LegalBusinessWorld Posts

Going In-house: A Changing Marketplace

May 26, 2020

“These are the times that try men’s soul.” : Thomas Paine, The Crisis, Dec.23, 1776

 

Pandemic and destabilization of more than half a century of nuclear geopolitical balance are just two top-of-mind issues that grip the minds and hearts of people.  For those of us who are not readily able to solve these problems, there remains much to be pondered.  Serving as a panelist in an international law firm’s leadership program for lawyers brought the author an exchange which led to some thoughts on what lawyers need to ponder when going in-house. 

 

In 1997, the author was surfing an early wave of lawyers moving from law firms into corporate legal departments in mainly western multinationals in China at that time.  Not unlike many other moves, the exploration concerns what happens in enterprises after the closing of a strategic deal and how a business works.  Since then, the market has evolved and grown more vibrant, now with the rise of Chinese state owned and private enterprises as well as businesses and industries at varying stages of development, many of them truly claiming a place as competitive global enterprises in their own right, sometimes with even socio-political headwinds rather than buttressing.

 

There is much media on the subject of moving in-house.  An informative example is an article packing in observations and helpful advice from an international recruiter. [1] Common considerations for going in-house are in essence not that different from those of graduates starting in the job market – driven by the head, the heart, and the dough – what one is good at doing, what one loves to do and what pays (whether to maintain what one is accustomed to or to scale one’s ambitions).  

 

These considerations may translate into:
 

  • The timing of moving in-house – relative to the stage of career such as making partnership in law firms, the trajectory of pay after going in-house, and skills acquired before the move;

  • What the candidate lawyer is looking for – “work-life balance,” the extent of a structured work environment, steady compensation and benefits, freedom from pressures to bill and to pitch, fitting more into a client’s business and purpose, hitching a ride with disruptive players (which are rare), enhancing personal branding with a corporate brand’s halo effect;

  • What employers may look for – a go-to person for legal problems, a contract manager, expertise to bring in-house, a facilitator of large and small transactions, a risk manager to hold the line on compliance, a “counselor;”

  • Whether one possesses or can acquire the skillset that helps to succeed in-house – “soft” or “people” skills such as communicating with non-lawyers, commercial sense and acumen, likelihood to come out from behind the desk to appreciate disparate stakeholders’ perspectives across silos and the business ecosystem, ability to facilitate operations and perhaps even contribute to strategies;

  • Propensity to overcome the challenges in such transitions – going from mere practicing law (issues spotting and highlighting legal risks) to solving problems or even facilitating jobs to be done from clients’ perspective, moving from input based mindset (hours worked) to one driving throughput or even output, marshaling the facts and building pipelines to data beyond citing anecdotes, managing and building a bench of talents in the legal function that can deliver the results;

  • What if in-house legal department is not a suitable fit – moving back to law firms, going into business and other functions, joining investment or consulting firms. 

 

While most legal managers, candidates and recruiters have been working with these criteria, the decision for a lawyer to go in-house and how organizations should recruit legal professionals and build their legal departments ought to take into consideration how the legal sector is evolving. Albeit at a slower pace than other industries and professions, numerous first steps have been taken in a journey of transformation.

 

Popular legal media has been covering the heralded rise of in-house lawyers [2] and the move of talented lawyers in-house. [3] Much of the sensation is generated from a shift of bargaining power from suppliers (the most written being “Big Law”) to buyers of legal services and a client revolt that is putting private practice lawyers on their collective back foot.

 

I. Macro Considerations

When one digs deeper, one can see beyond stories of GCs trying to dictate terms to law firms with tools like alternative fee arrangements (AFAs), AI tools for scrutinizing law firm bills, [4] legal process outsourcing (LPOs), alternative legal service providers in the midst of innovative offerings from law firms [5], and myriad PR on LegalTech.

 

The legal sector is witnessing a shift, and not a blip resulting from the global financial crisis since 2008.  But what is behind this market shift?  A scan of recent articles [6] has long made clear the lay of the land in the legal sector.  Below are some observations that are worth bearing in mind for lawyers navigating between private practice and in-house legal departments.

 

A. Supply & Demand
In short, the story goes like this in the U.S., and to a certain extent in other markets: in pursuing lucrative tuitions, universities inadvertently propelled unsustainable growth in the number of lawyers, lifted even higher by student loans.  A rise in the supply level of lawyers drives a downward shift in the “clearing price” in the market for legal services.  The market value per-lawyer eventually made economic sense for more corporations to hire more in-house lawyers.  In 2010, somewhat of a tipping point, the market started seeing both a period of growth of in-house lawyers and decline in law school enrollment.


The abundance of lawyers has been adding fuel to a full blown a client revolt beyond price haggling. 

 

B. From Opacity to Translucence

Similar to procuring external services such as business consulting, marketing PR and IT, in legal matters, companies used to rely on outside counsel to assess the legal situation, determine the type and level of legal services they need, and ensure the quality of the legal services they received.  However, the increasingly deep bench in corporate legal departments now: 
 

  • adopt a more activist role in selecting and managing the resources assigned to their projects,

  • integrate with the needs of client’s business and organization and develop sophistication that leads to disaggregation of services and tasks, and

  • raise confidence about the question to be asked and the work to be done, reducing reliance on traditional big provider brands.
     

Complementing the movement in-house, a myriad of burgeoning disruptive movements also channels legal work to: a restructured ecosystem of external providers beyond traditional law firms (e.g., legal outsourcing companies, alternative legal services providers), and unbundling of work across the people-process-technology spectrum, modularization of work and legal tech.

 

The unbundling of specialty work from commodity work results in the “right-sourcing” of legal work based on associated price and quality arbitrage.  Beyond the democratization of knowledge and the clients’ realization that they are paying too much for features they don’t value, businesses want greater speed, responsiveness, and control.  In the legal function, this means less spinning its own wheels and more integration to the long and short term takt of the organization. 

 

C. Journey Ahead
Without a doubt, lawyers still command an enviable price for their services, and by no means compare with the price elasticity of fast-moving consumer goods.  Witness the limited access of small enterprises and individuals to legal services in most jurisdictions around the world.  In contrast with most professions, the median law practice continues to occupy higher ground in associates salaries and profit per partner. 

 

The legal profession, steep in a culture of confidentiality and legal privilege, may present an opaque façade in client value proposition. The democratization of trust between buyers and sellers in more level playing fields illustrated by Uber and Airbnb may not apply in the legal sector. The scaling back of Avvo to be a mere lawyers directory and the limited scope of  'AdvanceLaw' as a membership organization for buying legal services offer scant data points on the status of the trust revolution. [7]

 

Nevertheless, without a doubt, the flood gate has opened.  By bringing in-house the functions diagnosis and quality control, companies reduce the barrier of switching providers and embark on the industrialization of legal services.  Indeed, this is not just another buyers’ market, but an unprecedented structural shift.

 

Traditional legal service providers will see consolidation especially in the top tiers of the industry.  While people watch the battle for the largest and most coveted clients, the narrative will start with smaller opportunities, those already served by existing providers as well as new entrants to the sector.  Starting at the peripheral is a common pattern of disruptions.

 

Furthermore, the traditional boundaries between professional services are blurring, and the new landscape will present novel opportunities.

 

Already the e-discovery field employs more non-lawyers than lawyers.  Data analytics and technology to mine insights is a reality in so many other industries, and the legal sector is ripe for retiring lawyers to work side by side with entrepreneurs to harness valuable insights for clients.

 

II. The Law Department as a Strategic Function
The above is just a narrative of the scaling of a profession into an industry and the value shift from sellers to buyers of legal services. A survey of most businesses will show that enterprises still need legal functions that truly address their jobs to be done, [8] beyond the remedies at the proverbial bottom of a cliff.

 

Today, everyone in legal services talks about being a partner to the business, being more commercial, engaging people and purpose, having a seat at the table and asks questions like:  What is business looking for now from in-house lawyers?  How does corporate counsel become trusted advisors in an enterprise?

 

A core question may be how the in-house legal function can leverage this effort to break out of an opaque past and take the value proposition to the next level.  The incumbent or legacy providers of legal services, most still residing in private practice, may appear to be defending their own interests in the status quo and dragging their feet to align with the new client’s perspective.  However, the legal service value chain should be viewed as an integrated supply chain, and the current tug of war over pricing between buyers and providers should be just a side show.  In fact, simply beating down law firm’s rates will not solve the legal sector’s problems, and mere cost cutting does not pave the way of the legal department transformation into a strategic function.

 

What this means is in addition to criteria for yesterday’s lawyer and today’s needs of legal departments, lawyers and clients will benefit from keeping an eye on the future.  Here are some points being surfaced in the legal community.


A. Taking It To the Next Level – Beyond Lawyering

First, lawyers do not go in-house to practice law, and this is a nuance that is definitional.  Lawyers’ core competence may be to navigate the law, spot issues, and marshal the evidence to generate solutions to legal problems, but businesses hire lawyers in-house to advance their purposes and not merely to practice law.  The lawyering skills may form the vertical pillar of a T-shape lawyer [9], but without the horizontal skills and intent, an in-house lawyer would not really be “in-house” and a member of an integrated “pit-stop” [10] team.

 

Being a corporate counsel surely goes beyond spotting issues and ending with equivocal, difficult-to-comprehend, client-you-decide recommendations.  Solving and anticipating problems are the goods of trade, and resorting to laws [11] may be one way to do so. More often than not, the solutions are not legal in nature, and the legal department should, albeit ironically, “do less law.” [12]

 

This may be against the visceral instinct or purpose of the legal vertical which often ends up over-lawyering an issue, from long winded memos to going down sub-optimizing rabbit holes and missing the bigger picture in the problem solutions.

 

Going in-house pivots the drivers of value proposition from inputs to throughputs and outputs.  In other words, the reform concerns a shift from the overt hourly pricing and shadow cost accounting in terms of headcount and fulltime equivalents (FTEs) [13] to measurements on being an active corporate resource in shaping and executing an organization’s strategy, i.e., its reason of existence. Hence the legal function aspires to be a strategic function, beyond just another cost center.

 

The word strategy, too often, has been thrown around and may indeed have been used in vain.  It is not limited to minimizing risk, whether in bet-the-farm transactions, routine contract reviews or existential dispute resolutions and regulatory threats.  

 

B. The Problem With “Make Me Look Good”
Many would have come across this innocuous ask from the GC when she engages outside counsel or assigns a staff lawyer to work directly with a business client.  Sometime the corporate counsel needs expertise that is not available in-house, and sometimes it reflects a critical need in the face of an over-extended in-house resources.  If this mind frame in providing legal services is the norm rather than the exception, some client may indeed ask: why hire the in-house lawyer or why not replace the in-house or more senior generalist by the outside specialist or junior lawyer.

This illustrates why if the purpose of an in-house counsel is merely to lawyer a problem, then the “rise” of the in-house lawyer may just be a cost arbitrage exercise.

One way to think of this is to revisit the concept of the T-shaped lawyer.  The purpose of the in-house lawyer should require the horizontal competence to be so strong and critical to the enterprise that it is symbiotic with the legal vertical.  This is so much so that the “T” may be better described as an “H” tilted on its side, with the legal generalist connecting the range of business organizations goals and activities on the top and the range of legal resources spread, across the people-process-technology spectrum, at the bottom.  Even within this job description, the in-house lawyer can declare majors and minors that best serve the strategy of the business and the legal department as opposed being the equivalent of a Swiss army knife. 

 

C. Reason For Existence – Operations and Risk Management?
Regardless, the in-house lawyer must meet today’s expectation, mainly to support business operations, but always be guided by a purpose to play an active role in shaping and executing the organization’s strategy. 

 

In facilitating business operations, with time and effort, a qualified corporate counsel will be able to improve legal tasks and processes by eliminating waste and improving efficiency, perhaps even deploying automation and self-help mechanisms that are actually adopted in the field.  She must also keep in mind that efficiency gains should be made in the enterprise activities and not centered on just the legal aspects. 

 

While lawyers may have often been perceived in the remedial context, i.e., at the bottom of a cliff, an in-house lawyer must manage risks in the context of relevant opportunities.  A risk-only approach will have the legal function clapping with only one hand, being reduced to the department of “no,” even with all intentions to be commercial and business friendly.  This is because an adversarial structure to risk management will in all likelihood isolate the lawyer who is perceived to pass judgments on risks.

 

This in turn will induce a negative cycle of distancing the lawyer from facts and data and thus raising the lawyer’s adversity to consider any risks. [14] Further, marshaling the evidence takes on a different complexion today in the age of data, and overwhelmingly data resides outside the legal department in most organizations that are heavily siloed.  While a discussion of how technology impacts the legal space lies beyond the scope of this article, the venn diagram above [15] serves to remind in-house lawyers to keep in mind lawyering constitutes only a part of their job.

 

To arrest this state of affairs and generate a virtuous cycle, corporate counsel must start getting from behind the desk and grounding themselves further in the business organization.  This will likely mean impressing people and doing one’s homework only starts and does not end with the acceptance of a job offer.  It will also require thinking beyond organizational silos, appreciating the enterprise as a whole and a robust resilience in getting inside the heads of business colleagues in the company.  A lifetime of learning the business will sharpen a mind frame of:

 

  • Anticipating and solving problems and passing less judgment,

  • Thinking in probability and adopting a quantitative approach to risk,

  • Rising above a bipolar (right and wrong) worldview,

  • Adopting a flexibility to think beyond linear and uni-causal analyses,

  • Gaining a second nature to seek and follow data.
     

While the business colleagues will need to meet the in-house lawyer half-way, the lawyer must take the initiative to turn around the expectations.  A shift of the mind frame from one of the clean-up crew to an integral part of decision making will help bridge the gap between innovation and risk management. [16]

 

Refraining from defaulting into a singular focus on the one percent risk in a ninety-nine percent upside scenario will address the first of the twin challenges to lawyers by the enterprise – aversity to risk and over-reliance on past precedence. [17] In-house counsel must also learn to think like a business owner in forging a future in addition to defending the past.  This is where playing an active role in shaping and executing the organization’s strategy comes in.

 

D. Toward A Strategic Legal Function
Beyond informing legal’s support to routine operations and legal process improvements, getting a handle on the enterprise business strategy, or the playbook founded on its reason for existence, will connect everyone to its longer term direction beyond the month or the next quarter.  This is especially the case during these times of accelerating changes and increasing disruptions.

What an enterprise does and how it accomplishes its activities to bring value in an ecosystem gives meaning to everyone in the organization working toward to same set of goals.  This also means alignment across business units verticals, between headquarters and regions/countries and the myriad personalities within.  Formulating and adjusting a strategy to navigate across the ecosystem also means coming to terms with external parties, whether in the competition with rivals, managing co-opetition with adjacent players and potential entrants, sharing risks with clients or suppliers, incentivizing employees and contractors, and balancing relationship with communities and the public sector.  

 

In short, strategy depends on alignment among stakeholders, internal as well as external.

 

E. Chief Relationship Officer To Advance Corporate Strategy

As it turns out, beyond the legal interpretation, issues spotting and marshaling of evidence, lawyers have been at the center of managing relationships between and among stakeholders, both natural or legal persons.  Whether in the intensely human and emotional context of criminal prosecution/defense, divorce, and estate contests or the cold calculations of financial instruments and sprawling deals between behemoths, lawyers, both the drafters and the dealmakers, have been (ahem) instrumental.

 

So too, in the journey to earn a seat at the table, not just in the C-suite but at all levels of an enterprise, it will behoove in-house lawyers to explore and internalize the strategy of the business and organization.  Some may wonder whether this is above the pay grade of most in-house lawyers, and indeed many business clients may not even understand, let alone be guided by, business and organization strategies.  But this does not mean there is none, again, especially in our times of accelerating changes.

 

The organization/business strategy also serves as the foundation of and departure point in formulating the corporate legal strategy, i.e., the legal function’s contribution to business strategy, or the business of law.  This is much more than a plan to manage external legal resources, but also drives integrating the legal function closer to the enterprise and its parts.  It also addresses the strategy for change, innovation accretive to the business (beyond cost control), and again how to align stakeholders interests.

 

F. A Strategy for Change

Critical to a change strategy, the in-house legal function requires team players, and not just traditional individual contributors in the past.  This is more crucial than the common and vague clients’ ask to be more commercial.  Not only does the top in-house lawyer need to earn a seat at the table in the C-suite, so do lawyers at every level and vertical of the enterprise.  It goes without saying that aligning stakeholders interests also require emotional intelligence previously not generally associated with lawyers.  As EQ is not usually casually developed as other acquisition of skills, industrial psychology assessment and some coaching will be in order.

 

In the field of coaching, a school of thoughts counsels helping people on what they can do and not be discouraged by how little or what they cannot do.  Well-rounded individuals may require less coaching and learn on their own, but no one is perfect.  Although a T (or H)-shaped lawyer is to shore up shortcomings to enable connective contributions, the legal department may not want to forego talent that fits certain niche, albeit peripheral, in-house roles such as those fulfilling strategic or operations critical expertise. 

 

****

 

This article started with a casual survey of the common considerations for lawyers going in-house, such as compensation, fit and career development.  

 

Given the macro shifts in the legal sector which is not immune to disruptions in value propositions as in other fields, lawyers heading in-house as well as those who are already there will benefit from taking a hard look in the mirror - and ponder whether they see, and how much of, the spirit and inclinations of an industrialist or an entrepreneur.  Beyond the compensation package, this assessment will inform the decision by taking into account what each individual actually excels in and what vocations will yield the most meaning.  As legal education is in its infancy in addressing the needs of the profession, much learning and training will lie ahead, but that is par for the course going forward for just about every vocation. 

 

Notes  

[1] Should you go in-house?, F. Yuen, SSQ, Aug. 21, 2019.  

[2] See, e.g., Rise of the In-house Lawyers, R. SenGupta, Financial Times, Mar. 17, 2010.

[3] Why are so many talented lawyers moving in-house?, C. Baski, Reconteur, Nov. 27, 2018.

[4] How Does Bodhala Disrupt The Half Trillion Dollar Business Of Law Firms And Corporate Counsel?, B. Auerbach, Forbes, Nov. 30, 2017.

[5] But see On Law Firm Marketing Bullshit, C. Flaherty, 3 Geeks And a Law Blog, Sep. 10, 2017.
[6] The industrialization of law and rise of in-house counsel, J. Côté, Lexis-Nexis-The Lawyer Daily, Oct. 01, 2019; The Trust Revolution, D. Currell, Dec. 22, 2019; Consulting on the Cusp of Disruption; C. Christensen, D. Wang & D. van Bever, Harvard Business Review, Oct. 2013; Points of Law: Unbundling Corporate Legal Services to Unlock Value, D. Ertel & M. Gordon, Harvard Business Review, Jul.-Aug. 2012.  

[7] The Trust Revolution, D. Currell.

[8]  Know Your Customers’ “Jobs to Be Done,” C. Christensen, T. Hall, K. Dillon & D. Duncan, Harvard Business Review, Sep. 2016.

[9] The 21st-century T-shaped Lawyer, R.A. Smathers, ABA Law Practice Magazine, Vol.40, No.4 (2014).

[10] 9 Lessons Product Teams Can Learn From Formula 1 Pit Stops, R. Seamons, Hackernoon, Jun. 28, 2018.

[11] Contracts too generally stipulate rules between and among parties.  Many a clause in agreements save the day in negotiations, but many just deal with short term consideration and “kick the can down the road” without enhancing clarity and addressing issues and solutions.  Worse, some lawyers actually play with words that misrepresent the nuance of the rules and manipulate a risk profile that satisfy only the short term needs of stakeholders without accurately pricing the pros and cons in context of available options.  Some merely act for the interest of one or few stakeholders but at the expense of the organizations.

[12] Do Less Law – A Taxonomy of Ideas, R. Friedmann, Prism Legal, Jan. 19 2016.

[13] Org chart, the reason for existence?, K. Tung, Jul. 2019. 
[14] Ecce Advocate - Reflections from Conversations in the Field of Legal Services Circa 2019, K. Tung, Legal Business World, May 30, 2019.  This is one reason why the “horseback” law approach suggested in How Google Works (2014), E. Schmidt & J Rosenberg, to deploy in-house lawyers to triage potential issues will not be optimal.  It is akin to using the legal function merely as a mobile canary in the coal mine, but yet to take into account that the foremen in the mine will not feed this canary accurate, real time data.  Perhaps when lawyers begin to be accepted as an integral part of the operations at strategic levels will they participate to shape the overall picture at the top of the cliff rather than being stuck in an ambulance at the bottom.  Indeed, Why Your Innovation Team Needs a Lawyer, E. Dhawan, Harvard Business Review, Jul. 21, 2016, advocated including legal and other verticals to add robustness to innovation by being a part of it.

[15] AI, the Internet of Legal Things, and Lawyers, K. Tung, Journal of Management Analytics,6:4, 390-403, DOI: 10.1080/23270012.2019.1671242 (published online: Nov. 14, 2019); If “Software Is Eating the World,” is Legal Service on the Menu?, K. Tung, Legal Business World, International Edition no.5/6, pp. 50, 53 (2017). 
[16] Innovation Risk: How to Make Smarter Decisions, Harvard Business Review, Apr. 2013.

[17] How Google Works, (see note 14 above), section titled “Horseback Law.”  

About the Author 

Kenny Tung is General Counsel at Lex Sigma Ltd., where, in addition to facilitating strategic projects and transactions, he served as the China advisor to a top U.S. PE fund, the Asia Pacific advisor to one of the world’s top auto components companies and provides support to other large and small enterprises in China. Kenny also co-founded In-Gear Legalytics Ltd. to complement and serve providers, clients, developers and investors in the legal service value net. Projects with law firms and corporate legal departments cover consulting, capability assessment, workshops to address longer term issues, but a common stream concerns the design and implementation corporate legal strategies.

 

In March 2019, Kenny started an additional role as the Senior Advisor to SSQ in Asia Pacific, facilitating business development and alliance for law firms and management of legal departments. Previously Mr Tung served as the Chief Legal Counsel of Geely Holding (during which time the department received the top award for Best Asian & South Pacific Legal Department 2014 by International Legal Alliance Summit) and before that as general counsel in the region at PepsiCo, Goodyear, Honeywell and Kodak where he fielded a vast variety of issues and projects and drove efficiency projects/practices. In 1994, he came to China as a lawyer with Coudert Brothers and led major projects such as the Shanghai GM JV negotiation.

 

Born in Hong Kong to Shanghainese parents, Kenny received his bachelor and JD degrees from Columbia University and practiced in New York City before coming to China.

 

 

 

 

 

 

 

 

 

 

 

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