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Board Issues : Legal

When Should You Hire A General Counsel?

July 30th, 2012 |

help-wanted.jpgThere are many reasons a bank may seek outside counsel on a regular basis, but what Bank Director wanted to know was: “When is it time to actually hire someone inside to fill this role?” Increased regulations and liabilities for banks of all sizes are causing the demand for legal advice to rise, and with that come hefty hourly charges that may be hard to swallow. In many cases, large banks will hire an in-house general counsel to take care of the day-to-day issues, but as the economy and new laws place demands that “break the bank” at smaller institutions, is there a size and/or complexity profile required for it to be economical to hire in-house?

Peter-Weinstock.jpgYears ago, it was extremely unusual for a financial institution to hire a general counsel (GC) at less than $1 billion in assets. Now, I have clients that have fewer than $500 million in assets who have a GC. The increasing complexity of some financial institutions’ operations has recalibrated the cost benefit analysis. Undoubtedly, the reawakening of compliance issues has contributed to such determinations. Moreover, institutions experiencing asset problems might believe it is cheaper to hire legal expertise than to farm it out in all circumstances. Lastly, bankers have developed better appreciation for the role of a specialist. In this regard, the decision to add a GC is not much different from the decision to hire an in-house appraiser, computer engineer or certified public accountant.

—Peter Weinstock, Hunton & Williams

Chip-MacDonald.jpgThe more complex and larger the organization, the more likely a general counsel is needed. Complexity also demands lawyers with more experience and capabilities, and they will cost more to attract and retain. The job requires not only direct personal involvement and skill, but also quarterbacking multiple law firm relationships to obtain the needed expertise at the right cost. A general counsel in this situation is likely to offer the greatest benefits as a strategic counselor and manager of outside experts, as opposed to being a replacement for outside counsel.

Public institutions are subject to increasing complexity and risk. Securities and Exchange Commission experience is needed, and this role requires a more experienced, higher-paid general counsel than a non-public bank needs or can afford. Smaller banks may lack sufficient revenues and earnings to afford a general counsel to serve all their legal needs. Instead, smaller banks sometimes seek a general counsel, who, in addition to general legal guidance, focuses on specific functions, such as loan work. These general counsel can be a cost efficient replacement for certain legal work, and the bank is likely to continue to rely on outside legal counsel in specialty and other areas.

—Jones Day, Chip MacDonald

john-freechack.pngThis is an issue we have discussed with many of our clients. The question is more involved than merely size and complexity, as we represent organizations of different sizes that use some level of in-house counsel. You first need to identify your legal needs. Your organization may need a lawyer who is familiar with compliance, lending, workouts or litigation rather than a “general counsel” who may also require a background in securities law, deals, financing or other specific areas. Banking law is a huge, expanding area that is difficult for any one individual to master, so identifying what might be handled effectively in-house in a cost-efficient manner is a good starting point.

—John Freechack, Barack Ferrazzano

Blanchard-Gerald.jpgGenerally speaking, any bank approaching $1 billion in assets will find that hiring an internal general counsel makes financial sense. The internal lawyer is able to field many of the day-to-day questions that might have gone to outside counsel and they can play a valuable role in overall enterprise risk management. They will also see to it that legal matters that need to be referred to outside counsel are sent to the lawyers most capable of handling the matter in a cost efficient manner.

When hiring an internal general counsel, it is important to understand what they will and won’t be doing. They cannot handle every legal issue that comes up. The size and complexity of banks today, particularly a growing institution that may be involved in many different business lines, will make that impossible. The internal general counsel will manage the overall legal affairs but there will still be some matters that need to be referred to outside counsel. Banks that are not quite ready to take the plunge and hire an internal general counsel should consider talking with their outside counsel about their current legal spending and seeing whether there are ways to manage the legal spend to make it more predictable. Law firms can put in place creative billing arrangements where a bank will pay a regular retainer for the firm providing ongoing legal advice. Likewise, firms can provide certain services on a fixed-fee arrangement.

—Gerald Blanchard, Bryan Cave

kweaver

Kelsey Weaver is the Publisher for Bank Directoran information resource for directors and officers of financial companies. You can follow her on Twitter at twitter.com/kelsey8762 or get connected on LinkedIn. 

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