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  • When's the Right Time to Hire In-House Counsel

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    Pros and Cons of In-House Counsel

    As with any senior position, the individual characteristics of the lawyer you hire are probably more important than the intrinsic strengths or weaknesses of the role itself.

    For example, let’s start with decision-making. One of the advantages of in-house counsel is that you add a legal dimension to key decisions, which should improve the company’s risk management profile. But what if the general counsel proves to be a slow decision-maker, or, to put it less politely, a bottleneck? That’s a serious problem. The point is, not all attorneys are decisive. If you’ve decided you need in-house counsel, then make sure you hire one with a proven track record of timely decisions.

    Another typical trade-off relates to the legal background and industry experience of the business attorney. For example, if you own a growing technology company, it may seem obvious to hire an IP attorney with experience in your segment of the industry. Such a person would be tightly aligned with your business and understand the issues from the ground up. However, on the downside, he or she might not have the management skills to deal with outside law firms needed to help with fundraising and securities issues. Or the general business knowledge to negotiate successfully with clients in other industries.

    Perhaps most important are the issues that arise when the in-house counsel also has an ownership stake in the company. Granting shares in the company is a normal, accepted practice to provide an extra incentive for employees in key positions to do their best work. However, your advocate could lose objectivity—in the form of lower standards for due diligence—when he or she stands to gain financially from a specific deal. In fairness, this would be true of anyone, in any role, with a stake in the company and responsibility for the decision. But it’s particularly true of attorneys who are involved in writing and negotiating the specific terms of deals that may impact them personally.

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    A lot of these trade-offs seem a lot less problematic when you focus on business reasons to hire in-house counsel—rather than the limitations of individuals or the role itself.

    If you need in-house counsel, then be sure to hire a person with the attributes you need. Most companies hire a generalist who is skillful and experienced in managing outside counsel as needed. If you feel you need a specialist in-house, then be sure to have a plan in place to make sure the other legal issues get addressed properly.

    As for decision-making and other personal qualities, just be sure to screen your candidates carefully. Keep in mind the statistic that only 8% of all lawyers are in-house business attorneys. That’s a small subset and it’s useful to understand what motivates them as a group. When you search the Internet for “Pros and cons of in-house counsel,” you will find that many of the articles are written by lawyers advising colleagues about the trade-offs between working inside, or for a law firm. You may want to read a few of these to learn about the trade-offs from the lawyers’ perspective. For example, “quality of life” or “work-life balance” is an important issue for attorneys who are attracted to the in-house counsel position. There’s a perception, which is certainly not true in all cases, that law firms pay better but require much longer hours. Fair enough. But it’s a red flag that tells you to probe candidates about their expectations regarding the length of the work week.

    Similarly, with decision-making. Does he or she expect to have board-level authority on every strategic decision? If so, does that expectation match your team’s needs? And, while it’s important to put processes in place that manage the company’s legal risks, will they be so comprehensive or intrusive as to stifle productivity or interfere with the sales process?

    As for potential conflicts of interest, these exist in virtually every area of public life today, and especially wherever law and business come together. The legal profession makes an effort to police itself, and you can get a sense of this on the website of the Association of Corporate Counsel. As with the other topics, if you need in-house counsel, then hire the best one you can find—and continue to perform due diligence on a regular basis.