Earlier this summer, private law firms made headlines with the news that some would begin paying first-year associates $180,000 for starting salaries, a 12.5% increase. While some firms reassured their corporate clients that the increased salary cost would not be passed directly on to them, uncertainty remains. David Leitch the Global General Counsel for Bank of America is taking a tough stance against potential hourly rate increases. Leitch called any increase “unjustified” in an email reviewed by the Wall Street Journal and said that his company would not pay higher hourly rates to absorb the salary increases.

Over the last few months, I’ve spoken with several General Counsels who have expressed concerns similar to Leitch’s. Despite reassurances from firms that corporate clients will not be absorbing the salary increases, questions remain. Companies are understandably concerned that their legal spend will go up due to potential increases in hourly billing rates.

As firms and businesses battle over the cost of outside legal services, there’s no time like the present to consider whether hiring in-house counsel or adding to your existing team makes financial sense for your company. As companies seek to ‘do more with less’ they may find it financially prudent to expand their legal team, rather than continuing to pay costly outside counsel fees for relatively basic legal needs.

When to Expand Internally? Analyzing the Nature of ‘High Volume/Low Risk’ Legal Work

Before deciding whether to expand your internal legal team, consider both the volume and type (high-risk v. low-risk) of your legal needs. For example, low volume, low-risk work is ideally suited for an internal legal team. Similarly, if you are facing high volume, low-risk work, then adding a junior or mid-level attorney to your in-house team makes smart business sense for internal workload management and cost control.

Conversely, if your company primarily requires low-volume, high-risk legal work, it makes more sense to hire an outside law firm to provide an expert opinion. Likewise, high volume, high-risk work (e.g., IPOs, mergers or large scale litigation) is best suited for a legal firm equipped to handle the scale and complexity of these legal needs.

There is absolutely nothing wrong with paying higher fees for expert legal advice particularly on high-risk work. However, there is also no reason to outsource work that could be managed internally at a lower cost. For example, some law firms are charging upwards of $400 per hour to have a junior associate review legal documents, reports the Wall Street Journal. Assuming a consistent need for this review exists, using in-house counsel would be more prudent.

Value-Add: More than just ‘Dollars and Cents‘

Adding to your in-house counsel team offers benefits beyond financial savings. An in-house team with an intimate understanding of your company’s business is a tremendous value-add for day-to-day decision-making and long-term strategic planning. When your GC regularly interacts with executive leadership, your GC is uniquely positioned to offer invaluable guidance– be that steering your company clear of costly litigation via settlement, avoiding a risky merger, or preventing the company from inadvertently running afoul of regulatory rules.

This kind of impact is often more subtle and can go relatively unnoticed. Because the decision is made collectively with many individuals contributing, there is no dramatic ‘save the day’ moment and no movie courtroom climax. Yet the invaluable influence of the embedded legal advisor is there.

4 Reasons to Hire In-House Counsel

Adding another in-house lawyer or hiring your first in-house counsel can be a smart business decision for four key reasons:

  1. Lower overall cost. While in-house counsel will not eliminate the need for outside legal advice, in general, maintaining a lean in-house team for day-to-day legal needs will reduce overall legal expenditure.
  2. Predictable/fixed spend. When your legal team is also on your company payroll, you have a clear, fixed cost for legal advice and do not need to worry about how unexpected external market fluctuations, like higher starting salaries for first year associates, will impact your costs.
  3. Deeper business understanding. Over time, your in-house team will build a much stronger understanding of your core business competencies and risk appetite, as well as external marketplace opportunities and threats. This type of in-depth understanding takes time to foster and is less likely to be achieved by an external team of rotating legal counsel.
  4. Succession Planning. Finally, there is the need to look to the future. Having a sole General Counsel or team of two may be adequate for now, but if one were to move on or retire, then who would take the reigns? Immediate replacement is the most straightforward option; conversely, filling an open vacancy can be time consuming and costly to your business. Having someone onboard already who is ‘up to speed’ prior to any departure ensures a seamless and efficient transition.

Next Steps: Hiring In-House Counsel for the First Time

As an executive recruiter who sources high-level legal talent, I work with a wide range of clients from Fortune 500 companies to small and mid-size corporations throughout the United States. Hiring in-house counsel for the first time can feel like a daunting undertaking. To make a successful placement, it takes more than just professional experience; personality and cultural fit are important, too. Companies must follow an intentional, measured approach to recruitment.

If your business does decide to expand its legal team, keep in mind that in-house counsel will not completely eliminate the need for outside firms. However, a robust in-house team can provide the high quality legal advice that is expertly tailored to your business’s unique needs and prevent you from paying a small fortune to foot the bill for an associate’s salary.

As for Bank of America, Leitch wrote that his company will continue to “value the work performed by our […] Roundtable firms” while seeking to maintain “a true partnership that meets our reciprocal needs—thoughtful, strategic, and cost-competitive representation at rates and alternative billing arrangements that are attractive to our counsel.”

A wise approach I strongly support.