The Role of In-House Counsel or Why the Heck Do We Need a Lawyer Anyway?
Lawyer going up a building's steps

Consulting a lawyer can help a businessperson understand better not only what they know, but, more importantly, what they do not know and should know.

In an analysis performed by one of LBT’s social media number crunchers, it was determined that LBT readers had certain shared questions concerning the role that legal counsel plays in companies and how to obtain effective legal advice without breaking the bank.  I thought it would be useful to review these questions and to provide, in a series of articles, some response to them. So, let us dive in!

Can an In-House Counsel Represent Other Clients?

In-house counsel, as opposed to outside counsel, are employees of a company and charged with the responsibility of representing the interests of the company and addressing its legal issues. In-house counsel does not, as a rule, represent other clients; He or she solely represents the company.

What Does In-house Counsel Do?

An in-house counsel is the company’s lawyer. What is important to understand about this relationship is that in-house counsel is supposed to be representing the independent interests of the company, not the interests of shareholders, members, directors, or officers, although many times these stakeholders and the company have common interests. For example, were the owners of a company to decide to take actions that could potentially expose the company to civil or even criminal liability, the idea is that in-house counsel would step in on behalf of the enterprise to defend it against such nefarious activities.

In practice, this has been easier said than done. The Enron scandal, which unfolded following that company’s bankruptcy in 2001, involved company executives using underhanded accounting methods and the creation of complex corporate entities to shield a billion dollars in losses. While an independent investigation failed to find that in-house counsel committed fraud, it called attention to the fact that Enron’s lawyers did not look behind the transactions they were involved in or ask tough questions about the activities of certain executives who were committing fraud. Neal Batson, the lawyer appointed by the Bankruptcy Court to investigate Enron is quoted as cautioning lawyers to remember who your client is: “In most instances you’re representing the corporation, not the officers. . . Individuals hire and fire you and make decisions about how you will be compensated, but you’re not representing those individuals.”

Schooled myself as a young associate at the knee of a lawyer who served as company counsel to a major bank, I was constantly reminded that an excellent in-house counsel is a gadfly, a person who is always reminding the owners where their loyalties should lie and opposing actions that could potentially compromise the interests of the company or expose it to risk.

By contrast, outside company counsel is an independent contractor retained by a company to render it legal advice. Outside Company Counsel usually does serve other clients and is less involved in the day-to-day operations of the companies they represent. The role played by outside counsel in terms of representing a company’s interest, exclusive of the interests of the owners and executives, is the same as that of in-house counsel, but outside counsel is less likely to have the same level of understanding as in-house counsel concerning how a company operates and how daily decisions are being made. Indeed, outside counsel is, oftentimes, pulled into legal controversies only when management or owners feel that it is necessary, which usually means that a crisis is at hand.

Should a Company Have an In-house Counsel?

This can depend on several factors, such as the size and resources the business may have to employ a full-time lawyer, whether the nature of the company’s goods or services are such as to implicate a host of legal questions and litigation risks that make it necessary to have a dedicated legal resource, etc. Also relevant to this question is the fact that while legal counsel can help a corporate client avoid losing money, legal advice rarely, in and of itself, generates income.  So, the issue will always be what value should be placed on legal advice and whether such value is worth its cost.

Does a Business Even Need a Lawyer?

Now, being an attorney myself, I am, of course, a bit biased here, but regardless of whether a business decides to go with employing its own in-house lawyer or contracting out for legal services, it should have someone it can look to for legal advice. Indeed, the best way of rationalizing the payment of legal fees is to consider such expenditure as being part of the cost of doing business in the U.S. and, as such, should be budgeted for.

It is not what you know, but what you do not know that can end up deep-sixing a transaction, or even an entire business. Consulting a lawyer can help a businessperson understand better not only what they know, but, more importantly, what they do not know and should know. Even if one does not want to have a lawyer on retainer to help guide the legal fortunes of an enterprise, it is important to vet initiatives with a lawyer who can help scout out the minefields that lay hidden in the legal landscape.

The worst situation to be in is to embark on a venture without any legal counsel believing that legal fees are a waste of money, only to realize later on, after substantial resources have been committed, that the venture will expose the business to lawsuits, or even regulatory investigation or sanction. Spend a lot of money marketing a product that runs afoul a third party’s trademark, or unwittingly engage in a course of discriminatory conduct, or breach an agreement that no one has looked at since being executed, and a promising business with wonderful ideas can end up being merely a cautionary tale of what might have been.

Related content:

Negotiating and Surviving the Business Deal of a Lifetime

Non-Disclosure Agreements- Protecting Business’s Proprietary Information

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