John B. Quinn is the founder of Quinn Emanuel Urquhart & Sullivan LLP, the world’s largest law firm devoted solely to business litigation.
In recent years, companies have been increasingly hiring in-house legal counsel. Some legal recruiters have likened this to the “dot-com era” of the late 1990s and early 2000s, where massive internet growth prompted a corresponding increase in in-house hires.
In-house counsel serve as the company’s primary source of legal advice. They can advise on issues of contracts, personnel management, compliance, legal strategy and more. Outside counsel, on the other hand, will typically advise on or represent companies on specific matters, often litigation. While the decision to hire in-house counsel depends on the needs of the specific business, there are several benchmarks that can aid in making the decision.
1. Size Considerations
Generally, smaller companies are less likely to have enough legal work to justify a dedicated in-house attorney, while larger companies might benefit from having an individual lawyer committed to the company’s legal issues.
One commentator states that companies with at least $20 million in annual revenue will benefit from an in-house attorney, reasoning that smaller companies will likely not generate enough work to justify the cost of the in-house attorney. An executive recruiting firm recommends that a company consider hiring in-house when the business has between 40 and 100 employees, if it has not already done so.
2. Financial Considerations
The total legal expenses of the company are also an important benchmark. One recommendation is to hire in-house counsel when a company’s outside legal expenses double that of an in-house counsel cost.
Although in-house counsel salaries vary based on the attorney’s level of experience and other factors, one study found that the salary for 30% of in-house counsel respondents ranged from $200,000 to $249,000. Another recent survey found that the legal departments they studied spent more on internal expenses—about 53%—than external at about 47%.
Budget-wise, in-house counsel are a more predictable expense than outside counsel because they are salaried employees. Outside counsel typically charge on an hourly basis. In years where the company’s legal demands are high, a company will save money with a salaried individual handling those demands. But in a year where the company’s legal demands decline, the company will save money by retaining outside counsel, who work only as needed.
In-house counsel, however, will seldom relieve the company of all other legal expenses. When legal issues escalate, in-house counsel might not have sufficient substantive expertise to eliminate the need for outside counsel. In addition, in-house counsel often discover hidden legal issues that require the support of outside counsel.
3. Topical Considerations
As noted, in-house counsel likely cannot advise on every legal issue that a company will encounter. Companies with recurring or ongoing issues in a particular legal field often hire in-house attorneys who specialize in that field. Companies in the finance, technology, entertainment, oil and commercial real estate industries often hire in-house counsel for this reason.
Similarly, some legal functions are particularly appropriate for in-house counsel. For example, in-house counsel often provide internal governance support for the board of directors. The same in-house attorney may often also advise on risk management, corporate functions (bylaws, governing documents) and regulatory requirements.
Outside counsel will typically be more helpful when a company’s legal issues are spread across many areas of law. Because law firms work with many different clients, they have greater experience, as well as a support team at their disposal. Companies also tend to contract out their legal needs for discrete issues where the potential risks far outweigh the cost of hiring outside counsel.
I’ve found companies commonly prefer outside counsel for litigation. Law firms have attorneys with more subject matter expertise and courtroom experience than most in-house counsel. Litigation also requires more resources than an in-house attorney can provide. However, while companies typically contract out litigation, companies with high litigation expenses will often hire an in-house counsel to manage the outside counsel.
Similarly, companies expanding globally often benefit from advice by outside counsel with expertise in such international and cross-border areas such as intellectual property law, labor and employment law, privacy law and transactional law.
4. The Services The Company Requires
In-house counsel can serve more than a purely legal role; they can also serve as business advisors and useful members of the C-suite. But this is not without pitfalls: In-house lawyers face greater self-preservation pressures than outside counsel. They may be less willing to identify problems when the people they report to may be responsible for those problems.
Privilege considerations are also relevant. In general, the attorney-client privilege protects confidential communications made between an attorney and a client for the purpose of securing legal advice. The privilege is rarely challenged for communications with an outside law firm because it’s clear who is the “client” and who is the “attorney.”
However, when in-house counsel acts both as a legal advisor and a business advisor, privilege disputes may arise. Business advice is not privileged; only communications concerning legal advice are protected. Therefore, disputes over the role played by in-house counsel may arise when, for example, counsel acts as a negotiator and then relays communications from the other side.
In-house counsel can also contribute to the day-to-day operations of a company. Again, however, there may be pitfalls. A 2022 survey of more than 300 in-house counsels found that nearly 80% of in-house attorneys are stressed out or burned out, and many are actively looking to work elsewhere. They chiefly cite increased workload and dissatisfaction, stemming from repetitive work and being siloed into a specific niche. Also, a 2021 Deloitte survey found that 69% of general counsels in the past year felt their attorneys were taking on too much administrative work.
The decision to hire in-house counsel will always depend on the needs of the specific business. In making that decision, a company should carefully consider whether its current size, legal expenses and the nature of its specific legal needs justify the cost of hiring in-house counsel. The company should also consider what, if any, other roles it might ask its in-house counsel to play.
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