While it's not the most uplifting New Year message, the reality is that 9 out of 10 CEOs believe a recession is coming in 2023.
What should in-house Legal Departments do right now to prepare?
The exact timing or extent of a recession may be unknown, but one thing is not: your CEO’s stress level. How can Legal Departments act now to align with the C-suite – and help company leaders minimize the damage?
While economists, financiers and policymakers debate the probability of a recession, there’s one audience with little doubt – and it’s the one audience critical to any Legal Department: the C-suite. According to a KPMG survey of 400 leaders of large U.S. companies, more than 90% predict a recession in the next year, and only 34% believe it will be “mild and short.”
There are many reasons why in-house lawyers should take action now before a downturn strikes in earnest. But for pure survival reasons, this one might be the most compelling: your leadership believes a recession is coming, and they will expect every Legal Department to help minimize the damage.
While the potential of a recession can bring real stress and hard decisions. With a strategic approach, it also can bring a chance to build closer ties with the business. And this is an area where lawyers could use a little help. According to a report by Chief Executive Group and BarkerGilmore, 4 out of 5 CEOs want their General Counsel to be a “strategic business partner,” but only 61% of public company CEOs said their current GC met that standard. The perception is worse among private company CEOs; 40% – fewer than half – said their GC met the ideal.
The No. 1 area where CEOs want their in-house counsel to improve on: business strategy.
If you are among the in-house legal teams already aligned with the C-suite, keep it up. You will become an even more valuable resource should the recession occur. If you are among the majority of Legal Departments who are not (yet) – it’s time to get started.
While it’s easy (and natural) for in-house lawyers to focus narrowly on the legal aspect of the business, in times of economic unrest, you must seek the bigger picture.
Revisit the organization’s strategy. What were the company’s stated major missions before the recession? Again, think outside legal: consider a downturn’s effect on new product launches, new market expansions and M&A activity.
Think outside the company too, and consider the broader context. What could a recession mean for key suppliers, distributors, customers and competitors.
As a part of this exercise, do some primary research: reconnect with the C-suite and business leaders. Hear from them directly about the anticipated effects of a recession, and the organization’s plan to weather it.
After gathering information, start to strategize on how the Legal Department can prepare for tougher economic times. What does this new context mean for your legal matters, and what can you do now to develop a position of strength?
- For litigation, could there be a new premium on swift (and certain) settlements?
- For companies that might incur a reduction in workforce, are you ready to analyze and advise on the risks – and resource for an uptick in employment claims?
- Which long-term agreements, from leases to sales contracts, might be ripe for renegotiation?
Every organization is different, and every organization will approach a recession differently.
But every CEO will value a Legal Department that rises above the reactive day-to-day to provide forward-thinking (and money-saving) counsel.
As the likelihood of a recession looms, what else can Legal Departments do to prepare?
Download our white paper: Four Ways Legal Departments Can Survive (and Thrive) in a Recession to learn more.