Legal departments may not be facing cost cutting at the moment
Corporate legal departments will feel the impact of three major trends in 2023, according to Gartner, Inc. The trends range from ongoing disruption to flat budgets, to information-related regulation.
“At the broadest level, legal resources will remain flat due to modest budget increases in the face of rising personnel, technology and service provider costs, lawyer exhaustion and record-high attrition, and an environment of cost-consciousness with some industries implementing hiring freezes,” said Raashi Rastogi, director, research in the Gartner Legal Risk & Compliance Practice. “Meanwhile, the demand for, scale and complexity of legal work is increasing due to more time spent managing disruption, new information-related regulation, and changing risk appetite.”
Disruption Will Continue to Weigh on Exhausted Legal Teams
There have been a range of disruptions that lawyers have faced in the past year that are set to continue through 2023. Despite expectations that disruptions will be less continuous in 2024 and beyond, in a Gartner survey of 140 lawyers in July 2022, respondents expected to spend 100 per cent more time managing business disruptions going forward than they did pre-pandemic.
These disruptions include events such as the ongoing Russian invasion of Ukraine; supply-chain shocks that are causing macroeconomic difficulty; along with high inflation and the specter of recession. There is also intense societal pressure that is redefining what is expected from businesses in terms of their social and environmental practices.
Legal must define a “disruption response service” – a process that defines how/whether to support a disruption, and how to allocate resources to it. Legal needs to identify and invest in the activities that drive disruption response, such as keeping on top of regulatory changes, changing risk appetites more frequently, educating business partners on new risk considerations, or coordinating response with business partners when having to deal with abrupt changes such as sanctioned entities.
Legal Budgets Will Likely Not Face Cuts
It’s unlikely that legal will see big budget changes in 2023. It is one of the business functions least likely to face cuts, but also the least likely to see an increase, according to a 2022 Gartner survey of CFOs. In such turbulent times, it’s easy to see budget stability as a good thing, but burgeoning workloads, personnel costs and fast-rising costs for legal service providers mean that lawyers will still have to find ways to do more with less.
“Legal departments may not be facing cost cutting at the moment, but the macroeconomic environment is making businesses very cost-conscious,” said Rastogi. “Cost consciousness can quickly become cost cutting if economic conditions worsen.”
Gartner experts recommend that legal leaders make critical investments now. Even with constrained resources, prioritizing and implementing projects that will save resources in the long run may pay off sooner rather than later if things turn for the worse.
Information-Related Regulation Will Continue to Expand
Societal pressures around privacy and the rapid evolution of artificial intelligence (AI) have forced regulators to move very quickly. The public’s increasing unease around AI is leading to more legislation such as the US AI Bill of Rights and the EU AI Act.
Privacy legislation, such as GDPR and CCPA, has enormous implications for business and is being echoed across most jurisdictions. In fact, Gartner predicts that 75 per cent of the world’s population will be covered under modern privacy regulations by 2024, up from just 20 per cent in 2021.
“Lawyers will need a strategy for adapting to new legislation faster than ever,” said Rastogi. “Understanding how their organization is exposed to new regulations, and how to evaluate potential disruptions will be critical for all organizations in the coming years.”