When It Makes Sense To Use Outside Law Firms, and When it Makes Sense to Hire General Counsel
When a company starts to experience real growth — the kind that calls for infrastructure, a bigger executive team, and sometimes raising capital — they usually see their legal expenses go up. And up. And up. It’s when revenue is in the $10M to $20M range that they start to wonder if hiring general counsel is the right move, usually fueled by economics.
We’ve talked about how having an outsourced General Counsel can help scaling companies grow faster and smarter. But when does it make sense to go this route vs. sticking with traditional law firms? One of the biggest misconceptions about GCs is that they will handle all the legal needs of the company. The fact is, GCs serve a specific purpose that is different than that of many law firms. Let’s break it down.
Your outsourced GC is there is help you grow and, hopefully, minimize costs. That means they will focus on contracts and day-to-day risk mitigation, and they will also act as an advisor. They’ll look at your business holistically from a legal standpoint, keep your company out of hot water, and find ways to fuel your revenue engine (or at least minimize costs) through intelligent use of resources.
If you do happen to find your company in a sticky situation, that’s when a specialized law firm can and, in most cases, should, step in. Litigation, M&A, and some types of negotiations are better handled by a legal resource that specializes in those areas. Concurrently, it doesn’t make sense to have these types of firms handle transactional legal matters and business advisement. Many attorneys at these types of firms agree.
“We represent those kinds of companies who are better off if they never need us again. And they won’t if they have someone to do the GC work! It’s funny, I often have this talk with clients when the war is over—that they need well drafted contracts and a real document retention policy, etc. etc. But they are too small for a full time GC and don’t want to spend money a la carte. Most of the time they don’t even know what they need. Enter Auxana!” — Daniel Mestaz, Partner, Williams Mestaz, LLP
As you can see, an outsourced General Counsel is sort of like your family doctor. They make sure you’re staying on top of your health, and can work with you on prevention methods. But when the unexpected happens, they send you to a specialist.
Here’s the most important piece, however. Your outsourced GC and your specialized law firms need to work together to get you the best outcomes. Your GC will help keep the law firms’ invoices from getting out of control, while ensuring the firm has what they need to resolve your legal issue as efficiently as possible. In turn, your law firm will let your GC handle any transactional work so they can be free’d up to focus on the serious matter they were hired to address.
It’s a symbiotic relationship (at least it should be) that works to your benefit. What it shouldn’t be is a drain on your resources and time. The best GC + law firm partnerships are the ones that result in positive business outcomes for you.