If the 1990s was the decade of unprecedented change for law firms, then it was a period of revolution for in-house legal departments. With so much focus on the mobility of partners, the on-off mergers of various law firms and the arrival of US firms, little attention has been paid to the 10% of the profession who work in-house.
In 1990, the in-house legal adviser was viewed by private practice as the 'poor cousin'; neither rated for technical ability nor necessarily admired for business acumen. A head of legal was invariably a middle manager with responsibility for instructing the company's lawyers, often the same firm that had been instructed since the mists of time, and passing the resultant advice on to senior management. It was a role with little need for creativity and little scope for promotion. It was also a role that existed in only a handful of companies.
The recession of the early '90s was the catalyst for change. As companies began to pick over their battered balance sheets, chief executives began to question how risk was managed internally. The recession also saw a huge drop in the profitability of City firms, so as legal departments were being restructured, there was a pool of talented lawyers who became open-minded to an in-house career. A recent survey showed that more than 50% of two- to four-year qualified City lawyers see their career developing in-house.
Heads of legal are now invariably called general counsel, to differentiate the post from that of the old-style head of legal. General counsel usually report to the chief executive, and are responsible for managing the entire legal department, maintaining relationships with a panel of law firms and keeping the board briefed on the legal risks that the company is running. The role demands intellect, business acumen and managerial skills.
It is also a role that is highly sought-after – general counsel are not just respected by their private practice cousins but, more importantly, are recognised as the 'drivers of the profession'. Senior in-house lawyers receive healthy base salaries that can be significantly enhanced by a package including share options. This can net an individual the long-term capital appreciation unattainable in a law firm.
New in-house legal departments in the UK have often been built on the 'American model'. US investment banks and corporations have traditionally had legal departments that are closely aligned to the business and staffed by a respected general counsel and well-trained legal advisers.
To predict the trend for the next decade, it is useful to study the US in-house legal department further. US companies often recruit their general counsels directly from the partnership ranks of major law firms, which is increasingly prevalent in the UK. In the US there is a regular flow of lawyers between in-house departments and private practice, and this is becoming more common in the UK.
It seems unlikely, however, that the position of general counsel will commonly become a board-level appointment in the UK. The percentage of legally trained executives sitting on the boards of major companies is far higher in the US than in the UK – chief executive of British Airways, Bob Ayling, is the exception in the UK.
But very few of these board-level executives in the US maintain their legal specialism and even fewer continue to operate as general counsel. The position of general counsel is usually to be found one level away from the board, reporting to the chief executive.
If the role of general counsel is a board-level appointment, it is usually on the basis
of an extremely strong relationship between the incumbent and the chief executive.
The UK in-house legal department will see more change as it continues to respond to the increasing demands of its employer. However, compared to the '90s, there might be a period of consolidation with the main developments of the profession occurring in private practice.
As for those wannabe main board-level general counsel, the challenge will be to build a good relationship with a chief executive.
Nick Hedley is a consultant in Baines Gwinner's legal search practice.