It’s tough to accept the general counsel position from outside the company. Consider imported CEOs. An article in strategy + business, Summer 2008 at 80, looks at the performance of companies that promoted an insider CEO compared to those that hired a CEO from outside the company. For the 10 year period studied, “companies headed by North American outsider CEOs underperformed regional market returns by 1.0 percent on average.”
A similar, relative under-performance by a law department might follow when a company brings in a general counsel from outside. Consider the range of reasons why a newcomer to the company confronts more obstacles to success than does an insider (See my posts of March 26, 2005: choice between new blood and incumbents; and May 1, 2005: outside white knights have more problems.).
1. Passed-over internal candidates may lose effectiveness or leave (See my post of April 16, 2007: when an internal candidate is promoted.).
2. Morale may decline as direct reports re-shuffle their standings and the general counsel replaces some of them (See my post of June 11, 2008: new general counsel often cleans house.).
3. Turnover may increase in the law department, which results in a loss of institutional knowledge (See my post of June 15, 2005: costs of turnover.).
4. The new lawyer has to get to know the lawyers in the department and learn which ones to trust and rely on. That learning curve can sap engagement (See my posts of Jan. 10, 2008: employee engagement; and June 20, 2007: references on employee satisfaction, morale, and engagement
5. The culture of the company may be strong, pervasive, and alien to the style of the newcomer (See my post of Nov. 20, 2007: 14 references cited on culture in law departments.).
6. Because of unfamiliarity, the nouveau GC may misstep with key clients or not hear of important developments promptly (See my post of June 28, 2006: create profiles for key client groups.).
7. The new company may fire-hose the new lawyer with information, especially if that lawyer has not worked in the industry before (See my post of July 16, 2005: business acumen counts for more.).
8. It may take longer to recruit a general counsel from outside than to promote from inside, and during that interregnum the law department may tread water or even sink under the waves (See my post of March 20, 2008: interim general counsel.).
If the lawyer comes from a law firm, these challenges magnify because the new general counsel may not have had much experience managing a large group of people.
Had we enough data, we might be able to compare a few key benchmarks over the two or three years after a number of general counsel arrive and quantify whether it makes a difference to promote internally or draw from outside.