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.
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.
On average, in-house lawyers reported the costs of overcautious counsel were steep, the company espoused. In Gartner’s survey, it was found that when legal guidance is too conservative, the organisation was: two and a half times more likely to miss a business opportunity, more than four times more likely to reduce the benefits of a business opportunity, and two and a half times more likely to delay exploitation of a business opportunity.
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.