Wall Street Journal Law Blog: Legal Spending is Up, But Cyber Threats Loom

Originally Published in The Wall Street Journal Law Blog | January 30, 2013 | By Jennifer Smith

After years of belt-tightening, legal spending at many big companies is inching back up.

But bigger budgets are no panacea for the worries that keep chief legal officers up at night, according to two new surveys out this week.

General counsel are still under the gun to keep costs down, even as they contend with heightened scrutiny—and criminal prosecution—of regulatory and compliance infractions. Also high on the anxiety list: privacy concerns, governing employees’ use of social media, and the looming threat of cyber attacks.

“For some time now general counsel have been operating in a pressure cooker,” said Veta Richardson, President and CEO of the Association for Corporate Counsel, which on Wednesday released its annual survey of chief legal officers. The report polled 1,104 law department bigwigs in 36 countries.

Let’s start with the good news.

The majority of the legal officers ACC surveyed said they were happy with their jobs, and 34% reported being very satisfied.

Law department budgets are also on the rise, with 72% percent of respondents reporting an increase over the past year, according to ACC. Of those, more than two-thirds saw in increase in their inside budget (money to run the law department, hire more staff, and the like) and 59% said they had more money to spend on outside lawyers.

Still, it’s not all unicorns and rainbows.

Eleven percent of ACC respondents said their law departments cut staff and in-house lawyers over the past year.

“The economy globally is improving, but costs remain a significant issue,” Ms. Richardson said.

Some chief legal officers say they lack the resources to properly protect their companies from risk, according to a separate poll by Consero Group LLC. The company organizes executive conferences and surveyed a small group of 48 general counsel from Fortune 1000 companies who attended a December event. Twenty-eight percent of respondents told Consero they were unhappy with the level of resources they had.

Still, the majority said they were satisfied—a potential indication that companies are taking legal risks more seriously, said Paul Mandell, the group’s chief executive officer. That spending is likely driven by the continued drumbeat of companies—and employees–that find themselves in regulatory hot water, he said. Bumping up the legal budget is “sort of like buying insurance now to save money later.”

One big bugaboo casting a shadow over the coming year: the threat of cyber attacks by hackers, organized criminal groups and even unfriendly governments.

Nearly three-quarters of respondents in the ACC survey cited data breaches and protection as an important issue that will become increasingly crucial as the year unfolds.

And 30% of the general counsel polled by Consero said their companies were not prepared to defend against cyber security threats. Nearly as many—28%–said their  companies had experienced a cyber security breach in the last 12 months.

“GCs can’t address this on their own,” Mr. Mandell said. “It requires collaboration with IT… They have to get on top of it, because if they don’t there’s tremendous exposure.”