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‘Overcautious counsel’ cost businesses more than $17m per annum
The average organisation is losing over $17 million per year as a result of in-house counsel offering legal advice that is too conservative, says one research and advisory company.
Jerome Doraisamy
According to Gartner – which surveyed more than 200 in-house counsel and interviewed or received survey input from more than 100 GCs as part of a study of the ramifications of legal advice that is misaligned with organisational risk tolerance – overcautious counsel are costing businesses millions each year.
In-house lawyers noted that when guidance is too conservative, the department sees a four and a half times higher rate of “internal forum shopping,” where business partners seek different opinions from multiple lawyers, while “escalation” to more senior lawyers occurred at a rate that is four times higher.
Gartner research vice-president Stephanie Quaranta said: “When legal advice is too conservative it costs the organisation broadly and the legal team specifically.”
“Legal advice that is misaligned with an organisation’s risk tolerance causes organisations to miss or downsize potential opportunities amounting to a value of $672,000 per lawyer at a median legal department we studied.
“The costs of continuous escalation are high.
“Our research shows that GCs lose one full day per week to escalation requests, creating considerable delays for both legal teams and their broader organisations.”
In order to determine the best strategies for combating undue risk aversion, Gartner measured the impact of a variety of different approaches and their contributions to risk alignment and identified three key areas that had the most impact on improving risk alignment among in-house counsel.
Regular discussions about risk posture
Gartner’s research showed that the majority of respondents (57 per cent) didn’t fully understand their organisation’s risk posture as established by their GCs and company’s strategic direction.
“This represents an opportunity for GCs to regularly engage their in-house counsel on the organisation’s risk tolerance,” the company argued.
Embedding structure in legal analysis to limit biases
“Today’s uncertain and rapidly shifting environment means that relying on past experience of familiar terrains to guide new risk decisions may lead to undue caution,” the company continued.
“GCs must support in-house counsel with updated legal risk models that consider new legal analysis.”
Gartner found that analysis discipline was the largest contributor to improving risk alignment within legal departments but that only one-quarter (25 per cent) of in-house counsel reported their departments as effective in this area.
Remove conflicting signals from real-life examples
Finally, Gartner said that lawyers are frequently confused about which behaviors to prioritise.
“Signals that support appropriate risk taking must go beyond messaging and link to goals established in performance reviews, to successful examples from peers and legal leadership, and to the tools and templates lawyers use to provide legal advice,” it said.
Jerome Doraisamy
Jerome Doraisamy is the editor of Lawyers Weekly. A former lawyer, he has worked at Momentum Media as a journalist on Lawyers Weekly since February 2018, and has served as editor since March 2022. He is also the host of all five shows under The Lawyers Weekly Podcast Network, and has overseen the brand's audio medium growth from 4,000 downloads per month to over 60,000 downloads per month, making The Lawyers Weekly Show the most popular industry-specific podcast in Australia. Jerome is also the author of The Wellness Doctrines book series, an admitted solicitor in NSW, and a board director of Minds Count.
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