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To Make or to Buy
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To Make or to Buy

In-House Lawyering and Value Creation

Steven L. Schwarcz
Duke University School of Law, 2006

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Who delivers greater value to companies needing legal work: in-house lawyers or outside counsel from law firms? In search of answers, Duke University’s Steven L. Schwarcz conducted surveys of in-house lawyers and, using a shorter form, of external law-firm attorneys. He details eight different hypotheses, develops quantifiable survey data and uses this data as a prism through which to answer the question: Is it better for companies to “make or buy” legal expertise? Because Schwarcz asks lawyers to respond to surveys about their merits versus their competitors, he raised the caveat, of course, of self-evaluation bias. Despite this anomaly, and the report’s tendency to jump from topic to topic, getAbstract finds that this research will interest corporate hiring officers, in-house legal counsel, and lawyers serving or seeking corporate clients.

Summary

The Shift to In-House Lawyers

Currently, the status of in-house lawyers – who are corporate employees rather than outside contractors – is enjoying a notable upswing, as are their professional skills. In-house legal departments are expanding: From 1998 to 2004, the staffs of the “200 largest in-house legal departments grew from a total of 24,000 to 27,500 lawyers.”

Transactional legal work – the “structuring, negotiating, contract drafting, advisory and opinion-giving process leading to ‘closing’ a commercial financing or other business transaction” – is shifting from commercial firms to in-house legal departments. This dynamic does not apply to “litigation, lobbying or compliance work,” practice areas that are not arenas of competition between in-house lawyers and attorneys at outside law firms.

In-house lawyers handle about 68% of all corporate legal transactions. According to an estimate by General Electric’s general counsel, outside law firms once handled 60% of GE’s legal work, with in-house counsel taking on 40%. By 2000, these percentages had switched.

During the late 1990s, retailing giant Sears expanded its in-house legal department, hiring counsel...

About the Author

Steven L. Schwarcz is the Stanley A. Star Professor of Law and Business at the Duke University School of Law, and the founding director of Duke Global Capital Markets Center.

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