GCs must be proactive if they do not want their teams to be the latest victim of the recession, warns Julia Chain

As we likely enter the most serious recession in living memory, most general counsel (GCs) are unprepared for the impact this will have. In particular, management of external spend is back on the agenda in a major way and as we head into a difficult new year both law firms and corporate law departments will be seeking greater clarity from each other as to the nature of their relationships.

To some extent, GCs are in a no-win situation. Like other departments, the in-house legal team is subject to cost-cutting directives that may not necessarily be easy or even desirable to implement. The senior in-house legal community are beginning to worry that they cannot serve their client (the business) effectively if that same client is putting significant restraints on all that they do. A level-headed approach is what is needed particularly in the following areas:

Strategy

A critical issue facing many GCs is that they have failed to create a strategic position that is closely aligned to the businesses they serve. In good times, in-house legal departments have just gone with the flow. Deals had to be serviced and external law firms costs were high, the business was doing well enough to carry the slack. In difficult times, however, lack of a clear strategy becomes dangerous. If the GC does not make these decisions in an informed manner others, quite possibly the procurement team, will do it for them. The strategy for the business may be changing daily, even hourly, but it is crucial the GC stays close to executive management and realign the legal department strategy as needed.

Review the team

Now is the time to be absolutely sure that everyone has a real role and is not simply marking time. Realistically assessing how many headcount reductions might be required and how that process will be managed is a first priority. The GC may argue against headcount reductions but at the end of the day this is a battle that cannot be won and he should not be panicked into losing expensive people for short-term gain on the bottom line. Make a list of the whole team, including administrative staff, and assess each person not only in terms of their current contribution but also in terms of the qualities they will need during the next year. This may also be an ideal time to review the structure of the organisation – are the right people in the right place doing the right work?

Invest in people

Now is not the time to cut back on team development. The team will be uncertain and worried. They may be fearful of losing their jobs in an imagined next round. They may be suffering financial losses at a personal level. This is the time, however, when they need to be performing at their peak; when senior staff are being asked to take on a greater workload with fewer juniors and juniors are being asked to take on more responsibility. This is the time your team needs more investment, not less. It is a common feature of harsh economic times that people development is relegated to the non-essential pile. The wise GC will reject this premise and will plan an imaginative people development programme that is tailored to the downturn – light on cost but heavy on motivation.

Review service providers

Outsourcing is not a substitute for involvement and external firms still need active management. This is never truer than in a difficult economic cycle when managing costs is key. Now is the time to review the panel arrangements to ensure that every firm on the list has an active role as a service provider and is not just there for historical reasons. Revisit the working and financial arrangements with each firm making sure they have a clear understanding of what the GC expects and how much they will pay for the service.

Active management is crucial when applied to external cost spend management. It means understanding precisely the nature of the relationship with external legal advisers and managing that relationship very closely. Being very clear with the in-house team about what should and should not be outsourced and how the process of instructing external legal advisers is managed is also essential. During difficult times, it is tempting to put these issues on the back burner. Do not be tempted. The costs saving and efficiencies can be significant.

Difficult times bring opportunities and the GC who thinks strategically and understands how to add value to the business will emerge from the gloom of the next year or two with a stronger team. Keeping calm and thinking logically rather than reacting emotionally is the key. Acting in a rational and strategic manner will allow the in-house team to ride out the recession in good shape and remain the trusted adviser to its client both now and as the business moves forward and the economy recovers.

Julia Chain is a consultant at H4 Partners.