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In-House Counsel Are Expensive, Too

2011 July 1
by John Wallbillich

This is Rule 7 in Zen and the Art of Legal Pricing. This follows from Rule 6, Two Cheers for Hourly Billing, where we saw that this venerable method may not always be madness.

This series ends with a rule that at first blush may appear out of place. When you survey much of the debate on legal costs, in-house counsel and related costs are typically given a free pass. This is understandable, but it only goes so far. To understand where we are on in-house costs, we need a quick look at where we’ve been.

In-house legal departments grew rapidly in the final three decades of the last century because it was so easy to justify. Do I want to pay $100 per hour all-in for in-house counsel, or upwards of $300 per hour for outside counsel? Some large corporations brought some of the best lawyers at outside law firms inside. One mega-conglomerate sometimes referred to its legal department as an in-house law firm, and its senior lawyers as “partners” of a sort.

Now this made for good copy in legal publications, and certainly gave in-house counsel a stronger sense of identity. Some law firm partners used to think that lawyers who left to go in-house did so because they couldn’t cut it. A few even said so.

Flash forward to 2011. You have some legal departments that rival larger law firms in size. They garner much of the industry’s attention, even though the average legal department is less than a half-dozen attorneys and still sends more than 50% of their budget outside.

What’s next, even larger legal departments? You can’t beat the cost savings, can you?

I would answer the first question “not necessarily,” and the second question “maybe you can.”

Here’s the deal. If you are trying to replicate the outside law firm model in-house, then yes, you probably should grow some more. But we all know (and have seen here with the first 6 Rules) that the law firm model is rife with excess costs. It often isn’t optimized for service delivery, either.

If law firms are only beginning to understand legal process outsourcing, most law departments are not much further ahead on the learning curve. Maybe the new model for law departments isn’t about a large group of specialists. Perhaps you have a few of these lawyers, but GCs start to focus on a core of “deep generalists” who really get why they are in-house in the first place. And it’s not always to “practice law.”

When the legal outsourcers and automators get some traction and start to scale, you will see legal departments use them, rather that just hiring another lawyer. And the in-house staffer managing these new service providers may not be a lawyer.

In-house counsel are a cost-effective option. It’s just that many companies today can’t hire anyone without something akin to papal dispensation. GCs don’t ask for the headcount, because your C-level colleagues aren’t and you don’t want to appear like you are slow on the uptake.

Replacing people with cheaper people is an old way of looking at getting things done.

And one big thing that will separate good from great GCs is how they handle workload without throwing more people at it.

This ends the overview of Zen and the Art of Legal Pricing. Taken together, the seven rules form one roadmap for what’s ahead on the cost control front. I hope it was helpful.

Here are links to the complete list:

Rule 1: Legal Fees are like Hazardous Waste.

Rule 2: The Premium Pricing Fallacy.

Rule 3: The Transparency Reality.

Rule 4: The Burden of Continuity.

Rule 5: The Value Pricing Mirage.

Rule 6: Two Cheers for Hourly Billing.

Rule 7: In-House Counsel Are Expensive, Too.

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