Thoughts on why law departments retain outside counsel

Put crudely, some people think that make or buy decision mostly boils down to brains versus brawn. In-house counsel are capable of handling every-day legal questions, but where complexity or novelty rears up, hightail it to those smart outside counsel. The opposite view, considerably in the minority, is that commodity work should go to outside counsel and the strategic work – new, edgy, challenging – should remain within the fold.

Intellectual capability to one side, another view holds that law firms are retained when there is too much work to be done. By this overflow theory, mergers and acquisitions call for additional muscle, as does the episodic and all-consuming demands of major litigation or a government investigation.

Related to this view is the desire to have local legal influence and not to be home-towned. A law department with no one admitted to practice in a court needs to turn to an outside lawyer.

Relatedly, some maintain that law departments should sharpen their tools on core competencies (See my post of Aug. 9, 2006 on core competencies.). Legal work peripheral to the strategic posture of the client might as well flow to outside counsel.

Rarely stated is the cynical view that law departments use outside counsel to buttress and cosset themselves; this is the school of CYA.

One might reasonably infer from the expertise and overload arguments that the larger the law department the less it would need to rely on outside counsel. Among its multitude of members would be lawyers who have specialized and lawyers who have excess capacity. In general, however, the ratio of inside and outside spending remains comparable even as law departments grow larger; what declines is total legal spending as a percentage of revenue.

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