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When to Start a Law Department

When should a company hire its first in-house lawyer? The question has no simple answer, of course, but Rees Morrison, at his blog Law Department Management, offers some factors companies should consider. First off: How're things going without an in-house lawyer?

"One factor that determines the answer is the degree of satisfaction the company’s executives have with their outside counsel. If the thing ain’t broke ... I suspect that also on the list of determinants are the personal beliefs and values of the Chief Executive Officer. If that person appreciates lawyers, the department will appear more quickly."

Cost, of course, is also a factor. Morrison writes:

"If the CEO or CFO believe that their company’s total expenditures on outside counsel falls within the acceptable range of benchmarks (on the order of .5 to .7 percent of revenue for companies below $500 million in revenue) what’s to worry?"

Other factors to weigh include cash flow, whether the company faces significant regulatory or legal hurdles and whether the company has significant patent and licensing work. Finally, says Morrison, two metrics provide guidance:

"The US median is around four lawyers per billion dollars of revenue, so one might expect the first lawyer to be hired at around the $250 million mark. The second metric draws on the received wisdom that when outside counsel spending in an area of law reaches around $450,000 per year on a foreseeable basis, that can justify hiring a lawyer."

Even when that first lawyer comes aboard, much of his or her job, Morrison says, will be as "a conduit and conductor of outside counsel."

Posted by Robert J. Ambrogi on February 6, 2007 at 05:45 PM | Permalink | Comments (1)

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