Whether you are a high-level executive or serve on a corporate board of directors, it can be difficult to determine the level of investment you should make in hiring a lawyer for your early- or mid-stage business.
This is an issue we’ve seen entrepreneurs, CEO’s and board members grapple with to a significant degree. It’s an important decision, and it’s not always easy to tell whether you should hire a full-time in-house general counsel, use your outside counsel when the need absolutely arises or work with an outside general counsel you’ve retained as your general “go-to person” and who essentially would serve as your legal insurance policy.
In other words, the decision is a lot like asking yourself if you would like to self-insure, not insure at all, or buy a policy that protects you in case of a catastrophic event — and likely saves you a lot of money in the long run.
The value of outside general counsel versus full-time in-house general counsel
It’s helpful to gain a comprehensive understanding of all that you are asking your outside general counsel to do for your company.
For less than half the cost of hiring a full-time in-house general counsel, an outside general counsel will serve in the same capacity and manage the entire range of business and legal issues corporations face in today’s complex business environment. This includes negotiating contracts and business transactions, ensuring companies’ intellectual property remains fully protected and handling sensitive labor matters related to hiring and terminating employees.
That’s in addition to making sure a company is in total compliance with state and federal laws and regulations, managing corporate governance and mitigating risk at all levels of the organization. It is virtually impossible to hire a 25-year, New York-trained full-time general counsel—with 20 of those years including direct business management experience — for a salary of less than $200,000 (with benefits, more than $240,000); whereas, your outside general counsel is available for a fixed monthly, budgetable rate amounting to less than half the full-time W-2 employee. These economics are not to mention the exorbitant cost of outside counsel, when they become necessary – and they will – without a general counsel solution.
Furthermore, the time and expense it takes a business to find and acquire the right person, in addition to the risk of that hiring not working out, can be prohibitive — especially when an outsourced solution of equal or better qualification is readily available for half the cost, little if any risk and de minimus hassle.
So, while it is possible to “self-insure” through the use of in-house general counsel, it’s rarely the most efficient or effective option.
The proper, efficient, confidential and sensitive management of the important duties involved in the role, mean that outside general counsels become more than just part-time legal advisors to CEOs and boards of directors — they have been transformed into crucial business advisors who can help drive the short- and long-term strategies of businesses of all sizes.
Outside general counsels manage complicated compliance issues
Increasingly, the outside general counsel is a critical gatekeeper, ensuring that business activities do not violate exceptionally stringent U.S. Securities and Exchange Commission rules, which have been significantly ramped up since the financial crisis of the late 2000s. These are complex regulations come with harsh financial penalties if they are violated, and the cost of ongoing litigation can have a notable impact on the bottom line.
To that end, the experience and deep knowledge of compliance law an outside general counsel possesses may end up saving a company large sums of money in reduced legal costs and the avoidance of fines and other penalties from the SEC and other federal agencies. It’s a valuable insurance policy against the wrath of federal regulators.
Any business can hire a law firm when emergencies arise, paying them enormous hourly rates for even the most minor activities — legally related or not. On the other hand, retained outside general counsel substantially eliminates the likelihood that emergencies will arise in the first place. The outside general counsel is meant to solve problems before they happen, and aggressively manage them her/himself if and when they unaccountably do occur.
Tom Wyckoff of Wyckoff General Counsels is a 25-year corporate attorney and business executive with a deep resume ranging from public company CEO to trusted, multi-year corporate associate at one of New York’s most highly regarded Wall Street law firms, and as general counsel of several companies varying in size from startups to $100 million in sales. Connect with Tom to discover how Wyckoff General Counsels can help you take your early- to mid-stage business to its next level as your outside general counsel.