The Rise of the Legal Department
Over the past decades, there has been a shift in power from law firms to in-house counsel and legal departments. In many western countries, in-house counsel had strong positions at the beginning of the twentieth century.
Over the course of the twentieth century, the modern law firm emerged, growing in size and strength and able to attract the brightest young minds. Simultaneously, the position of in-house counsel weakened, and companies increasingly turned to outside law firms for important legal issues. Starting around the 1980s, globalization, a long list of corporate scandals, increased regulation and growing attention for legal risk management strengthened the role of in-house counsel again. Legal departments have since grown in size and are professionalizing their management. This development, together with the economic crisis and the resulting need to cut costs on legal spend, has weakened the position of law firms that in the decades before had seen continuous growth in both size and profits.To put things into perspective, it is important to realize that the vast majority of businesses does not have a legal department. Small businesses only hire legal counsel when confronted with specific legal issues. Medium-sized businesses usually rely on outside counsel to provide them with legal expertise. It is only when an organization has reached considerable size and complexity that it becomes an economically sound decision to set up an in-house legal department. Organizations involved in activities that bear particularly complex legal aspects will reach this point sooner, others later. Even in modern economies, it is not uncommon for businesses to have several hundred employees and no in-house counsel.[189] From this, it follows logically that organizations that have a sizeable legal department will be large and complex and/or operate in a complex legal environment.
There are many factors that influence the size of a legal department, such as whether or not the company is publicly traded, its corporate culture and how well the legal department is managed. The amount of regulation and the nature of the sector are crucial factors. Organizations in the financial sector or oil and gas companies will have considerably larger legal departments than a retail company that sells relatively straight forward fast moving consumer goods. The world's largest legal departments comprise several hundred to over a thousand in-house counsel. These are exceptions, as most legal departments are relatively small. For some of its working groups, the Association for Corporate Counsel rates a legal department as big if it has over 40 in-house counsel. Generally, in Western countries, the number of large law firms exceeds the number of large in-house legal departments, and the total number of in-house counsel will be relatively small, compared to that of legal professionals working for law firms.[190] [191] 8