LEGAL COUNSEL FOR BUSINESSES
An in-house legal team has one client: the company they all work for. In saying that, an in-house legal team ends up doing a bit of everything and being part of all the legal backbones of the organization. These could include mergers, acquisitions, contracts, employment issues, and advising on all those matters. But there are different structures for legal counsel teams with different benefits.
WHAT IS IN-HOUSE LEGAL COUNSEL?
Simply, in-house counsel is a lawyer that works as an employee inside a company (not a law firm). An in-house counsel lawyer could be on their own or part of a larger legal department. But generally, they have one client and look after the legal needs of the company. The scope of work and amount of work they do depends on the type of organization they work for and how big the legal department is.
In addition to legal work, like drafting contracts and advising on all legal aspects of the business, in-house counsel may also train staff in the business and participate in making executive level decisions to help manage risk for the organization as a whole.
What does an in-house legal team do?
An in-house legal team has one client: the company they all work for. In saying that, an in-house legal team ends up doing a bit of everything and being part of all the legal backbones of the organization. These could include mergers, acquisitions, contracts, employment issues, and advising on all those issues.
Most in-house counsel lawyers are generalists so they can support all general aspects of the business. They are super efficient at it because they have one client and have direct access to the client and management team at all times. They are expected to do the best they can as issues arise in the time allotted. Because they are involved at all levels, they are also expected to foresee potential problems and try to stop them before they materialize into something bigger.
One difference is that in-house counsel lawyers tend to focus more on the business side and the risk and exposure for their business, while traditional lawyers in law firms tend to recognize legal issues. In-house lawyers would participate in meetings and discussions with the management team and learn the business inside and out, so they tend to have more in-depth knowledge about an industry, the working parts of the company, and how it operates within a larger strategy.
However, in-house counsel tend to not do a lot of litigation work. When a company is preparing for trial, they tend to turn to outside counsel, for it is just not practical for a lawyer to drop everything to prepare for trial. In-house counsel also generally rely on outside counsel for expert issues.
What does the first in-house counsel offer?
Being the first general counsel in a company certainly is the hardest. They not only have to justify their existence for their first time to the owners and board, but also prove that it is worth the ongoing investment (and try to reduce the legal expense budget too!).
The first in-house counsel needs to do several things, and being the first makes it that much harder:
- They need to gain all the intimate knowledge of the company in all its different departments, generally by talking to each of them.
- They need to set up systems and carve their way into a generally well-oiled machine, or else figure out how to insert themselves into a wonky machine so that they can fix it.
- They need to get the management teams and executive teams used to trusting them as an advisor in issues that they are used to handling on their own.
- They need to create corporate policies where none existed before, or figure out where the gaps are and fill them, in areas like employment, sexual harassment, contracts, compliance, workplace communications, social media policies, and dialogue.
- They need to manage outside counsel relationships so that everyone knows their own roles.
- They need to educate the decision-makers in the company about minimizing legal risk, crisis prevention, and management from the legal perspective.
- They need to understand and support the existing internal corporate governance structure, including the appropriate structure of the board of directors and the associate liability issues.
- They need to be aware of company-wide insurance initiatives and ensure coverage is adequate.
- They need to gain knowledge in the company’s corporate planning, strategy, and accounting.
The company may or may not realize or understand what they have and what they are missing. They must show them the importance of that investment in time to get things set up right from the beginning, which will help build a solid foundation of growth going forward even though it seems like it has no value.
What are the advantages of in-house counsel?
There are several advantages to using in-house counsel. Here are the top ones:
- Company’s Business. The main advantage of in-house counsel over external counsel is their thorough understanding of a company’s business and access to all information to have that understanding to properly advise the executive team. Their role then becomes deciding whether issues should be handled internally or externally, and if externally, managing the external counsel to stay on budget and stay valuable.
- Legal Strategy. When you add in-house counsel to your team, you are making a strategic decision to grow and develop your business. In-house lawyers assist with important business and strategic business planning decisions with their unique combination of legal and business experience. They can also execute the plan to prevent risk and unnecessary liabilities.
- Business Buddy. The in-house lawyer helps the business team execute their goals and objectives with the peace of mind that they have a trusted advisor on the team guiding them along the way.
- Legal Answers. In-house lawyers use their business mindset to focus on legal solutions while protecting the company. They are there inside the company to provide answers efficiently and early in the process, which adds substantial intangible benefits to seeking external legal advice when needed.
In the end, if it makes financial sense for the company, having an in-house lawyer can also be the difference between business success and failure on a deal or decision.
What are the disadvantages to an in-house legal team?
This is an interesting concept. It’s almost like the advantages of using in-house counsel are the disadvantages of using in-house counsel! Let’s take a closer look.
One advantage of having a general counsel is to have a lawyer available who is experienced and knowledgeable in the area of law that is required, but this is also a problem in whether to choose a lawyer with broad knowledge across various business-legal areas or to choose a lawyer with a specific type of legal knowledge (because you can essentially just choose one!). Most companies opt for the general legal knowledge and outsource the specific areas, or choose the type of law that arises most often in the business.
Another advantage of using in-house counsel is that legal perspectives are integrated into the business decisions of the company, which ultimately makes that decision better as risk and prevention are considered along with company wide legal issues. But, what if the legal counsel is a bottleneck because due diligence and input cannot be provided in a timely manner. This could be due to the personality of the general counsel but also because of capacity or availability.
Another related issue to this is whether the lawyer, being an advisor to the executive management team will receive shares or be an owner of the company also. It is common, but one thing to be cautious about is whether their role as a lawyer would be impacted by their role as an owner especially as they are reviewing and negotiating terms of specific deals that may impact them personally. This is probably true of anyone in that position, but lawyers are generally closer to the action and have influence about how things go more than the others.
HOW DO WE KNOW WE NEED LEGAL COUNSEL?
Knowing whether you need legal counsel is probably the hardest question! If you’ve never had counsel before or are not happy with the current way that legal services are supporting your business growth, then it’s time to take a hard look at whether another option is better.
Some easy places to start are to assess:
- How much volume of legal work is there?
- Who is currently doing it? Is that the best place for it from a skill set or capacity perspective?
- Are your legal needs more one-time project based or more consistent over time?
- Are there legal issues the business is not addressing because there’s no one to ask, or there’s a perception it’s too expensive, or not worth calling the lawyer?
- What are the current and future legal needs of the business? Are there other areas that could be added to the list?
- How much is currently being spent on external counsel per year?
- How are those expenses broken down? Are they one-time project based expenses or more ongoing?
- What areas of legal expertise does the business require?
An experienced lawyer in a law firm with about 6-8 years of experience will expect to earn about $100,000 to $150,000 per year, depending on their workscope and workload expectations. A general counsel will likely be double that and that’s before benefits, remittances, bonuses, office space, technology, recruitment costs, insurance, Law Society dues, and other expenses. So typically, you would need to be spending about $20,000 per month consistently in legal fees before justifying an internal lawyer.
But businesses that spend less than $20,000 per month also have legal needs so make sure that those needs are still being fulfilled even if it means creatively customizing a solution. It’s probably time to take a closer look at this item on your income statement if you’re consistently spending a similar amount each year on legal services on average and work together with external counsel to develop a plan to suit your business’ upcoming growth needs.
Should I outsource legal work, or hire a lawyer, or other options?
When the company has legal needs, there are a few options available to covering that off. They include the obvious traditional in-house counsel route or external counsel route, but there may be some even better combination options for your business.
Some companies with internal general counsel will also use external counsel on a temporary basis. This may mean bringing in in-house contract lawyers or using an external law firm to bridge a gap during a busy time or for a particularly specific type of law. This is a good option because it’s flexible and provides expertise when needed, as well as:
- Decreased costs because there’s a reliance on internal counsel; and the project lawyers are only temporary.
- More efficient than internal counsel spinning wheels to figure out a specific area of law.
- Existing team of lawyers are not threatened by the additional headcount and whether there’s enough work for everyone.
Another option is to use external counsel in a way that embeds them into the business and culture so that they can act as internal counsel, but without the disadvantages of adding headcount, severance payments, additional office space, and on and on and on. Part of this process includes introducing them to the key decision-makers, identifying the resources and contact people, outlining their responsibilities, preparing workflow and workscope expectations, and over-communicating with them to ensure there’s clarity on all sides.
How can a lawyer help grow and manage our business?
Lawyers are expensive. Lawyers are overhead. Lawyers belong in the back office or in a law office. But, wait! Have you really thought about how a lawyer can play a strategic advisor role on your board or advising your executive management team?
Lawyers are in this unique position of having detailed knowledge about your company, business and industry, and an understanding of business legal strategies that are great at providing risk management and prevention advice, but also to grow your business! No, seriously.
They can be involved in so many areas that impact the company as a whole, because they have that larger view. They could be involved in corporate strategic plans, due diligence of new ventures, reviewing contracts for acquisitions, drafting documents for mergers, negotiating divestments, and considering major investment proposals. They can also identify where conflicts between departments or issues may occur, and work towards resolving these challenges so the company can grow in alignment.
In-house counsel also provide businesses with timely advice, backed by business experience and knowledge about the company. Given that, they can participate in decisions for growth and development of the company. They can also identify legal issues and risk exposure so that the company can take steps to prevent them or understand the potential business costs of making certain grow-up and scale-up decisions.
Ultimately, the lawyer should get along with all the employees and be able to earn trust in order to be able to understand the issues at each level of the company.
How can we work more efficiently with legal counsel?
Hmmm working with lawyers. Ugh, pit in your stomach? Wallet aching? Obviously, there are some ideas out there about what it means to work with lawyers, and we totally get it. We work with them every day! Although, those are the general sentiments, it doesn’t have to be that way!
Here are some of our tips to making this relationship work best and a win-win for all parties involved:
- Set workscope and workflow expectations clearly from the beginning before things get started. Sometimes the excitement of getting things done and started makes us glance over this step. But taking the time to understand the company and the lawyer’s needs really helps in fostering the long term relationship. What do you want the counsel to do for you? How quickly? What volume of ongoing work do you anticipate or is it a one-time project? Who does what?
- Agree on how the lawyers will get paid before the work gets done. Will there be a traditional hourly rate? Or will the lawyers engage in alternative fee structures like fixed fees (definite price for work), capped fees under hourly rate (ceiling on what the company would pay based on hourly work), flat fee per month or quarter (definite price for work over a period of time).
- Commit to being transparent and open with your lawyers so that they can best help the company’s interests. If they don’t know, they can’t help.
- Assess the lawyer’s understanding of the business and the industry. Have an onboarding session to share the history and background of the company, future goals, expectations of how counsel can assist, processes to ensure integration of information and avoiding duplication, and how best to communicate and share ideas.
- Determine how the company and lawyers will interact practically and who does what. This should be written and fairly detailed. This could include invoicing procedures, budget considerations, rate increases, reimbursements of expenses, modes of communications (email or face to face), non-billable time, regular check-ins.
How do I subcontract legal work?
If you can’t justify spending $250,000 a year on an in-house counsel lawyer, don’t worry! There are other options and one of them is not ignoring all the legal needs of your business.
Think about using external counsel in a different way! They have several lawyers who can work for the company, have a depth of expertise, and are available to provide legal services. Companies should be clear on costs and scope of work so that there are no surprises.
Another option is to hire individual legal consultants who can be flexible and can cover different areas of law. The problem is that you still need to coordinate all these individual consultants internally and they are not guaranteed. You also have to repeat your onboarding process so that they are all aware of your business needs.
Finally, you may consider some of the flexible in-house options where they integrate with your business team, offer some cost effective billing options, and can be customized to what you need whether it’s part or full time.
Only you can understand your business needs and what is required to meet your ongoing and future growth plans. Chat openly with your legal advisors about how best to serve your company for the long-term.
HOW DO I START AN IN-HOUSE LEGAL DEPARTMENT?
Usually it’s the bigger companies that are building in-house counsel departments to meet their internal legal demands and to try to save costs by not hiring external law firms to do the work. These lawyers typically have some good business experience as well as their legal knowledge, so they can hit the ground running and protect the company’s interest from the inside out.
When building a department of any kind, it’s most important to understand the general expectations from the company and also the specific role of the legal function within the company. If it’s a new legal department, this analysis will take longer and require more estimation of the legal costs and the justification of another headcount or headcounts.
- Be a leader or a manager or both?
- Be involved in strategic decisions or just transactional ones or both?
- Be involved in specific legal questions or general ones?
- Advise on risk tolerance and exposure?
- Support business challenges?
- Be engaged in all areas of law or specific ones?
- Be more independent or be at the direction of another department?
- Help company employees with their personal issues as well or just act on behalf of the company?
There are, naturally, going to be challenges in setting up this massive undertaking, but it’s not impossible, and it’s necessary for a company to grow in the direction it needs to. Some things to brace yourself for are:
- Company employees may not understand how to use the general counsel, like not including them in business decisions because it’s not perceived to be “legal”;
- Departments may see general counsel as “red tape” and stand in the way of their ability to get things done;
- People in the company may perceive lawyers as “tv lawyers” and be nervous about interacting with them or become more aggressive in their communications to them; and
- They may expect the general counsel to know everything legal and when they don’t, then they think they are incompetent or lacking knowledge.
How do I build an in-house legal team?
Building an in-house counsel team is fun and challenging at the same time. Businesses typically start to build their team when their existing team is stressed and overburdened, their external law firm budget has blown up, or some combination of all of that.
Here are some questions to ask when building your in-house legal team:
- What’s the legal budget?
- How much has been spent on legal fees in the past?
- Could it be done in-house?
- Will more help be required or was it a one-off project?
- What are the projected legal needs going forward?
This will help compare how much you can pay and still reduce the legal budget, and also determine the experience level of the lawyer you can hire.
- What types of legal issues does the company generally face?
- Is there one or several areas of law (like strategy, real estate, human resources employment, intellectual property, contracts, mergers and acquisitions)?
This will drive the conversation about how much depth of knowledge in one area or experience in several areas is required in your in-house team.
- What experience level in the lawyers do you require?
- Junior or senior?
- What about training costs to get the junior lawyer up to speed and fixing their mistakes?
Also, consider who is on the other side of the negotiating table and that may also determine the level of seniority you require.
- What level of emotional intelligence do they have?
- How are their communication skills with internal and external people?
Lawyers in companies, especially, need to be able to work efficiently on a team, using good judgment, in stressful situations, and applying the business knowledge about the company and the industry and not just the law.
- When is the best time to add another lawyer to the team?
- Are there other options for bridging the gap so that adding headcount is not premature?
Lawyers are expensive items to add to the income statement!
This will take time to figure out the best mix for your company. Carefully assess the personalities of the company and the candidates to ensure a match on all levels to ensure that you build the right team, at the right time, at the right cost.
More specifically, this means answering questions like, will the legal department:
When should we hire an in-house lawyer?
The question of when to hire an in-house counsel will depend on a few factors, like:
- What’s the cost of the in-house lawyer including salaries, bonuses, benefits, employer remittances, professional development, Law Society dues and insurance, and a proportionate allocation of overhead like rent, stationery, and set-up costs?
- What’s the productivity of that lawyer in terms of the number of billable hours they can work?
If you take A and divide by B, that will give an estimate of the hourly rate of that lawyer which you can use to compare to the hourly rate of external lawyers. It is also a number that can be used to calculate the savings in a legal budget, but it doesn’t take into account the non-financial benefits and costs (eg: like the prevention and risk management, business knowledge, lack of flexibility, or the costs of adding overhead like severance payments for lay-offs).
WHEN SHOULD WE CONTRACT OUTSIDE LEGAL COUNSEL?
Ah, that’s a tough one. How do you know you need help? Here are some questions to guide you in your decision:
- What type of legal work do you need?
- Is it a specific area of law that requires expertise?
- What is the risk level if the advice is not thorough enough?
- What is the level of experience required?
- Do you have internal legal help available?
- What would this cost for outside legal help?
- How quickly do you need the legal advice?
- Can the advice be used again in the future or is this a one-time cost?
Most companies use external law firms in 2 instances:
- for issues that require specific expertise like tax planning, hearings or court appearances, or
- for rare issues like litigation, big transactions, temporary overflow that might not require as much internal knowledge about the company and industry.
How will an outside legal counsel team work for us?
How you work with your external counsel is different in every company, even different in the company at different times, and often is not a clear cut answer. The question becomes harder to answer when there is a new in-house counsel or department because the company’s expectations of hiring internal counsel was to reduce the reliance on external counsel. This is not just from the financial perspective, but also the conceptual justification of their existence in the company. Ultimately, the decision needs to be made with the company’s best interests in mind and the internal counsel will need to ask:
- Does the legal department have the resources available to handle the legal issue? This is an issue of capacity. Does the one in house counsel have enough time to manage this at this time or does the department have enough lawyers to do it?
- Does the legal department have the resources capable to handle the legal issue? This is an issue of knowledge and experience.
- What is the cost of having external legal counsel handle it?
If the legal department is unable to do the legal work because of availability or capacity, or if the costs of doing so internally outweigh the costs of outsourcing, then it should use outside counsel. Other options for legal departments are to use temporary contract lawyers, sole practitioners or finding law firms who have alternative fee structures to manage these legal needs.
What are disadvantages to outsourcing legal counsel?
There are certainly some downsides to outsourcing legal counsel. Here are a few of the top ones:
- You are not the only client. That means that they may not be as committed to understanding your business or industry as a dedicated in house counsel. Also because outsourced legal counsel serve other clients in transactional capacities and may not be as “on call” and available when other clients have immediate needs.
- It’s usually more expensive to use outside counsel. Law firms on an hourly rate will definitely cost more than having an employee, but some companies argue that it’s better to outsource because you can control workflow at leaner times, there are no severance payment risks, no benefits or remittances, so it ends up being a question of whether you spend money to save money.
- Lawyers working externally are rarely embedded into the company’s culture and not as aware of the overall business decisions that are going on in the company. This makes their ability to advise less effective because they don’t have the greater context for decisions, especially strategic ones.
In general, using external lawyers is more costly and the company has much less control over their time, availability, and knowledge about the business. So these have to be considered in deciding which options to choose when fulfilling the legal needs of the company.
What are advantages to outsourcing legal counsel?
Oh, outsourcing! Outsourcing generally is how a business hires external people to fulfill roles that could be fulfilled internally. This is a common way of fulfilling those business functions when a company is not big enough to justify the overhead in-house, or simply because external companies who only do that function are actually better at doing it because that’s all they do!
There are also some other advantages:
- Money. Generally, you can get the job done quicker and cheaper by using another law firm because they can scale or because there are wage differences in other countries. Also, the company does not need to spend money on technology, office space or other equipment to house those lawyers internally. The outsourced firm can be responsible for that and all the costs associated with it.
- Efficient. External lawyers do what they do best (being lawyers!) and do it all the time for all their clients, so they bring years of experience and expertise in that area, so they are better at the job than anyone else! This is definitely more productive and effective than trying to duplicate that model within a company.
- Specialize. The business can free itself of managing and learning and developing a new function in the company and just focus on what it does best and invest in branding, research, and higher value services. Let the business be the business and the law firm be the law firm.
- Skill. Outsourcing means that the business does not have to invest time in recruiting and training people internally. They can rely on lawyers who spend their time being lawyers all the time.
- Quality. With more highly skilled lawyers who are lawyers everyday, you also get the benefit of their experience among different clients and industries. External companies also bring practical knowledge and experience from running a business on their own and going through the challenges and wins that a business would. This synergy leads to higher quality advice.