by Submitted Post on August 22, 2011

by Lance Levy, Guest Contributor

I recently had a conversation with a CEO about the value of a General Counsel. His company has significant revenue and recently received venture capital funding. It is poised for explosive growth, including exploring international expansion and evaluating acquisition opportunities. The legal function is handled by a combination of the CFO and outside counsel. The CEO explained that he does not see a need for or have a return on investment justification for a General Counsel, as he is not contemplating going public for some time, he does not have litigation, his intellectual property needs are minimal and he has a non-lawyer handling contracts. In 2010, this company incurred over $500,000 in outside legal costs, excluding costs of a recent financing. He suggested that adding this position, in combination with the continued need for outside counsel, may also increase the company’s overall legal expenses.

His view is one I have heard throughout my in-house career. Many companies ask the

same question: Do we need a GC? If so, what will the costs be and what is the correct

on the company’s needs and legal issues, these alternatives may be more appropriate.

However, it is important to look at all the factors that should be calculated in

determining which alternative to choose and the true ROI of a General Counsel.

• Complying with state, federal and international regulations and completing and

maintaining required filings.

• Handling employment issues.

• Serving as a trusted advisor to the management team.

• Completing corporate and board of directors’ responsibilities.

One can calculate legal expenses by adding law firm spend plus in-house counsel, but

this does not tell the full story or accurately capture the value and contributions of the

GC to the company. The GC is analogous to the foundation of a home. When

purchasing a house, the place to begin an inspection is in the basement. A solid

foundation and understanding the state of the pipes and major utilities provide you

with a true state of the property. While the upstairs rooms may have nice details and

the kitchen may be open and you can envision entertaining a large party, if the core

systems are not in place, it will ultimately lead to more expense, greater issues and

ultimately impact your daily living. In fact, my uncle purchased a home in Seattle four

years ago. It is a beautiful home on the Puget Sound. It has floor to ceiling windows,

wrap around decks, an open floor plan and tremendous views. Two years ago, he

learned that the foundation has significant damage that will result in greater than

$200,000 to repair and it is not covered by insurance. Needless to say, the house is

less enjoyable, it is not as much fun sitting on the deck, he is going to forego building

an entertainment room and it is no longer his haven.

GCs are business people first. They are completely embedded in the organization and

vested in its success. They can deal with an issue proactively, before it becomes an

expensive litigation, impacts revenue or even damages a companys reputation/brand.

GCs are intertwined with driving revenue and integral in the sales process by

structuring deals smarter and more efficiently and comfortable taking on more risk

than necessary to avoid losing or slipping key deals. The GC can do this effectively

because the company is the only client, he/she has the knowledge base and history,

and his/her personal success and compensation is wholly aligned with the success of

the company. The GC has a global view of the company and understands how each

department is intertwined. He/she establishes synergy and develops personal

relationships with the internal teams to fully understand the business and each

department’s concerns. Outside counsel and outsourced models may not achieve the

same results because they may have different incentives, multiple clients, restrictions

on hours, limited relationships with internal personnel and different access to the

management team.

Take an example of a GC’s salary that is $200,000 with a 35% target bonus, plus

benefits (health insurance and 401K company contribution). The annual compensation

equals approximately $330,000, excluding equity. If the $330,000 is converted to a

billable hour of $400 per hour, this would amount to 812 billable hours or 5 months of

legal service. (Note: Blended rate assuming senior partner rate at $600, senior

associate at $400 and junior associate at $300. Depending on which attorney actually

performs the work, the billable hours may be higher or lower.) Another outsourced

• It is five days before the end of the quarter, the company is $1M short of

bookings, and a $1.5M contract comes in…on the customer’s paper…that is 50

pages long. Outside counsel may not be able to drop all of his/her clients’ work

• The GC is involved in the response to a complex customer RFP. The GC will help

turn the RFP around more swiftly with answers that avoid the over promise and

• The GC is involved early in a new strategic initiative to drive revenue. He/she

• The GC takes on a number of legal and quasi-legal tasks such as contract

negotiation, insurance, employment/benefits, board preparation and outside

counsel management that otherwise would have fallen to the CFO that frees

him/her to focus on his/her main responsibilities. The CEO also receives legal

advice from an attorney rather than going through a finance filter and the GC

can ask questions and address issues with outside counsel questions that the

CFO may not have contemplated.

The cost of having a GC balances out financially because of lower outside counsel fees.

But that is a fraction of the story. The GC should not be viewed as separate and

distinct from the business or just responsible for dealing with active legal matters and

risk management. A strong GC is an ally and a key partner in enabling revenue and

driving strategic initiatives for the company. Many of those benefits exist because the

GC is immersed in the business, he/she can walk the halls and has water cooler