- September 28, 2014
- Posted by: Treadstone Management Partners
- Category: Risk Management
Businesses are continuously finding ways to cut costs to improve their margins and be more fiscally responsible. Among the many actions businesses can take to achieve this goal, one step companies take is by deciding whether to outsource a service or provide that service within the company, where outsourcing refers to forming contracts with other companies to provide the service. While both of these services tend to be very expensive options when deciding whether to employ in-house counsel or outsourcing these services, there are benefits to both options. Employing in-house counsel arguably allows for a greater understanding of the business’s needs by the legal staff, while outsourcing counsel helps businesses solve specific problems. While it does depend on the size of the management consultancy firm, management consultants’ strategy with regards to employing legal counsel should be to employ in-house counsel for solving common issues, but outsource counsel for any specialized help.
Over the past decade, the legal industry in the United States has undergone a massive transformation. Prior to 2008, businesses were increasingly trying to find ways to improve their margins and be more fiscally responsible. When looking at their financial statements, the extraordinary cost of legal services seemed like the most-likely manner in which they could reduce their expenses, leading to this transformation. According to the 2014 Report on the State of the Legal Market, law firms primarily grew through increasing hiring quotas before 2008 but afterwards grew through lateral hiring and mergers, with such mergers breaking records just last year. This drastic change has greatly intensified competition within the legal market. According to the same report, “the market for legal services has shifted from a sellers’ to a buyers’ market,” allowing management consultants the opportunity to hire the best legal advice for the best price. All clients seemingly value efficiency, predictability, and cost effectiveness, and because clients now have the bargaining power in the market for legal services “many corporate law departments [are retaining] more work in-house thereby reducing their reliance on outside counsel.” Lastly, according to the Harvard Business Review in an article titled “Consulting on the Cusp of Disruption,” another major change in the market for legal services is that law firms have been historically non-transparent, making it difficult to resist outsourcing legal counsel to brand-name law firms. However, this has changed in the past couple years, allowing in-house counsel the opportunity to provide services of the same value as brand-name law firms.
Hiring in-house counsel allows for greater collaboration between the business and legal sides of the company. This approach allows for greater interaction between management consultants, the executive staff of the company, and the legal team. There is a greater vested interest for the counsel, as they are no longer consultants to the consulting company but are instead employed by the consulting company. As shown in the previous paragraph with the changing landscape of the industry, the quality of legal services can be maintained through increased transparency into brand-name law firms and the ability for businesses to hire the most-talented legal counsel. From a financial standpoint, quality can be assured by avoiding extraneous billable hours created through increased efficiency. Hiring in-house counsel allows lawyers and attorneys to solve common legal issues in a cost-effective and efficient manner.
However, it is important to recognize that outsourcing counsel may be necessary. In the event that the in-house legal team is unable to solve the problems due to their limited expertise, the in-house counsel will be able to refer the management consultants to the law firm that provides the best services at the best price. From a financial standpoint, outsourcing counsel in this circumstance will be costly, but since most of the work will be routine and legal counsel is only outsourced when specialized help is requested, the best mix between outsourcing and hiring in-house counsel is to engage in both practices for different needs.
It should be noted that the aforementioned recommendation is only an effective strategy if the firm in question has sufficient legal demand to warrant an in-house counsel team. If the management consultancy firm is small and does not require full-time on-site personnel, then the cost-effective strategy is to outsource all legal counsel because it allows the management consultants the flexibility in asking questions when necessary and does not burden the firm through fixed costs. However, economies of scale allows us to understand that mix of both in-house and outsourced legal counsel is most appropriate for medium- to large-sized firms.
While the state of the legal industry in the United States provides the illusion that an in-house counsel team is the best approach for legal counsel, the specific strategy depends on the size of the business and the assortment of legal work. For a small firm that requires widespread legal work, outsourcing legal counsel is most-likely the best strategy because it allows the management consultants flexibility in their relationship. However, for a medium to large firm that requires both repetitive and widespread legal work, an in-house counsel team will satisfy legal demand, reduce billable hours, and introduce the management consultants to outside counsel for any specific needs. This strategy is fiscally sound and increases the efficiency of the management consultancy firm.
“The Benefits of Outsourcing Your In-House Counsel.” Slinde Nelson Stanford Attorneys. N.p., n.d. Web. 10 June 2014.
Thomson Reuters, and Georgetown Law. “2014 Report on the State of the Legal Market.” Peer Monitor (2014): n. pag. Peer Monitor. Thomson Reuters, Jan. 2014. Web. 10 June 2014.
Christensen, Clayton M., Dina Wang, and Derek Van Bever. “Consulting on the Cusp of Disruption.” Harvard Business Review (2013): n. pag. Harvard Business Review. Oct. 2013. Web. 10 June 2014.
Goldman, Eric. “Advantages and Disadvantages of Taking an In-House Counsel Job.” Goldman’s Observations. N.p., 21 Jan. 2013. Web. 10 June 2014.
Giampolo, Angela. “Does My Company Need In-House Counsel?” (2011): n. pag. Giampolo Law Group, 9 Mar. 2011. Web. 26 May 2014.