Preparing for an Economic Downturn: Are General Counsels and Their Teams Ready?

Time to start preparing?

If a recession is deemed so inevitable, the key question is therefore whether the fear of one is instigating a response among senior executives. Are advisors to the CEO in North America putting into place contingency plans to ensure they are well prepared to manage in the event of the market turning? Results from the Russell Reynolds Associates Downturn Survey would suggest not. Just 11 percent of executives surveyed would describe themselves as well prepared to manage through an economic downturn. Legal executives are slightly more confident, with 14 percent describing themselves as well prepared (see Exhibit 1). Beyond this, just 7 percent of legal executives say their teams are well prepared to respond to a downturn. In fact, 31 percent of legal executives believe a lack of preparedness would be their team’s greatest weakness in the event of a downturn (see Exhibit 2).
 

While preparedness might be a worry, the legal team members themselves are viewed in high regard by their legal leaders. Thirty-seven percent are very confident they have the right team in place, in comparison to 19 percent of CFOs and 30 percent of CHROs (see Exhibit 2). When asked to rate their team’s greatest strength, 31 percent chose “skill,” which is significantly higher than among CHRO and CFO peers, where “skill” accounted for just 8 percent and 10 percent of responses, respectively.

Ability to adapt is key

Notably, agility emerged as the most critical quality that was identified as either a top strength or a top weakness of legal teams. It was the most frequently cited strength (32%) and the second-highest perceived weakness of teams (25%). Marc Alpert, general counsel of Loews Corporation, observed, “If agility is a gap you need to close, you are in a lot of trouble in a downturn, especially with a management team that has not seen a downturn.” In-house lawyers may well be asked to step outside of their comfort zones in the event of a downturn—cuts will likely be made and those remaining will need to step in to cover. Mark Casey, general counsel at Mallinckrodt Pharmaceuticals, believes this is when agility will be most important: “In-house lawyers have to be agile, and not just in terms of their technical expertise. They need to expand the volume of work that they can handle and they must prioritize as well.” In this regard, he avoids building specialist functions, instead appointing a divisional general counsel in charge of the entire spectrum of issues. Through this exposure to different aspects of legal responsibilities, they can step in to other areas of responsibility as needed. Damien Atkins, general counsel at Hershey’s, underlined this view that “agile” refers to mindset, specifically, “an opportunity mindset rather than being averse to losses.”
 

When general counsels were asked about their greatest fear as it relates to a downturn, “loss of talent/layoffs/ increased workloads” accounted for 32% of legal executive responses (see Exhibit 3). This is in comparison to just 6% among CHROs and 12% among CFOs. General counsels typically show more reluctance than do their peers to let people go. They likely fear the common misconception held by the business that it is straightforward to turn to outside counsel following layoffs, undermining the value the in-house legal function provides. “You need people who know the business, who are integrated and who give the right business-focused legal advice,” according to Mark Casey of Mallinckrodt. Damien Atkins of Hershey’s believes that the legal function needs to “find opportunities to show more value, bring cash into the company and protect themselves from cuts in the long term” in order to keep cuts to a minimum.

However, assuming that cuts to any and all cost centers are inevitable, General counsels also need to be using these calmer times to identify where efficiencies can be gained, where team members can be cross-trained on different aspects of the function, where workloads are not at full capacity and where any team weaknesses exist. In this way, general counsels can get the most out of their teams whatever the circumstances. If, in the event of a downturn, legal teams are faced with a corporate realignment, most likely similar to their functional peers, it is important for legal teams to adjust to the new circumstances. In doing so, exercising agility will be important among this group as well as elsewhere in the C-suite.
 

Providing counsel from a unique viewpoint

When legal executives were asked to consider aspects of the legal function that would be most important in the event of a recession, business and commercial advisory came out on top, accounting for 26% of responses (see Exhibit 4). Hershey’s GC Damien Atkins points to the general counsel’s role in guiding business leaders when they are making difficult decisions as markets dry up and customers are lost: “General counsels can help business leaders evaluate decisions that may have short-term benefits in response to the market turning but that may eventually hurt the business a year down the line.” The general counsel can provide guidance in this respect through a deep understanding of the challenges faced by the business. Being plugged into different parts of the company, the general counsel can also act as a bridge—someone who is able to see the bigger picture.
 

The take-home message is all around preparedness and building/reinforcing the right skills now while the market is strong. General counsels also need to stay closely attuned to the business, showing the value the in-house legal function can add through a close partnership. These are interesting times and who is to say whether the furor surrounding a potential recession will in fact become a reality? While we can hope for the best, it certainly never did anyone any harm to prepare for the worst—something legal executives and their C-suite peers should keep top of mind during these calmer times.