Where Are Legal Departments Headed in 2023?

As we close out the first month of the new year, the question on everyone’s mind is: what’s in store for corporate legal departments in 2023? The economy as a whole continues to suffer ongoing volatility and uncertainty, with so many companies right sizing their workforce through layoffs and organization-wide restructuring. Legal teams nationwide are wondering how all these major changes will play out for them.

From greater pay transparency to new worries in cybersecurity, we see a few emerging trends in the legal profession that reflect the new reality of reduced budgets and resources under which chief legal officers and general counsel must operate.  Here are our top 8 trends for legal departments in 2023:

1. Resource constraints will shift in-house work even more toward Alternative Legal Service Providers.

While the layoffs of 2022 and early 2023 have grabbed headlines, legal departments have largely been spared from mass layoffs. Most companies still view lawyers as essential to handle increasing workloads and an ever-changing regulatory environment. That’s the good news.

While industry experts don’t anticipate corporate legal departments going through more mass layoffs, GCs will still feel the pressure to economize. Workloads and demand continue to mount, without the budgets or headcounts to keep up.

A renewed focus on cost- and resource-efficiency will spur legal departments to utilize flexible legal talent firms and other ALSPs to balance responsibilities while staying within budget. In fact, in a recent ACC survey, CLOs indicated that their number two strategic initiative for 2023 is right-sourcing legal services, meaning finding the optimal resourcing strategy for how the work of their legal departments gets done. Legal chiefs report shifting more work to ALSPs to alleviate their workloads while maintaining flexibility.

ALSPs also allow companies to combat rising outside counsel rates while still accessing skilled professionals with deep subject matter expertise.

2. Hybrid work is here to stay.

Hybrid work is one pandemic-driven shift that the workforce wants to keep. Many attorneys have gotten used to — and like — the flexibility of working from home. Another ACC survey found that 63% of in-house counsel are working hybrid schedules, while only 11% are working full-time in the office. 

While many companies have moved from fully remote toward some in-office requirement, there remains a great deal of variation in what that looks like as companies are finding the balance between flexible work arrangements and incorporating in-person collaboration. With fewer people working in the office, it only makes sense to change what today’s office looks like.

Companies are experimenting with different amenities, such as larger meeting rooms and shared workspaces, that can better accommodate hybrid work. Look for further efforts around right-sizing office spaces and other ways to make the remote-hybrid model work … for everybody.

3. Legal operations’ strategic value will grow.

In the ACC CLO survey, ahead of right-sourcing as a strategic priority was legal operations at number one. Done right, legal operations is at the nexus of efficiency, cost minimization, right-sourcing, and technology-enablement in a legal department. As legal leaders are forced to maximize cost- and resource-efficiency, legal ops can lead the charge and show its true value. 

Additionally, cybersecurity and privacy expert Ryan Blaney argues that legal departments, ALSPs, and law firms need to collaborate, rather than compete, to meet clients’ needs. Blaney refers to this cooperative model as a sort of “ecosystem” in which different players work closely together and play to their own strengths and services to tackle clients’ increasing workloads, especially in a tight labor market.

We expect most companies in 2023 will prioritize legal operations as they aim to navigate up-and-coming regulations and achieve business objectives in a cost-efficient and timely manner.

4. Cybersecurity and data protection remain legal’s top pressure point.

Amid recent cyberattacks and developing regulations, companies will likely invest more resources in their cybersecurity strategies in 2023 to protect their reputations.

In the nascent days of data breaches, companies relied mostly on their IT departments to stay on top of cybersecurity issues. However, it’s a much more complicated game today.

Companies now look beyond their IT team, and they are diverting cybersecurity responsibilities to their legal departments as well.

Asking more of the department has made an impact on legal’s budget and staffing decisions, as revealed in the Association of Corporate Counsel (ACC) Foundation’s 2022 State of Cybersecurity Report, which surveyed in-house professionals from 265 companies across 24 countries.

The report reveals that 38% of legal departments’ spending increased from the previous year due to their company’s updated approach to cybersecurity. Additionally, 22% of the companies are now hiring dedicated cybersecurity lawyers to coordinate cyberlaw strategies and advise on the changing regulatory landscape.

A recent Women, Influence & Power in Law (WIPL) panel also discussed the growing need for attorneys with specialized expertise in cybersecurity to navigate the “challenging minefield” of new cybersecurity updates from the SEC and the FTC.

Expect companies to direct more resources to protecting themselves against impending cybersecurity attacks and the related damage to their reputations.

5. Investment in legal technology will accelerate as a critical GC tool.

In 2023, we expect that legal departments will bolster their spending and investments in technology and tools to improve the delivery of their legal services and to manage increasing workloads, ongoing cyber breaches, and emerging regulations. Thoughtful investments in legal tech are another tool GCs have to increase efficiency and output with tighter budgets.

In fact, Gartner forecasted that legal technology spending will triple by 2025 as legal departments use tech to support workflows and improve productivity. Several legal technology companies reported stronger growth and hiring despite mass layoffs at other industries.

All in all, staff growth at legal technology firms and increased spending by legal departments strongly suggest an uptick in demand for legal technology and other productivity and efficiency tools.

6. Social responsibility and ESG become must-do for legal teams.

We anticipate that 2023 will place more pressure on more companies to adopt environmentally friendly and socially responsible practices and policies to closely align with the values of their consumers and employees.

The SEC’s stricter enforcement of ESG misconduct, the Talent Wars, and increasing competition make companies accountable for the public statements they make about ESG. In fact, a recent survey of 128 in-house counsel and business executives found that 80% of public company respondents say that they’re already preparing to comply with the SEC’s climate-disclosure rules.

Consumers now pay close attention to the missions of the brands they purchase. Likewise, employees evaluate company culture and values when deciding to join the broader team — or not. In this era of increased due diligence, consumers, and employees expect companies to do what they say and say what they do.

To remain competitive and attractive, companies are realizing that their ESG commitments are not a nice-to-have but a need-to-have.

7. The DEI mandate includes the entire legal department.

The legal industry has come under increasing pressure to move the needle on diversity, equity, and inclusion (DEI) efforts.

Annual reports have increased transparency by tracking the different nuances of “diversity.” Legal departments are also expected to meet various benchmarks to show progress in racial, gender, and even generational diversity.

Notably, DEI progress doesn’t just apply to top legal leadership positions.

For example, an October report from the Minority Corporate Counsel Association showed that while 2022 saw “substantial progress” in the number of women and minorities in senior leadership roles at major companies — the number of female GCs in Fortune 1000 companies rose 12% and GCs from underrepresented racial/ethnic groups rose 21% in 2021 — the same couldn’t be said for lower-level legal department roles.

In fact, diversity advocates are still frustrated over many legal departments’ “failure to use their clout to bolster the ranks of women and minorities” further down the department hierarchy. While legal departments have increased diversity in high-profile legal positions, they will be expected to show greater strides in promoting gender, racial, and generational diversity throughout the department rather than just in the upper echelons.

8. Pay transparency is at the dawn of a new era in the legal field.

Pay transparency laws have become a hot topic as more states and cities adopt pay transparency laws. These laws can help close gender and racial pay gaps, improve employee engagement, and promote a more positive work culture.

Sharing base pay and salaries has been venturing, albeit more slowly, into the legal industry, and we expect that pay transparency will become more commonplace in 2023. Look for some initial efforts around remote positions.

Corporate legal departments have also realized that they have to share this important information to not comply with new laws but, more importantly, to also attract and retain talent.

In a cautionary note, Airbnb’s former legal and ethics chief officer, Rob Chestnut, advised heads of corporate legal departments on the importance of proactively pushing for pay transparency and correcting pay discrepancies. He suggests acting before disclosures become public, or companies become vulnerable to losing employees and even lawsuits.

Pay transparency is disrupting the legal profession’s tradition of opacity and creates a new pressure point for legal departments among the many they must manage in the year ahead.