Mar 9, 2021

Should Your Startup Hire In-House Counsel?

In-house lawyers may be overlooked when companies are building their teams, but they can play an important role in the success of a company. They’re the ones who provide legal resources and financial management advice when most needed. 

Startups will face business and legal challenges as they grow. Because of this, it is becoming more common to see startups hiring in-house counsel to help them dissolve any legal troubles and advise the company on a multitude of business and legal issues. 

If you’re debating whether or not to hire in-house counsel, we’ve partnered with Embroker on this guide that provides all you need to know about in-house lawyers to hopefully steer you in the right direction. 

How In-House Lawyers Improve Company Performance

A huge benefit of in-house counsel or a chief legal officer (CLO) is that they’re an integral part of the company. Because they know your business and clients inside and out, they’re able to provide timely, high-quality services. 

Robert Bird, business law professor at the University of Connecticut, said “CLOs can rapidly apply legal judgment to regulatory problems facing the company and ensure that firms are fully compliant with relevant rules. A strong CLO will protect company value from being lost through government penalties and needless litigation.”

In fact, in-house lawyers have been shown to reduce ligitations up to 74%, saving companies legal costs which can be directed towards growth efforts instead. 

CLOs can also help companies reduce insider trading and create more accurate revenue forecasts, Bird said.

Additionally, since in-house lawyers are familiar with the operational processes of the company, they proactively look to improve efficiencies through strategies such as leveraging legal technology to streamline workflows and management processes. Below are a few statistics on how Chief Legal Officers use legal tech in their companies from a survey conducted by the Association of Corporate Counsel: 

  • 41% of CLO’s surveyed plan to adopt legal tech to improve efficiencies in the next 24 months.
  • 67% of those are looking to invest in a contract management solution.

By helping companies cut down on legal costs and time on paperwork, in-house lawyers reduce legal disputes as well as improve the overall efficiency of the company’s operations. 

What Does an In-House Lawyer Do?

In-house lawyers may wear different hats in a company, acting as legal counsel, a financial advisor, or a strategic business partner. The top three priorities of corporate law department leaders are “improving functional effectiveness, increasing efficiency, and safeguarding the company,” according to a report by Acritas.

Common duties of in-house lawyers include:

  • Managing the legal department and its members 
  • Provide counsel to higher management (CEO, the board of directors, senior management) 
  • Develop and guide the legal plan of actions for the company
  • Review and provide guidance on company contracts, deals, and paperwork 
  • Supervise the usage of resources and legal services 

Many in-house lawyers are also seen as strategic business partners, whose goals are to guide the continuation of growth in the organization. They proactively seek strategic initiatives that will drive long-term growth and success for their companies. 

When is the Right Time to Hire In-House Counsel? 

This is a tricky question to answer because there’s no one right answer. The timing depends on the startup’s current situation and stage of growth. There are guidelines that you may follow when deciding whether it is the right time to hire an in-house lawyer. 

Alex Montagu, the founding partner at Montagu Law, recommended looking at the company’s current revenue, industry, location, and number of employees when considering whether or not to hire in-house. 

If your company is seeing higher numbers of revenue, roughly more than $20 million in annual turnover, hiring an in-house lawyer may be right for you. If you are seeing less than that general number, seeking outside counsel may be a better fit since the startup is not large enough quite yet.

Key questions startups should answer when deciding when to hire in-house counsel
Source: Embroker

In-House vs. Outside Legal Counsel

Once you’ve committed to hire a lawyer, there’s also the matter of deciding whether hiring in-house counsel or outside counsel is best. There are advantages and drawbacks to both, which must be evaluated based on your company’s budget and legal needs. 

Comparison between in-house counsel and outside counsel
Source: Embroker

Advantages of In-House Counsel

A  big advantage of in-house counsel is that they’re a “dedicated attorney with a single client – the company – and will typically be more familiar with your business than an outside attorney with many different clients,” Bird explained. 

Whereas an in-house lawyer works strictly for your company and seeks to provide internal growth and success in the organization, outside counsel usually handles multiple clients, so their focus isn’t solely on your company.

In-house counsel are also knowledgeable on a range of legal matters, making them well-rounded and qualified to advise on a variety of issues that your company faces. In-house lawyers also act as trusted advisors, meaning they have your company’s objects and best interests at heart when it comes to legal solutions. 

Disadvantages of In-House Counsel

As beneficial as in-house counsel can be, there are always drawbacks, just like with any business decision. One disadvantage is the internal conflict that can arise within the team due to the risk averse nature of lawyers. This risk aversion can put in-house lawyers at odds with colleagues seeking growth at any cost. A common example is the relationship between Sales and Legal.

When Sales is pushing to close deals, it can be frustrating when their deals get stalled or veto-ed by Legal. Similarly, when Sales try to close deals without proper review all in the name of hitting quota, they may introduce significant company risk and liability.

David Felicissimo, General Counsel at Valnet Inc. explains, “Entering a company, general counsel are often regarded as “deal breakers,” due to the tendency to be cautious and risk averse — which can sometimes throw cold water on deals.”

Lastly, because in-house lawyers are typically hired as generalists, you may need to hire specialists if your company has specific legal needs, such as dealing with intellectual property. 

How to Hire an In-House Lawyer

Hiring a lawyer is a big decision that requires multiple steps of vetting candidates. In addition to legal expertise and experience, an ideal candidate should also have good management and leadership skills, as well as business acumen to balance high-stake responsibilities.

First and foremost, you should identify your company’s legal needs and map out the role and responsibilities of the in-house lawyer. When evaluating potential candidates, consider their legal experience, skills, and how well they match your company’s vision and values.

The infographic below takes you through the steps of hiring in-house counsel.  

Process to hire an in-house lawyer
Source: Embroker

Hiring your first in-house lawyer can be challenging if you are new to running your own business. If you feel that the time is right, determine your company’s needs and the qualities you’re looking for in an in-house lawyer, and follow these tips to find the best candidate for your company. 

Written by Ying Ying Lim

Marketing and Sales Operations at Outlaw.

More about Outlaw

Voted G2’s #1 Momentum Leader for contract management, Outlaw provides pioneering end-to-end contracting solutions for the fastest growing companies such as Intrado, BeyondPricing, and Democracy International. From dynamic template-based generation through in-app negotiation, lifecycle management and reporting, Outlaw automates and customizes contract workflows helping companies reach agreement faster. Outlaw has been recognized as a legal technology leader in 2020 by the National Law Journal.

In 2021, Outlaw joined Filevine’s legal tech platform to radically improve the future of legal work. Together, Filevine and Outlaw become the first and only end-to-end solution to dynamically link documents, contracts, and databases with their surrounding business processes, resulting in easier workflow customizations, instant automations, and better collaboration.

More information can be found at getoutlaw.com and filevine.com.

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