A New General Counsel’s Guide to Hiring and Managing Outside Counsel

Behind every great GC is a support system of excellent outside counsel, especially for the complex, sensitive, or niche issues you’re bound to face at a high-growth company.But how do you find the best firm to handle your work? What’s the best way to get them up to speed on your business quickly? And, probably most importantly for your CEO, how do you budget for outside spend when your company and its risks are constantly evolving? Here, L Suite community members from Lyft, ThredUp, Inevitable, and Maravai LifeSciences share their insights and best practices for managing and hiring outside counsel so you’re all set up for success.

Key Takeaways

• Find the right outside counsel for a matter by leveraging your network, but also consider unconventional sources such as former opposing counsel.
• Communicate expectations and mitigate issues down the line by establishing outside counsel guidelines with key sections including conflict waivers, billing rates, tool usage, and diversity requirements. (Templates are available to L Suite members in the Braintrust peer document library.)
• Advocate for more budget than you think you need to account for unexpected issues.
• Develop a tier system — based on the risk and priority level of issues each firm is addressing — to help you keep spending on track and appropriately allot resources.

Finding the Right Partners

As your company grows, you will likely go from having one outside counsel to having a portfolio of firms that you use for different matters. “I view it as one of the most important parts of my job to find the right individual lawyer for each individual matter,” says Kurt Oreshack, GC at Maravai LifeSciences.

Finding the right fit often starts with leveraging your network — reaching out to former colleagues, for example. (L Suite members can ask for recommendations from other GCs in real time on the Braintrust platform.) But if that doesn’t yield results, there are a few more unconventional ways to source the expertise you need, especially for niche areas.

“A lot of times we’ll jump on Google and start researching a legal topic,” says Alon Rotem, Chief Legal Officer at ThredUp. “We’ll stumble upon an article, and as you go deeper into the rabbit hole, you get a sense for, ‘Oh, this person really focuses on this area, and they’re publishing a lot.’ And I’ve hired at least two outside counsel doing that — with great results.”

Another unlikely source: “I pay attention to opposing counsel,” says Rotem. He recounts a time early in his role as GC for ThredUp when he negotiated a sophisticated contract against opposing counsel in an area he wasn’t deeply familiar with. “This person ran circles around me,” he says. “I came away so impressed by opposing counsel that a month later, when we had an issue unrelated to the earlier deal, that was the first person I called.”

When considering potential outside counsel, don’t only look at the firm’s expertise; also consider whether the individuals will prioritize your company’s matters — “so that you get the right level of effort and attention,” says Oreshack. “For smaller matters, that often means seeking out a more junior-level lawyer in a firm or my network. I can be confident that a smaller matter will be really personal to them.”

Making Changes to Your Bench

If you join a company that has established outside counsel brought on by the CEO or board before hiring a GC, you may need to evaluate and adjust your service providers.

“If you have the authority to pick new counsel, and you don’t really like working with the counsel you have, then you know — it’s, ‘See you later,’” says Myra Pasek, Chief Legal Officer and Head of Public Affairs and Strategic Communications at Inevitable. “If you don’t feel like it’s a good fit, I just don’t think it’s worth holding onto it.”

If you’re not set on your current outside counsel but aren’t sure who to hire in their place (or think you may get pushback for letting them go), use a small preliminary matter to test out other options. “Peel off a small project in the [current counsel’s] subject matter area, and try different people,” Pasek recommends. Over time, you can shift more work to those who feel like the right fit.

Develop Counsel Into a Strong Business Partner

With the engagement letter signed, your priority shifts to developing the counsel into a strong business partner. When possible, meeting your outside counsel in person can help establish close working relationships.

“Particularly in areas where we don’t have in-house expertise, I like to bring outside counsel into the company and do seminars … and have them meet the broader team and get them to really understand the personality of the company and the kind of people that are coming to us as a legal department,” says Rotem.

That connection can serve as a strong foundation to enable the outside firm to feel like part of your team and foster an ownership mentality — which you can further through your management style. “I, for instance, don’t want to be a micromanager of the people on my team,” says Rotem. “I want to give them some freedom and responsibility to do the best work of their lives and to really deliver for the company. And the same would go for outside counsel.”

Immediately Communicate Expectations Through Outside Counsel Guidelines

Beyond initial relationship-building, GCs should develop outside counsel guidelines to articulate their approach, expectations, and policies. (Here’s a sample from The L Suite Braintrust.) “[Guidelines] allow you to flag important issues early on and start the relationship off correctly,” explains Kristin Sverchek, President and former GC at Lyft. “It ensures that you communicate with your outside counsel about things that might be hot-button issues for you, but that you might not have discussed otherwise.”

Depending on the size and stage of your company, your outside counsel guidelines may include sections on:

• Conflict waivers
• Budgets, case assessments, and litigation plan
• Communications with the legal team
• Staffing
• Billing rates and payment requirements
• Tool usage
• Conflict checks and processes for remediating potential issues
• Diversity requirements
• Privacy and data security requirements for the firm
• Matter staffing ratios/expectations

The L Suite members have access to a library of legal templates, including guidelines for outside counsel. Apply for membership now.

Manage Outside Counsel Budget and Spend

One of the most challenging aspects of managing outside counsel relationships is estimating their cost for your finance team. To prevent unpleasant surprises down the line, most GCs recommend adding some cushion to your budget. One rule of thumb was to estimate all the routine monthly legal expenses you can think of — and then double it. That will leave some space to tackle the unexpected legal matters that invariably come up, especially if you’re new to the job.

“When I first started, the best thing I did was ask for a big budget,” says Sverchek, who anticipated she would need plenty of help from outside counsel when she took the GC role. While this may feel uncomfortable when you’re new to the role, she notes that it’s crucial to push for a generous budget, particularly in a disruptive space. “As you get more data under your belt, you can get a little more precise with how you think about your monthly spend. But it really depends on having that historical knowledge,” she says.

Sverchek also set up a monthly meeting with the finance team to review spending for the month prior and keep them in the loop about where the budget was going. She also required firms to adhere to an accrual schedule, ensuring that Lyft was getting billed in a timely manner. “We do penalize our firms for not compliance, because these are the things that can make or break our budget on a truly ongoing basis,” she says.

Finally, to avoid costs creeping up over time, she writes into the contract with each firm that they won’t automatically opt-in to annual rate card increases. “If firms want to increase rates at the end of the year, they’ve got to notify us, and we’ve got to talk about it,” she explains.

With a budget for routine and unexpected matters, you can move on to determining fee arrangements.

Consider Alternative Fee Arrangements

The vast majority of outside counsel relationships will be priced using billable hours, but in some limited cases it may make sense to explore alternative fee arrangements. “Alternative fees work best for things that are recurring and repetitive, and you have to be comfortable on both sides that you’re going to win some and you’re going to lose some,” Oreshack says. “[They] need to be structured in a way where both general counsel and outside counsel are thinking of where efficiencies can come out.”

A fixed fee format can be suitable for standard or ongoing matters, where you have clear expectations for the intricacy and length of time the matters require.

A fee cap can be appropriate for things like IPOs and M&As. “If the lawyers do that kind of work regularly, and they have a fair degree of confidence in how the transaction will go,” says Rotem. But the value isn’t in reduced costs. “If you go into it with the goal of saving money, don’t be surprised if it doesn’t work out that way. What it does add is a fair amount of certainty, consistency, and predictability.”

A success fee could be applied to the outside counsel for a completed transaction — but Rotem generally advises against it. “The incentive structure for legal advice shouldn’t be focused on success,” he says. “It should be focused on giving objective advice.”

In a different approach, Sverchek instituted a preferred vendor program at Lyft. “These are the people we’re going to spend the most money with, because they’re handling the highest profile matters,” she says, explaining that preferred vendors receive the benefits of pre-established rates, dedicated relationship managers, and constant communication. “It is a win-win for firm and company, and it incentivizes them to perform at their highest level.”

Categorize, Prioritize, and Monitor

To determine how to best allocate the outside counsel budget at Lyft, Sverchek implemented a tier system. The first tier includes firms that handle the most high-risk, top-priority issues. “We’re OK spending more money on them because they have the specific expertise and experience we need to handle these important matters,” she explains.

The second tier includes vendors that handle important but more day-to-day matters, like employment lawyers or trademark counsel. The third and lowest tier includes firms that handle lower-risk or lower-priority matters, like a leasing dispute. “You don’t want to spend a ton of money on it, but you still need somebody to handle it,” Sverchek explains.

Sverchek recommends using those categories — and others — to continually monitor and analyze your spend. Break down your budget by vendor, matter type, and time period. Is there a particular firm you spend more on? Which types of matters do you spend the most on? Are there any trends around seasonality or periods of growth?

“You want to know all of these things to go into outside counsel negotiations,” she explains. With that knowledge, you can have a more precise idea of the appropriate budget to allot for each firm, which can help you use your budget to the fullest extent.

Finally, keep in mind that after a certain point, it will become cheaper to hire in-house legal for some of the work than to rely on outside counsel alone. Read more on when to make your second legal hire here.

Whether you have questions about managing outside counsel or need recommendations for someone to handle a particular matter, The L Suite's members can help. Apply for membership now.

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