If you ever wondered why "Adam Smith, Esq." concentrates on law firms to the
essential exclusion of inhouse legal departments—and if you happened
to know that I spent nearly 10 years inhouse at Morgan Stanley/Dean Witter
as a securities lawyer, slightly longer than I practiced in firms—I have
the answer for you.
Actually, my answer is quite straightforward: When you set out to address
"the economics of law firms," it’s because you’re fascinated by all aspects
of their quest to "succeed," in the many dimensions in which success can be
defined. A key dimension is that of the P&L, and simply put there’s
no "P" in the inhouse department’s P&L.
But the second reason is well expressed in today’s WSJ article, "Silicon
Valley’s Outsiders: In-House Lawyers?," which posits that in-house lawyers
are still seen "as a block to the execution" of companies’ plans, that they
have "one hand tied behind [their] backs," (this from Mark Michael, the GC
of 3Com from 1986 to 2003), and that "you’re just not empowered or funded."
Too well do I know this tale. Year after year after year at budget
time I have seen law departments plead, beg, and otherwise prostrate themselves
before the "real" businesspeople. You can imagine this
would become tiresome.
Covering it would also make for a rather boring publication: So that,
in a nutshell, is why "Adam Smith, Esq." essentially never has, and dollars
to doughnuts never will, address in-house departments.
Fair enough, but a thorough look at the economics of law firms still requires an understanding of in-house counsel. I believe that your blog would be enhanced by some examination of in-house dynamics, for many reasons. Off the top of my head, here are three:
1. In-house lawyers are the point of contact with the most valuable clients that the most profitable law firms have. Do most law firms, even on bet-the-company cases, mostly deal directly with the CEO, or the GC or Deputy GC? An understanding of what in-house departments want and need is crucial. And surely economic analysis could be helpful in determining how an in-house deartment is likely to behave, and what it looks for when it hires outside lawyers.
2. In-house law firms have had and may have an interesting role in the rise of women in the legal profession. That is, I believe (based on anecdotal evidence and some minimal Westlaw searching) that women are better represented in the higher ranks of in-house departments than they are in the higher ranks of law firms. Examining why this is so — and what effect it might have on law firms, who are constantly trying to charm and win business from in-house departments — could illuminate a good deal about the dynamics of the law biz. A trivial example: today law firms would be foolish not to bring along at least one woman to any pitch meeting. Was this the case fifteen years ago? I doubt it.
3. Should law firms have their *own* general counsel? In what other industry would a business with a few hundred million dollars in revenue not have a designated general counsel? Heck, I haven’t checked, but I would not be surprised if even some of the firms with a billion dollars in revenue don’t have general counsel. This is interesting — to me, at least — and I’d love to hear your musings on the matter.