What to consider in deciding when to hire in-house counsel

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BY ELSIE OYOO

Knowing when it is time to establish a legal department could save you millions of shillings in legal fees charged by external lawyers. Hiring in-house counsel could also save you valuable management time and many costly errors occasioned by doing your legal work by yourself or having non-lawyers in your company handle it. Below are factors to consider in determining whether it is time to bring in an in-house lawyer.

Escalating costs

Although retaining legal advice in a timely manner can aid you in averting risk, such as closure of business or paying government fines for non-compliance with laws, the amount you spend on legal services does not directly contribute to your bottom line. Hiring in-house counsel contributes towards saving on legal costs where the amount you spend annually on legal services becomes more than the total cost of hiring an in-house lawyer who can do the same work and deliver the same quality. Here, hiring an in-house lawyer has the added advantage of giving you control over your legal expenses since you can never predict with precision what external legal advisors will charge if their billing is based on time, but an in-house counsel’s salary remains constant over a set period and is therefore more predictable.

Related to escalating costs is growing volumes of legal work. When you first started your business, you probably needed a lawyer to draft or review one contract in a month and to defend one or two court cases in a year. You barely felt the pain of settling those fee notes. If due to the growth of your business you find that you have more and more legal aspects to deal with, the costs will probably also be going up and justify that you hire an in-house lawyer to deal with them.

Nature of legal work

If you consistently have fairly simple or low risk legal work, then in-house counsel is the way to go. You may not want to throw highly complex, high risk legal work at your fledgling legal departments and even fairly developed ones since although each lawyer acts independently, the risk ultimately still lies with your business. External law firms on the other hand have the capacity to give legal advice in complex and high-risk areas due to their formidable teams, wealth of experience and professional indemnity to back up their advice. A prudent way to handle your legal matters is to do the routine tasks internally and pass on the complex work together with the risk to outside counsel. 

Also, consider the mix of legal work you have. If your legal work is largely homogeneous, for example, drafting, reviewing, registering and renewing property leases, trade marks, or contracts then in-house counsel will be able to master and handle it satisfactorily. However, if you ordinarily have diverse legal briefs requiring specialised legal knowledge then you will still find yourself having to obtain the expertise from various external lawyers with the skills set to deal with the work.

Your capacity to handle the department

Imagine a company where an administrative manager is mandated to also handle legal matters because the company is not prepared to take on an in-house lawyer. What is likely to happen? The administrative manager could delay the annual returns and make costly errors on agreements to say the least. Even if you or the person you designate to handle the legal docket may be adept at it, you may be facing extreme pressure from your core business. If you are overstretched in trying to handle both your core business and coordinate legal work, both aspects may suffer, impacting negatively on your bottom line. In such cases, you would be best advised to hire an in-house lawyer who intricately knows how your business works. In this scenario, their principal role would be to manage the company’s legal portfolio while contributing valuable legal insights in running the business helping you achieve your strategic goals.

Regulatory Environment

If you are conducting business in sectors that face heavy regulation from government, you may be best served by having an in-house legal team. For instance, under the Kenya Capital Markets Act alone, there are at least 16 sets of Regulations that publicly listed companies must comply with at one point or another. Similarly, companies in the energy sector, the pharmaceutical and health sector and those offering financial services bear heavy regulatory burdens. Players in these industries often need the input of an in house legal counsel to keep up with all the compliance requirements. That may be the reason why some banks in Kenya have a bigger legal team than some of the biggest law firms in the country.

When you hire in-house counsel based on the above considerations, you save the time you would otherwise have spent explaining the background of your legal issues to external counsel. Furthermore, in-house lawyers give legal input much earlier in any transaction and detect potential issues where you may not have seen them. Moreover, through strengthened risk management and compliance structures, in-house lawyers improve your business continuity. Also, such structures are probably the competitive advantage that keeps you ahead of the rest when navigating uncertain business conditions.