Photo: Rawpixel.com/Shutterstock.com

Maureen Harms, associate general counsel at 3M Co., has been playing out recession-related scenarios in her mind.

She's thought about head count and being strategic about filling open positions. She's thought about deferring spending, leveraging new technology and reorganizing the way in which work is handled. She's considered what the company might do with its offshore legal services center during the next financial downturn. 

Maureen Harms, associate general counsel of 3M Co.

“We'd look to optimize them more. What can we document, standardize and then train and shift to them?” she says. “We're trying to prepare ourselves by doing some of these things now.” 

Continual assessment of the legal department is the new reality for in-house leaders. Or at least it should be. 

Cameron Findlay, senior vice president, general counsel and secretary for Chicago-based Archer Daniels Midland Co., says an effective legal department should “take stock of everything it does and ask, in a clear-eyed and emotionless manner, whether each item of work creates or protects economic value. 

“If work does not, or if the effort is disproportionate, the legal department should either stop doing that work or figure out a way to do it with less effort or cost,” he adds.

But with the economy chugging along and memories of the last big crash fading a decade back in the rear view, some corporate counsel might not be quite as focused on keeping their legal departments lean, nimble and recession-ready. 

Consider a recent survey from advisory firm Russell Reynolds Associates, which found that 97% of general counsel respondents believed that another recession was looming on the horizon, yet a mere 14% thought they were “well prepared.” 

'Opportunities lie outside the rates'

Now is the time to get ready for the next downturn. And what worked back in 2007 and 2008 might not work again. 

“During the last recession, a big focus for law departments was on outside counsel spending,” says Lauren Chung, managing director of HBR Consulting in New York. “Legal departments were primarily pushing their outside firms to hold or reduce rates. It was a major strategy.”

The tactic worked for a while. But those rates have rebounded, which likely means that law department leaders are going to have to be more thoughtful and take a bigger-picture view when thinking about managing costs, according to Chung. 

“Opportunities lie outside the rates. Law departments need to think about how legal service delivery is provided much more holistically,” she says. “Before even considering rate negotiations, make sure you're sourcing the right work to the right types of firms.”

Chung also advises that in-house leaders assess whether their senior lawyers are spending too much time on routine, lower level tasks, which could be outsourced. 

Bridget Deiters, London-based managing director for InCloudCounsel, an alternative legal services provider, argues that it's best to keep a lean in-house staff while “scaling your ability to process legal work by using outside providers,” which she says are easier to “walk away from.”

“That's what we think will be helpful in terms of making sure your legal department is ready for the big recession,” she says. “It's not that we're saying fire everyone. … I don't think it's a matter of downsizing right now at all. It's a matter of being conscious about growth.”

Law departments are also turning to technology to cut costs and be more efficient. But in-house leaders who have been eyeing tech solutions need to act now, warns Harms. 

“When you're in a recession, it's too late to start looking at how you're going to add technology,” she says. “It's really tough to get the financial commitment from the company to install something like [artificial intelligence] if you don't already have it in place.” 

Smart outside, smart inside

Recession-planning should be seen as a chance to think critically about how resources are being used. 

Findlay, the GC at Archer Daniels Midland, says “the most important thing a legal department can do to protect itself in the event of a recession is to ensure that everything it does is directly relevant to what its business cares about—creating value or protecting the company from significant legal risks.

“If the department is lean and efficient, it is less likely to be asked to make sacrifices at a time of cost-cutting,” he says. 

It all comes back to taking stock of the legal department on a regular basis. Chung of HBR Consulting recommends that assessments be done at least annually, though she says some departments do it quarterly or biannually. 

“Doing it every five years is not going to give you a fresh perspective,” she notes. 

When assessing the efficiency of 3M's legal department, Harms considers feedback from clients through discussions and end-of-the-year surveys. She also looks at metrics for people per sales dollars, though she says that's “not perfect for tracking efficiency.” And, of course, she considers outside counsel spending.

“We're looking at what we can do. Maybe that means changing the strategy. Maybe that means taking on more risk,” she says. “Maybe that means looking for contingency arrangements where there is more in it for them and if they're willing to do that you know there's enough in it for us that we should go forward. It's looking at outside counsel as partners and working together to try to reduce outside spend in a way that is more meaningful and more sustainable.” 

Harms adds that she knows her legal department is on the right track when she sees an intercorrelation between inside and outside spending: when one goes up, the other should go down. 

“To have smart outside you need the smart people on the inside directing it,” she says.