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Why Legal Acumen Makes for a Healthier Company

Taking time to help employees spot potential legal pains will prevent companies having to cope with much bigger headaches in the future

Stethoscope Close-Up Health Check Performance Talent AssessmentAlthough corporate law may seem far removed from the stress, mess, and chaos of a hospital, there’s some use in seeing an in-house lawyer as a company’s doctor.

There are times when lawyers must treat firms that are racked with illness, and even sometimes must perform the intricate surgery of complex regulatory investigations or multi-party litigations. But most importantly they must encourage their patients to prevent themselves from getting sick in the first place.

All hard-won advances in medical science are rendered far less effective if patients don’t play an active role in looking after themselves. They are far more likely to stay healthy if they avoid dangerous choices (too much alcohol, processed food, etc), take the treatments they are prescribed, and turn up for consultation and therapy.

And the same goes for in-house lawyers. They want employees who know when an issue has legal implications and take the right remedial steps (even if that means just notifying the legal team).

The Importance of Legal Acumen

CEB’s research into how employees make legally sensitive decisions show that nearly 80% of employees made a decision or completed an activity with significant legal implications in the past year. Those in middle management roles made three-out-of-four of them, but only 40% of managers believe they understood their decisions’ legal consequences.

And managers in general turned to Legal for support less than a third of the time. This uncertainty can easily lead to employees taking excessive risks due to ignorance or avoiding opportunities from fear of breaking the law.

The solution to this is to improve employees’ “legal acumen.” That doesn’t mean giving all employees a legal education. Rather, it means improving the quality of their decisions by helping them develop a radar for legal issues and understanding what to do when they spot one. It also means teaching them how understanding the law can help improve their business decisions.

CEB defines legal acumen by using a series of measures that capture employees’ legal knowledge and belief in the value of services provided by their in-house legal team.

It turns out that developing legal acumen is powerful. Employees at companies with high legal acumen are 28% more likely to consult legal resources when making decisions, five times more likely to seek Legal’s advice in the future, and, perhaps most importantly, three times as likely to say their decisions achieved the desired outcome.

How to Improve Legal Acumen

Three steps will help in-house lawyers improve their company’s legal acumen.

  1. Address client uncertainty, not company risk: At one European biopharmaceutical company, like at most companies, lawyers frequently provide training on legal topics. But what makes this legal team stand out is that they put clients at the center of the training agenda. They pitch their training as a way of reducing managers’ uncertainty about decisions, which will slow business progress.

    The legal team analyzes where clients consistently misuse legal resources, provide incomplete or inaccurate information, or make decisions requiring rework. The team also asks clients which areas they find particularly tricky. Lawyers then tailor training to narrowly defined decisions and activities which managers would normally feel uncertain about. This burnishes legal’s reputation as a valued business partner.

  2. Connect in-house work directly to business goals: Elsewhere, many in-house lawyers use examples of business success (helping save money or make money) to show how the legal department can improve decisions. One legal team in CEB’s membership works back from data on how profit margins were eroded by overly high costs to find litigation or claims payouts that could have been avoided had Legal been involved.

    By demonstrating how legal guidance supports profitability, the legal team ties its work to goals the business is already accountable for. They focus less on the risk avoided – a negative proof that is hard for line managers to quantify and conceptualize – and more on showing how valuable Legal can be.

  3. Help clients make more informed decisions: The legal department at one large construction contractor likewise places the client at the heart of legal risk. This is especially important in decentralized and complex decisions that on-site project managers must make when assessing risk and creating mitigation plans.

    To help projects proceed without intervention, the legal team built a risk assessment and mitigation tool into the company’s existing resource planning and project management software. Without leaving familiar programs they use each day, managers complete checklists of specific, fact-based questions. Based on those answers, the tool then “nudges” project managers to build mitigation and compliance plans on their own. This significantly reduced unexpected legal costs and the time spent by lawyers in reviewing projects.

Just as doctors will never find a panacea, in-house lawyers must accept that they won’t be able to solve or prevent every corporate sickness. But providing corporate patients with a few ounces of prevention will be worth many pounds of cure.

 

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