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.
Warren Bongard is co-founder and president of legal recruiting firm ZSA. His columns appear every third Thursday at www.financialpost.com/executive. He can be reached at wbongard@zsa.ca.