Making the move from law firm to in-house

Associates at big law firms can be surprised by how different it is to work in-house. Here I try to convey a little of what I have learned to make life easier for other people making the same choice.

Career options

Associates may not be aware how much their in-house career options depend on their specialty. Inside a law firm, especially the top firms, associates are basically all paid the same. An associate doing derivatives will probably be paid the same as a trust and estates associate at the same firm. By contrast, in-house salaries are subject to supply and demand. A highly trained derivatives lawyer will make more than most in-house lawyers and even more than associates at law firms. Other specialties like patent law also earn high salaries. Another difference between specialties is how many years of experience it takes to be valuable in-house. There are amazing opportunities for senior M&A associates from top law firms but midlevel M&A associates have more ordinary opportunities.

The role of an in-house lawyer differs between companies more than it would at a law firm. Top law firms essentially treat associates like a hive of worker bees and the day-to-day work is much the same between peer firms. A fifth-year capital markets associate would do much the same work at any law firm, for example. (There’s some differentiation between the “California firms” where corporate associates are treated as generalists and “New York firms” where they specialize early, but between similar firms my statement is true.) But companies organize their legal departments quite differently. In the largest companies, there will be hundreds of lawyers and the legal department might have more than a thousand people in it. This sounds a lot like a law firm, but there is a difference: those hundreds of lawyers have assigned roles, working with specific business contacts day-in and day-out. A small company’s legal department may operate like a large company’s, with lawyers having assigned roles. Often a small company hires a new lawyer to allow one of its current lawyers to delegate some of his work. Naturally, the work that gets delegated will be his less interesting work. If you are looking to be hired in such a situation, the person doing the less interesting work would be you. Or the small company’s legal department may operate like a law firm, with unspecialized lawyers taking on projects based on which lawyer has time to do them.

Industry experience is a major differentiating factor, so if you have industry experience, consider applying to companies in that industry and highlighting that experience in your applications. The hiring process for good in-house positions is competitive. For a typical in-house position in a major US city, the company will receive hundreds of resumes.

Interviewing

A law firm approaches hiring a little different from most companies. A top law firm wants the smartest, hardest-working associates with an acceptable personality. It takes a lot of brainpower to understand the difficult legal issues that a top law firm is hired to handle. The firm also wants associates who are willing to work long hours because that is how the firm makes money.

But companies don’t hire in-house lawyers to simply analyze the law. They need generalists who are effective problem solvers and communicate well. So you should expect the interview to address those concerns. By this I mean, before the interview think about the most impressive legal project you personally worked on and recall the details so that you can explain it clearly during the interview when you are asked about your previous work. It will give the interviewer a sense of your skill and experience and convince him that you are not a bullshitter.

You might also be asked how you would solve a hypothetical problem. There may not be a “right or wrong” answer, but you are being compared to other candidates and it is important to keep in mind the difference between the job you are applying for and the one you currently have. At a law firm, if a client comes to an associate with a weird problem, the client is expecting a legal opinion that the firm will stand behind. So the associate would ask a partner, and if the partner doesn’t know he would ask another partner, and if nobody knows, the associate and partner would do some research and then issue the opinion. In-house, the counsel would be expected to use his own experience and resources to solve the problem. In an interview hypothetical, it is not a great answer if the applicant says he would kick the problem up to his boss or to an outside law firm.

Some companies ask for writing samples. This is because too many lawyers can’t write for shit. Some other companies might ask you to complete a short exercise, such as marking up a master service agreement, which unfortunately may be difficult for associates coming from specialized practices at top law firms who don’t have experience doing general corporate work.

A law firm can tolerate profitable lawyers with unpleasant personalities. At a company, there is no room for a prima donna because you must be willing to do routine work, with less (if any) support staff. So, above all, be humble and level-headed during the interview. This is not a problem for most people but the aspirations of a few are sunk due to a bad attitude. Before the interview you might want to think about a time you made a mistake and how you handled it, in case you are asked a question along those lines.

After starting

At a law firm it is easy to take for granted that everyone is working towards the same goal: the attorneys, the support staff and the client all want to get the deal done or to win the lawsuit. The same is not true in-house. You will often need help from someone who has no inherent reason to care whether you can get your work done. (For example, you may need a budget number from finance or an answer to a technical question from engineering.) How quickly that help comes depends on the working relationship you have with that person.

I am still astonished when I see people at other companies with poor working relationships with their legal departments. When those lawyers take weeks to review simple papers or gum up negotiations from lacking understanding of the transaction they do not make any friends.

I think it is vitally important for in-house lawyers starting a new job to establish a rapport with the business they will be supporting. More than that, the lawyers should understand the details of the business which have legal significance. In my experience business leads are happy to invest some time training new lawyers so that the lawyers can offer more effective support.

Recall what I said about how in-house lawyers are supposed to be problem-solvers. They must understand how the business perceives risk and to understand the consequences of the legal advice they give. Some companies like IBM have famously risk-averse legal departments, while startups tend to take more risk. An in-house lawyer at a startup won’t get a pat on the head for finding pedantic reasons to kill deals.

A small department

From here on out my advice is specific to working in small legal departments. If you go to work at General Electric, Google or another giant company, the legal department probably works like a well-oiled machine. And if it doesn’t, you have no power to make changes anyway.

Many in-house lawyers come from law firms, which means they have some relevant legal knowledge but almost none about how a legal department operates. In the absence of experience, they do what seems best. These ad hoc processes never improve, which means there are more opportunities for errors to occur. Good work comes from good process, and good process is a result of continuous improvement. Whenever an outcome is less than desirable, spend a little time thinking about how to do better in the future. You might realize that a negotiation could have ended better with a more creative counter-offer, for example. This would show two areas for improvement in the future: one, that you should give the more creative counter-offer should a similar situation arise again, and two, that you should invest the time during future negotiations to more clearly understand the counterparty’s concerns.

In the absence of improvement, processes get worse. For example, a legal repository on Google Drive will be harder to search as it grows larger, and it will accumulate clutter and mislabeled documents. From time to time it is necessary to invest time into improving how the repository is organized, based on the specific needs and experiences of your legal department. Or you may reach the point where it is necessary to start using contract management software.

Unfortunately, introducing change into an organization can meet with resistance. Overcoming resistance to change is an essential part of office politics which new in-house attorneys are often not equipped to handle. It is essential to talk with business partners before changing processes—not after. Business partners may have ideas to further improve the new process before it is finalized; they are just as smart as you and have a different perspective. They will also serve as allies during the implementation phase if they understand how the new process will make their job easier.

Contracts. The bread and butter of a legal department is contracts, and it is generally the legal department’s responsibility to ensure that contracts are being kept in a centralized repository. This repository can be as simple as a well-organized Google Drive. Keeping the repository up to date can be difficult if business people forget to have contracts counter-signed or forget to send signed contracts to the legal department; an e-signing service can help with this problem. A more difficult problem is keeping track of when contracts expire and when notice of renewal or termination must be given. One solution is using specialized software for contract management for the repository. This software can be expensive and cumbersome. Or you can simply ensure that the business stakeholders understand that it is their responsibility to calendar renewal and termination dates. If a stakeholder suddenly leaves the company, however, a planned renewal or termination might be forgotten, a costly mistake.

Standard forms. Poorly drafted forms have a real financial impact on the company. When a form requires a lot of work to turn into a contract, it wastes the time of highly salaried attorneys and delays the time before a customer or supplier gets the contract in hand. When a contract is vaguely worded, needlessly aggressive or difficult to understand, it takes longer for a customer or supplier to review the contract and turn it around. This lengthens the sales or acquisition cycle and will result in some contracts never being executed.

Good contracts can be read top to bottom and understood even by a non-expert. Concepts should be introduced in a logical order and terms should have natural meaning. Succinct and direct writing should be used instead of meaningless boilerplate. Economic terms should be easily locatable, at the front or in charts or in an exhibit. When a non-expert asks a question about a contract, take their question as a sign that the contract could be clearer. When a counterparty makes a change in your contract which improves the contract’s language, consider making that change in your contract template on a go-forward basis. When you read another company’s contract, think about whether their language is clearer than yours.

Many large companies put their standard contractual terms online and incorporate those terms by reference into one-page order forms which are sent to customers or suppliers. This vastly simplifies the process of drafting contracts and shortens the time for a customer or supplier to review and turn around the contract, so long as the online terms are reasonable enough that the customer or supplier is willing to take the terms as-is or with only minor changes noted on the order form.

Corporate recordkeeping. Legal departments keep corporate records for the various legal entities comprising the company. These include: articles of incorporation, bylaws, proof of shareholder ownership (e.g., stock certificates), shareholder minutes, board minutes, ancillary documents related to director and officer appointments, foreign qualifications, government corporate filings (e.g., annual reports), local business licenses, audited financial statements, d/b/a filings, intra-company contracts (e.g., intra-company loan agreements and cost sharing agreements), transaction bibles (M&A and borrowing) and papers related to issued securities.

These records should be kept for a long time, even after an entity is dissolved. You will be amazed at how often it is necessary to prove some historical corporate fact which happened years ago. You will also be amazed at how even a medium-sized company can inherit the corporate records for dozens of entities. This is because failing companies rarely turn to dust, instead they are acquired by another company, which in turn is acquired by another company, and so on. Fortunately, most of these records can be kept in electronic format—and I don’t mean on your laptop, which can be lost, stolen or damaged. A cloud service such as Google Drive is more reliable and allows you to share files across the company. (You must, however, ensure that your cloud service is not configured to automatically delete files when an employee leaves the company!) I would recommend using ISO 8601 dates to label files, which makes them easy to sort chronologically.

Some kinds of documents need to be kept in paper form because digital copies have no value, for example, intra-company stock certificates and letters of credit from vendors or subtenants. Unfortunately these documents are prone to being lost. Sometimes people ask corporate law firms to hold onto the papers, but my view is that this is not a good idea. The law firm is designed to handle specific kinds of deals, with teams and checklists to make sure nothing is forgotten. When a random document lands on the messy desk of some overworked lawyer or paralegal, there’s no system in place to make sure that the document isn’t lost or thrown away. Even if the document is properly filed, that likely means that it is put into a box in a warehouse. If the firm tracks the boxes by matter number, and it’s asked to hold a document which does not correspond to a specific matter, it may not know where to look for the document. Or, the company may switch law firms at a future date, forgetting that the former law firm was holding stock certificates. Or, the law firm may as a matter of policy refuse to hold the certificates. Sometimes people think the documents should be stored in a bank deposit box. This is also not a good idea in my opinion because it is easy for the company to lose the institutional knowledge of where the documents are. In my opinion, the best answer is an on-premises safe that someone will look in often enough to remember that the documents are in there. (Lest you think that it is not worth worrying about lost stock certificates because they are trivial to replace, I point out that this is most assuredly not true in all countries.)

It is helpful to make a “cheat sheet” which summarizes corporate information which is frequently asked for or difficult to assemble. For example, the cheat sheet may show the corporate structure and for each entity: the directors and officers, the date of incorporation, the jurisdictions qualified, the authorized and outstanding shares, the par value and all tax ID numbers. You might also want a “cheat sheet” of all jurisdictions qualified for each entity worldwide and the due date for each government corporate filing. The legal and finance departments should discuss who is responsible for filing annual reports and business license renewals, otherwise it is probably the case that at least some are not being regularly filed.

Legal departments keep other records as well, like copies of internal company policies, previous versions of privacy policies and other online contractual terms, correspondence with regulators and correspondence with consumers. You would want to keep these to respond to internal requests, to provide to auditors or regulators, as a defense for future litigation and to provide for the due diligence process of an IPO or acquisition.

Corporate governance. When it comes to corporate governance, a little thought and effort can save a lot of time and expense later.

You should draft board and shareholder minutes to be clear and self-reliant. For example, when an officer is replaced, list out all of the current officers in addition to naming the former officer and new officer. Or, when a subsidiary issues stock to its parent, say how many shares are outstanding and held by the parent in addition to saying how many shares are being issued. This avoids the need to dig through years of minutes to compile information and avoids uncertainty about whether there are any relevant minutes which are missing.

In the U.S., when it comes time to unwind an unwanted subsidiary, there is a choice of dissolving it or merging it out. An advantage to merging out an entity is that it creates an official government record (the certificate of merger) that can be used to convince third parties that the surviving company is the rightful successor to assets or contracts.

In almost every state where it is qualified to do business, a company must appoint an agent for service of process. Often what happens is, the agents are appointed by a law firm at the time of incorporation, but the company neglects to keep the contact information up to date with the agent (and sometimes even neglects to pay the agent). Then, later, the company fails to receive a tax notice or litigation complaint and ends up incurring unnecessary cost. I recommend finding a reasonably priced agent (law firms invariably pick expensive ones) and using the same agent for all entities in all states. In addition, to simplify payment and management, the agent should put all entities and states on the same invoice and renew at the same time every year. With rare exceptions (e.g., the CFO or general counsel), local employees should not be appointed as agents for service of process because they have no inherent reason to care whether this function is done properly.

Patents. I’m not going to express an opinion about whether patents are worthwhile to obtain. There’s a popular opinion that patents are evidence of innovation, which means they can have value for attracting investment or customers, even if the patent has no value for keeping competitors away.

When it comes to choosing a patent firm, the interesting thing about patent lawyer fees is that they have stayed essentially flat for a very long time, at least at boutique firms, whereas biglaw billing rates generally have increased by a lot. So you probably don’t want to use the patent prosecutors at your main law firm without comparing prices from patent boutiques. The quality of the attorneys varies somewhat from firm to firm, but doesn’t really correlate with price.

You should keep digital copies of all issued patents and trademarks, if for no other reason than the marketing department will regularly ask questions about the company’s portfolio. Separately, think about what to do with the actual issued patents (the “ribbon copies”). They are not needed to license or enforce the patent, but they look cool and they are not replaceable if lost. And they do tend to get lost. One option is to put them on display in a glass case. Another is to have the company’s current patent firm keep them in its files, which is fairly safe.