The power of guidelines for when a law department lawyer should or may retain outside counsel

A principal-agent tension rears its head whenever any in-house lawyer can decide on his or her own whether to turn to outside counsel. For the principal, the law department and the company as a whole, some discipline about whether to instruct a law firm is desirable; for the agent, the lawyer who is burdened with work, the pressure-reducing valve of outside counsel can be irresistible. The two considerations tug in opposite directions.

Because of this inherent tension, some law departments develop guidelines on when, what and how to send services outside inside guidelines (See my post of Aug. 8, 2006 regarding inside guidelines about outside counsel management.). As part of the guidelines, for example, some law departments require a lawyer to obtain clearances from a superior. Guidelines can pay off, according to data from 118 law departments in the 2007 GCR Outside Counsel Management Survey. It found that “legal departments using outsourcing guidelines spend 13% less on law firms on average.”