Last year, in “Yes, Now IS the Right Time to Add Headcount” (GC Mid-Atlantic, March 2009), we explored the reasons many corporations were bucking current hiring trends and bringing on more legal staff. Not in extravagant numbers, mind you, but strategic hires they considered necessary for their continued success, both in their industry niche and the overall marketplace.

These companies recognized the wisdom, backed by several respected studies, in not “ducking and covering” while the economic tsunami did its damage, but staying on course and not allowing their competitors to gain an advantage. They were thus able to pick up some key talent, support those already on staff, rein in costs where they could, and ensure that their department would be ready when the fiscal clouds lifted.

With the past, very difficult year under our belts, we decided to revisit some of the same companies (as well as a few new ones) and see how their 2009 hiring decisions turned out, what they envision for 2010, and which practice areas continue to be in greatest demand.

Doing More with Less

It may be a cliché, but the overwhelming trend that took place in 2009 — across industries and disciplines — was doing more with less. Even companies that made strategic hires reported that the amount of work they were handling increased exponentially. So while many businesses and law firms unfortunately folded, most of those that remained were stretched thin to accommodate new and growing needs. In fact, a Conference Board study revealed that productivity in the United States (in per-hour terms) actually grew 2.5 percent in 2009. While there were fewer people on staff, they were producing more.

This was particularly true for in-house legal departments. As Bob Major, Major Lindsey & Africa’s founding partner, wrote in October 2009 for GC Mid-Atlantic’s California affiliate, “Plaintiffs’ lawyers still file lawsuits, patent trolls still send letters claiming infringement, Congress continues to pass new legislation governing corporate conduct, and legions of government lawyers hope to make names for themselves by nabbing corporate wrongdoers, just as newbie journalists try to become the latest incarnation of Woodward and Bernstein by lifting the veil on misbehavior or at least perceived misbehavior.”

So the typical responsibilities of most in-house legal departments have moved in the opposite direction of the workforce. In fact, everyone we talked to for this article admitted their workload increased between 10 and 20 percent in 2009. While many handled this extra work with existing staff, several of our in-house contacts chose a different path — they filled vacated positions, converted part-timers into full-timers, refused to implement hiring freezes, and brought in new talent when certain practice areas became overwhelmed.

Some of the companies we talked to responded to the economic downturn by launching audits — i.e., asking every department head to analyze their employees’ tasks and their clients’ needs to help determine the services that were most essential. They were then tasked with re-engineering certain roles to ensure they were delivering the most-needed services in the most efficient manner.

The result was a re-prioritization of tasks on the most important and high-impact initiatives and assurance that the necessary resources were in place to deliver on those priorities. As Michael Kanazawa and Robert Miles explain in their book, Big Ideas to Big Results, the best approach to dealing with economic downturns is to focus more resources and more staff on fewer initiatives.

Which Areas Are Hot?

Despite the variety of industries, the GCs we interviewed expressed great consistency when it came to the types of positions they most needed to fill in 2009. Not surprisingly, they are the same areas they envision needing to expand in 2010.

Regulatory and compliance work tops everyone’s list; IP, patents and licensing rank second; commercial work, focusing on contracts and acquisitions, is third; and real estate transactions is fourth, as companies look for devalued properties to pick up or decide to consolidate their own property holdings.

Hiring is also expected to be active among companies that are just reaching the point of needing their first in-house counsel.

Pharma Demands Are Mounting

Our discussions revealed another major theme that is especially pertinent for the mid-Atlantic market: If you’re in the pharmaceutical industry, you’d better make sure your legal department is robust.

As the vice president of litigation of an international pharmaceutical/biotech company reported, “More and more pharmaceutical companies are facing the ‘patent cliff.’ New ideas and inventions and challenges must be aggressively protected, and that means having IP expertise on your team.”

While several blockbuster patents expired in 2009, the apex of the patent cliff is supposed to hit in 2011. With the R&D side of the business frantically and aggressively looking for new drugs to replace the sales lost to copyright competitors, lawyers will be fighting an increasing number of patent challenges to their older drugs and having to ensure that proper protections are in place for their newer ones. Some companies are choosing to beef up their generics operations, either by taking over smaller companies or devoting more resources to their internal divisions; others are forming alliances with competitors to ensure they both benefit from the new generics and to expand their geographic reach.

Compliance is another “hot button” for pharmaceutical companies due to the increasing number of qui tam actions. The recent fines levied for “off label marketing” have put all pharmaceutical companies on notice.

As one pharmaceutical executive put it, “A well-run compliance department can help head off these types of issues. In light of some of these fines, companies will likely approve additional hires in this area.”

In or Out?

How are GCs supposed to decide whether to bring the needed help onto their payrolls or look for it in outside law firms? The dual dilemma of tightening their budget while complying with an increasingly burdensome regulatory environment is leading more and more of them to turn inward.

In fact, according to the 2009 ACC/Serengeti “Managing Outside Counsel” survey, for the first time in three years, in-house counsel reported that controlling spending on outside counsel was their top priority. Sarbanes-Oxley and other legal compliance requirements ranked second, while concerns about reduced legal budgets/having too much work for fewer resources came in third.

Another interesting finding: During its first five years, the survey revealed that the amount of money spent on outside counsel was generally double that spent in-house. Over the past four years, however, that ratio has shifted. Specifically, the ratio of outside counsel spend to in-house counsel spend declined from 2.0 in 2004 to 1.6 in 2008.

One GC told us he isn’t surprised by the shift. He said many in-house managers are frustrated by the unwillingness of some law firms to adjust their fees during tough times.

Another GC, this one with a telecommunications company, said he relies more on his in-house staff than outside counsel because of his expectations regarding the quality of work and understanding of his business.

“The expertise of our in-house attorneys and their intimate knowledge of the company and its assets makes it impractical to use non-dedicated attorney resources.”

A similar opinion was expressed by Brian Zuckerman, general counsel of The Pep Boys: “In-house staffing is often the most cost-effective approach to our core legal workload.”

Harder to Find the Stars

Once a company decides to fill a position in-house, it then has to decide how to handle the screening and hiring process. Though many view the current job market as “ripe for the picking,” the over-saturation has actually made it more difficult to find the superstars. It is, therefore, best to practice “active recruiting” — having a precise job description in hand and going out and finding the best candidates — rather than sit back and hope they find you.

Even after finding qualified candidates, many of the GCs we talked to expressed frustration at the increased due diligence required to vet them properly.

“We now have some of our in-house lawyers working closely with HR to help with the initial screening of candidates to make us more efficient in the first cut. We are also doing more in-person interviews to ensure a better cultural fit in order to increase our retention,” explained Steven Sprecher, general counsel of Philadelphia-based InterDigital Communications.

Other GCs agree that you need someone with “legal eyes” to properly ascertain the nuances required in specific in-house positions and to know exactly what skills and experience a particular candidate brings to the table.

Others have implemented more exacting background checks and now ask their recruiters to conduct in-depth, in-person screenings, interviews and situational testing. This goes well beyond ascertaining a candidate’s professional skills and experience, but is often what makes the difference between a good hire that goes the distance or a misfit that must eventually be replaced.

Don’t Underestimate Your Needs

While all of us look forward to riding the joyous waves of the “great recovery,” we still have work to do. And companies will continue to need lawyers to help them do it.

More than half of the GCs we polled plan to bring more legal work in-house in 2010, and just under half hope to hire additional staff to handle that work. In fact, one company plans to hire a half-dozen attorneys with expertise in patent prosecution and/or licensing by the end of the year.

So, to recap what we stated at the beginning of this article: If your in-house staff is getting overloaded, consider conducting a review of the services you provide and then formulate your immediate staffing needs. If you hire in this current market, you will probably be able to pick up some key talent that would not have been otherwise available, show your existing team that you value them and don’t want to overload them unnecessarily, demonstrating that you are concerned about costs, and ensuring that your department and company will be able to handle whatever comes its way.

After all, CEOs may rail against increased legal spending, but they will also be the first to scream if the train runs off the tracks.

Julie Bonasso and Deborah ThomPson are managing directors in the Philadelphia office of Major Lindsey & Africa, the world’s largest legal search firm. Both spent several years at prominent Philadelphia law firms before joining MLA. Bonasso can be reached at 267-238-9852 or jbonasso@mlaglobal.com. Thompson can be reached at 215-636-9849 or dthompson@mlaglobal.com.