In-House vs. Outside Counsel: Choosing the Right Option

General counsel are like tightrope walkers carrying a balancing pole. On one end of the pole are in-house counsel. They know your business, and they’re cost-effective.

On the other end of the pole are your outside counsel. They come armed with deep expertise, wide experience, and a steep price to match.

The choice of whether to handle a legal matter with in-house vs. outside counsel comes down to factors ranging from areas of specialized knowledge to budget and bandwidth.

Getting this balance right isn’t just about dodging legal pitfalls; it’s about transforming your legal department into a more agile, strategic unit that adds real value to your business.

What Is In-House Counsel?

In-house counsel are attorneys employed directly by a company, either full-time or part-time. Their primary responsibility lies in providing legal advice and guidance to the company’s executives, managers, and employees.

In-house counsel are deeply entrenched in the mechanics of the business they serve. They possess an intimate understanding of the company’s operations, goals, and legal requirements.

What Is Outside Counsel?

Outside legal counsel are third-party vendors that provide legal services and legal advice. They handle large, novel, or complex legal matters like litigation, mergers, and acquisitions because they have a deeper bench of attorneys with specialized experience.

Because law firms focus solely on providing legal services, they are likely to have a broader range of skills and expertise. This is handy for corporate legal departments when the in-house team doesn’t have enough work in one area to warrant a full-time attorney. For example, a company that only occasionally opens new locations would likely work with outside counsel with real estate experience when it expands its physical footprint, rather than hiring a real estate attorney in-house who won’t have a steady stream of work.

Outside counsel can also approach your business with an objective view of company strengths, weaknesses, and needs.

The disadvantages of outside counsel include higher costs, a more conservative approach to legal risk, and their divided attention.

Outside counsel focuses on managing legal risks. In-house counsel shares this concern for risk, but their day-to-day immersion in the company gives them the perspective to balance those risks against the company’s larger strategic objectives. For that reason, in-house teams can provide a more nuanced approach to legal decision-making that external attorneys may find challenging to replicate despite their best efforts.

Outside counsel will try hard to understand a client’s business, but they will never have the depth of understanding of an in-house staff member. According to a 2022 Legal Value Network survey, while 79% of law firms believe they make a strong effort to understand their clients’ businesses, only 47% of the clients agree.

Where Do Alternative Legal Service Providers Fit Into the Mix?

Alternative Legal Service Providers (ALSPs) are specialized service providers that offer a range of legal services outside the traditional law firm model.

These organizations typically leverage technology, process efficiency, and lower cost structures to provide legal services. Their growth reflects a shift in the legal industry towards more versatile and cost-effective solutions for legal work.

Corporate legal departments generally outsource high-volume, repeatable tasks like discovery or contract management to these providers.

When to Consult With In-House Counsel

In-house counsel can be a valuable company resource in many situations due to their in-depth knowledge of the organization and its values and priorities. Here are some of the key examples of when a company should consider consulting with their in-house counsel:

Day-To-Day Legal Business

In-house counsel usually serve as the first point of contact for any legal questions within the organization. They can provide quick, reliable advice on a range of legal issues.

In-house counsel provide a more cost-effective solution for routine and predictable legal needs than outsourcing to expensive law firms. They can manage tasks without the additional overhead that come with instructing external counsel.

They can also help maintain legal budgets by judiciously determining when to engage outside counsel, such as when a seemingly simple or routine legal question for the business actually raises complex, niche, or high-risk legal questions.

Policy Development and Enforcement

In-house counsel should play a key role in ensuring company policies are legally sound and that employees adhere to those policies to minimize the organization’s legal exposure. They should also update policies to match changing laws and business practices. Again, in-house counsel may decide to engage outside counsel if particularly complex questions arise during policy development.

Internal Business Strategy

In-house counsel have deep knowledge of the organization’s needs and the relevant laws governing the company’s work.

At their best, in-house counsel should embed in all other business divisions. They should know those divisions’ goals and activities. That way, they can provide proactive, helpful legal advice.

The in-house team also contributes to the overall business strategy through effective legal spend management and aligning their internal practices with the company’s objectives.

Regulatory Compliance

Compliance has always been critical in industries like healthcare, finance, and tech, where the regulatory landscapes are complex and change frequently.

But data privacy laws like the General Data Protection Regulation (GDPR) and the California Privacy Rights Act (CPRA), and a confusing tangle of environmental, sustainability, and governance (ESG) rules promise to expand the number and types of industries touched by state, federal, and international regulations.

In-house counsel advises on how to comply with complex legal requirements cost-effectively and efficiently. They can also help companies navigate the often-changing landscape of regulations and work with external regulators on behalf of the company.

Contract Drafting and Negotiation

Contracts are the lifeblood of the business. In some cases, ALSPs handle contract reviews to reduce cycle times, but in-house counsel should review and draft the templates for those contracts.

In-house counsel know how to ensure a contract aligns with the company’s goals and needs while providing adequate protection and risk management. Making those contracts easier to sign, and keeping them up to date with the company’s evolving risk tolerance and financial goals, is a tremendous value add to the company.

In-house counsel should also help resolve any disputes during the negotiation process.

Employee Relations

Employees are a critical asset for any company but can also present legal challenges. In-house counsel guides hiring, termination, compensation, benefits, and workplace safety issues.

They can also help companies navigate sensitive situations like discrimination claims, harassment allegations, or disputes with labor unions, often with the help of outside counsel.

In-house teams must collaborate closely with HR on these points. They can proactively help by ensuring HR policies are watertight before issues arise.

Intellectual Property

While the IP registrations might be best left to an alternative legal service provider, the internal team develops a company’s IP strategy.

They should work with the research and design team to understand their plans, draw up registration plans, and determine when to end patents or trademarks that are no longer in use for cost efficiency.

Litigation and Dispute Resolution

Litigation and dispute resolution can be costly and time-consuming, but they are sometimes necessary to protect a company’s interests. In-house counsel advise on dispute resolution strategies, including negotiation, mediation, and arbitration.

They can also represent the company in court, working closely with outside counsel if the case requires specialized expertise.

When to Hire Outside Counsel

While in-house counsel can handle many legal issues, there are times when it makes sense to bring in outside counsel. By outsourcing routine or specialized tasks to outside counsel, in-house teams should free up time to focus on strategic initiatives and high-level decision-making.

You want an outside counsel team that understands your industry, the regulatory environment in which you operate, your competitors, your company’s corporate vision, and long-term growth drivers.

Here are some of the key situations when a company should consider hiring outside counsel:

Complex Legal Matters

One of the most common reasons a company hires outside counsel is for complex legal matters.

In-house counsel typically have a broad range of legal expertise, but there are times when specialized knowledge and experience are required. For example, a company facing a complex antitrust investigation may need to hire outside counsel with expertise in antitrust law. Similarly, if a company is considering a merger or acquisition, it may need to hire outside counsel with experience in corporate law and due diligence.

Hiring outside counsel with the necessary expertise ensures your company receives the best possible legal advice and representation.

Litigation and Dispute Resolution

Litigation and dispute resolution can be costly and time-consuming, but they are sometimes necessary to protect a company’s interests.

In-house counsel plays an important role in advising on dispute resolution strategies, including negotiation, mediation, and arbitration. However, in some cases, as matters progress without a speedy resolution, hiring outside counsel with litigation experience is often the best choice.

Outside counsel can provide a fresh perspective and offer strategies and tactics that in-house counsel may have yet to consider. Additionally, outside counsel can help reduce the burden on in-house counsel, allowing them to focus on other legal matters.

International Legal Matters

Companies that conduct business internationally may face legal issues requiring outside counsel’s expertise. International legal matters can be complex and require an understanding of local laws and regulations.

Hiring outside counsel with experience in other jurisdictions can help ensure that the company complies with local laws and regulations. Additionally, outside counsel can help companies navigate cross-border legal issues, including contract disputes, intellectual property issues, and compliance matters.

Legal Matters That Exceed the In-House Team’s Bandwidth

While in-house counsel can provide legal services, more cost-effective options may exist. For example, a company with a small legal team may need help handling a sudden influx of legal matters.

A 2023 Axiom Law survey of 300 in-house counsel at every level of the hierarchy found three-fourths are facing headcount freezes. If in-house lawyers are feeling overwhelmed, opting to delegate work to outside counsel or an ALSP for some time can give them the space they need to focus on their work and deliver better results.

Eighty-nine percent of all in-house counsel are dissatisfied with their current position.

Outside counsel also allows you to free up time for your in-house team, which can pay dividends in terms of their overall productivity. That’s music to the ears of the sixty-one percent of in-house lawyers who describe themselves as extremely stressed and burned out, citing a lack of resources to support the job’s increasing demands. They say both the volume and complexity of the work are increasing.

In these cases, hiring outside counsel on an as-needed basis can be a cost-effective solution. Hiring outside counsel, or an alternative legal service provider, allows companies to pay only for the legal services they need, rather than hiring additional in-house counsel for the long term.

You can scale outsourced work up or down based on the company’s changing needs, which provides flexibility in legal service delivery.

Niche Work Outside the In-House Team’s Experience

Outside counsel brings specialized expertise in niche legal areas where in-house teams may need more experience, such as emerging technologies, complex tax structures, or specific regulatory frameworks.

They help companies adapt to rapidly evolving legal landscapes in specialized fields, ensuring compliance and strategic advantage.

For an Impartial, Macro View of the Business

Companies are turning to their legal teams more and more for advice beyond the law. While it can be helpful for in-house teams to serve as strategic advisors to the executive team, there are times when an outside perspective is useful.

Outside counsel can offer an unbiased analysis of business strategies, legal risks, and compliance issues without the internal politics or biases that may affect in-house teams. They can also serve as mediators in internal conflicts, providing a neutral viewpoint that helps resolve disputes objectively.

Understanding Your Legal Spend

To make an informed decision about in-house vs. outside counsel, you first need to understand your current spend.

You need visibility into how many matters you have running, and how many of those are with outside counsel. It’s important to understand which outside counsel are using their resources effectively. You don’t want partners billing time working on discovery, but you also don’t want important legal strategy set by associates.

Outcomes also matter. You need to track which outside counsel are resolving matters favorably.

To wrap their arms around all of that, GCs need reliable data.

That’s where an enterprise legal management (ELM) system like Brightflag comes in. Legal departments use tools like Brightflag to conduct regular spend analysis of vendors. That historical data then informs future budgets on similar matters. The team can estimate how changing variables like the fee arrangement might make outsourcing matters more (or less) cost-effective.

Making the Decision

These are just a few common instances that can influence an organization’s decision when choosing between in-house and outside counsel for a particular legal matter. Though the decision isn’t always so cut-and-dry, knowing the strengths of each can go a long way towards making a decision that ultimately benefits your organization—legally, strategically, and financially.

To learn more about how Brightflag gives you the data you need to make the right call on how to distribute legal matters, try a demo today.