6 Reasons to Consider Hiring a General Counsel

Outsourcing legal work may make sense for a business initially. But as an organization grows, it will reach a point at which bringing a strategic legal advisor on board, such as a General Counsel or Chief Legal Officer, reduces costs, promotes efficiencies, prevents unnecessary risk, and furthers business objectives. Recognizing when the business reaches this crossroads can best situate a company for a smooth and successful transition to a new, more cost-effective, structural model.

Having the foresight to know when to hire a GC is thus crucial. A company can anticipate this need by looking for several different signs, each of which independently justify hiring a GC or CLO. With extensive experience building in-house legal teams, BarkerGilmore has identified six reasons a company should consider hiring its first internal strategic legal advisor.

1. The Board of Directors Seeks Internal Governance Support

Today’s global challenges have made it increasingly important for the Board of Directors to have the support of internal legal counsel. Board members expect guidance in carrying out oversight responsibilities, which have only grown as new markets have developed. A strong GC, whose duty lies in the best interests of the company, acts as an informed advisor on novel business issues and helps provide cutting-edge solutions to problems both within and outside the legal realm.

There are numerous ways a GC, as opposed to external counsel, can help the board. Corporate governance matters, such as the development of and rationale behind corporate bylaws, can best be explained to the board by an internal company lawyer possessing deep institutional knowledge of the company’s structure and organization. A GC can also help manage relationships between the board and senior management and anticipate legal issues that arise within the regulatory framework of the industry, such as data preservation and cybersecurity. Having a lawyer on the leadership team can give the board, investors, and employees confidence that someone is managing business risk and ensuring compliance with all applicable regulations.

A successful GC serves more than just a legal role, however. Developing a successful board-GC relationship lends itself to achieving corporate objectives and attracting the right attention from investors and consumers. Over time, a GC should develop the trust necessary to function as the company’s ethical lodestar. The ability to look to the GC for guidance about doing what is right, and not just what is legal, will enhance a company’s standing and credibility in the community and the industry.

2. Outside Counsel Is Becoming Expensive

With astounding annual increases in hourly outside counsel rates, a company’s external legal fees can add up quickly. A metric from Thomson Reuters shows that U.S.-based companies have a legal spend-to-revenue ratio of 0.33%. Although generalizations are difficult, an organization should consider adjusting the legal structure and strategy should costs exceed this benchmark.

While outside counsel will likely continue to be relied upon by an internal legal team for unique subject matter expertise, a GC is integral to building a legal budget and strategy that aligns with the company’s revenue and business needs. Since outside counsel costs typically make up a large portion of a legal budget, it is beneficial to have experienced internal counsel negotiate rates, billing processes, and priorities to create a more cost-effective relationship.

Don’t wait for a magic financial milestone, however. Investing in a GC is not the same as spending money on one-time legal costs. There are long-term advantages to having a lawyer on board who has trusting relationships with the business, the board, and members of the C-suite. A basic cost-benefit analysis would need to factor in these long-term advantages and would justify searching for a GC long before the math would compel hiring one.

3. The Business Is in High-Growth Mode

Putting the math aside, the business needs of a growing company may justify beginning its GC search. A company that is in a high-growth mode will need to hire more employees and undergo structural changes through organic and inorganic growth to generate and support increased revenues. Both needs will give rise to legal issues that can be most efficiently managed by an in-house GC.

For example, certain states, such as New York and California, have more developed wage and hour and workers’ compensation laws than other states. Companies doing business in these major markets will need to address challenges relating to these employment issues. Also, as unionization drives have taken over various industries, a company may face new labor law issues that weren’t a significant concern earlier in the business’s lifetime. A GC can help manage the unique legal issues that arise in an ongoing growth environment without the waste associated with outside legal fees.

4. The Company Is Planning to Go Public

Many companies in high-growth mode look to go public. Ensuring a company is IPO-ready requires substantial upfront legal work, and the IPO itself requires navigating a complex legal process that can take from six to 18 months before the listing to six months afterward. It pays to have someone in-house who has guided a company through this potentially lengthy and complicated process before.

The IPO process can best be managed by a senior in-house lawyer, who in conjunction with outside counsel, can make certain that the process complies with all SEC requirements and most efficiently brings the company to market.

5. The Company Is in a Highly Regulated Industry

Existing in a highly regulated industry is a challenge for any company. Industries, including but not limited to the following, are more prone to facing recurrent and novel legal issues:

• Healthcare
• Petroleum and coal products manufacturing
• Oil and gas extraction
• Biotech
• Pharmaceutical manufacturing
• Motor vehicle manufacturing

A company that operates in any of these highly regulated industries benefits from having someone on board who understands the business and has expertise in managing the legal issues that can arise. An experienced GC may also have useful relationships with industry regulators that can facilitate business operations.

6. Litigation Management Presents a Business Challenge

Any company that makes a product needs to be prepared for litigation and, depending on the size and nature of its market, mass litigation. If facing only a handful of relatively insignificant cases, a company can efficiently farm these out to outside counsel. But even a single case can have a significant impact on a business’s bottom line, and today’s plaintiffs’ lawyers have developed creative ways to take advantage of both class-action and multidistrict litigation mechanisms.

Mass litigation requires having a GC in-house who can manage the caseload, perform adequate risk assessments, minimize distractions to the business, and guide outside counsel to appropriate case resolutions. A company also benefits from having a single point person in-house to handle arbitrations and maintain settlement negotiations. An experienced GC wearing all these hats can successfully resolve even large litigation to the benefit of the business and its shareholders.

Companies facing any of these challenges should explore the benefits that arise from hiring internal legal counsel. For additional information, contact Katie Gilmore, Managing Director at BarkerGilmore. With more than 30 years of experience, BarkerGilmore has a history of success placing specialized attorneys and compliance officers in even the most unique or niche roles.