Our recent survey of managing partners tried tease out not just which business issues they see as most challenging, but which of those also come with the greatest reputational risks. Unsurprisingly, issues around managing costs and talent in a period of high inflation scored highly, along with evergreen issues of cybersecurity and conduct risk. But in a sign of how data ages fast in our dynamic world, risk of a global recession and worries about fee pressure were lower down when we conducted the survey in the summer than they would probably be now.
In this last blog about our report I wanted to spend some time thinking about how things are changing as we near 2023 in terms of which reputational risks that should be top of the management agenda in 2023.
Firstly, recession-related risks need to be higher up on the risk list. Some firms will be needing to take difficult decisions about headcount or scaling back investment plans. Getting your comms wrong about redundancies can do horrendous damage to a brand. If you have spent a lot of time building an inclusive culture in the good times and then are perceived to treat your people shabbily in a recession then it will have an impact on your brand internally and externally. It doesn’t take much to flip a good culture to a toxic, fear-driven one. Equally, some firms will do extremely well in a recession. Appreciate that you are fortunate and be sensitive to the wider economic climate. You may wish to celebrate your success but do it quietly. The risk of being on the wrong end of a fat-cat lawyers story increases during a recession, when people are suffering. Recession-related risks can also collide with conduct risk. Previously unseen financial misconduct by personnel in boom times is more likely to be uncovered when times are tough.
Secondly, strategic risks are likely to make a comeback as reputational issues. When almost everyone is doing pretty well the press and indeed your own partners are a bit less interested in digging into why one firm grew revenues or profits 16% while your own grew 11%. But in tougher times they will ask very searching questions about the same 5% gap if one firm grows 2% and the other shrinks by 3%. Do you have strategic clarity about your weaknesses as well as your strengths, and are you taking action to deal with them? These risks may be management turnover, competitive pressures, client preference shifts or merger integration if you have recently done a deal. If you are underperforming against peers, external and internal stakeholders will notice and talk about it, potentially creating a cycle of negative perception. Even if you don’t disclose financials, it will be visible in a slew of partner departures or heard in market chatter. It’s important to be able to coherently articulate how your strategy will get you through a recession in good shape.
Thirdly, while ESG is both a reputational risk and an opportunity through client work, do not discount the risk element for your own firm. A fascinating and well-attended session at the recent IBA conference asked the question “Do Bad Clients Deserve Good Lawyers?”. The consensus seemed to be absolutely yes if you are doing criminal defence work, but not necessarily anymore once you step outside that space. As one member of the audience opined “whether we like it or not, the lines of what is acceptable have changed and the profession needs to find and agree new, defensible positions about our client choices.” 2023 is going to see this debate continue and intensify. It is inevitable some firms will find themselves under uncomfortable levels of scrutiny as they try and bring together commercial choices about client work with their ESG commitments and what they tell their people.
Finally, something will come out of the blue that none of us expect. It always does. You can’t prepare for that but you can be nimble and take it seriously when it comes.
