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Recruiting in-house lawyers - a guide for HR professionals

A guide for human resources professionals working in-house to assist in the recruitment and retnetion of qualified lawyers.

 

(This article also appears on LegalWeekLaw.com) 

 

By Scott Gibson

 

       (i)          Industry sector

       (ii)         Size of organisation

       (iii)        Geography

       (iv)        Size of role

       (v)         Specialisation

 

Introduction and definition of terms

 

This article is aimed at human resource (“HR”) professionals who have responsibility for recruitment and retention of qualified legal personnel who are working in commercial organisations other than law firms. Its purpose is to alert you to the growth in the importance and numbers of in-house legal teams and to arm you with a “Bluffers Guide” to the recruitment of legal specialists.  I am hopeful that from this you will gain at least as much independent information as you will from an hour long meeting with a legal recruitment consultant. 

 

Assuming you have been instructed to fill a legal role within your organisation, the first thing to note is that it will invariably be described by relevant lawyers, industry bodies and recruitment consultants as “in-house” as opposed to “private practice” (within a law firm).  Recruitment consultants will generally further delineate commercial in-house organisations as being either: “Commerce & Industry” or “Financial Services”. The Law Society, the regulatory body for Solicitors in England & Wales, bands both of these sectors together under the term “Commerce & Industry” (“C&I”), thereby enabling it to distinguish them from other in-house organisations such as local government and trade unions. Throughout this article I use the terms “in-house” and “C&I” interchangeably.    

 

 

The difference between compliance and legal

 

Because there is significant overlap between these two functions they are often placed together under a single Head of Legal and Compliance. Whilst the two Departments share responsibility for ensuring the organisation complies with its legal and regulatory obligations, and will often jointly undertake some of these functions, they differ in that:

 

(i)         Compliance does not act as legal representative for the organisation and therefore does not draw up contractual documentation, act in litigation or give formal legal opinions; and

(ii)        Legal generally acts in a representative or advisory capacity and does not get involved in administration of systems and procedures nor in monitoring and surveillance.

 

Compliance professionals will often have a legal or accountancy background. However, as a rule of thumb, most lawyers actively dislike undertaking compliance work which, rightly or wrongly, they perceive as particularly unglamorous and overly rules based.  To this extent, except at very senior levels, the individuals undertaking legal and compliance are rarely to be found together and the individual recruitment consultants working in these sectors are nearly always distinct from each other.

 

The remainder of this article is concerned purely with legal recruitment.    

 

 

Why does your organisation need a lawyer?

 

Traditionally the role of the C&I lawyer was primarily to save costs. The equation most Financial Directors would undertake was simply to compare the cost of necessary external legal spend (on law firms) with the projected compensation of an in-house lawyer - if the former was greater than the latter then there was a prima facie case for hiring.

 

 

Why hiring an in-house lawyers does not always save costs

 

Of course commercial lawyers will always argue that they save costs; depending on the organisation, a well drafted contract can save hundreds of millions of pounds (although if the quality of drafting is really tight it will probably never be known as it will never be tested in court). 

 

Over the past twenty years there has been a move away from the simple cost saving criteria above and it is increasingly recognised by more sophisticated organisations that the real purpose of an in-house lawyer is to:

 

(i)            speed up management decision making processes;

(ii)           increase management options and, most importantly;

(iii)          reduce legal risk.

 

Ironically a good in-house lawyer will often significantly increase law firm legal spend because, by fully understanding the business, they discover ticking time bombs (in the form of illegal practices) which require outside legal assistance to remedy.

 

The exponential and sustained growth of lawyers in-house

 

Putting aside the recent recession, the first thing to say about recruitment of qualified lawyers in-house is that it has grown exponentially over the last 10 years and it will continue to do so. Between 1999 and 2009 the proportion of solicitors with practising certificates employed within C&I grew by 59% {1}.

 

The elevated demand for C&I lawyers will continue for the foreseeable future regardless of what happens with the UK economy or with the number of lawyers in law firms.  There are two main reasons for this:

 

(i)            increasing regulation, in particular large set-piece governance legislation such as: The Companies Act (2006), The Bribery Act (2010) or, in the United States, the Sarbanes-Oxley Act, has demanded that companies review their legal risk;

 

(ii)           in the UK regulators, who for many years had teeth but were often not using them to bite, are now enforcing legislation and imposing severe sanctions on companies and, crucially, individual directors.  

 

Of the above it is the sanctions, both civil and criminal, imposed on individual directors and officers of the company which has most closely focused the minds of management on the hiring and retention of quality in-house legal advice. 

 

For this reason alone, if you are an HR professional at a sizable company and you have not yet needed to familiarise yourself with legal recruitment, it is likely that at some point in the future you will.

 

 

Lawyers in England & Wales - some useful facts

 

In the UK there are two forms of qualified lawyers: Solicitors (whose professional body is The Law Society), and Barristers (whose professional body is The Bar Council). Solicitors form by far the larger of the two branches of the profession.

 

Solicitors

There are 145,000 solicitors on the Roll, 115,000 with practising certificates, i.e. fully qualified. Of these 11,600 (10%) work in-house in commerce & industry and financial services. Of the remaining 30,000 solicitors who do not hold practising certificates, The Law Society states that disproportionally high numbers of these may be working in-house in a legal capacity because, providing they are not giving legal advice to  third parties or undertaking litigation on behalf of their employer, they do not have to inform the Society of their presence {2}.

 

Barristers

There are approximately 19,000 barristers, most of whom are self employed but affiliated to barrister’s chambers. Of those remaining just over 3,000 are “employed” (i.e. working in-house or local government etc.) and a further 3,500 are non-practising {3}. Again many of these may be working in-house in a legal capacity but not providing legal advice or litigation advice to parties other than their employer. 

 

You should also be aware that it is not uncommon for in-house departments to hire foreign qualified specialists, in particular lawyers from “common law” jurisdictions (often ex-British colonies) such as: Australia, New Zealand, Hong Kong, Singapore, Canada, the United States and (increasingly) India. Whilst these lawyers will nearly always need to have UK experience, it is not always essential that they be UK qualified for all in-house roles.  

 

An overview of in-house legal departments

 

Overwhelmingly the type of lawyer more frequently hired by in-house organisations in the UK is the Solicitor.  Nearly 90% of all solicitors working in-house will have spent some time working in a law firm {4} and it is still very unusual for solicitors to be trained in-house – indeed even today less than 3% of trainees are within C&I.  

 

C&I legal departments vary considerably in size and, although some large organisations will have upwards of 50 qualified lawyers, more typically departments remain small with just under a quarter consisting of one individual lawyer and nearly 70% having five or fewer legal personnel {5}.

 

Compensation

 

Lawyers are expensive.  They are almost the definition of high value human capital so for many companies the legal department is amongst the most expensive per head cost {6}. Because C&I departments are generally small (see above) and legal hires relatively infrequent, one of the greatest difficulties likely to be faced by you is accurately benchmarking salaries for your new (and existing) legal personnel.

 

At this point I would caution you not to overly rely on industry salary surveys such as are produced by the larger recruiters or benchmarking companies. Unlike with law firms, the range of factors affecting in-house legal compensation is so varied as to make drawing a line of “best fit” on a graph almost impossible.

 

The result is that surveys of in-house salaries tend to be less accurate than those for law firms. The reason for this is that law firms will generally make salary information public or will have the information to hand to accurately respond in detail to surveys; the same is generally not the case for in-house legal departments unless they are highly localised and “of a type”, such as investment banking, whose legal departments tend to be large and comprised of capital markets lawyers based in central London.   

 

That being said, salary surveys and other benchmarking services do form a useful start point to assist with calibration. For truly accurate figures, in addition to the level of qualification of the lawyer, you will need to consider:

 

(i)            Industry sector

(ii)           Size of organisation

(iii)          Geography

(iv)          Size of role

(v)           Specialisation

 

Taking each in turn:

 

(i) Industry sector

 

Generally over the last five years compensation within each industry sector has varied as below:

 

Investment Banking                                            £ Most Expensive

Energy

Financial Services

Pharmaceuticals

Technology

Property/ Construction

Retail

Manufacturing

Media                                                                £ Least Expensive

 

The list above is of course a simplification and is in no way exhaustive.  As always there are exceptions and the positioning will vary according to the market. It is interesting to note that, although investment banking as a business sector suffered exceptionally badly in 2008 and early 2009, it remained the best compensated in-house sector throughout the downturn. Indeed, 2010 saw total lawyer compensation levels within investment banking approaching those of 2007 (a record year). Further, due to a political desire to reduce a short-term bonus culture at these institutions, some even saw significant base salary increases of 15-30% in 2009/10.  

 

 

(ii)        Size of organisation

 

The correlation between the size of the organisation (as defined by market capitalisation) and total compensation is evident for senior level lawyers, however, it does not seem to have significant impact at levels below team or departmental head.

 

(iii)       Geographical location

 

This is a fairly obvious point but one often insufficiently accounted for in legal industry salary surveys. A lawyer undertaking exactly the same role in a different location can be compensated significantly differently. For example a Law Society survey found salaries for in-house counsel in Wales and the Midlands to be more than a third less than those for similarly qualified lawyers in London {7}.

 

(iv)       Size of role

 

The size of the role undertaken by the lawyer is again obvious and it stands to reason a Head of Legal is likely to earn more than a more junior member of their team. However, here again industry salary surveys often bunch “Heads of Legal” (which could be a sole counsel in a small company) with “Group Heads of Legal” of major plcs, leading to erroneous “average” figures.  Other complicating factors which need to be considered can include whether or not the individual is also responsible for compliance as well as legal.

 

(v)        Specialisation of the lawyer

 

This is not an area which The Law Society surveyed in its consideration of in-house compensation, but for legal recruiters (and most General Counsel) it has probably become the single most important factor.

 

Twenty years ago the in-house lawyer was nearly always hired to undertake and oversee commercial contracts.  Whilst this is still overwhelmingly the bulk of what most in-house lawyers do, it has become more common than not for C&I departments to hire specialist lawyers. The reason for this change is largely the same as that driving the expansion of all in-house legal teams - increased and sustained governance legislation and enforcement by regulators. However, this is combined in many instances with the increasing complexity of the products and services being offered by corporations which itself elevates legal risk.

 

Over the last five years specialist compensation has varied as below:

 

Debt/Equity Capital Markets/ Derivatives                          (£ Most Expensive)

Corporate/ M&A

Energy Trading

Regulatory – Financial Services/ Pharmaceuticals/Telecoms

Investment Funds

Banking/ consumer finance

IT/IP/Outsourcing

Competition/ Anti-trust

Real Estate/Construction

Employment

Litigation                                                                                   (£ Least Expensive)

 

 

The above is a simplistic breakdown of common specialisms, and as always, there are many exceptions. Overall the relative cost of a specialist is determined by two main factors:

 

(i)            supply and demand and

(ii)           the compensation paid to the specialist in private practice law firms.

 

Of the above, as in any economic equilibrium, supply and demand is dominant. A good example of this dominance can be seen by examining litigation. In-house organisations rarely hire litigators usually preferring to outsource such work to law firms. As a result litigators in law firms wishing to move in-house rarely find roles suitable for them and are more likely to compromise on compensation - hence why litigation always comes bottom on the table above. In 2009/10 the demand for litigators increased significantly in both law firms and in-house organisations {8}. However, even though the number of in-house litigation roles was probably quadruple what it had been prior to the recession, the overall proportion was still minute and the pool of quality litigators wishing to move in-house for any given role remained high. The corollary was that compensation for these specialists remained low in spite of their relative demand in private practice.

 

Exceptions aside, the main problem for you when hiring legal specialists is that they tend to be found in law firms which typically pay at least 10% more than C&I for virtually all  industry sectors except investment banking and certain niche financial organisations. 

 

A note on law firm compensation

 

Because the number and proportion of legal specialists within C&I is set to increase and because the vast majority of specialists hired by C&I are found in law firms, it is useful for you to have some familiarity with law firm compensation. This is because salaries in law firms, however obliquely, set the benchmark for in-house legal compensation. 

 

Most UK commercial firms largely retain a “lockstep model” for assistant (non-partner) level compensation. What this means is that on the anniversary of a solicitor’s qualification year they automatically move up a level of qualification into a higher pay band. For example a lawyer with two years post-qualification experience (“PQE”) becomes a three year PQE.  This highly unusual (and some consider ageist) system can seem archaic in a meritocracy, however, in spite of many law firms announcing their intent to change the system it is still very much intact for lawyers up to about 5 PQE.

 

In most years, in addition to a lawyer increasing their compensation upon moving up a band in PQE, they have also benefited from increases in the level of the band.  At the height of the market between in 2006 and 2007 this resulted in many commercial lawyers seeing actual base salary increases of 20% or more per annum – not surprisingly this caused considerable frustration for in-house teams trying to pitch offers of employment. It was at this time that the differential between in-house and law firm compensation reached its peak and the relative attractiveness of C&I roles over those in law firms narrowed.

 

You will be glad to know that the last two years have seen a significant cooling in law firm compensation with virtually all firms failing to matriculate their assistants up to the next level and freezing or reducing bands in 2009 (the net effect was that assistants of a given PQE were being paid less than in 2007).  Although 2010 has seen a return to assistants climbing the lockstep, the bands have generally remained frozen.    

 

Nearly all commercial law firms offer retention and/or performance bonuses to their lawyers which, depending on the firm, range from about 2% of base salary to (a largely theoretical) 40% with an average in 2009 of 10% in Top 10 firms {9}.  Interestingly although 2009 saw widespread salary freezes, or depending on how you measure it, 8% reductions in compensation for most assistants, overall bonus payments in law firms increased {10}.  

 

From a retention and benchmarking perspective it is as well that you remember that the concept of assistant level lockstep in law firms is still largely intact and that in most years this results in compensation increases at law firms far greater than the average at even very high performing corporations. Generally even if specialist lawyers moving in-house are initially paid the same as they are in private practice, after two or three years their compensation inevitably starts to trail that of their law firm contemporaries – a situation which if unchecked can lead to morale issues and elevated attrition rates.    

 

The need for “A-grade” specialists

 

The very real danger with legal departments failing to secure sufficient budget for an A-grade specialist is that they get a second rate lawyer who, although initially less expensive, will eventually need their work corrected by others within the department or an outside law firm. Worse still they may fail to undertake their primary role - reduction of legal risk.  Strangely, in my experience this hiring of sub-standard lawyers is often colluded in by junior heads of legal who, anxious to gain people management experience, confuse empire building with providing quality legal services. Hence they often store up no end of trouble for themselves, their successor and the company in the future.

 

Amongst more experienced company officers and General Counsel the need for “A-grade” specialists is increasingly acknowledged - so much so that it is now not that uncommon to find a specialist within a legal department earning more than the General Counsel or Head of Legal!   

 

Depending on your exact role within your team much of the above may not be of direct concern to you. If your primary role is to “fill open headcount”, as is often the case within recruiting sectors of large or outsourced HR teams, your responsibility may end at induction of that new headcount. If your role extends beyond recruitment to retention and operational efficiency then the above will perhaps be of more interest.

 

Before discussing the benefits of in-house roles, there is one more negative about in-house which plays on the minds of some private practice lawyers and which it is helpful for you to have a psychological appreciation of.  In law firms, lawyers are the business - they are the engine room which drives the firm’s profits. Once in-house, even though lawyers can often more than pay for themselves (see above), they are always perceived as a cost.  If your company has found a potentially suitable candidate, and you wish to secure them, the question of how the legal department is valued by the business (and HR) is often the crucial factor in determining their choice.     

 

 

The sell for in-house C&I

 

As we have seen with the exception of investment banking and one or two (usually financial) industry sectors, even blue-chip C&I companies generally pay their assistant level lawyers at least 10% less than private practice law firms. At senior levels the disparity is even greater; whereas a total compensation package of £180,000 is considered well remunerated for a General Counsel in a medium sized legal department, an equity partner in a top 50 law firm of equivalent qualification and quality will average more than £500,000 {11}.

 

With such huge disparities in pay between law firms and C&I it is a reasonable question to ask why lawyers ever move in-house?  Yet they do in increasing numbers. Indeed, the proportion of C&I lawyers has increased by nearly two thirds over the past ten years so it is clear that in most areas there has been no sustained shortage of supply {12}. What is more the quality of in-house lawyers has changed markedly over the past two decades. Twenty years ago in-house roles were generally looked on as second rate yet today many are considered plum jobs which attract the very brightest and best within the profession.

 

 The main reasons for this seeming paradox are:

 

(i)         Lifestyle

 

By far the single most frequently cited reason for moving in-house is lifestyle {13}. Over the last 10 years it has become increasingly common to find transactional lawyers in City law firms billing upwards of 1,800 hours per annum which works out at more than seven hours a day. But remember this is just “client billing time” and takes no account of lunch breaks or a host of other necessary requirements such as: mandatory training, client pitches, marketing or even pro bono work. In addition client demands regularly result in transactional lawyers in top firms having to cancel holiday plans at short notice and work overnight or at weekends – against this backdrop it is no accident that some law firms now provide beds for their fee earners.

 

Further, if there was ever a time when lawyers in law firms could expect to sit back when they became partners, this is no longer the case. Indeed most partners are under equal pressure to perform under pain of demotion or “de- equitisation”. By contrast in-house lawyers often state that, although they work hard, and often more intensely, they generally work less hours {14} and it is rare to find them being required to work weekends on a regular basis.

 

(ii)        Difficulty of obtaining law firm partnership

 

In the past if a very bright lawyer worked hard, kept their clients happy and didn’t upset  any of their colleagues, they had a reasonable expectation of making partner at their firm. Over the past 10 years it has become exponentially more difficult to achieve partnership as commercial firms have significantly reduced the proportion of equity partners to assistants in order to increase profitability {15}.

 

Whether it is because partnership has become so unobtainable, or whether it is because the work/ life balance of commercial law firm partners has become so undesirable, an increasing number of excellent lawyers state that they no longer wish to become partners at their firm {16}.

 

(iii)       Proximity to business, promotion and breadth of work

 

In addition to lifestyle, the other factors most commonly cited by lawyers wishing to move in-house are: a desire to move closer to the business, opportunities for early promotion and a chance to broaden their workload (which is mildly ironic considering the increasing demand from C&I for specialists).

 

Whatever the reason for wishing to move in-house it is fair to say that most C&I lawyers are happy in-house and a move back to private practice was either not very, or not at all likely for 77% of them {17}. Moreover, even if they want to, it is not always all that easy for in-house lawyers to return to law firms at a level commensurate with their experience because, over time, the more generalist workload typically found in-house dulls the specialist edge and client connections demanded by private practice.

 

So the good news from an HR perspective is that, not only is there a rebuttable presumption that any role you are recruiting for is desirable to a good proportion of law firm lawyers, but once you have secured them, they are unlikely to return to private practice. 

 

Although retention is not strictly within the scope of this article, and possibly none of your concern, do remember that there are over 3,500 C&I organisations that employ lawyers and, regardless of the UK economy, the projected continued expansion in the number and proportion of in-house lawyers means that retention of quality legal specialist from the advances of other C&I departments may be your greatest retention challenge.

 

In the event that you have been asked to source a candidate from another in-house department then much of the above may not apply.  In the absence of the law firm “push factors”, as with all recruitment, sell points such as: the merit of the organisation, the role itself and relative compensation will tend to be decisive.

 

 

Summary

 

In-house legal departments within C&I have dramatically expanded over the last 10 years and will continue to do so as increased governance legislation prompts regulators to impose sanctions against corporations and individual company officers. So it is likely that if you are at a sizable company you will increasingly be called on to assist in the recruitment of in-house lawyers.

 

I have spent most of this article explaining the peculiarities of lawyers and potential issues with recruiting them into C&I roles. I have assumed that most of the time you will generally be sourcing your candidates from law firms were nearly three quarters of all practising lawyers are found. As I’ve explained, assuming you have no major location issues, to a large extent your role will sell itself thanks to the siren-like pull of the in-house lifestyle and the strong “push” factors inherent with working at commercial law firms.

 

Providing you have budgeted market rate compensation reasonably accurately and you are able to project the importance of the legal position in relation to the business as a whole, in most instances you should not find it too difficult to find candidates who, at least on paper, satisfy most of your criteria. 

 

If your involvement in the role ends at induction of the candidate then your work is now complete. If your role also extends to retention, then you must be aware that the system of lockstep assistant compensation in law firms (explained above) is still largely intact and in some years, if you fail to adequately account for this, your specialist lawyer can quickly become dramatically out of kilter with law firm (and hence market) rates. This can have obvious attrition risks.   

 

Finally, although we know that less than a quarter of C&I lawyers will even consider a return to private practice, do remember that it is other C&I departments, rather than law firms, which are increasingly likely to be your predators in the war for talent.

 

© Edwards Gibson

 


{1}From 6.3% of all solicitors with practising certificates in 1999 to 10% in 2009 - The Law Society: Trends in the solicitor’s profession annual statistical reports 1999 and 2009.

{2}The Law Society: Trends in the solicitor’s profession annual statistical report, 2009, page 14.

{3}Bar Council Annual Statistics – December 2009.

{4}Corporate counsel – a profile (The Law Society, June 2008).

{5}Ibid.

{6}Ibid – medium compensation within C&I regardless of position and inclusive of performance bonus was found to be £80,000 in 2008.

{7}Ibid.

{8}Traditionally there has been an inverse relationship between the state of the economy and the level of litigation; put simply, people tend to sue more in an economic downturn.

{9}PriceWaterhouseCoopers: “The law firms’ survey 2009”, page 38

{10}Ibid.

{11}Legal Week: 30 July 2009 – the average profit per equity partner in top 50 law firms was £501,800 (down from £616,000 in 2008).

{12}The 2009 Legal Week Employee Satisfaction Report found that the main career aim of nearly one in four assistants was to leave private practice.

{13}Cited by 77% of C&I lawyers - Corporate counsel – a profile (The Law Society, June 2008). 

{14}The median number of hours per week worked by C&I lawyers was found to be 48 - Corporate counsel – a profile (The Law Society, June 2008).

{15}Statistically only 10% of trainees commencing a training contract can expect to become a partner at their law firm – Legal Week, 27 September 2007.

{16}In a survey of more than 2,000 law firm assistants 75% of stated a desire for an alternative to partnership (Legal Business, Issue 169, November 2006). The 2009 Legal Week Employee Satisfaction Report found that only 45% of solicitors saw partnership at their firm as their primary career goal. 

{17}Corporate counsel – a profile (The Law Society, June 2008).

 

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