Interest rates around the world are soaring and a global recession is looking increasingly likely. Valeria Vazquez, Partner, Deloitte Legal, Mexico, looks at how corporate legal departments can partner with their organisations to make their operations more efficient.
While Europe looks to be on the front-line of a recession, more regions are looking economically precarious, sparking concerns for a global crisis. The Russian invasion of Ukraine has created energy price rises and sanctions among other economic and political issues. This has sparked steep rises in inflation rates across Europe and beyond, intensified by two years of Covid-related supply chain issues and protective measures from governments in favor of national industries.
Understandably, corporate organisations are looking towards cost-cutting measures to ride out these economic hard times. And their legal departments could be an underrated ally in their strategy to remain productive and efficient.
Corporate counter tactics
Recessions typically mean strategy reassessments for corporate organisations and many will be looking at their investment portfolios.
Looking to the legal department to help counter the effects of a recession is one consideration for the board. Often the legal department is brought in after decisions have been made but having legal involved in how the recession will be attended is a smart move and ensures that decisions across the board are more streamlined with the fiscal and financial aspects.
It’s a common tactic to cut costs across the board, including on legal services, but this can bring negative consequences. If there are legal issues that the company needs to attend to, it should, because putting them off can be counterproductive. If a company is entering into a reorganisation or trying to launch a new compliance program then, by all means, try and be more efficient, but don’t suspend it.
Outsourcing legal services is often about the big-ticket projects, in which you need a more global strategy or vision. In-house departments typically focus on the day-to-day operations, maintenance and compliance but in unstable economic environments, it may be worth outsourcing these tasks. It can often be the difference between an expensive and an affordable legal department.
As already mentioned, suspending legal projects and disputes is not advisable but a cost-cutting exercise could be to delegate the strategy to a third party, for example in opening a new branch or launching a new operation. An outsourcing solution may also bring a wealth of new experience and creative solutions with tried and tested results from a cross-section of industry.
The proactive GC
A proactive GC should look at all aspects of their legal department’s operations and revaluate their priorities. They may need to prepare for a new wave of compliance regulations as governing bodies renew their focus on corporate activities.
Part of a GC’s assessment should be looking to outsource operations where it makes sense, saving costs while keeping the legal cogs turning. Another could be looking at inefficiencies and ways to improve these, through automation, for example.
Finally, a headcount or hiring freeze may be inevitable. Further, trimming headcount may be necessary. A review of the staff in the legal team is advisable with a view of who is business critical when navigating an economic downturn and through to the other side. Consider also, on a cost-benefit basis, how letting certain people go may impact the morale of the remaining team. This will be something to discuss coherently with the board.
There’s no crystal ball
There may be some lessons from the 2008 global recession: There was a lot of innovation. Lawyers were very creative in trying to restructure the different loans and financial instruments that came down with the crisis.
But there is no crystal ball for predicting how the economy and the market will fare. A board that walks hand-in-hand through an economic crisis with its legal department, however, is a wise one.
Author: Valeria Vazquez, Partner, Deloitte Legal Mexico