Dive Brief:
- Almost 75% of general counsel operate a centralized legal department but according to an Axiom paper there’s pressure from CEOs to embed lawyers in business units to make the legal function more of a value driver.
- In response, GCs are moving toward a decentralized model even if it’s against their better judgment. “Most GCs planning to transform the department are doing so because they are beholden to the way management prefers its legal department to be structured,” the paper says.
- About 5% of GCs have a decentralized team, but that’s expected to increase, says Axiom based on a survey of about 200 in-house legal leaders. Axiom helps in-house teams meet shifting demands by matching GCs with legal talent on a contract basis.
Dive Insight:
CEOs not only prefer to see in-house lawyers embedded with business units but they want them reporting directly to the heads of those units rather than GCs.
“A decentralized legal team is thought to better enable lawyers as commercial agents by providing lawyers with a better idea of how their advice and legal decisions affect the wider organization,” the paper says.
In a typical decentralized structure, legal staff report to regional heads, business unit heads or other non-legal functional heads. In some cases, legal staff maintain a dotted line reporting relationship with the GC.
"I understand the underlying driver of this push to decentralize,” Axiom CEO David McVeigh says in a statement accompanying the paper. “CEOs and functional/regional business unit leaders sometimes perceive legal to be a commercial blocker — a department that doesn't quite understand commercial pressures and can't meet speed requirements.”
GCs aren’t sold on the decentralized model. They feel that having legal operations under their control optimizes in-house and external spend, has the strongest corporate governance and universal legal operations standards, allows for great flexibility in the deployment of resources, best mitigates risk and enables greater efficiency across business units and geographies, according to the paper.
Legal leaders also worry about the risks that arise when embedded lawyers act as advocates for, rather than counterweights to, the business units.
“GCs know that for all the advantages of a decentralized approach, there are even greater risks when commercial incentives are favored over standard legal practices,” the paper says.
The paper supports the idea that a hybrid model is a good alternative to either a centralized or a decentralized approach, Axiom claims, because it provides the kind of flexibility, efficiency, commercial focus and speed that CEOs want while maintaining the visibility and oversight that GCs want.
It’s a “‘best of both worlds' solution," says Ashlin Quirk, Axiom’s GC.
In the optimal hybrid model Axiom recommends, about 15% of the in-house team is embedded within business units. This way, GCs can staff their legal departments with a core team of generalists.
