Centralised vs embedded: What in-house legal structure is best for your business
Many businesses are expanding their in-house legal capabilities, with a Solicitors Regulation Authority (SRA) report showing that the number of people within the profession doubled in the UK between 2000 and 2012.
The SRA estimates around 27 per cent of all practising solicitors in the country are now based in-house, of which a large majority operate in the financial services sector.
These figures are only going to increase as the regulatory burden on organisations continues to grow. As in-house legal teams become larger, employers must put more thought into how they manage these departments.
Currently, the two most common in-house legal structures are the centralised model and the embedded model. Let’s take a closer look at the differences between these approaches and explore which one might be best suited to your particular work environment.
Centralised or embedded?
A centralised structure means the in-house legal team functions as a separate entity, which a general counsel oversees. Alternatively, an embedded structure places individual lawyers within different business units. Embedded lawyers usually report to a general counsel, but the commercial manager of their particular unit may also provide supervision.
Traditionally, organisations have opted for a centralised approach, although embedding lawyers across the business has become more popular in recent years.
One of the key reasons why organisations centralise their in-house legal departments is to maximise objectivity. Forming an independent team ensures lawyers are less likely to be influenced into making decisions based on pressure from the business.
Furthermore, working alongside other lawyers is useful for information sharing, collaborative projects and skills development. In other words, professionals can improve more quickly and receive better advice when surrounded by other lawyers.
General counsels should also enjoy greater oversight of the team when lawyers are centralised in one location rather than spread across disparate departments throughout the organisation.
Companies are increasingly searching for corporate governance professionals who have excellent business acumen, and embedding lawyers is a good way to achieve this.
Working with business-side colleagues day to day ensures lawyers have a better idea of how their advice and legal decisions affect the wider organisation. Similarly, non-legal employees can learn more about regulations, compliance and other aspects of corporate governance from embedded lawyers.
Sharing management and oversight responsibilities with commercial managers also allows general counsel to focus more on boardroom-level concerns, such as strategic direction.
Which approach is better?
You will need to consider a number of factors before selecting the optimal structure for your organisation. Even then, changes may be required as your operation grows or adapts to market conditions.
There is an ongoing shift towards the embedded model, with many businesses trying to transform legal departments from a cost centre to a value driver. However, this is a delicate balancing act because lawyers will inevitably lose some of their objectivity and independence when they are spread across the organisation.
A recent DLA Piper report noted that centralised teams also have deep subject specialisms, with expertise in various legal areas, such as regulations, litigation and employment.
Embedded lawyers, on the other hand, are often more generalist, as they will likely have a wider set of responsibilities within their business units.
Are there other options?
Choosing between a centralised or embedded model will depend on your priorities, but you may decide that neither approach is completely suited to your operation. This is why a growing number of businesses are opting for a hybrid model that attempts to benefit from the best of both worlds.
Often described as a ‘matrix’ legal function, these structures usually comprise embedded lawyers across various business units, as well as a centralised legal function under the general counsel’s direct control.
Hybrid structures are typically more popular with large multinational companies that have the resources to support satellite legal teams. This approach means businesses can develop lawyers with both specialised and more general abilities to meet differing needs as they arise.
Optimising in-house legal structures
In-house legal departments are beginning to have a much greater impact on strategic direction and value creation within many businesses.
Selecting the right structure, whether that’s centralised, embedded or hybrid, can help your organisation maximise efficiency, drive down costs and improve performance.
However, you must also find lawyers who have the right skills, experience and commercial acumen to adapt to the changing needs of the organisation. Otherwise, you may struggle to achieve the business benefits you had hoped from evolving your in-house legal structure.
Please click here for more information on in-house legal recruitment and vacancies.
Our 2016 Compensation and Market Trends Report combines our review of the prevailing conditions in the in-house legal recruitment market with the results of our latest employer survey.
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