Four in five General Counsel now report directly to the CEO, and their legal teams are increasingly being consulted by the business on strategic matters. As a result, GCs are seeking to strengthen their teams with in-house counsel who have strong non-legal skill sets.
These were among the key findings of the 2020 Association of Corporate Counsel (ACC) Chief Legal Officer Survey, which found that GCs regard demonstrable leadership skills and business aptitude as the most desired non-legal capabilities in in-house counsel.
With over 1000 responses from GCs in 20 industries and 47 countries, the report covers four areas:
- GC’s role and reach;
- the legal department’s value to the business and influence on strategic decisions;
- GC’s experience with political and regulatory change; and
- the legal department’s future, especially with digital transformation.
This article summarises some of the notable results from this year’s report.
The GC’s Role and Reach Within Their Organisation
Today, 80% of GCs report directly to the CEO, up from 64% just two years ago.
Those not reporting into the CEO predominantly report to the Chief Financial Officer (CFO) or Chief Operating Officer (COO). In addition:
- over half of respondents have a reporting line to the company’s board of directors; and
- the number of GCs who are also company secretaries has increased in the past year.
As the GC’s sphere of influence increases, so too does the number of legal operations professionals (LOPs) they bring in to improve workflow and efficiency within their teams, allowing them to add greater value to the business. Now, over 50% of legal departments have employed LOPs, up from around 20% in 2015. And many are employing more than one such professional; a quarter of the teams with LOPs have employed four or more.
This is reflected in the legal efficiency projects GCs are running. In the past year,
- 58% of legal departments redesigned workflow processes;
- 50% encouraged greater use of technical solutions; and
- 41% increased knowledge of management initiatives.
The survey also found that one-third of respondents expect to add more lawyers to their team in 2020. Interestingly, nearly half of these teams also expect to increase the amount of work they outsource. Normally, legal teams that grow in size try to reduce outsourcing, but this trend appears to be changing.
The Legal Department’s Value to the Business
While the number of GCs reporting into CEOs is increasing, the survey found that there is still room for improvement in terms of GC engagement with their company’s board; less than half are invited to participate in board executive sessions and only 30% have routine business meetings with board members.
That said, those GCs who report to CEOs are more likely to be involved in board matters than those that do not. Further, GCs who report to CEOs are also likely to spend more time on strategy development and non-legal issues.
Nonetheless, engagement with the business’ executive leadership is growing, with an increasing number seeking GC input on business decisions, up from 59% in 2017 to 73% in 2020. As a result, leadership and business aptitude are now the most desired non-legal skills that GCs want in in-house counsel. In addition, they believe that:
- business management;
- executive presence;
- communication skills; and
- emotional intelligence
are key in-house counsel skill sets.
The survey also asked respondents to identify their business’ top five issues of importance. Unsurprisingly, regulation and compliance came first, followed closely by data privacy and cybersecurity. At the bottom of the list, whistleblower issues, sanctions and export controls, and money laundering.
The report does not show this breakdown by region; given the Banking Royal Commission in Australia, it would be interesting to see how Australian respondents ranked business priorities such as money laundering, given this has been a significant issue for some Australian banks. (Note: while Australian GCs were the second-highest contributors to this survey, they still only made up around 11% of total responses; 66% of responses were from the US.)
Political and Regulatory Landscape
In 2020, GCs expect the biggest legal challenges to come from:
- new industry-specific regulations (61%);
- data protection and privacy rules (59%); and
- mergers and acquisitions (36%)
From a regulatory and political perspective, GCs ranked climate and environmental change, Brexit and changes in foreign investment rules as being the least likely to cause challenges. By industry, 84% of GCs working in insurance believe new regulations will cause the biggest challenge, while 86% of GCs working in IT companies believe data privacy will be the main issue.
Most respondents were confident about their ability to track changing regulation and tackle new risk threats, with larger organisations (worth US$3 billion-plus) being the most confident about their capability in this area. Larger companies are more likely than smaller ones to have increased their spend on regulatory compliance. By industry, GCs working in:
- accommodation and food services;
- wholesale trade; and
- finance and banking
reported the highest percentage increase in compliance spending.
What the Future Holds for the Legal Department
Along with employing legal operations professionals and implementing efficiency and workflow projects, GCs are adopting new technical solutions. Over half of all respondents either plan to adopt new technology or have already done so.
Business size and GC age appear to influence tech adoption, with:
- 70% of larger companies adopting technology compared to 44% of smaller organisations; and
- Millennial GCs being more likely to drive this than their baby boomer counterparts.
However, even when GCs want to adopt technology, they often find their department is low down the company’s priority list. The survey found that many legal departments want to jump on their company’s digital transformation bandwagon, only to find that other departments such as finance and human resources are taking priority. This lag, along with the downsizing and upfront costs that accompany these projects, were among the concerns GCs expressed about digital transformation in their business. They also see the need for continuous investment, increased risk, and new skill sets as being further digital transformation challenges.
On the upside, GCs regard digital transformation as adding value to their business, assisting with change management, and driving efficiency and effectiveness. They also see it as an opportunity to leverage data, do more work in-house and to facilitate integration.
Finally, when asked about their business’ priorities over the next five years, GCs prioritised providing value to customers over maximising shareholder profits. Indeed, 97% of respondents placed ‘delivering value to customers’ in their top three corporate priorities, followed by investing in employees, and maximising profits. A further 25% included dealing ethically with suppliers in their top three corporate priorities.
In-house counsel with leadership skills and business aptitude are more likely to be recruited into a legal department, with these non-legal skills regarded as highly desirable by GCs. This reflects the legal department’s increasing influence in their business, with more GCs than ever before reporting into their CEO. However, there is still opportunity for GCs to be more involved with their company’s boards.
GCs are also spending more on legal operations professionals and on efficiency projects, but are often frustrated when their business pushes their department down the priority list when implementing digital transformation projects. That said, most respondents to the 2020 ACC CLO survey were confident in their ability to track changing regulation and tackle new risk threats, with:
- new industry-specific regulation;
- data protection and privacy; and
- mergers and acquisitions
regarded as likely to provide the biggest regulatory challenges to legal departments in 2020.