By: Ilaria Iaquinta
To cut spending. Or at least to contain it. Talking to general counsel which budgets are not, this seems to be one of the top priorities in recent years, for all companies, whatever the sector. But 2022 is for several legal affairs departments in Spain and Portugal a year in which budget is not a major problem. This was revealed by the survey conducted between May and June by Iberian Lawyer, in collaboration with the Spanish chapter of ACC Europe which gathered the answers of a selected sample of 50 in-house counsel from the Iberian Peninsula, belonging to companies of various sizes and operating in different business sectors.
With this research, Iberian Lawyer also wanted to understand the choices that drive the expenditure of in-house legal departments to take a picture of the health of legal departments, underlining the criticalities and revealing major trends. Back to the data, we were saying, the 2022 budget of the legal department has increased compared to that of the last two years, along with the legal needs of the company for the 61%; it is in line with that of the last two years for the 39% of the sample. No one said that the budget decreased due to the changed market conditions.
THE PANDEMIC EFFECTS
An interesting finding is that the pandemic does not seem to have had an influence on the determination of the budget. Indeed, to the question “has the Covid-19 pandemic affected the legal department’s budget for 2022?”, 74% of general counsel replied “no, the pandemic has not affected it either positively or negatively”. The cases in which the pandemic further reduced the budget (13%) and those in which it increased it in line with the growth in legal requirements (13%), weigh equally. “The pandemic forced in-house lawyers to assume the strategic role that we have been defending for some time now at ACC Europe, especially in the areas of risk analysis, compliance, contracting and crisis management and as a support figure for the board of directors. For this reason, its budget was not immediately reduced at the outset. However, over time, like other departments, it has been gradually affected by the cost containment/ reduction policies adopted by companies to mitigate the effects of the crisis generated by the pandemic”, tells Teresa Minguez, ACC Country Representative in Spain and general counsel and compliance & Integrity Officer at Porsche Ibérica.
In general, the percentage of the entire 2022 budget spent for ongoing external advisory services varies according to the size of the legal affairs departments. The smaller the company’s legal team, the closer the percentage of the budget allocated to external spending is to the 55-70% range. Larger teams tend to devote a lower percentage to external advice. But size is not the only factor. The increase in external costs goes hand in hand with extemporaneous needs (such as litigation or other special necessities) or the decision to undertake extraordinary operations, which in these times of socio-economic and political uncertainties are difficult to predict. In general, the most frequent answer foresees a legal expenditure on external advisory services of up to 40% of the budget for the current year. Indicatively, the breakdown of internal and external expenditure would be as follows: 70% internal and 30% external (57%). As regards the percentage of legal expenditure allocated to internal staff costs, therefore, the most frequent answer is at least 60%. The item ‘new legal needs’, whether internal or external, which may arise during the year, seems to have little impact on the total expenditure of an inhouse department: in 54% of cases, less than 20% of the budget is devoted to it.