The law is mysterious, even to the most sophisticated CEO’s. It is sometimes illogical. It is often frustrating. It is always expensive.
When a company reaches a certain size, sooner or later the CEO is going to consider whether or not hiring an in-house lawyer makes sense. Sometimes it is prompted by concerns over the cost of outside legal service. More often it is triggered by frustration at artificial limitations imposed by law and the unpredictability of the legal system. Companies sometimes fall victim to frivolous lawsuits, suffering the apprehension of the threat they represent. This is compounded by the expense of having to defend when they should not have to. The company’s officers do not understand why it is so difficult to get rid of what is so obviously wrong as the ongoing expense continues to eat into the bottom line.
At some point, frustration at the law intersects with frustration at the cost of lawyers. That is when companies begin to wonder if they can get more personalized legal service at the same cost and start to think it might be a good idea to hire in house counsel.
These are the factors that often drive the decision to hire in-house counsel.
Companies want a lawyer whose loyalty is only to them and who is not going to self-righteously lecture about what the law requires. They want a lawyer who will tell them how to do things not why they can’t be done. They want lawyers who will guide them through the legal labyrinth instead of establishing hurdles to jump over to get to the finish line. Lawyers, for their part, see themselves as having an independent duty to the law that most often leads them away from he entrepreneurial impulse that animates their clients.
Still, the decision to hire in-house counsel must be made because there is a compelling reason to do so rather than out of frustration. In-house lawyers are expensive and general counsel offices are not profit centers. They are a cash drain and a direct and unrecoverable expense. They come right off the bottom line and typically grow, substantially increasing cost, so it is not a decision to be made lightly.
There are good reasons to bring legal services in house. Few law firms take the time to think about the practical impact their decisions have on their clients. Most handle matters “by the book†doing each and every thing that can be done without stopping to consider whether the effect is worth the cost. They do not want to be accused of having failed to do everything necessary to accomplish the goal but sometimes doing everything is not worth the expense. Almost no law firms conduct a cost/benefit analysis in deciding what should be done in any given case. A contract that can be handled in five pages becomes a twenty-five page document covering things that are not even conceivably possible. Litigation activities are undertaken that have no measurable effect other than to increase expense.
In house lawyers know their clients’ businesses intimately so they know what is important and what is not. They spend most of their time with businesspeople so they understand the pressures and concerns that drive expense and profitability. They are available at a moment’s notice to answer questions without additional expense for phone calls. They can advise management before problems arise and implement systems that avoid those problems. They know there is more value in avoiding problems than in solving them. The best resolution to a problem is not its solution. It is in making sure it never has to be addressed.
When I became general counsel of one of San Diego’s largest companies, its claims were out of control and its insurance expenses were dramatically spiraling upward. It was a company dependent upon the strength of its client contracts and leases but those contracts and leases were being prepared by businesspeople unschooled in law based on templates prepared years earlier by huge law firms whose charges were so high that executives did not want to go to the expense of having them reviewed by the firms. Consequently, many of the contracts contained provisions that impaired enforceability and some were completely worthless.
The claims, on the other hand, were huge, cumulatively, but few were individually large enough to justify hiring lawyers to handle them. So they spiraled out of control and many completely unjustifiable claims were simply paid. The company had become known as a patsy.
Not only was I able to substantially increase the level of protection the company enjoyed through legal review and drafting of contracts, I did so while decreasing our legal expenses by over one million dollars per year. We were also able to reduce claims within one year by 90% and the resulting savings in insurance premiums augmented the savings in claims payments.
In house lawyers can anticipate problems and organize management activities to avoid them. They can review and prepare documents at the cost of their salaries rather than the billable hours demanded by law firms.
Staff counsel’s loyalty is only to the company and they can guide management as decisions are made to shape activity in a way that not only makes it more efficient but ensures that legal exposure is minimized. Their object is not to tell management why a deal cannot be done but to provide maximum protection for the deals management wants to do. There is tremendous benefit in that.
There are real benefits to in-house counsel, but they can represent an expense that that outweighs their benefits and companies often find that there is simply not enough legal work to justify the establishment of an office of staff counsel.
There are alternatives. JW Howard/Attorneys is managed by former general counsel so we understand the value of cost/benefit analyses when approaching legal matters. We coordinate our clients’ legal affairs by undertaking the sort of work house counsel would do and managing the work of other outside lawyers to ensure the work is done efficiently and at the least expense. We take the time at our expense to intimately understand our clients’ businesses and cost effectively perform the work most in-house lawyers would perform. We offer fixed price, project based pricing in appropriate instances and block representation for particular activities.
We cover a lot of specialties and perform the sort of routine legal work that is the purpose of in-house lawyers but we know when more specialized representation is required and have a network of highly qualified and credentialed specialists we bring in when necessary. We are a sort of “outside in-house counsel†and we bridge the gap between companies and outside legal service providers. We help companies that have a need for comprehensive legal coverage but are not large enough to justify the expense of a fully staffed general counsel office.
Sometimes the hiring of in-house counsel is wise, prudent and advisable for all the reasons I have listed. Sometimes, though, what you really need is a lawyer who understands the needs of your company from an inside perspective and who has its best interests at heart to coordinate legal services to gain maximum efficiency with the least impact on the bottom line. JW Howard/Attorneys can answer that need.
