January 21, 2013
Advantages and Disadvantages of Taking an In-House Counsel Job
[This blog post holds my personal record for gestation of a blog post. The outline for this post traces back to a student talk I gave at Marquette University in 2004. I first started working on the post some time in 2005 or 2006. 7+ years later, I'm finally sharing it with the world. Sadly, I don't think the post is noticeably better for all of its incubation.]
This post provides my perspectives on the pros and cons of practicing law as in-house counsel versus at a law firm. Although my perspective is hardly unique, I am one of the comparatively few people who actually preferred practicing at a large law firm over in-house. When I tell people this, they almost always express surprise. My experiences may be colored by practicing in a start-up environment, with its advantages and disadvantages, and my conclusion may reflect my particular personality idiosyncrasies. Nevertheless, this post will provide my insider's view on life as in-house counsel.
Advantages of In-House Practice
The Lawyer Can Become a Business Decision-Maker. In-house lawyers take on business responsibility in several ways. First, to the extent the lawyer supervises outside counsel, the lawyer usually handles those vendor relationships. Second, the in-house lawyer often gap-fills any business decisions that aren’t owned by other people within the company. Finally, the in-house lawyer may share in making business decisions with the “business” people. Often, the in-house counsel’s co-workers prize the lawyer’s business input as much as his/her legal analysis.
The Lawyer Becomes Part of the Team. Most outside counsel have a “hired gun” relationship with their clients. The outside counsel is responsible for providing the best service possible, but then that lawyer flips his/her advice “over the wall” and leaves the implementation to someone else. In contrast, in-house counsel often become part of the execution team. Because in-house counsel are part of the team, they can be much more proactive than the outside lawyers. They can raise issues early and see the issues through to resolution.
In-House Counsel’s Interests Better Align with Corporate Objectives. Even with innovations in alternative billing and long-term multi-iteration relationships between companies and firms, usually an outside counsel’s interests do not align very well with the client’s. After all, the law firm has its own profits to manage, and doing so inevitably diverges with the client’s profit maximization. This is endemic to any customer/vendor relationship. Certainly hours-based billing creates numerous potential conflicts of interest between firm and client.
In-house counsel’s economic interests align much more closely with the client’s. There will never be perfect alignment, but the combination of being an employee plus possibly an equity interest makes a huge difference.
As an added bonus, usually in-house counsel don’t keep timesheets and don’t have billable quotas. This is often the #1 advantage cited by new in-house lawyers. However, this isn’t always the case. Some companies use a chargeback method to divisions/departments that requires keeping track of expenses; and companies may view in-house counsel as substitutes for outside counsel, which makes their goal to squeeze as much value out of the in-house counsel as possible.
Greater Ownership of Outcomes. It’s often easier for in-house counsel to point to specific favorable outcomes for the company and claim credit/ownership of those outcomes. A product counsel can point to a new successful product they guided through the development process and feel a sense of responsibility; a litigator achieving a favorable case outcome can have the same feeling.
Easier Prioritization. In-house counsel can often prioritize conflicting time demands easier because, after all, the requests are all coming from the same company and they can be prioritized based on profitability or the company’s strategic objectives. In contrast, outside counsel have a tough time prioritizing conflicting requests. Naturally, every client wants to be #1 but inevitability priority choices must be made, and telling a client that they aren’t #1 isn’t a path towards long-term client happiness.
On the other hand, it can be even harder for in-house counsel to tell a co-worker that they are not at the top of the priority list. So although it may be easier to prioritize tasks, it may be more painful to say no to people you have to work with the next day.
Better Work/Life Balance. The stereotype is that in-house counsel have a better work/life balance. I wonder about this in practice. Sure, in-house counsel can call up outside counsel and dump a project on them on Friday at 5pm while the in-house counsel goes on to enjoy the weekend. However, to the extent that in-house counsel are cost centers and the company is trying to maximize value out of a cost center, inevitably there will be significant pressure placed on the in-house counsel to do more and work harder. In the end, I think this is very specific to the company and the legal department. Some employers are going to provide better work/life balance than others.
Cons of In-House Counsel
You’re Answerable to a Boss. Some of you may find this an odd “con.” Doesn’t everyone have a boss? The answer, of course, is yes unless you’re self-employed. Even a CEO is answerable to the board or investors.
However, at some law firms, the supervisor/supervisee relationship can be quite attenuated. In firms with a power-partner model, the associate’s power partner is the boss; but at firms with a free-agency model for assigning new projects, it’s possible that no one partner views him/herself “responsible” for an associate. As it turns out, that was the situation I had when I was at the law firm. Although I had partners who nominally were accountable for my time, in practice I had a significant degree of autonomy. Partners have even more independence.
In-house, the lawyer will have a boss in the classic sense. The boss will conduct your performance evaluations, and your success will depend on doing what the boss wants you to do and keeping your boss happy. If the boss isn’t a lawyer but second-guesses your legal advice, that can get especially awkward.
Because bosses can change—they can leave the company or the position can be reorganized (a fairly common occurrence)—the job can change unexpectedly. Even if you love your current boss, your next boss may be a jerk. With a change in supervisors, a good job can become a terrible job overnight. There is almost nothing in-house counsel can do to avoid this risk.
Furthermore, job advancement in-house often requires a boss who will champion for your cause. Sadly, many bosses are not very good at being advocates for their supervisees, in which case in-house lawyers can get stuck in their career progression.
You’re Expected to Know the Answers. In-house, your clients expect you to know the law cold. Occasionally it’s acceptable to request some research time, but most of the time it’s not. In some cases, your clients will think you’re an idiot if you don’t know the answer off the top of your head. In particular, in-house can be a difficult place for newly graduated JDs because usually there’s no training.
Lawyers who start in-house face the added problem that the business clients don’t prize legal accuracy as much as they prize good business counseling. If anything, clients hate legally accurate answers that conflict with their business objectives. As a result, lawyers who start in-house, over time, often become more skilled at business counseling than legal counseling; they don’t necessarily know all of the relevant legal doctrine, and the clients don’t value that extra legal expertise. But in-house counsel are socialized to give clients what they want, which is that they want “yes,” not “no.” As a result, in-house counsel are constantly under pressure to distort their legal analysis to support a business conclusion of “yes.”
Finally, because in-house counsel often are viewed as more skilled at business counseling than legal analysis, their clients sometimes value outside counsel’s advice more than in-house counsel’s. (This is true with outside consultants as well, who often are hired to say exactly what someone internally has already said).
In-House Counsel as a Cost Center. As mentioned above, often employers hire in-house counsel to reduce expenditures on outside counsel. This means employers try to maximize the return from each in-house counsel and reduce in-house counsel’s ability to pay for outside counsel. In-house counsel are obvious targets in any layoff, and they are often expendable after an acquisition.
In-House Counsel as Too Generalist and Too Specialist. In terms of future employment opportunities, in-house counsel can end up in a weird squeeze. On the one hand, in-house counsel often are generalists. They handle any legal matters that appear on their desk, especially in companies where the legal department is small. Further, in-house counsel often are expected to keep up with a wide-ranging set of practice areas, making them the master of none. At the same time, in-house counsel can become incredibly specialized; they focus on the legal issues posed by a single company in a single industry, and thus they may lack the practice diversity across industries and competitors that outside counsel can develop.
Thin Infrastructure. Often, in-house legal departments provide light resources for attorneys. For example, secretarial staff may be spread thin or non-existent. The company may not subscribe to helpful publications or databases.
Consequences of Internal Conflicts. Inevitably, your clients will want to skirt the law, even if the company is fundamentally trying to be ethical. There are too many laws, too many stupid laws, too many laws that impose unreasonable compliance costs, and too many grey areas. In-house counsel have few good choices in these circumstances, especially if the lawyer advised the client on one course of action and the client rejected the advice. If the lawyer feels like he/she needs to “withdraw” from the representation because of the client’s now-possibly-shady behavior or because of the implicit vote of no confidence due to the client ignoring the lawyer’s advice, the lawyer’s options are limited. The lawyer can simply walk away from the job, immediately cutting off the salary (and foregoing any equity upside) and burning bridges with the remaining co-workers; or the lawyer can slowly try to find alternative employment, a time-consuming and costly transition. A standard “best practice” for law firms is to not become too dependent on any single client because it will create pressures to do unethical things. In-house counsel, by the very nature of the position, violate that best practice.
For more thoughts, see The Conglomerate.
July 13, 2009
What Criteria Should a Start-Up Use When Hiring Its First General Counsel?
I got an email from a student posing this question to me: what criteria should a technology start-up consider when hiring its first in-house general counsel? I can definitely speak from first-hand experience! Here's my response, but I would also welcome your comments and thoughts. Because blog comments are still off, please email them to me and let me know if I can post them publicly.
[Note: I'm assuming a start-up has already correctly decided that it needs to hire a GC. That consideration could be the subject of another whole post.]
In addition to the standard criteria used to evaluate lawyers, like legal acumen and professionalism, I suggest the following criteria:
* past in-house experience. There is a learning curve to being in-house, and someone who has done it before will be initially better equipped to handle the speed of a start-up than someone who is trying to learn how to be an in-house counsel on the fly.
* past experience working in a start-up. Start-ups pose unusual demands on lawyers, and some lawyers can't easily adjust. Therefore, someone who has lived through a start-up environment before will be better prepared for the unique challenges. For more on this, see my recap of my first three months at Epinions.
* willingness to be a line contributor. A start-up has a lot of routine commodity legal work. It also needs to build a lot of unsexy internal processes and needs someone to pay attention to little details--simple things like filing contracts or domain name renewals. So a start-up needs a lawyer who isn't afraid to roll up his/her sleeves and do some mundane legal work his/herself as opposed to delegating the work to others or outsourcing the work to outside counsel.
* not an empire-builder. In the same vein, some lawyers want to build up a resource-intensive legal department, and this is the last thing a start-up needs.
* excellent business judgment. Ideally, a GC at a start-up can contribute to the overall management of the company. This requires a person who can balance legal concerns with other business perspectives. At minimum, a start-up GC needs to be able to triage and decide which of the many legal problems on his/her desk need immediate attention, can wait, or can be ignored entirely.
* someone who can grow with the company. Some companies may have idiosyncratic perennial issues where some background expertise will help, but a GC should be able to grow with the company to handle the full range of legal issues the company is likely to encounter over its lifecycle. It could be a mistake to hire a GC with specific technical expertise only in one area that is a hot button for the company today. Once that issue dies down, the company may be stuck with a GC who isn't adaptable to the many other issues that will arise.
* the ability to say--and sell--"no." Start-up companies--even the best-meaning ones--tend to be willing to push legal limits. However, most in-house counsel are socialized to avoid saying "no" if at all possible. A start-up company needs a GC who can say no when it needs to be said. Further, because people don't like to hear "no," a GC needs to be able to get others to listen when he/she says no. This means wielding the N-word wisely but also having the credibility/salesmanship to make "no" stick when it's wielded.
* interest in the company's products. A start-up job is usually fairly demanding, so it really helps if someone is actually interested (or, better yet, passionate) about the company's products and services. That way, they will be more excited to undertake the sometimes-heroic efforts required to help the company succeed.
UPDATE: I got the following from Josh King at Avvo: "I would add two related points: 1) Your new GC must be flexible enough to not only deal with mundane legal work, but also to do all manner of other work that assistants, secretaries or people in other groups did previously for them. I regularly go on beer runs for the office, deliver mail and shop for office supplies, and supporting the office as a regular member of the team is critical to success in startup culture. 2) In addition to having excellent business judgment and the ability to grow with the business - I've never had an in-house role that didn't morph in wildly unpredictable ways within the first 6 months - your GC must be able to match the company's level of risk aversion. It's a lot easier to sell "no" when you're not wringing your hands over every little potential legal risk the company might face."
As I told Josh in a reply email, WRT #1, I used to restock the snacks in the kitchen and sort the mail.
UPDATE 2: I got the additional comment, which I fully agree with:
"The one consideration that's missing from your list -- the most important one, in my view -- is someone with the trust and confidence of the principal business person, usually the CEO. It does not have to exist prior to hiring -- an investor can and often does install someone of their own choosing. But if the GC and the CEO don't have personal trust and confidence -- both ways -- the GC hire will never contribute at the highest level. Trust and confidence -- all the rest can be learned."
September 02, 2008
Marquette Law Faculty Blog
Congratulations to my former colleagues at Marquette for the launch of the Marquette University Law School Faculty Blog, which looks like it is off to a promising start.
February 14, 2008
Epinions Commercials on Youtube
I found a couple of the original Epinions commercials on Youtube. These were a classic example of dot com advertising and one of the early examples of user-generated content for advertising purposes.
Jay and his iMac:
Jeff trying to snowboard Alta:
[one minute version]
[30 second version]
Perhaps I'm biased, but I think they are still funny today.
April 12, 2007
Gurley on Epinions Lawsuits
The SJ Mercury News ran an interview with Bill Gurley, a VC at Benchmark Capital. On the subject of Epinions:
Q Speaking of the shape you're in, was the first Epinions case resolved? I noticed a newer, related case arise just this month with different plaintiffs. What's up?
A EBay settled the suit a year ago, and I wouldn't consider any of the marginal activity (including the newest suit) very material.
Epinions was founded at the height of the bubble. The team ramped to 130 employees and lots of mistakes were made at that point. When the bubble burst, the business was cut down to 21 employees who spent the next few years working really hard. We held merger discussions with seven companies, got four or five offers and sold to the highest bidder. Then it went public. Some people said we knew it would happen. We didn't. And if you talk to any of the employees who lived through the hard days, they were extremely excited about the outcome.
Q Another person named in the suits has been Epinions' co-founder Nirav Tolia, who later became COO of Shopping.com and made tens of millions of dollars from its IPO. He left that post when it was discovered he'd long lied about his work history and educational background, including that he'd graduated from Stanford when he hadn't. And yet I hear you might back him again in another venture.
A We've no commitment to him at this point in time, though I would back him again. He made a mistake, but it happened 10 years ago.
I'm not sure about the specific headcount numbers, but directionally the statement is 100% correct. I haven't seen details of the latest lawsuit and would welcome more info.
August 20, 2006
When I was at Epinions, we knew Froogle was coming. Needless to say, this was the source of some consternation. Google had traffic (and lots of it), money (and lots of it) and, well, mojo (and lots of it). So there was some concern that Froogle was going to be a game-changer in ways that would adversely affect Epinions.
That was before we learned that not everything Google touches turns to gold. So when Google recently "demoted" Froogle by removing it from one of the coveted home page/search page links, it was a tacit admission that Froogle hasn't taken over the world. I can only assume that Froogle's traffic is going to drop substantially; and I for one have never found Froogle all that useful. Google's failure to hit a home run is a pretty dramatic development for those in the shopping comparison business.
I do think there's a lesson to take away from this. While a start-up can't ignore the competition, it shouldn't overreact either...and in Google's specific case, it is temptingly easy to overreact when Google moves into a business given Google's spotty history with new projects.
UPDATE: The likelihood of Froogle's demise is growing, with Google saying that it will "de-emphasize" Froogle, eliminate it as a standalone site, and integrate Froogle's results into its standard search results page.
December 09, 2005
AmLaw on Cooley Godward
The American Lawyer runs a thorough status report [registration required] on my old law firm, Cooley Godward. Back in the 1990s, the firm struggled with the balance between servicing start-up enterpreneurial clients and institutional clients--a balancing act that appears to continue today.
Epinions Settles Stockholder Lawsuit
Epinions has settled the lawsuit brought against it by common stockholders frozen out in the DealTime/Shopping.com acquisition. Financial terms were not disclosed. Alas, because this was not a class action lawsuit and I did not individually participate, the settlement has no bearing on my financial situation. Fortunately, though, it should mean that I avoid a deposition (a low probability, but a possibility nonetheless).
While the settlement should close a messy and divisive lawsuit, it leaves open some questions--most obviously, what is the scope of venture capitalist liability for their dual roles as board members and preferred stockholders in private companies? More guidance on that front would have been helpful. Without the guidance, I wonder how much this lawsuit will affect VC behavior.
September 02, 2005
Two Recent Items About Preferred Stockholder/VC Liability
A couple of items came across my desk that may be apropos of the lawsuit over the Epinions/DealTime merger.
Jesse M. Fried and Mira Ganor, Common Shareholder Vulnerability in Venture-Backed Startups, UC Berkeley Public Law Research Paper No. 784610.
The abstract (the bolding is mine):
"The capital structure and governance of venture-backed startups have received significant attention from economists and legal academics. Much of this literature has focused on venture capitalists' use of preferred stock and control rights - including board control - to reduce agency costs. Recently, it has also been suggested that VCs' use of preferred stock is tax-driven. However, scholars have failed to notice that these arrangements, whatever their explanation, lead to a highly unusual and perhaps unique corporate governance structure: one in which preferred shareholders, not common shareholders, control the board and the corporation. The purpose of this paper is threefold: (1) to highlight the unusual governance structure of venture-backed startups; (2) to show that this structure leaves common shareholders vulnerable to opportunistic behavior by preferred-holding VCs, especially under current corporate law doctrines; and (3) to consider changes in these doctrines and the tax laws that would reduce common shareholder vulnerability and enlarge the startup pie for all its investors."
Another interesting item:
Montgomery Cellular Holding Co. Inc. v. Dobler (Delaware Supreme Court 8/1/05). Though the Supreme Court decision turned on a denial of attorneys' fees, the underlying litigation turned on the failure of the majority shareholder to get a valuation when doing a merger to squeeze out the minority shareholder.
July 29, 2005
Shopping.com Stockholders Approve eBay Merger
July 14, 2005
eBay/Shopping.com Merger Clears FTC
The eBay acquisition of Shopping.com cleared the Federal Trade Commission's Hart-Scott-Rodino review. This probably isn't all that surprising, but still it removes one potential snag.
June 09, 2005
Ravikant v. Tolia--Motions to Dismiss Granted
June 02, 2005
eBay to Buy Shopping.com
Forbes (this is the best of the early articles).
I'm sure we'll hear more about the strategic implications of the deal over the next few days.
UPDATE: Text of letter from eBay to its seller community:
"To Our Community:
I'm excited to let you know that eBay plans to acquire Shopping.com
(www.shopping.com), a leader in online comparison shopping and consumer reviews.
Many of you have been evolving your businesses on the Internet and we want to continue to help you succeed. We also recognize that more eBay sellers are starting to have success with in-season products. This acquisition will give you, our sellers, a new sales channel and access to a new set of buyers. Shopping on Shopping.com will be enhanced by the addition of eBay's listings to the product selection already available on the site.
Shopping.com also provides consumer-generated product and merchant reviews on Epinions (www.epinions.com). We've been hearing from eBay buyers that product reviews would help you make better buying decisions. Epinions is complementary to eBay's community-driven marketplace; there are currently more than a million consumer product reviews available to Epinions and Shopping.com users.
As you may know, the acquisition is subject to regulatory and Shopping.com shareholder approvals. We expect our acquisition of Shopping.com to close in the third quarter of 2005. We will work with the Shopping.com team to refine plans as the deal closes. We'll make sure to keep you informed.
President, eBay North America"
UPDATE 2: Interesting critique of the deal from Motley Fool.
An Israeli perspective (and some commentary from Dan Ciporin).
A scorecard of who made what.
UPDATE 3: Epinions has posted an FAQ.
UPDATE 4: ComputerWorld Australia article with more speculation.
Shopzilla sold to Scripps.
May 13, 2005
BusinessWeek on Ravikant v. Tolia
BusinessWeek runs an AP story on the Ravikant v. Tolia lawsuit over the Epinions-DealTime merger. Defendants’ motion to dismiss is scheduled for May 24.
April 20, 2005
In-House Lawyers in Cubicles
New York Law Journal (registration required) reports on in-house lawyers sitting in cubicles rather than offices, reporting on a survey finding that “7 percent of law departments use cubicles exclusively, another 16 percent have a mix of cubicles and offices and 18 percent don't have cubicles but may add them in a year.” For my experience with in-house seating arrangements (including an unfortunate encounter with a buzzsaw), see my write-up of my first three months at Epinions. You might also consider my notes about how to get employees to adhere to legal standards.
February 27, 2005
GQ Article on Google, and the Challenge of Boy Entrepreneurs
GQ article on Google by John Heilemann. This article has a ton of great behind-the-scenes stories about Google and the Silicon Valley VC community generally. My favorite dirt was the story about Larry sitting in a plate of crème fraîche during the IPO, and Schmidt’s response (“we’ve seen worse”).
The article explores a running theme about the interaction between boy entrepreneurs and adult CEOs. This theme really resonated with me based on my experience working with several boy entrepreneurs in my past, including the founders of theglobe.com and Epinions. I think the article neatly captures the tension of encouraging youthful brilliance while channeling the energy towards productive ends. There is a fine line to walk, and it takes a rare and unique talent to do it successfully. This is why I thought the article passed the spotlight too quickly over Bill Campbell, who “coached” us at Epinions and made a real difference with us as well.
February 26, 2005
Dzienkowski on VLG
John Dzienkowski has an interesting post about the former Silicon Valley law firm Venture Law Group. John ponders if the demise of VLG as a standalone firm has any lessons about the viability of its unique business model. I competed with VLG in their halcyon days and then was a VLG client when I was GC at Epinions, so I have some pretty strong opinions about this question. Rather than saying something I might later regret, let me only make 2 observations.
1) John puts a partially-flattering but perhaps unsupportable gloss on the VLG model. VLG was a law firm first and foremost, and their principal value to clients derived from providing legal services. They marketed themselves as being different from other Silicon Valley law firms by claiming to be both legal and business advisors (i.e., investment banker/strategic advisor/lawyer), but in reality their services were very comparable to what most other lawyers in the Silicon Valley did for their clients (i.e., many lawyers had VC contacts and tried to help promising new start-ups find money). The principal difference is that VLG charged more than the competition—they charged hourly rates at/above the market rates, plus took an equity kicker on top of that. (Only suckers took equity in lieu of fees). Other firms took equity kickers too, but VLG was more systematic and unrestrained in their practices. Nevertheless, many entrepreneurs were willing to pay VLG's premium rates because VLG did a very good marketing job.
2) Epinions switched law firms six months after I became GC.
February 11, 2005
Red Herring Article on Ravikant v. Tolia
Good article recapping the lawsuit.
February 07, 2005
Ravikant v. Tolia
I have been thinking a lot about the Ravikant v. Tolia complaint filed January 19. This lawsuit arises out DealTime’s acquisition of Epinions in 2003. In that merger, all of the common stockholders got wiped out (including me). The plaintiffs are some of those common stockholders who feel wronged by the washout merger and would like to share in some of the post-merger success.
This lawsuit has already received some press in the New York Times and the San Jose Mercury News (quoting me). In part this press is attributable to the high expectations that people once had for Epinions and its unexpected rebound from the dot com crash.
While personally I’m fascinated by the legal duties that preferred stock (and a board controlled by the preferred) have to common stock when the company’s valuation is below the preferred stock’s liquidation preference, this lawsuit is getting some attention because venture capitalists rarely sue each other. Here, a couple of VCs (including Naval Ravikant and Kevin Laws) are suing other VCs. In particular, Naval used to work for August Capital but is now suing his old firm and John Johnston, one of his former August partners. The VC world is clubby and driven by personal relationships. Given the prospect of repeated interaction between VCs over a career, most VCs find a way to resolve disputes out of court. Already, Naval and Kevin are feeling some of the consequences from their decision to break ranks.
I will have more to say about this lawsuit as it develops. For now, I have to choose my words carefully because I was company counsel during some of the relevant time periods.