risk-Aligned Legal Guidance Model
*Note that some documents may not be available to all Gartner clients.