She postulated that legal advice that is misaligned with an organization’s risk tolerance causes organizations to miss or downsize potential opportunities amounting to a value of US$672,000 per lawyer at a median legal department.
The cost of excessive conservative legal advice
A Gartner survey of in-house counsel and general counsel to study the ramifications of legal advice that is misaligned with organizational risk tolerance.
Gartner concluded that on average, in-house lawyers reported the costs of overcautious counsel were steep.
According to the analyst when legal guidance is too conservative, the organization was:
- 2.5x more likely to miss a business opportunity.
- 4.25x more likely to reduce the benefits of a business opportunity.
- 2.5x more likely to delay exploitation of a business opportunity.
In-house lawyers noted that when guidance is too conservative, the department sees a 4.5x higher rate of “internal forum shopping,” where business partners seek different opinions from multiple lawyers, while “escalation” to more senior lawyers occurred at 4x higher rate.
Quaranta said: “The costs of continuous escalation are high. Our research shows that General Counsel lose one full day per week to escalation requests, creating considerable delays for both legal teams and their broader organizations.”
Observations and learnings
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. The Gartner experts identified three key areas that had the most impact on improving risk alignment among in-house counsel.
All three actions require proactive guidance from General Counsel that go beyond messaging and into the management of implementation.
Facilitate Regular Conversations on the Right Risk Posture – Gartner’s survey of in-house counsel revealed 57% respondents didn’t fully understand their organization’s risk posture as established by their General Counsel and company’s strategic direction.
This represents an opportunity for General Counsel to regularly engage their in-house counsel on the organization’s risk tolerance.
Embed Structure in Lawyers’ 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. General Counsel 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 only 25% of in-house counsel reported their departments as effective in this area.
Remove Conflicting Signals from Real-Life Examples – Lawyers are frequently confused about which behaviours to prioritize. 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.