Law Firm Partners Going In-House – Background
People often ask me what trends I’ve seen in my 31 years of legal recruiting. I usually start off the list by mentioning the diminishing attraction of the traditional law firm. That’s not to say that law firms don’t remain the bulwark of law practice; they do. The biggest trend, though, is going in-house. Decades ago, corporate law departments were the destination of passed-over associates who took the gentlemanly (that’s what we had in those days) alternative to “not making partner” and went off to a firm client, which had the cozy result of cementing the client’s relationship with its outside counsel.
There are many reasons stated for the rising attraction of in-house practice. Some relate to the deteriorating lifestyle found in the firms: the grim billable hour demands; the never-ending pressure to bring in business; client conflicts; “prima donna fatigue”; and the feeling that one is being brought in as a lawyer to “clean up messes,” rather than advising on a strategy and course of action that won’t result in messes to begin with. Many reasons relate the perceived positive attributes associated with being inside a company: the ability to be close to a single client and to have an intimate working relationship with its executive team; the opportunity to have long-term impact; being in an organization that produces an identifiable product or service (one senior Coca-Cola lawyer told me, “Even my youngest child knows where I work”); the opportunity to strengthen “muscles” outside the typical law firm context (management skills, team-building skills, business skills such as marketing or competitive positioning); and a widened portfolio of legal issues (regulatory readily comes to mind, as do labor and employment and IP, all of which are discrete specialties channeled off to experts in a law firm). The honing of these “other” skills, not squarely in a lawyer’s toolbox, can tap into a subliminal aspiration found in many lawyers: moving from a “pure lawyer” role into another position within the organization. These could be Business Development (say, for M&A lawyers). HR (for labor/employment attorneys), Sales & Marketing, or the CEO/CFO/COO job. Corporate America is replete with examples of lawyers who have made this transition.
The goal of going in-house reached its most fevered pitch in Silicon Valley when these positive, but abstract, attractions of in-house-versus-firm were coupled with an even more tangible one: money. In a success-conscious field as lawyering, the almost-mythical riches achieved by some lawyers upon their company’s IPO caught everyone’s attention (Facebook’s Ted Ullyot reportedly garnered $60 million while serving five years with the company). This is not to suggest that Ullyot didn’t deserve it (I placed him there after all), but this kind of wealth is largely unattainable in the law firm world (outside the plaintiff’s bar), absent the stock-in-lieu-of-cash strategies that some Silicon Valley law firms employed as a counter-measure to losing their lawyers to the Valley Siren Song. The IPO gold mine was almost matched by the windfalls that other lawyers gained during the hot-and-heavy M&A boom (I placed more than one lawyer who netted over $1 million after being with their company less than a year).
Obstacles to Going In-House
As much as law firm lawyers want to reach the Promised Land, there is equal resistance to their doing so. Where does this resistance derive? The companies themselves. So, understanding the various arguments that my corporate clients launch as to why they don’t want a law firm partner on the candidate slate that I present to them might assist those lawyers in developing arguments to overcome this resistance.
Despite the “instant riches” mythology of a Ted Ullyot or Roberta Katz (Netscape’s GC who also reaped an IPO bonanza), many law firm partners make an annual comp package that is considerably more than that being offered by companies. An Ullyot or Katz payday is rife with risk (well, maybe not so much for Ted, since Facebook’s fortunes were pretty well established by 2008 when he joined). Major law firm partners can easily see their annual comp in the $500,000-1,000,000 range. In-house comp, even at the GC level, rarely reaches this level. Most GCs (apart from the Fortune 200) can expect base salary in the $275,000-400,000 range, plus bonus. Bonuses vary widely, and are usually tied to company performance. In the last few flat economic years, many bonuses were not paid at all.
Even if a law firm partner is willing to take a drastic pay cut, this gesture is subject to misinterpretation. There’s a “fire sale” image that signals something amiss. Company CEOs and CFOs are very savvy about current law firm finances and resulting stress fractures (thank you, Wall Street Journal and the financial press). The immediate conclusion is that the partner is being “shown the door.” And even if one makes the argument that this shouldn’t matter even if it is the case (i.e., the skills for law firm success don’t necessarily translate into in-house success), there’s a psychological hurdle of a CEO hiring “damaged goods.” CEOs are painfully aware of the optics in their senior hiring decisions, and every Board member seemingly has a lawyer crony whispering in their ear, questioning the selection of a GC, or outside counsel, etc.
Ability to Adjust When Going In-House
A common observation among in-house lawyers is that “practicing in-house is so different from being in a law firm.” Without debating the accuracy of this statement, let’s just say that perception is reality. So, knowing that there is a gap between law firm lifestyle and that of in-house, a company is naturally bound to ask: can this law firm partner make the adjustment? Almost every CEO has been inside a sizable law firm, with its lavish appointments, magnificent city views, oriental rugs and fine art, meeting rooms, the three receptionists at the oh-so-tasteful front desk, and the hushed comings-and-goings of an endless procession of clerks, paralegals, assistants, researchers, associates, and other partners. This is a carefully crafted image designed to impress clients and visitors (including opposing counsel). Contrast that to the in-house lawyer’s digs: “here’s your office (which is small and may even be a cubicle) and the Xerox machine is down the hall; we don’t have a lot of staff so everyone does their own photocopying.”
A partner-turned-GC may be in for a rude awakening: no assistants, a shared secretary, lots of meetings (law firm lawyers don’t like to spend a lot of time in management meetings at the expense of billable hours), and the unpleasant attitude among many new colleagues that “Legal doesn’t add anything to revenue; it’s overhead.” There is also the cultural dynamic of being part of a team (vitally important in the in-house world), as opposed to the solo practitioner perspective that pervades law firms (“where is YOUR book of business coming from this year?”). Couple that with the anti-lawyer feeling among the general population (how many VP-HR jokes have you ever heard?), the law firm partner may soon understand that he/she has lived in a “bubble” where anti-lawyer feelings are non-existent (or little expressed) and, in fact, the Partner is King. Lawyers are not “King” in a company; they cost a lot, are seen as obstructionist, and usually deliver unwelcome (albeit necessary) bad news. This last point is worth elaboration.
Law Firm Partner as “Cop”
A big bugaboo in companies is the perception that lawyers are barriers to success (“The Department of No Sale”). Here, we have a situation where a law firm partner has not had a chance to prove his/her readiness to achieve a corporate objective and is lumped into the category of the “nit picker who just says ‘no’.” This is clearly an image problem, more than it usually is a matter of reality. Unless a law firm has really been encased in a “bubble” the last few decades, they will be aware and sensitive to this perception and will often bend over backwards to prove that they are not among the nay-sayers. Law firm partners again have the problem of, being specialists, conveying the image of being so immersed in the finer points of the law that the details trump the bigger picture and become the focus of the lawyer’s attention.
Often, the situation is not of the lawyer’s making but is dumped on the attorney, who has to take the fall for others. A common situation is the end-of-quarter rush when salespeople flood the GC’s office with contracts needing approval (revenue from these contracts will figure heavily into a salesperson’s quarterly bonus). Many GCs are wise to the ploy: the timing is such that the salesperson hopes that the flood will result in less scrutiny applied to the terms he/she has negotiated, which may be at odds with company policy or practice.
Law Firm Lawyers Lack Business Acumen
Probably #1 among all the criteria I receive from CEOs as to their ideal GC profile is “business sense.” In-house lawyers, having made the transition from a law firm (or having begun their career in-house), have either proven their value in this regard or have failed. So, how does a company test for business acumen in a law firm partner (let’s assume this lawyer is not an outside counsel to the company)? How do you disprove a negative? The assumption is that law firm partners can’t have the business acumen needed in a company because they’ve never learned business principles beyond the basics and have never “lived” in the life cycle of a business. Instead, they are specialized “trouble shooters” who are tapped for a singular expertise. They are given a complex problem (a transaction or a lawsuit) and expected to solve it. They don’t get the bigger picture that calls for a more fulsome view of a company’s needs. As law firms have evolved to produce specialists who can justify higher billing rates, the “true generalist” is disappearing (although the number of lawyers who call themselves such is NOT disappearing).
Without compelling proof that a law firm partner has this hard-to-define “business sense,” many CEOs revert to the assumption that they do not. This assumption may have its roots in the fact that law schools are stocked with college graduates straight from university whose undergraduate degrees haven’t equipped them with “business fundamentals” such as the ability to dive deep into financial statements or term sheets. All those Political Science, English, and History majors carry with them a negative assumption. Is it merited? In many cases, absolutely.
Law Firm Lawyers Lack Management Experience
While many of the challenges described in this article contain elements of bias and speciousness, the reality is that law firm lawyers don’t get much management experience. Most companies depend on team-building and people management over the long term. This requires successful thought and action as to hiring/firing, career development, assembling and deploying the right expertise (with often thorny decisions on supplementing in-house capability with outside help), budgeting and financial rewards (detailed performance evaluations and who gets bonuses and how much?), and the ever-present issue of morale. In a law firm, partners are removed from most of these situations, since – to be blunt – they don’t return much financial reward to the firm, which has specialists anyway to take care of them. Law firm partners may claim that they’ve got “some” of this experience in doing a certain deal or litigation where their management of a team involved many of these issues. But it’s a weak argument.
Communication Styles & Going In-House
The law firm partner is accustomed to the highly sophisticated law firm environment, with its internal jockeying for prestige, power, and respect. Much of “respect factor” comes from the perceived erudition of a lawyer. This dynamic influences the way lawyers interact with their law firm colleagues, which often takes the form of a carefully chosen vocabulary and a tendency to “hide the ball” in conversation – daring one’s colleagues (e.g., while testing junior associates) to figure out the answer and even taking delight in their failure to do so. The opposite is the case in a company, where the team approach makes such shenanigans counter-productive and irritating, especially when a company’s work force cuts a wide socio-economic swath. Even game-playing aside, a lawyer’s natural environment is filled with words and abstractions that can appear remote to even the most sophisticated ear. A lawyer’s training also focuses on their ability to analyze a problem from different sides, especially that of an opposing party, whose arguments or counter-proposals need to be anticipated — as one would play a chess game. The matrixed thinking so beloved by highly intellectual lawyers can be vexatious to non-lawyers, especially to senior management in need of a quick answer to very complex problems. One CEO said to me, “I am so tired of my lawyer saying, ‘On the one hand, we can do this; and on the other hand, we can do that . . .’ All I want is a one-handed lawyer.”
The above analyzes six common obstacles to a law firm partner securing that desired in-house position. The barriers are even higher for litigators and those practicing in specialized areas. Why? Most companies, viewing their legal needs in terms of contracts and deals – not litigation, tax, or environmental – gravitate to corporate and business lawyers. In many ways, the issue can be distilled into a cost-benefit analysis. With the abundance of skilled, experienced in-house lawyers (often with experience directly aligning with that of the hiring company), why take the chance on bringing on a law firm partner? Even if the partner were to overcome successfully all six obstacles, they still have to compete with candidates whose resumes don’t raise these questions.
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