5 Ways Hiring Your First General Counsel Pays for Itself – And Then Some
Dan Figueroa | March 14, 2023
Investment in a first-time General Counsel (GC) or Chief Legal Officer (CLO) can seem substantial on paper, but data shows that when a company makes the right hire in this area – the role brings immediate and lasting returns on your investment.
In fact, a GC is nearly requisite in the current market. With the threat of recession, lingering inflation, and increasing data and security threats, executive leaders have their work cut out for them. Reducing expenses and risk, nurturing profitability, and fostering growth are difficult goals to juggle even during the best of times.
This is why we are seeing an uptick in organizations hiring their first internal GC to serve as a trusted advisor and extension of the c-suite leadership team. In our experience as an executive search firm, we typically have seen first-time GCs add immediate value in five key areas that exhibit a demonstrable ROI in dollars and time.
Outside Counsel Management
Hiring a GC can significantly reduce your outside counsel spend and free up the CEO and CFO to focus more on business strategy and less on outside counsel management.
Unfettered legal spend simply hurts companies’ bottom lines – and they know it. A survey conducted by LegalBillReview.com found 73% of organizations have some concerns about overspending with outside counsel, and 55% were actively targeting outside legal spend as a priority.
Hiring a GC will give you the advantage of having a lawyer who only has one client – your business. This is far superior to outside counsel who have many clients and do not know the business as intimately. GCs know where to cut back on outside legal spending, look for billing/rate irregularities, and can often answer most questions that an outside counsel would bill you for. As this person grows within your enterprise, the full-time leadership of a seasoned legal professional can resolve any accumulated legal work, further lowering spend with each passing year. Those savings can be substantial. One of the recent General Counsel JM Search placed at a financial services company was able to reduce outside counsel spend by $500k in year one. Another GC generated legal savings of $361k in 2019, $575k in 2020, $1.5MM in 2021, and was on was pace for $3MM+ in 2022.
There are significant advantages to having a GC who can negotiate, manage, and streamline your contracts, including reducing critical business risks and identifying advantageous terms.
A GC’s exposure to high volumes of contracts enables them to spot common mistakes that typically result in wasted time and revenue leakage. Poor contracting practices can be the business equivalent of “death by one thousand cuts.”
Research conducted by World Commerce & Contracting found that 9% of a company’s revenue (or up to 15% at larger corporations) can leak out due to the drafting mistakes or mismanagement of these key agreements. Though not overly complex, the contract management process requires someone who has the time, interest, attention-to-detail, and expertise to make contract risk mitigation and overall oversight appear effortless.
The right GC can develop and strengthen contracting playbooks and processes and identify instances where minor variations or vagueness in otherwise boilerplate contracts can alter the nuance or implications of the deal. And a GC with some gravitas can give your sales and corporate teams that extra boost to push through better terms for your company. It’s this expertise that can save organizations thousands or even millions of dollars.
Litigation (and preventing it) is an area where hiring a GC can easily pay for itself.
The undeniable truth is that litigation is expensive. What’s it worth to reduce spending on current litigation and prevent future lawsuits? This is a serious question that may be answered by investing in your first GC. Most litigation is handled by outside firms who continue to increase their billing rates. The 5.8% increase in 2022 alone could affect thousands upon thousands of billed hours over the course of a lengthy case. An effective GC can help guide outside counsel through litigation to prevent unnecessary billing, with an eye towards focusing on the most important aspects of a case. Internally, GCs are in an optimal position to facilitate and streamline discovery, guiding outside counsel to relevant stakeholders and data sets, potentially shaving many tens of thousands of dollars from expensive discovery related costs.
GCs can learn from the results of litigation and provide guidance on how to prevent future lawsuits. As Benjamin Franklin famously said, “An ounce of prevention is worth a pound of cure.” Better yet, the shift of strategic outlooks in-house can empower you to reallocate more of your budget to hiring full-time support or engaging with external practice area specialists.
Mergers and Acquisitions
Having an experienced GC lead M&A efforts can be instrumental during the evaluation and negotiation process – leading to significant dollars gained (or lost).
Having an in-house GC who knows your company and industry can have a significant impact on the outcome and expense of an M&A transaction. Not only will you save on your outside counsel costs, but during due diligence GCs can evaluate legal risks with an insider’s perspective. They can delve into commercial contracts with customers and vendors, employment agreements with key personnel, real estate and other leases, intellectual property assets and licenses, regulatory and compliance matters, as well as past, pending, and potential lawsuits.
In buy-side M&A transactions, a business-savvy GC can get a deal in-process before tactfully unearthing risks during diligence or review of disclosure schedules. This may result in favorable purchase price adjustments or larger-than-expected indemnification escrows. One of our GC contacts, who had both M&A and litigation experience (a particularly valuable combination of skills), boasted that he would almost always secure special reps, warranties, and extra indemnification protection, “taking advantage of sellers who did not have general counsels or strong in-house legal and compliance teams.” What the seller skimped on by not having a GC often resulted in less money in the sellers’ pockets and protracted indemnification risks post close.
On the other hand, in sell-side M&A transactions, especially in medium to large-sized transactions, or those with private equity stakeholders, buyers will often hire large law firms to conduct due diligence. That due diligence process, and the follow-up negotiation of the sale or asset purchase agreement, is where large law firm partners and their army of subject matter experts assess risk while potentially creating leverage for the buyer. A skilled and involved GC can neutralize much of this risk, explaining or repackaging risks in the context of the specialized products or services of the company and industry. This anticipation and management of expectations can result in tens or hundreds of thousands of dollars remaining in the valuation of the company.
Privacy and Client Data
When dealing with customer and clients’ data, you need someone who is keeping up with the frantic pace of evolving regulations. Any mistakes can be costly.
A GC is in one of the best positions to help protect your company’s data, especially if the organization is not yet large enough to hire a dedicated data privacy professional. Mismanaged and poorly governed data can result in millions of dollars in noncompliance fines or missed financial opportunities each year. A Gartner survey identified an average $12.9 million price tag associated with poor data quality.
Much of the responsibility of managing data falls on the shoulders of a technical executive (e.g., your CPO, CIO, CTO, or even a Chief Data Officer) but hiring a GC can help establish best practices and provide a reliable legal perspective around data privacy and security issues. Outside counsel or third parties offer these services, but they become costly, and the quality of service may be lacking.
Moreover, a GC can conduct audits in the unfortunate instance of a data breach. They can collaborate with members of the C-Suite and IT stakeholders to determine which regulations were violated, in addition to proactively spotting any undetected vulnerabilities from a legal standpoint.
A Final Thought
These are just five key areas where GCs commonly help reduce overall costs. In general, legal executives are the perfect asset to control costs during times of economic uncertainty. When you find the right candidate, your business will be investing in a business advisor who can provide direct, critical legal knowledge while managing significant enterprise costs and risks throughout all economic cycles. In fact, 40% of legal executives in the 2022 ACC Chief Legal Officer Survey said cost minimization was their primary focus, with more likely attuned to this goal in 2023.
Do you think you might be ready to hire a General Counsel or Chief Legal Officer? JM Search can share our expertise on how to pinpoint the right executive for your business.
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