How Part-Time, In-House General Counsel Can Save You Money
by Katharina Martinka, Attorney at Law
If you are responsible for legal expenses in your organization, you know how difficult it has been to contain costs over the last few years. Given the litigious nature of our society -- and increased regulatory mandates across industries -- legal and other general administrative costs are soaring to unprecedented heights. But you are still expected to reduce expenses.
Read this report and learn what many mid-sized corporations across the country have learned already, and what smaller corporations are just beginning to catch onto: There is an effective tool to help reduce your company's liability and legal expenses and positively impact your bottom line. That tool is part-time, in-house general counsel.
Unlike outside law firms, in-house general counsel has an intimate knowledge of the inner-workings of your operations -- and the unique employment, intellectual property and transactional challenges you face. Their in-house presence affords them an intimate understanding of your business model and corporate culture, allowing them to serve as the arms and legs inside your company by 1) promptly servicing your business units, 2) identifying liabilities that can be impediments to their success, and 3) finding solutions to enable them to succeed. In contrast, outside attorneys frequently lack the insight of how companies really operate on a day-to-day basis. This results in a knowledge gap and an inability to understand and explain actual, versus theoretical risks to your company.
Typical objections to hiring in-house counsel come from, not surprisingly, outside counsel, who advise their clients that hiring an inside legal resources will produce additive costs. They want the client to believe that obtaining in-house resources will result in redundancy. Outside firms fear losing business to more efficient and effective resources.
Perhaps this can best be explained in straight economic terms. Outside counsel is bonused by their firm, based on billable hours. In-house general counsel are bonused based on their ability to limit liability and effectively deploy legal resources, to minimize legal expenses from outside firms.
And then there's the overhead associated with outside legal counsel. Many companies who retain outside counsel use the services of that same outside counsel from an early stage and are conditioned to paying $550 and even $650 per hour for a law firm partner's time. What some don't realize is that much of the time, these partners aren't actually performing the work. Rather, the work is being handed off to associates and junior associates who have little or no contact with the company, scant knowledge of the company's key players and a lot less experience than the billing partner. The outside partner "supervises" your work product and charges a ratio of his/her time to the associate's or junior associates' (often four hours of associate time to one hour of partner time). This billing method is usually not transparent to the client, who frequently believes they're receiving advice from a high level partner.
That's not to say there isn't a legitimate time and place for outside counsel. Outside counsel is of exceptional value in providing in-depth knowledge of a particular area of law, such as securities litigation, or patent related matters.
But there are distinct and noteworthy differences between in-house general counsel and the use of outside counsel. In-house counsel by its very nature has broad and deep knowledge of your company's objectives. They are, after all, developing and executing your legal strategy and addressing your legal issues as they arise, in real time.
And the costs are much less. You don't pay the commonly charged $600 or more per hour that outside partners charge, but usually approximately $350-400 per hour. In-house general counsel, being intimate to the nuances of your business, can identify the level of specialized resources legitimately needed to address your needs and outsource that specialized work, accordingly. This funneling of legal needs takes place at an early stage -- and with the full involvement of your management team -- so that rather than having all legal needs being analyzed by an exorbitantly-priced attorney (and then handed off to a lower level staff member) the legal strategy best for your business is all you pay for.
So what can part-time, in-house general counsel additionally do for your company? 1) Conduct annual legal risk assessments and explain the nature and potential consequences of identified risks in plain, easy-to-understand English. 2) Rate the severity of the risks based upon real world experience and data and 3) help you prioritize your initiatives. Then a legal plan can be developed, based upon your priorities.
Additional benefits of engaging part-time, in-house general counsel are:
Creation of a funnel for the distillation of your business units' legal needs. Channeling legal requests through an on-site attorney ensures that issues are properly framed and an assessment is performed to separate business challenges from bonafide legal issues.
Development of a cohesive, effective legal services strategy. This is created by ensuring your team has real time access to legal professionals who understand your business and prompt attention to your business needs, with a results-driven strategy. Your priorities are your in-house counsel's priorities.
Exposing Systems Issues. Often, companies are built much like a house, on a foundation that supports only a couple of stories. As the company grows, the foundation struggles under what has now become a 15-story building. Through open conversations between part-time in-house general counsel and the business units, what may have appeared as a communications breakdown or conflict among individuals is exposed as a systems issue that can be better addressed at the macro level. This helps ensure increased competence in high-risk areas, like employee litigation and product/services claims through proactive training of supervisors, sales and marketing personnel. Implementation of these risk-reducing changes to your business processes is then facilitated by creating joint business-legal teams.
Pursuing Proactive Legal Strategies to Limit Liability. Although they may have prior litigation experience, in-house general counsel don't litigate. They don't make money if your business disputes escalate to litigation. They understand that litigation is an ineffective way to resolve disputes, most of the time. Therefore, In-house general counsel focus on preventive measures to help you lessen the number and complexity of disputes that you have to send to outside experts. These services include, but are not limited to the following:
Reviewing claims litigation history and other metrics to identify where previous claims and disputes may have arisen and where the risks might lie (e.g. antitrust, contracts law);
Reviewing employment law practices. This is a key area for risk avoidance in almost every company. Proper handling of employment situations at the supervisory level can lead to prompt resolutions and avoid costly, resource-consuming lawsuit defenses -- or administrative enforcement actions;
Debriefing a case. At the conclusion of each legal matter, in-house general counsel works with the management team to determine what went well, what didn't and what can be learned from the experience. They assist in determining what changes are called for and what, if any, preventive measures can be introduced to produce better results in the future;
Providing on-line resources for the business units. In-house general counsel can offer 24/7 advice to your management team with the hosting of a law department intranet. This provides your management team with immediate answers to frequently asked questions and a host of additional, real-time resources to assist them as matters arise.
Could your company benefit from in-house general counsel? Now is the time to assess your legal expenses. Research has shown that there are fertile areas for reducing fees and increasing efficiencies in almost every company.