The Case for Adding a New Lawyer
Author: Richard Stock - Lexpert (March 2014)
Convincing management to hire new corporate counsel is tough, but a solid business case can be made
SURVEYS AND INTERVIEWS show that the biggest challenges facing general counsel and their legal teams over the past five years have been workloads and workflows. These issues take time to sort out, but the deadlines do not change - and, of course, clients believe that the legal department is to blame for the hold-up.
Hiring another in-house lawyer will do much to reduce the backlog, but making a case for one is difficult at the best of times. It begins by ensuring that the new hire will lead to a gain in productivity. This is quite different than ensuring that everyone is committed and working hard. Those who approve additional head count will be more sympathetic to a request for resources if a measurable improvement to productivity can first be demonstrated.
The second element of the business case is the preparation of a detailed demand forecast, typically expressed as the number of matters, number of hours, required legal specialties and level of work complexity for each major client group within the company. This matrix of work should incorporate planning assumptions and their probability for two or three years. Discussions with each client group are essential. They should occur at the same time as the annual business-planning cycle. The general counsel then has a graphic representation of the legal work by type and business unit. It should be 90 per cent accurate for the year.
The third element of the business case entails matching the demand with the available internal and external resources. Most legal departments tend to refer litigation, labour and employment, intellectual property, tax and other specialty matters to external counsel.
The preference is to handle most corporate and commercial work internally. Smaller departments typically refer M&A and securities work because they rarely have the experience mix and availability to take it on. Consideration should be given at this stage to in-sourcing some of the work often referred to external counsel.
The fully loaded hourly rate for inside counsel is typically 40 to 45 per cent of that of external counsel for the same level of experience. For example, the work of external counsel billing at $480 per hour (the low end for senior partners in larger metropolitan areas) can be done by qualified inside counsel whose notional hourly rate is $220 per hour. This type of in-sourcing only works if there is a critical mass of this work available for two or more years.
External counsel working 650 hours per year at $480 per hour will cost $312,000. Most legal departments can afford a full-time senior counsel position for this amount. Assuming a yearly target of 1,850 hours, 650 hours are directed to work previously referred out, leaving 1,200 hours of standby capacity to be allocated. This type of business case is the easiest to make because it does not require the company to increase its total legal spend — only to approve an increase in head count.
After careful consideration of these alternatives and the determination that there are at least 1,000 hours of unallocated work in the plan, the business case for another position should be presented. This presentation should be accompanied by the demand forecast, evidence of appropriate in-sourcing, service level agreements with business units, and productivity improvements within the legal department.
Assuming that a case is made for the addition of another position, what position should it be? It rarely makes sense to add a junior lawyer with less than four years of experience. Inside counsel tend to do 100 per cent of the work in 90 per cent of their files, even in larger departments. Law firm staffing profiles with leveraged junior positions rarely make sense for a law department — with one exception: experienced paralegals. A review of the tasks assigned to corporate counsel shows that 10 to 20 per cent are paralegal or clerical in nature. When pressed, lawyers say they do this work because there is no one to give it to or because they believe it is more efficient to do everything themselves. The reality is that inside counsel often have poor delegation skills and very little experience working with paralegals.
The addition of a legal-department position is a unique opportunity to manage client expectations, save money with in-sourcing, inject discipline in how lawyers work with their clients, and redistribute tasks across the legal team. General counsel should consider all of the angles.