Overview of Legal Departments
A corporate legal department is the large-scale application of legal knowledge in place of sophistication and competitiveness in order to enhance a business’ potential. A corporation will create a legal department when it has reached a point in its growth and presence where standard legal representation and one-off advice on a legal situation isn’t enough. A business that is large enough to have developed any significant amount of brand recognition and differentiation must consider the legal complexities that come with building a legible and sustainable business with a long-term future . A legal entity with a legal department can afford to handle most legal situations internally when the advise and representation of third-party counsel has proven to be inadequate and inefficient and when there are an adequate number of matters that would require legal action to keep such an in-house department busy. An in-house legal department is a business’ legal operations – managed by the business’ Chief Executive Officer or well-trained Manager – that encompasses all aspects of the types of legal matters that directly affect the business.
Key Personnel in a Legal Department
The structure and size of a legal department vary based on the industry, entity size, and particular needs. Because of this variability, the specific titles and responsibilities are often also variable, but certainly some judicious standardization has appeared over time. One common structure is for the General Counsel to lead the legal group, coordinating with Legal Advisors and providing oversight to the Paralegals. There may also be other positions in between these roles. For purposes here, we will stick with the three-item structure seen most frequently.
General Counsel – Usually a member of the organization’s executive team, the General Counsel has day-to-day responsibility for the corporate legal department. Often assisted by one or two senior attorneys, the General Counsel is responsible for departmental leadership and management, both in interacting with internal clients and outside counsel. In this respect, a General Counsel often has three "direct reports" – to the CEO, to external shareholders, and to other key executives – in providing wise counsel across multiple departments. The General Counsel should have a team-oriented approach, an eye for good hiring, and the ability to work in a collaborative manner with others across the organization. Departmental budgeting is an important responsibility for the General Counsel, as is the hiring and firing of both in-house lawyers and paralegals. If the outside counsel have an important role to play in employee training programs, that should be an endeavor the General Counsel oversees along with the outside counsel. In addition, a good General Counsel will interact with other key executives on the long-term vision for the corporate legal department, including having a transparent plan for managing the outside counsel which should be the subject of regular discussions with that law firm. Finally, ethics and compliance, risk assessment, and training efforts are integral to the vision for the corporate legal department and its top leadership in the form of the General Counsel.
Legal Advisors – Providing both lateral support to the General Counsel and vertical support to business units, the Legal Advisors on a corporate inside counsel team are a glue that enables the organization to achieve its goals. In many instances, Legal Advisors will have wide area responsibility, with the role of "internal handle" providing detailed legal advice to upper management and department heads. A large company may have Legal Advisors who have specific roles in specific areas, with one Legal Advisor focused on intellectual property, another on litigation, and others dealing with real estate issues or exporting restrictions, etc. In the business setting, the Legal Advisor usually works closely with the upper management and support teams, advising them regularly on legal issues that may arise as the company’s business moves forward.
Paralegals – A very large inside legal department may have one or more Vice President level Paralegals reporting directly to the General Counsel. This "VP" would be considered to be a member of the legal organization, handling high-level, senior management tasks. Paralegals are usually not lawyers, and while they can do much of the work of a lawyer, they cannot bill at the attorney’s rate.
Legal Department Structure Considerations
The distinct factors that shape a company’s legal department structure — sorts of company operations, industry, outside influences, and legal risk — have a significant impact on how the legal department is structured, from its size to its hierarchy to where its leadership fits in the company’s organizational chart. To understand how these factors shape the "how" of structuring a legal department, it helps to break them down into four categories of influence: company factors, industry factors, external influences, and legal risk factors.
For example, on the company factors front, the size of the business tends to be a major factor in structural efficiency. Larger businesses tend to have more complex legal needs, and need more variety in their roles. For example, global companies may need many more foreign lawyers than domestic companies, and minor league baseball franchises may need someone with extensive knowledge in sports law and minor league sports intricacies. Global companies with many different product lines may need subject matter experts in a variety of areas.
When thinking about company factors, it is a good idea to consider whether centralized or decentralized makes the most sense given each specific company’s nature. Centralized legal departments are often seen as most efficient because they limit duplication of roles — like having, for example, many’ data privacy lawyers working independently in different markets with little collaboration on how to manage risk. But decentralized departments have their benefits as well. Effective, independent business lawyers in certain industries can be better positioned to offer good legal counsel to those businesses, and may arguably offer a better ROI on their legal spend dollars.
In addition to company factors, industry factors make a big difference in the way a legal department is structured. Industries with high potential liability impacts from litigation tend to support larger and more sophisticated corporate legal departments — hence the financial services, big pharma, medical devices and energy sectors all have large in-house legal departments. Likewise, industries with lots of regulatory influence face a lot of litigation from regulatory enforcement, so they also have in-house departments that tend to be larger and more robust.
External influences also play a role in factors influencing the legal department structure. Depending on the company size, ownership type and geographic scope of operations, outside influences may have a direct impact on the legality department structure. For example, public companies, especially those who trade on the NYSE or NASDAQ, will be much more strictly regulated than their privately held counterparts, so they’ll need more lawyers to address their additional SEC and SOX compliance requirements. Similarly, family-owned business may have a larger focus on estate and succession planning in their legal department structure than publicly traded businesses. If a private business operates with certain licensing requirements, that may dictate a greater number of lawyers in a specific area than might be present in other industries and company types. In addition, companies headquartered in countries with less-regulated legal systems, such as the United States, tend to have more opportunities to address potential legal liabilities and risks, so they may hire more lawyers to help oversee those risks.
Tips for Organizing a Legal Department
There are several scenarios that could affect the particular design of a legal department, such as whether it should be centralized or decentralized and whether it’s a single department or part of a broader functional group. To ensure that the department works as efficiently as possible, companies may also decide to implement the following best practices:
Channel communications effectively to improve productivity and enhance the value of the department while reducing the time spent on unnecessary activities. The department should create and maintain comprehensive communication channels. When an attorney submits a request for legal guidance, an automated document tracking system can be implemented to make the process more efficient. Such a system will save valuable time and reduce the potential for miscommunication. Ensure compliance with corporate policies and procedures. A legal department can be the central force in ensuring that the entire company adheres to the established policies and procedures. Establish a compliance plan for the department that is enforced among employees. This plan should include an overview of the types of reports and data that are gathered, as well as an explanation of how these items are organized and stored.
Create a culture of collaboration. While many in-house legal departments traditionally operate under a "need to know" policy, the modern day legal department has a far more collaborative environment. A clear and transparent legal department is a more efficient legal department, allowing all team members to have access to the same information to be more effective in their own roles. Activities, updates and milestones should be shared to provide the information that attorneys need to better predict how to reach their goals.
Challenges of Legal Department Restructuring
The restructuring of a corporate legal department can often be approached with a significant resistance to change. Aside from the natural approach by some in-house counsel to cling to the legal resources and outside counsel that they subjectively enjoy the most, frequent resistance comes from internal business clients, C-Suite executives and outside counsel. The reasons for such resistance have historically been associated with the perceived high cost and risk associated with radical restructuring efforts. Today, the significant cost incurred by many corporations during traditional budgets and cost saving initiatives causes much of the resistance to be muted by the promise of attorney dollars saved through the well-planned restructuring of internal and external legal resources. While even routine budgetary processes can be met with resistance and low morale, human nature often dictates resistance to structural changes when such changes involve the reduction of the overall size of a department.
A critical challenge is balancing the internal and external resources. Despite the common perception that a law firm associate can perform the majority of legal work for which in-house counsel is responsible, a significant amount of legal work requires more than just task-oriented labor . Instead, such matters instead often require a certain level of institutional knowledge or familiarity with the corporation and its business, products and personnel that may only come from many hours of "face time". For this reason alone, there often remains a conservative reliance on outside counsel that is based on loyalty, rather than cost-effectiveness. An additional component of such loyalty often involves relationships between key outside counsel, the C-Suite or other company personnel who may be reluctant to eliminate such relationships, if such proposals are not carefully vetted.
One final challenge that is often central to the restructuring process resides in the effects of restructuring on day-to-day operations of a department. When restructuring process is initiated on top of or as a part of a periodic review of a department, doing so often runs a high risk of unsettling the daily operations of the department. When such a process disrupts the daily function of a department, morale can be adversely affected and the net benefit of a new structure can simply be offset by declining internal and external client satisfaction. In addition, such disruption can harm perceptions of the department as a whole (i.e. the ship is sinking, the lawyers cannot be trusted, etc.) and can serve to increase the reluctance to utilize internal counsel and may make even the best candidates for outside counsel increasingly difficult to retain.
The Impact of Technology on a Legal Department
The introduction of technology into the legal realm has been influential in shifting the way businesses manage their legal work. Technology has streamlined the influx and output of information, allowing for corporate legal departments to operate at a quicker pace, while reducing errors and increasing productivity.
On a basic level, the use of electronic communication tools, such as email, has increased the speed at which legal documents are reviewed. In theory, formal meetings can be cut down through the ability to have document exchanges and electronic discussions of issues via email or other online collaboration platforms. This opens the door to 24/7 discussions with your teams and outside counsel. However, this does come at the price of some loss of personal interactions in the workplace.
As discussed in A Scenario on Fragmentation a simplified illustrative image of the corporate legal department can be thought of in three generic sections: inbound (the requests), processing (the fulfillment of the requests), and outbound (the requests tracking & reporting). Better tools will allow for a more efficient transformation of the requests into fulfilled status.
There are dozens of different legal technology tools available for each section of the legal process:
Any combination of these tools could be used to reduce the effort per transaction. Auto-reply emails can be used to send out template responses with dynamic content specific to the user request. Workflows can be easily set up to automatically direct client requests to the appropriate team member. Standardizations provide a repeatable and reliable means to fulfill requests. Automation allows work to be done without human intervention and major changes across the organization can be achieved quickly using Configuration Management. A common web portal for multiple request types can be set up to standardize the request process. These tools provide us with avenues to reduce request time and improve productivity.
Conclusion and Future Developments
The landscape of corporate legal department structure is set to evolve, with traditional and flexible structures merging into new forms that capitalize on the benefits of each. As business needs become more complex, legal teams will continue to adapt, becoming more integrated, technical, and data-driven than ever. The pace of change, fueled by technological advancements , will push for traditional roles to transform. Corporate legal departments will need to find legal technology solutions that assist them in meeting the growing demands of legal clients in a timely and efficient manner.
This article provides a high-level view of the current landscape of corporate legal departments and their structure. The expansion of corporate legal departments and the increased demand for integrated structures and external solutions will maintain a steady pace over the next few years as business faces new challenges. The challenge for corporate legal departments will be to create a structure that meets their unique needs while staying up to pace with the demands of a modern legal environment.