As a family business grows, the question often arises whether and when to hire an in-house lawyer to manage the business’s legal affairs. How does the family—or, more accurately, the family business’s board of directors, decide when the time is right to hire an in-house lawyer, and what skills are required in that lawyer?
Certainly the financial performance of the business is a key factor. Hiring an in-house lawyer represents a commitment to pay compensation whether or not there are pressing legal matters to handle. The business should be able to make the economic case, over a period of at least several years, that its legal workload is and will be sufficient—and of the right variety—to justify a salaried in-house lawyer.
Consider the nature of the business and its expected legal needs. Does the business have a large number of employees, such that employment law matters tend to recur with frequency and occasionally flare up? Is the business part of a highly regulated industry, where hiring an in-house lawyer with specific industry expertise will be valuable? Is there a steady stream of contract negotiations that characterizes the business? Is the business actively looking to acquire other businesses, such that an in-house lawyer with experience in acquisitions can be a significant asset? Does the business engage in international transactions, where special legal and perhaps language skills are key?
Consider the possibility that an in-house lawyer may be able to provide service over and above pure lawyering—perhaps as part of management or operations. While not every lawyer has skills in those areas, a great many lawyers have had experience managing businesses or working closely with key management in their client businesses.
Perhaps a member of the family is a lawyer with the skills to handle the family’s legal needs. Having a family member as the in-house lawyer for the business has its own special advantages and disadvantages (look for a blog article on this subject coming soon), but many family businesses employ a family-member lawyer in this capacity, with success.
One important characteristic of an in-house lawyer for a family business is familiarity with the unique family dynamics and relationships. One needs the ability to balance competing concerns, whether friendly disagreements among siblings or generations, or active hostility among family members.
Another important skill of an in-house lawyer is self-awareness: the ability to see oneself and one’s role in the family dynamic through the eyes of others, the ability to recognize one’s strengths and one’s weaknesses, the ability to know when to rely on one’s own knowledge or to call in outside legal expertise or experience to add to one’s own skills. Family business owners may be the first to recognize when a member of the family who serves as the in-house lawyer is “in over his head.”
Yet another skill is the ability to manage outside counsel fairly and persuasively—to negotiate cost-effective service, high degrees of commitment, and satisfactory response times from lawyers in private practice who may be serving dozens of other clients. Finding the “fit” with an outside law firm—and particularly with the partner of that firm who will have primary responsibility for the client relationship—is key to success for the business.
Ultimately, the decision to hire an in-house lawyer comes down to the unique characteristics and economics of the particular family business. For that purpose, outside advisors, including accountants, family business counsellors, and outside counsel, can help you identify the right course of action for your business.