In my earlier blogs we discussed some of the advantages to your business of using an outsourced general counsel (OGC), and the types of things a OGC can be used to do for your advantage. Now let’s discuss some of the economics of an OGC.
Efficiencies of Consolidating your Legal Team
Many small to lower-middle-market businesses don’t have sufficient ongoing legal work to justify hiring a full-time in-house general counsel, but nevertheless have active legal matters. They may use several outside law firms to handle these various matters. This probably involves paying a full hourly rate for legal work done by multiple firms unless the business can negotiate a discounted rate. There is also a certain amount of inefficiency in using multiple lawyers or law firms for projects, in terms of information access, multiple points of contact, and time spent in communications.
For this business, and OGC can provide several advantages over using multiple firms. Without an OGC, typically the CFO works with and coordinates the various legal service providers. An OCG provides an important advantage in a single point of contact who is familiar with all your ongoing legal matters. It also frees up your CFO to do his or her main tasks.
The Economics of Hiring an Outside General Counsel
A business that has a lot of legal work may consider hiring an inhouse counsel for economic reasons. Take the example of an in-house counsel with a $200,000 annual salary, a 35% target bonus, plus benefits (health insurance and 401(k) contribution). The annual compensation is about $350,000, not including equity. If you consider other overhead considerations such as support staff, office space and furniture, computer equipment, a secretary and admin support, HR costs, and other expenses, the cost may be closer to $500,000.
Compare this with an outsourced-general counsel arrangement with an experienced business attorney and a firm of support attorneys. An OGC arrangement, for example, at $10,000 a month would provide most of the legal services your company would need in a year, barring extensive litigation or complex transactions. Consider also that the OGC will not be on your payroll when he or she is “idle,” and you won’t pay the OGC to go on vacation. Based on this, the $120,000 investment in the OGC compares favorably to the $500,000 cost of the inside counsel.
Effective Spotting of Legal Issues
Additional savings can come because the OGC has expertise and perspective to communicate with the business and utilize information efficiently. The OGC is in a better position to spot legal issues that cross over from one matter to another, allowing additional efficiencies in providing legal service. The OGC may see problems before they arise, saving significant time, money, and management resources.
If a separate law firm is required in a specialty matter, the OGC can act as the point of contact to coordinate all legal services. The business can also negotiate an economically beneficial fee arrangement with the OGC based on actual needs of the business.
In-house general counsels certainly have an important role. The real question is, what is the best result for your business? For many businesses, an OGC is the best combination of experience, expertise, responsiveness, and economy.