The concept behind “general counsel outsourcing” is that a business organization may not need to hire a full time in-house lawyer to perform the services and functions performed by a general counsel. Some business organizations may be able to contract outside the organization, resulting in improved efficiencies and profit.

The concept of outsourcing certain business and services functions is not new. It has been used for years. For example, most companies do not maintain their own payroll function, they outsource it – there are specialists outside contractors who can manage the function more cost-effectively. For the same reason, many companies outsource most non-strategic functions – the annual report preparation; staff recruitment; insurance; public relations; advertising; internal audit; staff training; and information services.

Outsourcing of legal counsel has become a major response to the profit pressures on many businesses. In the past, companies have outsourced mostly functions considered non-strategic to the company, such as some of those listed above. However, due to increased pressures on profits and accountability issues with respect to corporate governance, regulatory compliance and risk management, there is a trend towards outsourcing “strategic” functions of business organizations, such as the general counsel.

The concept goes beyond the legal realm and also into the operational realm of a business as well. It involves the belief that services and functions typically performed by someone in upper level management should be performed by a general counsel and such functions includes legal analysis of business decisions, planning and other input that needs to go into the strategic planning process. Legal counsel along with the operational planning and review process can be outsourced to a lawyer who understands the company’s business and culture who, in essence, becomes a part-time extension of the company’s senior management team.

Most companies recognize that they need legal resources at a senior level to perform this strategic legal function to ensure that the company’s major assets and rights are suitably protected and its major exposures and obligations are suitably managed. In practical terms, this involves an on-going legal risk and opportunities audit, and an ongoing legal compliance program. Small to middle market companies must make tough decisions when addressing such strategic legal resources. Such companies are constantly seeking ways to obtain the strategic legal resources that their business requires while at the same time trying to save money and increase efficiency. Many such companies find that traditional methods of retaining counsel are not cost effective because traditional law firm overhead costs, for office space and support staff, limit a firm’s flexibility in fee-setting. When outside counsel fees climb, emerging companies consider hiring an inside counsel as an employee. With all the benefits that employee status entails, hiring someone to be an inside counsel can also be costly; such companies simply may not have the justification or the resources to hire a full-time in-house general counsel.

Outsourced general counsel services offer an attractive option to many companies. For a specified and agreed upon monthly fee, the company contracts with an experienced and well qualified attorney to provide strategic in-house counsel legal services. The outsourced general counsel is an independent contractor, not an employee. He or she may periodically work at the company’s site in order to provide the same high quality, high level of service of law firms or employee counsel. The outsourced general counsel becomes an extension of the company’s senior management team.

In no event, should any company buy the idea that the outsourcing of general counsel legal services decision is an all or nothing choice. Certainly, some legal services are best delivered externally, from law firms that offer specialized legal services. However, other legal services such as certain employment law and labor issues, legal day-to-day corporate governance issues and strategic functions, can be performed effectively by the company with the help of an outsourced general counsel who understands the company’s business.

As in most things, it is a matter of balance and the result of informed and objective analyses. The key issue of determining whether outsourced general counsel services are proper for a company is a question of balancing the delivery of the company’s needs for such services to ensure an ultimate advantage for the company against the cost of an outsourced general counsel.

Most companies who I represent have addressed this question would agree with many of the following:

the ability to operate at a senior level in the company’s organization;
a close understanding of the company’s policies, strategies and objectives;
a close understanding of the company’s operating methods, processes, products, suppliers and customers;
the ability to manage legal risk, to analyze the company’s strategies and in order to identify legal issues, and to develop plans and programs to manage and, if possible, to avoid legal problems that arise;
the timely delivery of work of high technical quality that also provides practical solutions which meet the company’s business goals;
the ability to work closely and co-operatively with company personnel, suppliers and customers as may be required;
the ability to add value to the company whether this is by saving money, avoiding losses, solving problems, achieving their business objectives, by using knowledge and skills to improve the way the company manages its legal risks and pursues its legal rights and opportunities; and
the ability to manage external legal services for extraordinary legal issues that arise (e.g., litigation; public/private securities offerings; bankruptcy) in a cost-effective way that achieves optimum benefits for the company

Almost by definition, these qualities can only be performed by someone inside the company, who has absorbed the company’s culture and become part of the way the company does business. An outsourced general counsel can provide this level of service and resources for the company.

We have done this many times in the past and fortunately with great success for the companies we have and continue to represent. It is an alternative to hourly billing. It is an alternative to the lawyer as the enemy. It gives you a reason to call your lawyer without fear of being charged for every 6 minutes of time. Most of all, it give the business and its owners peace of mind that the company is in good hands.