Ten ’In-house’ Secrets For Reducing Your Company’s Legal Costs

By Gregory L. Phillips

‘General counsel,’ or “Chief Legal Officer,” is the job title of the lawyer who heads up the legal department in a corporation. As former general counsel of a small oil and gas company, as well as the assistant general counsel of two Fortune 100 corporations with annual sales exceeding a billion dollars per year, my job involved delivering and managing in-house legal services, managing external law firms, and contributing to corporate strategy. However, much of my time was occupied with finding ways to reduce legal costs.

Major corporations need a full-time general counsel, and supporting legal staff made up of other in-house lawyers and supporting administrative staff. However, smaller growth emerging companies may not have the luxury and the resources to hire such legal support. This article will assist you in developing legal management principles that can reduce cost and increase efficiency in your business.

The primary goals of managing legal costs are: reducing the cost per hour of a lawyer’s time, and reducing the number of hours of lawyer time required by the Company for external lawyers.

Reducing The Cost Per Hour for Legal Services.

1. Recognize the ‘in-house’ advantages.

Corporations with in-house lawyers typically generate internal legal services at a cost per unit of time lower than hourly rates of external law firms. When legal services are delivered on-site, the lawyer becomes a familiar face, and can learn a lot about the company and the overall strategy of its management team. This makes it easier for the in-house lawyer to give pro-active advice that is in line with the company’s corporate strategy and business objectives. Having one lawyer responsible for delivery and management of all company legal requirements gives continuity critical to strategy implementation and facilitates cost management of the legal function.

2. Identify legal work critical to the core mission or strategy of the Company. Target doing it on an ‘in-house’ basis.

As in other skill areas, the approach of ‘new economy’ companies is to hire for core mission critical and strategy requirements and outsource the rest.

3. Recognize the requirements of the job, and obtain the skills needed.

The ability to perform legal services at a high performance level is often the primary basis of evaluation for a potential in-house counsel. Just as important are the in-house counsel’s ability to source and manage legal requirements that exceed his or her geographic, skill or time limitations. A third quality that you should desire in an in-house counsel is the ability to design and deliver internal legal liability reduction programs by creating standardized practices, materials, and processes aimed at reducing the Company’s legal costs over time and to reduce any potential legal liability, or risks, as the Company pursues its business goals and objectives.

4. Calculate your Company’s legal costs.

This requires adding up all of your legal bills for the previous year AND estimating the cost of productive executive time lost due to involvement in, concern about, or management of legal issues. Now you have identified the value of managing the Company’s legal environment. Adjust this amount upward or downward to reflect how you expect the current year’s business activity, and legal activity, to compare to the past year for the same activity. You can label the adjusted amount as your Company’s ‘projected legal costs.’

5. Assess the cost of bringing a full-time lawyer on board as an employee (‘in-house’ employee cost) and compare the cost to buying legal services from an external lawyer ‘a la carte.’

Recognize the value of educational, business, legal, ‘in-house’ and management experience and skills necessary to do the legal job for the Company as it is now and as you plan it to be in the future. Remember technical and industry knowledge may be important candidate factors. The fully loaded ‘in-house’ employee cost for an in-house lawyer recognizes lawyer recruitment fees, salary, executive benefits, support staff, allocated office space, office furniture, equipment, law library and electronic legal research costs, law society and practice insurance annual fees, and costs of ongoing legal education courses. If there is a risk that the newly hired in-house lawyer will not work out, an allowance for costs of severance is prudent.

6. Compare the projected legal costs to the fully-loaded ‘in-house’ employee cost.

Make sure that you compare ‘apples to apples.’ Avoid the “pitfall” of hiring an in-house lawyer that is too junior to do the job that you need done due to a lack of experience, skills and knowledge; this could actually increase your Company’s costs due to the need to use external lawyers to supplement the work of your under skilled in-house lawyer. Of course, the more junior a lawyer is in experience level, the lower their salary for employment. But all other costs (which usually exceed salary) are more or less the same regardless of experience level of the lawyer employed.

7. If a new full-time ‘in-house’ employee is not in your Company’s current plans, due to staffing freezes, lack of desired flexibility, or other reasons, consider going for the ‘in-house’ advantages by permanent outsourcing.

Some common benefits identified for outsourcing legal services for your Company include (a) strategic benefits such as an ability to focus company resources on its core business, access to better, and more efficient, technology; (b) operational benefits such as access to legal expertise, and experience, not otherwise available in the marketplace, scalable solutions, increased accountability; and (c) financial benefits such as cost reduction and the “freeing-up” of capital for key projects.

8. If you do not require a ‘full time equivalent’ for your company’s mission-critical and strategic legal work, consider permanent outsourcing as an alternative to buying external legal services on an hourly ‘a la carte’ basis.

Outsourced legal services provide an opportunity to buy the services you need on a flexible, scalable basis. For example, The Phillips Law Group offers experienced in-house lawyers on a flexible schedule based on your Company’s legal requirements; such schedule can include a morning a week to full time. The services for such in-house lawyers can be priced on an hourly fee arrangement, or alternative billing arrangement such as target-fees, monthly retainer, project fees, or other basis. They work on-site at your premises. The pricing model reflects aggressive use of labor-saving technology and a belief that your Company should not pay any more for legal services than that which is absolutely necessary. Reducing The Quantity Of Legal Services Required.

9. Divide your Company’s legal functions into four categories: maintenance-related, avoidable, transaction-related, and crisis-related. Then adopt management plans for each.

Avoidable legal expenses are those that can be reduced through training employees responsible for causing them. An example would be targeting reduction of wrongful dismissal lawsuits by developing standard Company employment contracts and providing related training to the human resources staff.

10. Develop standardized materials and procedures to delegate low-level legal functions to business staff that can then be monitored by a lawyer.

Functions relating to the Company’s compliance status and asset maintenance (e.g. routine procurement contracts, company and securities compliance filings, trademark and patent renewals) may offer a substantial opportunity to save money. Completion and return of standard forms can be delegated to trained staff and then monitored by a lawyer. Your Company can develop a process to review all patents and trademarks to make sure that the Company is exploiting them, or has a potential use or revenue from each, before spending money to renew registrations.