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Outsource the Insiders?

2006 January 18
by John Wallbillich

Earlier this month, Patrick Lamb raised an interesting question–why don’t general counsel outsource more legal work? Mr. Lamb quotes an industry consultant who observes that many GCs are reducing their in-house staff. He uses the example (first mentioned in an earlier post on the subject) of whether hiring a junior lawyer in-house to oversee litigation makes sense from an economic or service quality perspective, and noting that this could be done better by more experienced outside counsel, possibly at a fixed fee.

Two observations. First, on the subject of GCs reducing in-house staff, it is usually not unique to the legal department. It is best done when it is part of an overall strategy of a company to operate more leanly. This is not fun, real people are involved and I loathe the term “headcount.”

Nevertheless, this process can have the effect of forcing the GC to take a hard look at what work is being done. Some may be outsourced to law firms. Some may be redistributed internally to lawyers, given to non-legal staff, or restructured using appropriate technology. And–possibly best of all–some work may no longer be done at all.

Note that in only one of these options does decreased internal staffing lead to more work for outside counsel.

Now to Mr. Lamb’s specific example of a company thinking of hiring a junior lawyer to “oversee” litigation. The facts almost drive the proper result here. If a company is really doing this, the GC needs to take a time-out. You can put a junior lawyer on a case, but if it’s just “overseeing it” without substantive responsibilities, it’s a loser’s game. Many large companies in the late 80′s and through the 90′s (the go-go days of corporate legal departments for those who lived through it) tried to bring almost all legal work inside, including litigation. This was akin to empire-building, virtually all of these experiments failed, and most of the GCs involved are now doing something else. Perhaps this very work on the outside?

So this is all good for outside counsel, right? Not entirely.

If we are only talking about “overseeing” litigation (whatever that really means), perhaps I can find a lawyer who will do this on a fixed fee. We assume that it is not a lawyer at the primary litigation firm. It should come as no surprise that most litigation is billed the good ol’ fashioned way–by the hour. I don’t know how many lawyers would want to “oversee” litigation for a fixed price when the underlying case is being billed by the hour. Part of me thinks that if you need someone to oversee a case, you may have the wrong person handling it in the first place.

Recall that the original reason any company or GC reduces staff is to do things more efficiently (read better service and results at a lower cost). Some of this work may go to lawyers like Mr. Lamb. But at the same time I see news reports like this and think that nothing has really changed in the world view of some outside counsel.

Further, any GC who only looks at outsourcing to law firms is missing the boat. Yes, that boat is sailing offshore, but it is also directed at other service providers outside the traditional law firm bathtub.

One way a GC can look at the proper balance of inside and outside resources is to look to lawyers with in-house experience who are now in private practice.

One firm has been providing this service option for over 20 years. Tomorrow, an interview with its founder, when The Wired GC again goes:

Wired GC -- Unplugged

Update (19 Jan 06): Patrick Lamb responds.

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