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Could the In-House Legal Market Be Improving?

The legal job market has never picked back up since the recession, and talks of market improvements have been rather more wishful thinking than reality.  In short, the legal job market has been grim.  Yet, there might be a glimmer of light on the horizon coming from in-house legal department: hiring may be on the rise.

A recent survey from HBR Consulting, a consultant to law firms and law departments, shows that in-house hiring may be on the rise.  This is a trend that we have been noticing at ESQ Recruiting as well.

What’s prompting a rise in hiring at corporate legal departments?  A concerted effort by companies to reduce their legal expenditures and reliance on outside law firms.  Legal work has not lessened, if anything, it has increased as a result of recent regulatory changes.  As a result, companies are seeking to bring more of the work in-house, which could mean more in-house jobs.

Companies also seem to be on the rebound.  According to the annual Association of Corporate Counsel survey, only 54 percent said that their department has been affected this year by the economic downturn—a significant drop from the 74 percent reported in 2009.  In addition, the survey also indicate that CLOs were planning to add staff in the coming year, 37% more than reported in 2009, 2008, or 2007.

It also looks like corporate legal departments are willing to spend a little, to save a lot more.  The Altman Weil and LexisNexis Martindale-Hubbell survey found an overall increase in law department spending of 7.9 percent to an average spending of $914,000 per lawyer for fiscal year 2005.  Outside legal costs rose by 5.5 percent to an average of about $602,000 per lawyer. The survey also found a 19 percent increase in internal hiring with lawyers per billion of revenue rising from 2.93 lawyers per billion in revenue to 3.49 lawyers per billion in revenue."

The results of the 2011 HBR Law Department Survey compiled information from 219 companies in 20 industries. Seventy percent of the participating companies had revenues at or above the Fortune 500 level. Key findings from the survey include the following:

  • More than 50 percent of companies reported an increase in worldwide legal staff between 2009 and 2010.
  • More than 80 percent of companies said their legal needs are increasing.
  • More than 40 percent of companies plan to increase the number of internal lawyers by an average of 10 percent in the next year.
  • About 60 percent of survey participants cut outside legal spend by an average of 3 percent between 2009 and 2010.

What does this mean?  Corporate legal departments are opening their doors, which is a good sign, but that does not mean that the market is necessarily looking very rosy.  Those positions are still few, very competitive, and companies are setting the bar very high for new hires.  The good news is that the trend is looking to continue, which may lead to more opportunities for lawyers seeking in-house positions.

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When Is It Time to Hire A GC?

While the general trend by most companies is not to hire, when outside counsel bills are stacking up, and executives get too bogged down with the process of drafting sales contract, the time might be right to hire the company's first in-house general counsel.

When a company starts to emerge from its startup status, and the overhead increases with each partner and associate that is engaged to handle more of the company’s work, the right economic decision is usually to bring in a GC.

Most companies that are ready to bring legal in-house share the same concerns: mounting outside legal costs, increasing legal work, and the need for someone who really knows the business well to position the company for the future.

A GC can not only help a company gear up for the next stage of growth and success, but also help a company prepare or prevent a potential crisis. On needs only look at the recent corporate scandals, such as stock option backdating, to understand just how important it is for companies to be properly protected. One of the many reasons companies are considering hiring a GC is to have someone who can immediately see the big picture for the company, and be able to keep them out of trouble.

What should a company look for when trying to hire its first GC? Typically, a “jack-of-all-trades” with a solid ten years of prior legal experience, and industry specific experience. A good GC should be able to the build an appropriate governance structure and do good corporate governance on a shoestring budget. Prevention of problems can go a long way towards saving a company money, something that corporate America seems to be in agreement with.

In general, the size of companies' in-house legal staff has been on the rise, according to reports from the ACC, growing by nearly 40 percent in the last decade. While companies have been shedding some lawyers during the recession, GC hiring has been steadily on the rise. In light of increasing regulatory demands and corporate scandals, and a soft employment market, this may be a good time for companies to assess their needs, and consider building a legal department.

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