How to Set up an In-House Legal Department?

Introduction

In today’s modern business world, in-house legal departments have been experiencing exponential growth in prominence. In America alone, in-house lawyers have grown 7.5 times faster than law firms from 1997 to 2017. 

The main reason for this shift is that incorporating an in-house legal department helps businesses, from startups to multinationals, succeed in managing constantly changing landscapes and survive a highly competitive marketplace. These departments are deemed better equipped to grasp the complexities of the business and its connections than an external counsel. Today, half of corporate legal budgets are allocated to in-house resources, as per a survey conducted by the Association of Corporate Generals (ACC) in 2022.  

This article analyses how in-house legal departments can positively impact businesses and how a business can set up an in-house legal department. 

What is an In-House Legal Department?

An in-house legal department comprises a team of lawyers (also called in-house counsels) responsible for providing legal support to the business. The main differentiating factor between them and an external counsel is that they work exclusively for the business, so they can concentrate on important business matters and promptly provide customised solutions. This also means that their billable hours are not calculated based on the number of client cases they evaluate. Rather, their goals are consistent with the key performance indicators (KPIs) and the overarching corporate objectives of the business. 

What Do In-House Counsels Do?

The main job of an in-house counsel is to offer legal assistance and reduce any potential risks for the business by ensuring that the business complies with all applicable laws and regulations. The exact job description shall depend on factors such as the sector that the company is working in, the nature of problems they are experiencing, and the work done by the company. 

An in-house counsel is expected to know the company and its departments comprehensively and allocate the required time to various jobs in accordance with the risk importance associated with each of them. They might even be provided with project management work, which ensures that the money spent on external legal support (if required) is utilised aptly. 

Today, in-house counsels are expected to fulfil the function of helping the company to remain competitive with lesser risks, strengthening the business-focused perspective of the company, being more closely associated with the value creation and generation, serving as a trusted advisor, improving corporate governance, and codify company policies and create knowledge capital. The general expectations from in-house counsels are to ensure:

• Quality
• Business orientation familiarity 
• Cost sensitivity
• Efficiency and productivity
• Ability to provide proactive and strategic advice
• Flexibility and versatility
• Speed and agility
• Risk management and controls

When Should I Set Up an In-House Legal Department?

Rather than employing in-house counsel, most businesses start involving external counsel in their operations from the start. Even though this might seem more straightforward, the company loses out on the benefits of in-house counsels and departments. An important point of consideration here is that in-house legal departments do not just provide legal advice to a business; they also act as partners and counsellors since they are exclusively associated with the company. As the volume of legal work rises, there is an increase in the need for internal resources, which encapsulate the depth of business knowledge. Therefore, when your volume of legal work reaches a point where hiring an in-house counsel becomes more cost-effective than paying the exorbitant fees of an external counsel, know that it is the right time to bring in an in-house counsel by setting up an in-house legal department. 

Tips to Set Up Your In-house Legal Department

If you are now confident to set up your in-house legal department, the following tips shall be a helpful starting point for the same:

• Know the fundamentals of your business plan – To be able to analyse the needs of your business and to set the expectations that you want your in-house legal department to fulfil, it is essential to understand your business requirements, objectives, shortcomings, and action plans. The best way to do so is to contact your Human Resources (HR) or the team responsible for the recruitment tasks. Through multiple conversations, you should be able to gather information about the intended goals for the department, the type of issues handled by them, the department strength, the management structure within the department, the qualifications expected, and most importantly, how the transformation shall take place from an external to an in-house legal department. Identify where the company struggled to fulfil its strategic and transactional goals, which can be done by talking to your existing team and all other important stakeholders. Ensure that you are considering your business requirements and coming up with a customised action plan for the department, which should be open to flexibilities and changes, at least for the initial period after its commencement. 
• Come up with a strategic plan and set up the in-house legal department – Once you have come up with a proper strategic plan by taking into consideration all the short-term and long-term terms, you can go forward with setting up with your in-house legal department. Work on gathering experienced individuals with relevant qualifications and skills to join the team. They all must have defined department roles and a strategic purpose. Further, considering that their work affects the entire business, work towards building trust and harmony between various departments. This can be done by setting up workshops or company activities to build a good rapport between them. 
• Encourage the participation and use of technology – Today, legal technology is the answer to achieving productivity efficiency, streamlining workflow, and meeting client demands. While the involvement leads to increased costs in the short term, it provides relevant returns to compensate for the costs. Therefore, ensure that your department is motivated to use and include such technology, and ensure that an adequate budget is being provided to the department. 

Important Titles and Roles in the In-house Legal Department

You can develop your accepted and personalised organisational structure for your department. However, the following list shall provide you with an idea about the standard titles and their roles within the department:

• General Counsel – This role is the head of the department and, hence, is responsible for overseeing the activities of the department and ensuring that they match and live up to the strategic plans of the business. 
• Chief Legal Officer (CLO) – A CLO can either be a substitute for a General Counsel or be an additional role in your structure, where they are more invested in the legal and compliance functions of the department. 
• Deputy General Counsel – The title is directly below the general counsel, and the role is to assist the general counsel in management activities. While not mandatory, it is recommended for the individual to have a specialised area of their own (such as company law, intellectual property, etc.) to ensure that they are able to contribute and provide legal assistance, as required.
• Legal Director – This position oversees a particular important practice area or division within the department. They are required to optimise operations, processes, and strategies within that division. Therefore, it is possible for multiple legal directors to exist within the department. 
• Senior Legal Counsel – This position oversees all complex legal transactions and manages key legal processes. They are directly involved in mitigating legal risks for the company. 
• Other Counsels – The company can invest in hiring practice area-specific counsels to make appropriate divisions within the department. Some standard titles can be – employment counsel, litigation counsel, regulatory counsel, data security counsel, product counsel, real estate counsel, etc. 

Measuring the Success of Your In-House Legal Department Through Top KPIs

Once you have successfully set up your in-house legal department and the department has started functioning, it is vital to ensure that you can measure whether the department can work efficiently by making more informed decisions, increasing business efficiency, and reducing legal costs. Some common KPIs that might be useful for this task are:

1. Budget v. Actual Spend – This comparison may be done monthly or yearly. The ideal way of comparing is by keeping track area-wise, such as contracts, litigation, intellectual property, corporate secretary, etc. 
2. Measuring department spending as a percentage of company revenue – This analysis can help understand whether the operations and management of the legal department can influence the legal spending, which in turn is growing or slowing down the revenue earned by the company. This also helps in comparing the performance of the legal department with that of other departments of the company. 
3. Measure completed contracts – This can be easily measured through a Contract Lifecycle Management tool, wherein you can keep track of the number of contracts completed and whether the figures can meet the established targets. 

Other KPIs may arise depending on the nature of the business. Here, you can either provide the responsibility of a specific KPI to specific individuals or consider hiring a General Counsel responsible for reviewing the work of the in-house legal department. Ensure that the company can receive periodic reviews of the team progress, to ensure that the team aligns with the company goals and objectives. 

Conclusion

Setting up an in-house legal department can be costly; however, over time, the team can become opportunity creators for the company. Therefore, by establishing a mechanism to form objectives and track the department’s progress, an in-house legal department can become the main reason for a company’s success story. 

If you wish to understand more about in-house legal departments or in-house counsels by experienced individuals with practical tips and tricks, consider reaching out to LegaMart’s team. You are just a click away from receiving trusted legal assistance and limitless opportunities for your specific jurisdiction. 

Frequently Asked Questions (FAQs)

Who is the head of an in-house legal department?

Generally, a General Counsel is responsible for overseeing the legal department’s working and performance. The company may also split the position into Senior and Junior General Counsel, depending on the level of experience expected. 

What is an in-house legal department vision statement?

An in-house legal department vision statement is a document used to establish the purpose of creating the department. This statement is also used as a guiding principle for the department, in line with the company’s objectives and goals. Therefore, it is required to be drafted clearly, with no ambiguities.