Having a dedicated lawyer in-house means they’re part of the team, hands-on, and proactive to provide a more urgent response than outside counsel would.
With any startup, growth brings inevitable roadblocks or problems. This is why business leaders bring on in-house lawyers to provide value-driven solutions and advice on legal issues to help the company succeed.
If you’re debating whether or not it’s the right decision to hire an in-house, we break down everything you need to know about bringing on a lawyer in-house. While no company’s path is the same, we examine the basics to see if an in-house lawyer may contribute to or inhibit growth.
How an In-House Lawyer Can Improve Company Performance
Research (and data) proves that a highly-skilled chief legal officer (CLO) or lawyer can improve company performance.
Robert Bird, Professor of Business Law at University of Connecticut, says: “CLOs can rapidly apply legal judgment to regulatory problems facing the company and ensure that firms are fully compliant with relevant rules.”
“Studies have found that elite CLOs are associated with less insider trading, accurate earnings forecasts, and fewer threats of litigation in the companies they serve,” he continued.
Below are a few key statistics on how your company can benefit from an in-house lawyer:
- Lawyer-run companies face up to 74% less litigation.
- Over 40% of companies with counsel in top management are more likely to issue accurate forecasting.
- Companies with general counsel better mitigate informed trading by insiders.
Role of an In-House Lawyer
While every company has specific legal issues or needs, in-house lawyers can wear many different hats.
A corporate law report describes the top three priorities for corporate legal department leaders as: “improving functional effectiveness, increasing efficiency, and safeguarding the company.”
The responsibilities can range anywhere from privacy law to dispute resolution. On top of the day-to-day legal duties, the role of an in-house counsel or CLO has expanded to what’s now a strategic business partner that supports the organization, works to improve processes, and navigates complex challenges.
A chief legal officer (CLO) specifically may provide counsel for the board of directors, chairman, CEO, and other senior management. Consider if your hire will have board-level authority on every high-value transaction or strategic decision.
What to Look for in an In-House Lawyer
On top of legal experience, an in-house lawyer should possess initiative, management and leadership skills, and business acumen to balance high-stakes responsibilities.
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 create a plan to make sure all legal issues get addressed properly.
If your lawyer isn’t able to provide all of the legal services your company needs, consider finding someone who can build (and manage) a team or has an existing network of specialists in specific areas of the law.
When Should Your Startup Hire an In-House Lawyer?
There’s no right answer since every company has a unique growth track. However, depending on what stage your startup is at, there are criteria you can use to make a decision. If you’re debating between letting go of outside counsel or bringing it in-house, consider the following.
Alex Montagu, the founding partner at Montagu Law, said the key deciding factor in hiring an in-house lawyer is a company’s revenue — companies that have less than $20 million in annual turnover would be better off using outside counsel rather than hiring a full-time in-house lawyer.
There are also legal issues to consider if your company plans to expand globally, including creating new entities, tax implications, recruitment , and dispute resolution procedures.
Pros and Cons of an In-House Lawyer
An in-house lawyer can add value to a fast-moving startup since they’re trained to think to analyze problems, digest dense details, and come up with creative solutions.
This training is invaluable for startups that may move quickly and make decisions on the fly. However, there are costs and potential drawbacks (as with any business decision) to consider when debating between in-house and outside counsel.
Benefits of In-House Counsel
Robert Bird explains, “A CLO is a dedicated attorney with a single client – the company – and will typically be more familiar with your business than an outside attorney with many different clients. A company with a CLO is a company armed to meet the complex legal challenges of twenty-first-century business.”
Having a dedicated lawyer in-house means they’re part of the team, hands-on, and proactive to provide a more urgent response than outside counsel would. As your trusted advisor, in-house counsel has interests that better align with your company’s objectives.
Drawbacks of In-House Counsel
According to the Acritas 2020 State of Corporate Law report, “in-house lawyers are sometimes – unfairly – viewed as inhibitors of business growth. Their natural and necessary risk aversion can put them at odds with colleagues seeking growth at any cost or who prioritize customer service over corporate protection.”
Internal conflict due to risk aversion is a common theme for business owners, too. Aside from employee growth opportunities, on the surface, a lawyer’s risk aversion may impact the number of new business opportunities or deals a company makes.
John Ross, the CEO of Test Prep Insight, explains: “If our counsel has hindered us in any way, it’s through vetoing deals that we otherwise would have made because he felt them to be too risky.”
Because the trust exists there, Ross says “…while they may directly seem like missed opportunities on the surface, there is no telling what a failed deal would have truly cost us.”
Lastly, an in-house counsel is typically hired as a generalist with a wide-ranging set of practice areas. If your company has specific needs (like intellectual property), you may end up having to expand your team or bring on a specialist to help.
Hiring your first in-house lawyer can be challenging — especially as a new business. Once you decide that it’s time to hire, determine your company’s near and long-term legal needs and consider the role for your first in-house counsel, you can start looking for the right candidate with these tips.