5 Tips For Running Your In-House Legal Department Like A Business

Wise advice from a panel of top general counsel.

cash register drawer moneyMany lawyers view in-house jobs as a kind of paradise, a heavenly reward after toiling in the land of billable hours. But in-house life comes with challenges as well. Some of your business-side colleagues will complain about you, calling you “the department of no” and saying that your department is just a cost center.

How can in-house counsel shed this reputation and win more friends on the business side? A panel at the 2016 Annual Meeting of the Association of Corporate Counsel (ACC), “The In-House Counsel’s Bottom Line: Running Your Law Department Like A Business,” offered some pointers. It featured the following speakers:

  • Norman Brothers, Jr., Sr. Vice President, General Counsel & Corporate Secretary, United Parcel Service of America, Inc.
  • Daniel Cohen, Vice President, General Counsel, Textainer Corporation
  • William Henderson, Professor of Law and Val Nolan Faculty Fellow, Indiana University Maurer School of Law
  • Mark Smolik, Chief Legal & Compliance Officer, DHL Supply Chain Americas

(The panel was also supposed to include Apple general counsel Bruce Sewell, aka the $66 million man, but he was called away to Washington, D.C., on business.)

Here are some recommendations gleaned from the conversation.

1. Don’t be afraid to flex your muscle and get better terms from outside counsel.

Professor Bill Henderson, a leading academic studying the legal profession, shared some interesting statistics to start the discussion. The U.S. legal market is worth about $289 billion a year. More than $200 billion is spent by organizations, and more than $100 billion is spent by Fortune 500 companies. Henderson told the audience of in-house lawyers that, in light of their spending power, “You are in charge of the future of the legal profession.”

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Because of the shift in power away from law firms and toward in-house counsel, part of what former GE general counsel Ben Heieneman referred to in a prior panel as the “Inside Counsel Revolution,” in-house lawyers should negotiate more aggressively with outside counsel. An increasing number of corporate clients are adopting billing guidelines that limit the use of expensive, untrained junior lawyers, for example.

And more companies are moving (slowly) toward alternative fee arrangements. Norman Brothers discussed how UPS took all of its package litigation — litigation over lost or damaged packages — and sent it to one firm to manage on a nationwide, fixed-fee basis. This has helped UPS reduce costs and increase predictability in budgeting.

2. Consider reducing the ranks of your outside law firms.

It’s healthy to have some competition among your outside counsel. Dan Cohen said that after he took over as general counsel of Textainer, he moved away from having one firm doing most of the company’s work and started to spread around the projects, to create competition on price and quality.

For many other companies, however, it makes more sense to reduce the number of outside firms. Norman Brothers discussed how UPS reduced the number of law firms it works with from more than 100 to about 26, using competition to winnow its network and get good terms from the firms on its list of “core counsel.” Mark Smolik did the same at DHL, reducing a list of more than 300 law firms to less than 20 key firms.

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3. Strengthen the relationships with your key outside counsel.

You’re better off having excellent relationships with a few law firms — firms that work regularly for your company, getting to know your business — than fleeting, transactional relationships with many firms. But having good relationships with your outside counsel does require some investment. Bill Henderson offered these recommendations:

(a) Quantify, or evaluate, the quality of your existing law firm relationships (and end some if necessary).
(b) Discuss with these firms what is working and what is not, using the data gleaned from the evaluation process.
(c) Repeat steps (a) and (b) above every two to three months, using the same metrics each time (so you can evaluate progress or the lack thereof).

Henderson criticized the traditional aversion of lawyers to measurement and benchmarking. In the age of Big Data, where analytics can be used to make smarter decisions, this needs to change.

4. Think about taking some work in-house.

As discussed in prior panels, a growing number of corporate legal departments are handling work themselves instead of sending it out to (expensive) law firms. Mark Smolik of DHL said that if his company spends a significant sum on a commodity matter, $500,000 or more, it starts evaluating whether to bring that work in-house.

The decision about how much work to handle internally and how much work to send out will vary from company to company. Both UPS and DHL are in the shipping and logistics business, but the two companies take very different approaches to this issue; UPS spends about 85 percent of its legal budget on outside counsel, while DHL spends about 70 percent of its legal budget on inside counsel.

You need to evaluate your company’s legal needs and budget to decide what makes sense — but evaluate you should, in a systematic and data-driven way. Be proactive, not reactive.

5. Watch the bottom line.

As mentioned in a prior panel, in-house lawyers need to be good financial stewards. This is easier said than done.

Mark Smolik of DHL reminded the audience of in-house lawyers to coordinate with their appropriate colleagues to make sure that accruals for legal contingencies are sufficient. Remember that if you end up settling a case for millions of dollars more than what the company reserved, that goes straight to the bottom line and directly impacts earnings. Not good.

Of course, mistakes happen, and perfection is impossible. But if you as an in-house lawyer make even a halfway decent effort to think like a businessperson, your colleagues on the business side will be very, very grateful.

2016 Legal Department In-Sourcing and Efficiency Report [Thomson Reuters]
2016 ACC Annual Meeting [Association of Corporate Counsel]

Earlier: 10 Tips For A New General Counsel
5 Ways Reporting Differs At Law Firms And Corporations


David Lat is the founder and managing editor of Above the Law and the author of Supreme Ambitions: A Novel. You can connect with David on Twitter (@DavidLat), LinkedIn, and Facebook, and you can reach him by email at dlat@abovethelaw.com.