2023 State of the Corporate Law Department report reveals shifts in law department priorities as regulatory complexity grows
Legal departments around the globe are seeing a greater opportunity and need to protect their corporations from regulatory risks and complex litigation. The 2023 State of the Corporate Law Department report from the Thomson Reuters Institute has revealed important priortity shifts for global in-house legal departments.
- Globally, the top priority for corporate law departments is regulatory compliance, followed by risk/litiation mitigation. The Asia/Pacific region and Mainland Europe are driving the change
- Compliance was fifth on the list of global priorities in 2019; the shift to number one in the 2023 report is a dramatic change.
- The rise in Compliance and risk management suggest that law departments are focused more on their roles as guardians of the enterprise.
Compliance emerges as top priority
The report showed that companies in the Asia/Pacific region and Mainland Europe are most concerned about regulatory compliance, while U.S. and UK legal teams are most focused on commerial legal advice and cost control. Canadian legal teams are focused on commercial legal advice and compliance as their top top priorities.
What accounts for the difference globally? One likely explanation is that European and Asia/Pacific governments are introducing more regulation than their U.S. and UK counterparts. Companies in these areas may also see greater potential for conflict if they do business in multiple jurisdictions. If they anticipate complexity in how each jurisdiction addresses environmental, social, and governance (ESG) regulations, for instance, they may put more time and care into responding to these regulations. Besides ESG, regulators are focused on securities, geopolitical tensions, anti-money laundering efforts, cybersecurity, digital economies, data governance, and more.
While compliance grows in importance, litigation avoidance remains strong
Compliance shot from number five in 2019 to number one in 2022, as regulations in the areas noted above grew. Risk and litigation mitigation remained steady at number two on the global list of law department priorities. Law departments must maintain focused on avoiding litigation, given how expensive lawsuits are. The State of the Corporate Law Department Report notes that law firms grew their worked rates by an average of 4.8% in 2022. That average masks the fact that some firms and practice areas were substantially higher than that. Law departments have countered this market trend by focusing on keeping the company out of litigation as much as possible.
This means they are working with their business partners to stay in compliance with applicable regulations. They also keep a keen eye on contracts and other agreements to ensure the business is doing what it agreed to do.
Guardians of the enterprise
The Thomson Reuters Institute has identified four categories for law department priorities: Protect, Enable, Efficient, and Effective. With the ascendance of compliance and risk management as priorities, the report’s author’s see a shift toward Protect as perhaps the primary role for the corporate legal department. “We already have seen evidence of an increasing focus from corporate law departments on the shifting nature of the global regulatory framework,” the report states. “As a consequence, we are also seeing a shift in law department mindset toward that of a guardian. This shift is manifest in the growing emphasis law departments are placing on regulatory and compliance work, as well as on risk management.”
Does this mean that law departments are slowing down when it comes to modernizing their technology to find more efficiency? Not necessarily. The decline in the Efficiency priorities is likely because departments have implemented significant changes and are living with them now. Instead of being at the beginning of their journey, they have reached business-as-usual status with new processes and technology. Law departments that may have been seen as a drag on the business due to operational inefficiencies are now able to focus on the existential threats posed by increased regulations and expensive litigation. They have the capacity and processes to protect and guard the business.
The report also looked at concerns over future risks. It reported that more than a quarter of law departments are concerned about the future risks of frequent and complex regulatory changes. Twenty percent are concerned about data privacy and ESG issues. These risks grow as the pressure to control costs remains steady. Corporate law departments will need to continue sharpening their compliance practices while building on their recent efficiency wins.
The 2023 State of the Corporate Legal Department report covers the rise of compliance in more detail and provides detail on priorities, spending, and more by region and sector. Learn more