If you manage or own a company — whether a start-up or mature, small or large, regional or global — at some point, legal advice and expertise are essential. Companies may find such expertise in one of two places: outside counsel or in-house counsel. Depending on a number of factors explored below, companies may also use a combination of both. In my 13 years’ experience as both outside then in-house counsel, I have found that a majority of maturing or matured companies use a combination. This article will explore the strategic advantages of having in-house counsel.
Two Types of In-House Counsel
There are two types of in-house counsel: General counsel and "specific" counsel. A general counsel (GC) wears many hats and provides advice and support in all (or most) legal areas affecting the business. He or she must be versed in a myriad of areas, from simple contract negotiations to complex acquisitions. Since a GC occupies an executive position within the company, he or she must be incredibly versed in management and have exceptional "people" skills. This position will interact with all levels of the organization, particularly the CEO, as well as with internal and external stakeholders. He or she is a valued business partner involved in the strategic planning and management of the company, and must be able to provide sound business advice to the executive management team while interacting with all levels of employees, outside attorneys, strategic allies and so forth.
Specific counsel (often called "senior counsel" in a corporation) works in a very limited area (or areas), such as real estate, tax, compliance, intellectual property, securities, etc. Having one or more specific counsel in addition to a general counsel may be required depending on a number of factors. If a company chooses to utilize both inside and outside counsel, then the outside counsel typically acts as "specific" counsel while the company gains general advice from its GC.
Specific counsel also occupy a management position within the company and interact with most levels of employees, including some senior executives, as well as with external stakeholders such as outside counsel, vendors, customers, suppliers and distributors.
Factors Impacting the Decision To Hire In-House Counsel
When a company considers hiring general and/or specific counsel, it should consider a number of factors, including:
the nature of the business;
whether the company makes, sells or distributes a product or service that can cause harm;
whether the business is heavily regulated (such as health care);
the size of the business;
the locale of the business (whether it is local, regional, national or global);
the number of employees;
if the business is privately held, whether it anticipates going public;
the amount the company spends annually on outside legal fees;
the number of contracts the company negotiates annually;
whether the company owns or leases real estate and, if so, the number of properties;
the amount of intellectual property owned by the company; and
the volume and type of litigation in which the company is involved.
What to Look For in an In-House Counsel
In-house counsel must have a few specific qualities and attributes.
• Relevant Knowledge and Experience
The first things to look for in an in-house counsel are relevant knowledge and experience. Ideally, in-house attorneys should have several years of relevant experience, either in a law firm or at another corporation. Many in-house attorneys, including myself, began practicing in a law firm and then transitioned to in-house employment. Working in a law firm exposes an attorney to a 360-degree view of corporate legal work. For example, an attorney who litigates a breach-of-contract action while working at a law firm can take this knowledge and experience and adapt it to the corporate environment as a risk management tool to avoid similar litigation. Moreover, having once acted as an "outside" attorney, an in-house attorney is better equipped to deal with and "manage" outside counsel.
• Assimilation into Corporate Culture
An in-house counsel must fit into the corporate culture. Every company has an unwritten culture. A prospective in-house counsel must understand it and integrate into it. That is, he or she must understand the communication process, the hierarchy, and the methods of problem solving and decision making. He or she must also possess the values closely held by the organization’s members.
One facet of corporate culture includes the dress code. I often show a Power Point slide in my management lectures of a new employee showing up to work on the first day wearing a bright striped suit. All other employees are wearing neutral colors and are dressed in business casual. We all want to make a great first impression; however, we must understand the company’s culture and assimilate into it. An in-house counsel is no exception.
• A True Business Partner
In-house counsel must act as both attorney and business partner. They must know when (and how) to wear their "attorney" or "business" hat. As a business partner, in-house counsel share the corporation’s mission and vision and engage in strategic management and planning. They must be capable of working with, leading and managing attorneys and, more importantly, nonattorneys. When I first made the transition to in-house, I missed engaging in "attorney jargon" since my colleagues were now business leads who had their own jargon, which I quickly learned. If an attorney is not comfortable wearing his or her "business hat," then unnecessary tension will develop that may thwart the reasons why in-house counsel was hired in the first place.
Primary Benefits of In-House Counsel
There are numerous benefits to hiring an in-house counsel.
• Cost Savings
Hiring in-house counsel can save a company a tremendous amount in outside legal spending. For instance, if an outside attorney charges $400 per hour, then a telephone call lasting 10 minutes will be billed at $100 by an outside firm billing in 15 minute increments. Even if a company is able to negotiate more favorable rates for outside counsel, it still cannot forget that a simple telephone call is a "billable event" that will result in an invoice.
The amount of outside legal spending varies from company to company. As a rule of thumb, if a company spends more than the annual salary of an in-house attorney, then it may be time to hire one.
Another guidepost is in what area the outside legal spending occurs. If the majority is spent on contract negotiation, for example, the company may want to hire special in-house counsel versed in contracts. This person will have a 360-degree view of the business, including intimate knowledge of strategic plans. This knowledge can be transferred into key contract clauses, including renewals, terminations, volume requirements, etc. Moreover, when a question or issue arises with regard to a contract, a member of the company can walk down the hall and receive an answer or engage in a conversation without anticipating an invoice.
• Efficiency, Organization and Accessibility
Because in-house attorneys have one client (the company), their entire focus is on that company. In-house attorneys are intimately familiar with the business, the products and services, the executives and the issues facing the company. They are available at a moment’s notice for consultation, question and answer, or simply to brainstorm.
For example, suppose a business lead has a simple question regarding contract language in a vendor contract. If an in-house attorney is not on staff, then who can consult outside counsel, and when? Can business leads contact outside counsel directly, or is there a direct contact within the company who must convey the question to an outside attorney? If the latter, an entire day (or more) can pass before the business lead has an answer, which can result in inefficiency, financial loss and frustration. With an attorney on staff, the business lead can obtain an answer almost immediately.
With legal work being conducted in-house, all of the company’s legal documents (including contracts) are housed and organized in one area, instead of in many areas, and can be accessed almost immediately. Such organization and efficiency also afford greater confidentiality. Moreover, in the event of a "litigation hold," documents can be easily located, earmarked and protected.
An in-house counsel has full loyalty to his or her employer. That is, he or she does not represent many clients with diverging needs and priorities and can concentrate on the main priority — the company.
In short, there are tremendous benefits to hiring in-house counsel. An in-house attorney is not only a trusted legal advisor, but also a manager who is able assist with strategic business decisions and planning, anticipate risks, and lower or eliminate the company’s outside legal spending. •