General counsel across industries face a challenge that has serious implications for both the business and for their teams: Lawyers in their departments are increasingly more likely to provide guidance that is too conservative at a time when the business must accept more risk to grow.

This potentially carries a heavy price tag. When legal guidance is too conservative, decision-makers are 2.5 times more likely to forgo business opportunities, 2.5 times more likely to suffer delays in capturing these opportunities, and 4.25 times more likely to reduce the scope of an opportunity.

Gartner estimates that the cost of overly conservative guidance is a loss of $672,000 in value per lawyer annually. For the median legal department, this amounts to a loss of $17.5 million to their organization per year.

This is happening because organizations find themselves facing a macro environment characterized by unprecedented levels of uncertainty from issues such as tariffs, new regulations, and industry disruption. At the same time, business executives are seeking to expand in areas where risks are less predictable, and returns are more uncertain.

The pressure to take risks to grow the business creates uncertainty for GCs too. In a 2019 survey, they reported dramatic shifts affecting their legal departments across the past 12 months.

Sixty-four percent of GCs agreed their legal departments are increasingly providing guidance on unfamiliar business opportunities or in unfamiliar risk areas. Sixty-two percent agreed that their organization's risk exposure is changing more quickly. Fifty-five percent agreed they are more frequently providing guidance in areas where the business' risk tolerance is undefined or unclear.

Playing It Safe

When facing these kinds of unpredictable situations, in-house counsel tend to play it safe—and they acknowledge this. Asked about the guidance they provide business decision makers in today's uncertain environment, only 13% of lawyers reported being comfortable taking risks. After all, in many ways, lawyers are trained to be conservative on behalf of their clients when very little is clear. As a result, though, the typical legal department is now finding it difficult to deliver on a core mandate: leading the business to smart risk-taking that supports growth and innovation.

Moreover, the legal department itself is not immune from the costs. When guidance is too conservative, lawyers see that their business partner is 4.5 times more likely to take the request to another lawyer to try to get a different answer. Also, the business partner, or the lawyer handling the request, is four times more likely to escalate their requests to more senior lawyer. This kind of escalation puts a big strain on legal resources. General counsel already spend 20% of their time dealing with escalated requests, and each escalation multiplies the amount of time the legal department spends on a request.

Telling Lawyers What to Do Doesn't Solve the Problem

GCs recognize the problem, but their traditional approaches to solving problems aren't working. They typically make sure their teams hear the message that it's important to take appropriate risks when advising business decision makers, and supplement that by building the subject matter expertise and capacity to support this message.

Nevertheless, lawyers are still struggling to take more risk in an appropriate way. Only 20% of in-house counsel report consistently using both risk and reward considerations to determine their guidance, and only 52% consistently adopt the right risk posture when providing guidance to business decision makers.

The most common solutions used by GCs don't go far enough to solve the problems. Telling lawyers what they should do and building the capacity to provide guidance are necessary, but not sufficient, drivers of differentiated performance.

Legal leaders must also address the underlying obstacles that drive conservatism, or lawyers will continue providing the same guidance. This makes sense in today's environment of heightened uncertainty. As lawyers increasingly find themselves in new and unfamiliar territory, simply having the time or the motivation to provide risk-aligned guidance is not enough.

Shift From Knowing the Right Answer to Getting the Right Answer

Gartner's survey of over 200 in-house lawyers revealed what does matter for getting to risk-aligned legal guidance. To achieve the results that top-performers do, in-house counsel need four things:

• Access to relevant subject matter expertise;
• An understanding of the right risk posture to apply;
• Decision frameworks to help them apply it; and
• Real-life examples to help them understand what "good" looks like.

Subject matter expertise, of course, is crucial—lawyers must understand the context of the requests they're advising on, or risk providing inaccurate guidance. Without clearly understanding risk posture, lawyers often default to assumptions that are incorrect. Without decision frameworks to structure and support the risk analysis process, they may fall victim to biases and mental shortcuts that unduly skew their analyses. Finally, without clear signals and good examples, lawyers may be hesitant to modify their behavior in a way that seems risky to them.

Together, these four things are the risk-taking know-how that set apart the most effective in-house counsel—the transferable set of practical knowledge and skills that enable lawyers to provide risk-aligned guidance.

Stephanie Quaranta is research director at Gartner's legal practice.