The role of an in-house law department is a relatively new  phenomenon. Twenty-five years ago, it would have been highly unlikely to  find a major corporation with more than a few of its own staff lawyers.  These days, not only do we find most companies with their own dream  legal teams, we also observe them expanding year after year. The most  obvious and reasonable explanation is to reduce legal spend. After the  financial crisis of 2008, the budget line item called “outside legal  spend” was front and centre in boardrooms and faced all the senior  management teams. The nature of business dictates that in difficult  times one reduces expenses to enhance or discover profit. Fast forward  to today, and notice that growing law departments are “top of mind.”
Since 2009, there has been a dramatic rise in demand for in-house  counsel. The numbers are staggering and the biggest victim of this  growth is the private practice. While some law firms have responded with  creative solutions to react to this pendulum swing, others are slower  to respond. Of course, the private practice bar is actively pursuing  ways in which it can better service clients in terms of fees. Solutions  such as fixed fees, secondments and outsourcing are just a few examples  of how law firms are responding. While some speculate that the shift  will reverse itself in better economic times, increasing the head count  for staff lawyers is likely going to be a consistent trend in the  interim.
Many non-lawyers in senior management roles believe that by adding a  single lawyer to a law department, the company will respectively reduce  its legal fees by at least the value of a starting salary for that new  lawyer. While this may be true, it is widely overlooked that lawyers  learn a specific and often narrow field. As such, their value  proposition assumes there will be enough work in that one particular  field. The meaning of a “general counsel” is just that — general.
Nonetheless, companies looking to make efficient and cost-saving use  of a new lawyer should exercise patience and offer training in new areas  of their business to ensure they realize a desirable reduction in  expenses.
There are obviously many great reasons to have in-house counsel, but  the single best reason is not cost saving. While reducing costs is  certainly a benefit, it is probably not even one of the top three  reasons. For example, most business executives will think twice before  calling their outside counsel for quick advice. While the advice will no  doubt be valuable, the cost of such advice may not merit the benefits  to asking the question. Similarly, the inhibition to contact outside  counsel may lead to a result that carries substantially more risk than  the nominal cost associated with the advice he or she provides. In other  words, it means having real-time access to risk management without the  inhibition. In addition, in-house counsel can offer a comprehensive  understanding of a business and the associated risks in decision-making.  Although outside counsel may know many elements of a business, in-house  counsel can learn about a business more efficiently through osmosis.  Rest assured that seeking advice from outside counsel will always prove  wise when a decision requires a “bet the business” proposition — a  circumstance under which the private practice bar continues to thrive.
April  24, 2012
Warren Bongard is co-founder and president of legal recruiting firm ZSA. His columns appear every third Thursday at financialpost.com