In-Depth

Best Practices: Keeping the Law on Your Side

Sooner or later, every growing company wrestles with the question of whether it's better to keep consulting outside legal counsel or finally bring an attorney in-house. Here's advice to help you make the right call.

• By Fred Bayles
• March 01, 2008

Jeffrey Mills' first experience with the language of legal contracts wasn't a happy one. Mills, vice president of channel development and marketing at Bluespring Software Inc., was asked to set up contracts for the company, which specializes in business process management software.

"The first time I wrote them, it was very painful," he recalls. "It was quite a challenge."

What was more interesting about the task was the person who assigned it: an attorney working with Bluespring, a Cincinnati-based Gold Certified Partner. The lawyer wanted Mills to make the first pass at the document to lay out the unique criteria the company needed to include in its contracts.

"His point to me was: 'You know this more than anybody,'" Mills says. "He said, 'A lawyer isn't going to understand what you want.' He had me write down what I was trying to say about our business."

Despite the torture of translating thoughts to paper in a semi-legal argot, the work paid off. The lawyer was then able to zero in on exactly what Bluespring needed out of its contracts, adding the necessary legalese. Mills' effort considerably reduced the time the lawyer needed to spend on the project. And -- particularly when we're talking about lawyers -- time is money. Bottom line, Mills says: "The more effort you put into it up front, the less expensive and more meaningful it will be on the legal side."

The anecdote illustrates a common conundrum for partner companies: how best to handle legal issues. The questions are many: When do you go to an attorney? When, if ever, should you think about bringing a lawyer in-house? And how can you keep costs down? With legal expenses likely to make a big dent in any budget, the questions are more than theoretical.

And there are no hard and fast answers. Often, each new situation dictates a different choice -- a reality that led Mills to help organize a seminar for an Ohio chapter of the International Association of Certified Microsoft Partners (IAMCP) to explore such complexities. "It isn't as easy as 'Here's where you need to have a lawyer and here's where you don't,'" he says. "Separating those two is a challenge."

'Under-Lawyered; Over-Lawyered'
Attorneys and partners say Bluespring's experience is just one example of the issues you face in deciding whether and when to "lawyer up." The old adage that those who represent themselves have fools for attorneys isn't always true.

"Look at your needs to make sure you're not 'under-lawyered' or 'over-lawyered,'" advises Phillip D. Sharp, a Houston-based partner with the international law firm of Bracewell & Giuliani LLP. Sharp believes that many companies unnecessarily default to getting expensive legal advice for relatively unimportant matters -- and sometimes attorneys themselves encourage that kind of dependence. "You don't need a lawyer to help you pick out a gallon of milk," he says. "The lawyer who encourages that [kind of thinking] is doing a disservice."

But it's important to balance what you might save in legal costs to what you might lose in another section of the ledger. David J. Willbrand, a Cincinnati-based partner in the law firm Thompson Hine LLP, previously worked as in-house attorney and corporate officer at several IT firms. Based on that experience, Willbrand says that companies trying to decide whether to do their own basic legal work boils down to a classic case of measuring revenue potential lost versus dollars saved.

"If you're at the point where you have your sales guys losing a day of work going through a contract, you might rather choose to spend money on a lawyer," he says.

Contracts remain among the chief legal issues for many partner companies. Yet in many cases, these documents are the easiest to handle for minimal legal cost. Although it's wise to have an attorney go over your simple contracts and agreements to make sure they're in order, you may not need to take that step every time you sign up a new client.

Willbrand says contract size often dictates what kind of legal advice you'll need.

"For companies that sell software at $50 a pop, it should just be a click-through hardwired into your code," he says. "You can get away with doing most of it yourself if you have a low price point. But with a $5 million license transaction, you'll need counsel because those agreements are going to be highly negotiated."

Try a Template
Matt Scherocman, director of Gold Certified Partner PCMS IT Advisor Group, a consulting and services company based in Cincinnati, has little patience for drawing up contracts. "I'd rather be out getting business," he says.

When Scherocman took over some legal duties from a departing chief financial officer, the shock of the legal bills he saw prompted him to think creatively about alternatives. Working with an outside attorney, he drew up a template for a professional services agreement that became the company's standard. The document can be pulled from a file, filled in and signed, all without an attorney's involvement. PCMS IT has an "easy form" for deals involving less than $10,000 and a more intricate form for deals beyond that mark.

Various versions of the two templates are stored in an Office 2007 version of SharePoint. Customers can edit the forms, but the system highlights what changes they've made.

"You've got to template the kind of legal things you're doing all the time," Scherocman advises. "It's very straightforward so you don't have to negotiate every single time you sign a new customer."

While the initial legal fees for developing the templates were substantial, Scherocman's annual legal expenditures are now only about 20 percent of what they were before. He also tries to dissuade clients who want their own lawyers to draw up contracts because such demands necessitate a review by his company's legal counsel. "I'll offer a discount if they agree to use our paper," he says.

Choosing Outside Counsel
No matter how successful you are at automating contracts and agreements, you'll still need professional legal advice for other matters. There are always new wrinkles to consider in negotiations with clients. New or revised regulations often need a lawyer's interpretative skills. And certain complex issues -- intellectual property questions, for instance -- should be navigated by specialists.

Mills' advice is to find an attorney who, like Willbrand of Thompson Hine, has the business background to understand a small to midsize company's needs -- and who will let you know when you need to invest in legal advice and when you don't.

"There are lots of issues where you need legal representation and where it's good to have a lawyer on demand," Mills says. "A good lawyer for a small business teaches you how to minimize your reliance on lawyers. His No. 1 goal should be to help you, not bill you."

Don't assume that one lawyer can handle every legal question. "Many people have an assumption that lawyers know all aspects of the law," Willbrand says. "The truth is that specialties get started in law school and grow in private practice."

True generalists are fine for simple contract issues; they can advise you on questions such as employment law and liability. But areas such as patent law and regulatory compliance often require a specialist's attention.

And don't be shy about asking about the number of hours, or even the approximate cost, that handling a particular legal question is likely to involve, Scherocman says: "If a customer has an issue, send it [to your legal counsel] and ask, 'Hey, guys, how much is this going to cost?' You then know what you can push back on the clients."

Choosing In-House Counsel
Among the biggest decisions a growing company makes is when to add a full-time attorney to the staff. A few questions to consider: Do you have enough work to keep an in-house lawyer busy all the time? Are you likely to spend more on legal fees than you'd spend on a salary that could easily top $200,000 a year?

"A lot of times the answer starts to emerge by itself," Willbrand says. "If you find you're calling your outside legal counsel every week or week-and-a-half, you should start thinking about bringing someone inside." In terms of company size, he says: "If you have more than 50 employees, you can start thinking about it. With 100, you should consider it."

Sharp, the Houston attorney, suggests taking a hard look at your actual legal expenditures. If you're getting billed for, say, 1,500 hours a year in legal services at $300 to $400 an hour, it may make sense to hire a full-time attorney whose salary will be far less than the $450,000 to $600,000 you're paying now. If you wind up with an in-house counsel who's busy all day, every day, then you made the right call, Sharp says. If that's not the case, then it that may be a signal to consider a return to outsourcing.

There may be times when you need more than an in-house generalist. CommVault Systems Inc., an Oceanport, N.J.-based Gold Certified Partner specializing in data-management software and services, maintains its own mini-legal division with lawyers familiar with its technologies and versed in patent law -- a necessity for a company with dozens of U.S. and foreign patents.

7 Tips for Getting the Best Legal Advice While there's no one-size-fits-all form for finding the right legal representation, partners and legal attorneys offer the following recommendations: 1. Categorize your legal needs. Study how you spend your legal dollars. Does most of the money go for contract review? What percentage do you spend on regulatory requirements? Pinpointing when and how you've actually used legal help in the past can help you determine what you need going forward. 2. Seek specialists as needed. You wouldn't ask your general practitioner to perform brain surgery. So don't expect your general counsel to be a copyright expert. Having a jack-of-all-legal-trades is fine, but when you're dealing with a highly specialized legal area, look for a specialist. 3. Find the right representation. In seeking outside counsel, look for a firm that's a good fit with your company in terms of culture, areas of expertise and accessibility, as well as cost. You'll do best with lawyers who understand your business and your industry -- and who are reachable when you need them. 4. Avoid the top guns. You don't necessarily want a law firm's biggest names assigned to your company -- they may be too busy to give you the attention you need. Consider working with a reliable junior partner whose progress up the law firm's ladder will parallel your company's growth. 5. Do the math. Look at your bottom-line legal costs. Are you spending more on outside legal consultations than you'd pay to hire your own corporate counsel? If so, it might be time to post that position. 6. Consider double duty. A smaller company may be able to recruit an executive who also happens to have a law degree -- or an attorney with enough business experience to serve as COO or CFO. Either approach brings your legal counsel in-house. 7. Take a lawyer to lunch. That's the advice of Matt Scherocman of PCMS IT Advisor Group, and he means it literally. Breaking bread with a local attorney gives you a chance to casually raise a few legal questions. At the very least, Scherocman says, "you can get a 101 course on some specific issue for $10 worth of food and save $200 in lawyers' fees." And at best? You may leave the table with a new legal representative. -- F.B

Marcus Muller, CommVault's intellectual property attorney, says the decision to bring a legal specialist in-house is likely to depend partly on cost and partly on long-range thinking. If you're doing just two or three patents per year -- at the cost of $20,000 to $30,000 each -- it probably makes sense to farm out the work.

But if you're generating a higher number of patents, and if you plan to monitor the industry in the future to watch for infringements on your hard-earned ideas, then hiring a full-time IP specialist may be the way to go. "You should file your patent with the best patent attorney you have and have the attorney help you leverage the property," Muller says. "It's a significant investment, so it should produce the best return on investment."

There are other creative ways to maximize your in-house legal investment. Speaking from experience, Willbrand says some companies can benefit by bringing in an attorney with business acumen to handle both legal and corporate duties. For instance, he says, "you can explore finding a lawyer with other skill sets with the capacity to also be your CFO or COO." Mills agrees. "Look for someone who has been in the small-business world, someone who has run a business or has been on the operating team," he advises.

Another option: Hire in-house counsel -- but only part-time. Willbrand says plenty of talented attorneys, especially those who are parents of young children, want to break away from the typical law firm's grueling schedule. Bringing in a part-time lawyer at a lower salary may be an option that works out well for everyone.