The corporate lawyer: anatomy of a transformation
The surge in in-house legal functions has gone hand in hand with the satisfaction of management, who over the years have become aware of the advantages of in-house counseling: it saves money, it is timely, and it is more efficient.
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Not long ago, they were simply intermediaries between the company and the law firm. Today, they have secured a front-row seat in the C-suites of major corporations. We’re talking about corporate counsel, who have undergone a true empowerment in recent years, both in terms of numbers and in their approach to legal matters and business.
The meteoric rise
Let’s start with one of the most significant data points that emerges from a historical comparison: for decades, the landscape of legal counseling in US companies (the first to equip themselves with in-house lawyers) remained largely unchanged. The percentage of lawyers employed in the private industry, according to Forbes, hovered just between 10% in 1960, 11% in 1970, and back to 10% in 1980.
At first glance, nothing at the time seemed to foreshadow a change. But as often happens in the history of great transformations, it took just one individual to upend the status quo. That person was Ben Heineman, who in 1987 took on the role of senior vice president and general counsel at the GE behemoth. Expanding the company’s in-house legal department was one of the new general counsel’s main goals. He succeeded: when he left the company in 2005, his office had grown to around 1,400 lawyers. As he recounts in his 2016 book “The Inside Counsel Revolution,” GE aimed for “a dramatic shift of power from outside law firms to in-house departments, both in terms of managing legal matters and controlling financial resources.” Heineman embodied the figure of the “statesman-lawyer,” tasked with solving the most complex challenge facing general counsel: “To be a partner to the board of directors, the CEO and business leaders, while at the same time remaining the guardian of the company.”
The transformation of in-house counsel into a statesman-lawyer not only rewrote GE’s history, but paved the way for a new way of conceiving corporate legal counseling, profoundly influencing the sector to this day. It’s no coincidence that the growth of in-house lawyers has been meteoric since the 1990s. According to the US Bureau of Labor Statistics, between 1997 and 2017 in-house legal departments have seen an expansion 7.5 times greater than law firms. Between 1997 and 2016, the number of in-house lawyers more than tripled, from 34,750 to 105,310.
From the shadows to the summits
The surge in in-house legal functions has gone hand in hand with a certain satisfaction on the part of company managers, who over the years have become aware of the strategic advantages of in-house counseling compared to external counseling. Cost savings, first and foremost: it has been realized that the internalization of legal matters allows for a significant reduction in legal costs compared to outsourcing to the open market. Timeliness: if there is an in-house office, the likelihood of urgent disputes (related, for example, to contracts, compliance, IP protection or sector regulatory requirements) being addressed immediately or at least in the short term increases significantly. And then efficiency: it goes without saying that having a team of dedicated professionals allows for a more proactive and efficient management of routine legal matters and associated risks.
There are also other reasons why the role of the in-house lawyer has been successful. Interviewed by MAG, Giulio Fazio, general counsel of Enel until 2023 and member of the executive committee of Aigi – Associazione Italiana Giuristi d’Impresa, recalled that “initially, the in-house lawyer was used to strategically and privately manage some more delicate issues. The first corporate lawyers were basically the boss’s lawyers, who cared more about the administration of the boss’s affairs than the business, which is why external law firms were relied upon.” It was for this reason that the in-house lawyer was considered a staff function, assisting the front line. “It was a kind of overhead, one of the heads to be cut when it becomes necessary to tighten the belt,” Fazio stressed. Also Robert Eli Rosen, professor of law at the University of Miami, has pointed out in several articles that in-house lawyers were originally relegated to a position of marginality and subordination, and that the very expression “house counsel” was comparable to that of “house pet.”
Then, around the turn of the millennium, these figures underwent a new leap in status: from a peripheral and non-essential function, they began to ascend to the role of general counsel, key figures in defining and managing the company’s legal needs. A leap that represented not just a change of title, but rather, as mentioned at the beginning, a revolution in the approach of large companies to their legal affairs. From the new millennium to today, the management of corporate legal matters has been increasingly internalized. “More for less,” we have written several times in our articles, referring to the growing increase in tasks and responsibilities that has characterized the activity of legal departments in recent years. This has allowed them to deepen their knowledge of their company’s industrial sector, concentrating the last bastion of external consultants in three specific areas: litigation, extraordinary transactions and corporate restructuring.
From private practice to the corporation
As Ermanno Cappa, founding partner of the Cappa & Partners firm and former in-house lawyer in the banking sector from the 1970s to 2007, explained to us, the birth of the in-house lawyer was “a revolutionary phenomenon in various respects. Limiting ourselves to considering the most tangible ones, I think it is undeniable that the company, at least the most enlightened one, by internalizing a good part of the legal safeguards, has equipped itself with an obvious competitive factor, both in terms of rationalizing costs and, above all, in terms of internalizing a greater awareness of its own legal needs. The market has transformed very slowly, ultimately favoring companies equipped with a quality in-house legal department. The first companies to feel the need for an in-house lawyer were those with a strong international vocation, without distinction of business sector.”
But how long did it take for the in-house profession to become “frequent” in Italy, initially considered second-tier compared to the “original” one in the open market? For Cappa, “as far as large companies (and medium-sized companies, especially if located in Milan) are concerned, I believe I am not mistaken in stating that in about twenty years, from the early days of Aigi to the late 1970s, there was a strong increase. For small businesses, the path may still be a bit long.”
The in-house profession reached its peak between 2010 and 2020, a period in which many private practice lawyers decided to move in-house due to the long and stressful working hours in the firm. Today the gap seems to have narrowed slightly: after Covid, law firms have improved partner retention rates by granting more flexibility in a context where salaries were already higher than in-house (and have further increased, with an average annual increase that, according to the Censis report on the legal profession, reached 12.2% in 2021, bringing the value to €42,386). As Nicoletta Ravidà, partner at KeyPartners, had explained to MAG: “In law firms, a winning mix has been created: a balance between private and working life, rising salaries and recent government policies aimed at reducing taxes paid by self-employed professionals (the 15% rate for all incomes between zero and €85,000 actually allows for very high remuneration, often higher than that of a corporate executive). In the meantime, in-house salaries have not changed.”
The attractiveness of the in-house legal market, while grappling with its competitor in private practice, continues to remain high. As observed by Inhousecommunity, in 2023 the lawyers who moved from private practice to in-house in Italy alone represented 11.3% of the total job changes reported during the year, a figure slightly lower than the 12.8% reported in 2022.
“Many years ago,” observed Fazio, “ending up in a company was almost a fallback: you ended up there by chance, after a competition. External consulting had a much higher level of specialization and competitiveness, with significantly higher salaries. Today, the in-house profession is definitely more appealing, so much so that the academic offer has also intercepted this phenomenon: many universities have set up courses with subjects that serve to master elements of corporate complexity and master’s degrees that are actually dedicated to those who want to become corporate lawyers.”
The transformation to date
Let’s now consider the radical change the corporate lawyer has undergone to date. As Fazio pointed out, “in the early days of companies, in the 1980s and 1990s, the lawyer was a pure consultant. In the second phase, starting from 2000, the lawyer became a business partner, but still remaining a counselor and without yet expressing all his potential. Then, in the third phase, the current one, the in-house lawyer has begun to play a deeply pervasive role in the company, which implies the ability to make managerial decisions and which also has a weight in compliance, previously entrusted to the audit teams. From a business partner, he has become a business manager. He is no longer a consultant who intervenes to solve problems, but a leader who plans business strategies together with the company management.”
So, where once the legal team operated in isolation, providing mere technical advice on request, today the general counsel is called upon to actively contribute to corporate discussions and strategic decisions, adding value in every area, from corporate governance to risk and crisis management. But they must also plan budgets, stay up-to-date on technological developments, deal with ethics and even compliance. In short, a new figure has emerged in which the boundary between legal and managerial skills is increasingly blurred.
A demanding client
If it is true, as Cappa affirmed, that “in the realities where there is a quality in-house lawyer, who has the opportunity to confront equally qualified external lawyers, a winning synergy is triggered between the two orders of professionals, which does a lot of good to the company,” it is also true that the evolution of the role of the in-house lawyer allows us to observe the legal market from a perspective still different from that offered by the – “increasingly communicative”, notes Nicola Di Molfetta in this issue of MAG Monographs – law firm, provider of the legal service: that of its client. And we also know that the type of advice requested has also changed, that the in-house lawyer is an increasingly demanding, rigorous, sometimes even inflexible client.
As in the case of Nicola Verdicchio, chief legal officer of the multinational Pirelli & C., who had told MAG in June 2024: “We start from a basic concept: the selection of the wrong law firm risks compromising the achievement of the business objectives that the in-house counsel must pursue. If there is a need to resort to the help of external professionals, it is because important objectives are at stake.”
The transformation of the figure of the general counsel has led to a change in power dynamics: it is now the in-house legal departments, not the external consultants, who define and assign the work, circumscribing the collaboration dynamics. This paradigm shift, combined with the new market demands, has guided the traditional relationship between general counsel and partner towards a new dimension. It is no longer just a matter of status or decision-making autonomy, as evidenced by the GE case of Heineman, but of a complete redefinition of the way legal expertise is integrated into the business world. The empowerment – because that’s what it is – of the in-house legal consultant from a mere provider of opinions to a strategic leadership figure has triggered a domino effect that is also redefining the role of law firms. So much so that today the expectation of influencing crucial business decisions with a legal perspective that goes “beyond the role of the lawyer” extends to both sides. If the in-house legal department sits in the driver’s seat, the external ones are always ready to act as co-pilots. Or, to use a very trendy expression in the market, if the corporate lawyer is the general practitioner, the external professional operates in the guise of a medical specialist. A dynamic that in recent times has intensified the search for high-quality external partners, capable of effectively supporting the growing needs of companies.
