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Observers of the legal industry make much about the gap between the costs per hour of inside lawyers and the cost per hour of outside counsel. This blogger, indeed, has raised his pen in that debate (See my post of Aug. 27, 2008: fully-loaded cost per lawyer hour with 31 references.). The discussion assumes that hours worked on both sides of the fence are equivalent. Certainly each has 60 minutes, but it is much less certain the legal issues handled during the hours are similar.

Making a very broad generalization, I would say that law department lawyers generally handle the kinds of legal tasks that arise with some regularity. Their counterparts outside tend to swing into action when there is a more specialized, unusual issue — other than for litigation that has its own set of constraints and massive matters which require masses of troops. Setting aside those two exceptions, is it accurate to say that one hour on the inside matches one hour outside — where lawyers are the same number of years out of law school – as judged by legal complexity and sophistication?

Probably not, in the main, but that doesn’t resolve the debate.

According to a summary of compliance-related findings from the 2008 ACC/Serengeti Managing Outside Counsel Survey, “For the fourth year in a row, ‘keeping apprised of company activities that have legal implications’ was the top concern of the in-house counsel (81.4% of hundreds of respondents).”

That concern sounds defensive and a touch paranoid, as if the lawyers fear they do not know sufficiently what is happening in their company that involves legal risks. If so, that means they also mistrust executives and managers to recognize when they might need legal guidance. The concern has a pungent whiff of worry about being out of touch and merely reactive. It is impossible for any law department to keep tabs completely on everything going on in a company, because almost every act or failure to act can have a legal repercussion.

I was also surprised that “reducing outside legal spending” was cited as the second most pressing issue (74.5%). More sensible to me would be a concern for reducing total legal spending, which includes internal staff and expenditures. These findings come from the ACC Docket, Vol. 30, Dec. 2008 at 20.

I defend in-house counsel from their detractors. One set of critics are those who say that if you are an employee lawyer you can’t be as objective as a partner in a law firm. They say that in-house lawyers know their jobs are on the line and that pressure weakens the brain and backbone. Partners can speak truth to power, see clearly, and if necessary walk away more easily. I can agree with most of that, but I would like to temper it with another view of objectivity.

Objectivity also implies having a broad perspective. Your primary lens as a partner is law, so you see legal risks and legal cures. An in-house lawyer ought to be much more familiar with her client’s business and ought to have a lens that sees a wider array of issues, means and ends. Commercial resolutions beat legal resolutions.

From this way of thinking, objectivity is higher among lawyers in law departments than among law firm partners. Many posts here bear on the comparison of independence and objectivity (See my post of Nov. 30, 2008: can a lawyer who counseled on a matter then deal objectively with a lawsuit that arises; June 10, 2008: general counsel is objective so should be good head of risk management; Feb. 19, 2006: in-house lawyers risk “going native” compared to “independent” outside counsel; Oct. 6, 2006: all boutique firms are dependent on deal flow; March 30, 2006: contract general counsel can be more objective than employee; May 23, 2007: objectivity impaired by bonuses; May 1, 2006: go native and lose objectivity; June 9, 2007: analogy to panel law firms; Oct. 31, 2005: Europe and its argument against in-house privilege; Dec. 7, 2008: SPOCs and imperiled objectivity; and Dec. 7, 2008 #2: District Court view on in-house objectivity.). Boards of Directors sometimes question the balanced viewpoint of internal lawyers, so they retain independent outside counsel (See my post of June 11, 2008: references to Board counsel.).

LyondellBasell’s legal team has “recovered several hundred million dollars on the company’s affirmative claims against third parties,” according to an article in the ACC Docket, Vol. 26, Nov. 2008 at 34.

Some people, who believe litigation is wasteful and unproductive (merely a costly redistribution of wealth), might feel that those recoveries are nothing to crow about. Fundamentally, they mean breakdowns came earlier, when there was a failure to resolve a business dispute before the meat-grinder of litigation. Those critics hold that no company should want its legal department to take too much pride from bludgeoning other companies through discovery, depositions, deadlines, pleadings, sky-high fees, appeals, and public relations. To endure distracting warfare in the Somme of litigation, and proudly raise high an award that may or may not be collectible after much more effort and expense is a Pyrrhic victory.

Some people believe that.

The Career Development Office at Yale Law School has posted online a guide for its law students who may be interested in working in a business setting. One chapter talks about in-house practice. Toward the end of the discussion about the advantages of working in a law department, the author makes a comment about stress (See my post of June 11, 2008: stress with 18 references.). “Because of time constraints, in-house counsel often do not have time to research issues fully before rendering legal advice. While some attorneys enjoy working under these conditions, others find this type of setting stressful.”

Do lawyers in law firms have time to “research issues fully” before rendering advice? If a company is willing to pay what it costs for full and deep research externally, why wouldn’t it absorb that cost internally? Also, the implication here is that in-house counsel may not know what they are talking about, whereas the partner in a law firm solidly draws on a better base of legal research.

“Thematic pairs” is the term introduced in Michael Shermer, Science Friction: Where the Known Meets the Unknown (Time Books 2005) at 258, to describe five deep themes that appear ubiquitously in the hundreds of articles and essays written by the polymath paleontologist, Stephen Jay Gould. Each of the thematic pairs present opposing ideas, such as theory-data or contingency-necessity.

What might be the opposing thematic pairs articulated by this blog? My first attempt is broad and brief, but I hope to return to these in more detail.

1. Legal risk control as opposed to business profit. All general counsel are caught in these cross-hairs. Pursuit of either reduces the likelihood of the other.

A survey published in the ABA J., Vol. 95, Jan. 2009 at 12, drew responses from an astonishing 14,307 attorneys – “more than 1.3 percent of the nation’s 1.1 million lawyers.” The survey results about predictions for the economic future don’t matter for this blog, but always read the footnotes!

The methodology footnote explains that twelve percent of the respondents self-identified as “in-house counsel” and nine percent as “government lawyer.” I regard government lawyers, who work in law departments just as much as do lawyers who are employed by corporations (or for that matter partnerships or non-profits), as “in-house counsel.” If true, then about 21 percent of this massive slice of American lawyers are “in-house.” That statistics bolster previous estimates about the number or percentage of corporate lawyers employed in the United States (See my post of Sept. 25, 2005: ACC data; Dec. 3, 2006: Fortune 500 staff figures; and Dec. 11, 2006: estimate of 10% in-house.).

How well do inside lawyers stand up to misconduct by their clients? Do partners at firms gatekeep more effectively? That is the topic of a column in ACC Docket, Vol. 26, Nov. 2008 at 22, where Ron Pol distills the framework used by an academic to answer the questions. The academic’s article is Sung Hui Kim, “Gatekeepers Inside Out,” 21 Geo. J. Legal Ethics 411 ( 2008).

Kim’s analysis involves a 2-by-2 quadrant and each of us can assess which lawyer a quadrant favors. One involves “willingness to monitor” potential wrong-doing, which inside lawyers probably do better because they are avoiding future work by probing into a possible problem before it festers. Another quadrant, which goes to “capacity to monitor,” strongly favors in-house counsel because they have much easier access to people and facts that inform them about the possible problem.

“Capacity to interdict/prevent” is harder; once a potential problem is spotted and researched, which lawyer can stop it better? Of course, it depends. Everything always depends, but I give a bit of an edge to outside counsel, who can run a problem up the food chain with fewer concerns about internal politics and appearances. The fourth quadrant is “willingness to interdict/prevent.” I give an strong edge to the partner, because putting your job on the line to blow the whistle on a powerful executive deters you much more than the risk a partner faces of losing part of her legal fees in the future.

Shortly after finding a patent application by the Legal Group of General Electric (See my post of Dec. 23, 2008: web-based Legal Management System.), I found another application, this one filed on March 21, 2005 on behalf of the law department of Chevron Texaco (Charles James, the general counsel, is one of the named inventors along with Mark Cervenka, a senior counsel). This application, No. US 2006/0212303, appeared on Sept. 21, 2006. It covers, expansively, “a method for corporate litigation risk management for managing claims and legal actions.”

What I noticed as I read the eight-page application and reviewed the five pages of figures is that it makes much of time frames: form a team within three days of notice of a claim; preserve documents within 10 days of notice; evaluate the claim within 90 days; etc. The method sought to be patented involves categorizing claims into categories from 1 to 4 where 1 is a minor claim and 4 is a major claim. The method also includes “Infinite Learning,” a charming term for knowledge management.

(See my post of Dec. 11, 2007: law departments with software to license and patents)