Supply and demands – will the cheap talent run out for GCs in 2014?

With rising demand for in-house counsel, bluechip legal teams are hunting for talented lawyers. Legal Business surveys the recruitment outlook.

‘I do get asked “Why are you outsourcing work when you’ve got such a large team?”,’ says David Symonds, general counsel (GC) for Europe, the Middle East and Africa at Tyco International.‘Of course, the reality is, when you look at benchmarking data, my team is actually two thirds of the size that it should be.’

Like some of his peers, Symonds has seen headcount shrink in recent years. But while such comments reflect the fact that a blustery economy makes it challenging for teams to expand in sectors like manufacturing, by consensus the broader recruitment picture of in-house is one of solid demand served by bountiful supply.

And with a steadily improving UK economy and rising confidence, recruitment specialists agree there have been four solid quarters of rising recruitment activity after hiring dipped through the second half of 2011 and first half of 2012 due to renewed Eurozone turbulence.

‘We’ve certainly seen an increase in hiring throughout the last twelve months,’ says Jane Fry, banking and financial services consultant at Barclay Simpson, who notes that the majority of hiring has been in order to replace people leaving. ‘This is interesting in itself as it shows that there are interesting new jobs for people to move into, whereas this wasn’t the case for a few years.’

And despite a challenging business environment, regulated industries – a steadily increasing proportion of the economy – have been forced to ship in more in-house resource to cope with regulators who ‘have really found their teeth’ recently says Laila Martin, senior manager at recruiter Shilton Sharpe Quarry. She adds: ‘The split of the Financial Services Authority into the Financial Conduct Authority (FCA) and Prudential Regulation Authority, the merging of the Office of Fair Trading and Competition Commission into the newly formed Competition and Markets Authority (CMA) and the growing competition law powers within the FCA means that clients want to feel prepared for what may or may not be on the horizon.’

Legal Business’ annual in-house survey, which was published in October, echoed this expansive mood, showing that two thirds of corporate legal teams had expanded over the last five years, with 43% seeing increases of more than 10%.

The picture, of course, remains widely divergent across industry sectors. Companies in technology, energy and telecoms have continued robust recruitment, while many areas of asset management and financial services have been buoyed by mounting regulatory activity. A post-summer upturn in general vacancies in the banking sector also suggests the traditional investment banking lawyer will be back in demand during 2014 if the economy can avoid another relapse.

In contrast, life sciences, insurance and professional services teams have only been holding steady, and legal teams have unsurprisingly been under considerable pressure in retail, manufacturing and local authorities.

But the general picture is clearly more bullish, with even real estate companies back in recruitment mode after more than five years of paring back their (already lean) legal teams. The revival in property is a reminder that, while regulatory creep has been a boon to in-house counsel, the surest way to sign off extra headcount is still by bringing in lawyers closest to revenue generation.

Off the hamster wheel

‘An oil and gas company cannot extract their product from the ground, refine it and distribute it without lawyers – the process is too complicated and has too many parties involved,’ says Jonathan Stokoe, business director at Badenoch & Clark. ‘In the tech sector, at quarter end, all sales are reconciled by your lawyers, particularly if you report to the USA. There will always be a demand for lawyers in these sectors as they are complex organisations so counsel are often the gatekeepers of revenue for their businesses.’

Despite the much debated rise of the specialist in-house counsel, the highest demand for recruits remains much as it has always been: candidates with three to eight years’ post-qualification experience, with at least three years under their belt at a major law firm. Despite the dramatic expansion of the in-house profession over the last decade, there remains little evidence of enthusiasm among GCs to start developing their own trainees.

Indeed, recruitment over the last five years has been a buyers’ market for in-house legal teams at big-brand corporates as associates continue to either desert law firms or are squeezed out. But while a plentiful supply of candidates for junior roles has long been a feature of the UK profession, even the upper mid-range and senior roles – where it has traditionally been a challenge for in-house legal teams to find quality candidates – are now easier to fill. This is due not only to a plentiful supply of candidates from private practice, but also frustration with the in-house career track, with growth in in-house teams in recent years not seeing an equivalent supply of senior roles. The result is that bluechip legal teams can usually find candidates with the prized mix of solid private practice experience, a previous stint in-house and relevant sector or specialist skills.

‘Where there’s an issue is the bulk of candidates at the senior end of the market, with lawyers with ten plus years’ experience,’ says Naveen Tuli of Laurence Simons. ‘Law departments by their very nature tend to bottleneck, so when a GC or senior counsel position becomes available, the selection of candidates is well into the hundreds or thousands.’

And, these days, even heavyweight in-house candidates have to compete against partners from top 50 UK law firms who are wearied of the relentless pressures of private practice. ‘As the market tightens, private practice lawyers are inevitably tasked with more business development. When you are an in-house counsel you aren’t responsible for winning business, which means in many cases you can be more of a lawyer and less of a business development manager,’ says Stokoe.

Martin agrees, noting a significant increase in candidates from both salary and equity partner level. ‘For many, maintaining an equity partner position in a law firm has lost its shine. Working in a senior capacity in-house offers more commercial challenge, with its varied workload and daily interaction with executive management and the board. The attraction for clients in hiring a partner is often their multi-client and multi-sector exposure, which can bring new, diverse ideas to a business,’ she says.

Taylor Root banking and financial services in-house consultant Richard Hanks says he has seen an increase in senior positions coming up in the last two to three years.

However, despite the undoubted trend for bringing in partner-level hires, for in-house legal teams outside large public companies, it remains rare to go for the partner-level option, especially as many teams have mid-range veterans straining for a promotion.

Stokoe observes: ‘When you are in a corporate support function like legal you are not as easily monetised as a front-office team. It can be difficult to lateral in a high-salaried, best-in-market hire when you have an assistant GC and team members looking to advance their career via promotion. It’s an ongoing trend to look at the legal team and succession plan. This is particularly true with market consolidation in certain sectors where to help with engagement you might make a GC redundant and then promote each level up before backfilling at legal counsel level, saving cost in the process.’

The skills

While historically it has been the norm to take on commercial lawyers with a breadth of skills to adapt to a variety of circumstances, the vogue for building up specialist skill-sets shows no sign of falling from favour.

‘This is in order to handle smaller day-to-day disputes in-house, but also to better manage any larger disputes the organisation may be involved in. One benefit of hiring a litigator in-house is that they, as opposed to an external law firm, should better understand the business’s commercial drivers and can therefore steer the dispute without external conflict, ultimately keeping external legal costs down,’ says Martin, who this year placed Fulbright & Jaworski UKdisputes partner Richard Hill as the head of Shell’s first ever in-house contentious capability outside of the US.

Telecoms group Everything Everywhere (EE) has always had an in-house litigation team says GC James Blendis, but it has expanded over the last couple of years to six lawyers. ‘[They] deal with a large volume of low-level customer litigation and we also have a compulsory industry arbitration scheme for that, which is very resource intensive,’ says Blendis. ‘There’s also a lot of commercial litigation, which is increasing, and we have had to deal with one-off events like the phone hacking scandal. It’s quite a litigious industry.’

As companies build up contentious teams, it is increasingly common for bluechips to build up resources in industry-specific regulation, tax and competition.

And, of course, the global shift towards tougher anti-corruption enforcement has led to a boom in compliance recruitment, most publicly at major banks, which have in some cases like HSBC and J.P. Morgan committed hundreds of millions of dollars to bolstering compliance teams, but also in a broad range of other sectors like construction and aerospace that are at the sharp end of anti-bribery policies.

Fry comments: ‘Very few people have had exposure to them, mainly because these regulations are new. In some cases institutions are looking to hire people with an understanding but not necessarily experience.’

How this trend will ultimately affect in-house legal teams is yet to be determined as such teams often deploy lawyers and can either report into legal or can operate as separate (sometimes rival) teams. Nevertheless, for lawyers looking to work at major companies, they have opened up available opportunities considerably.

Martin, who has placed a number of lawyers into quasi-legal and compliance roles in-house, says: ‘The constructive working relationship between the in-house legal and compliance department has become more important than ever and, as a result, the appetite is growing for compliance functions to hire qualified solicitors. Many of our clients view having lawyers within compliance as further increasing the lines of communication between the two departments.’

Once shunned among in-house legal candidates, the perception now is that such roles – which have in recent years on occasion attracted very high-profile individuals – have gained considerable status over the last five years.

‘The majority of lawyers are not keen to move into compliance roles,’ says Fry, ‘but there is a sense that, in order to move into a senior head of legal and compliance position, it is beneficial to have had experience of both legal and compliance, and often risk as well.’

A full service?

An interesting factor for the recruitment market for in-house counsel is the extent to which in-house departments will move to mirror the more hierarchical model of a law firm.

After all, as has been noted by many GCs, with the largest banks and bluechips having already built in-house legal teams the same size as mid-tier law firms, there will be increasing demand to create structures to manage and motivate the proliferating ranks of mid-range and senior lawyers.

Some recruitment specialists expect in-house teams to build on their ranks of specialist lawyers to echo the full-service model of the classic commercial law firm.

‘More and more of our clients are developing “full-service” in-house legal departments that could rival a law firm,’ says Martin. ‘In order for law firms to remain competitive and a necessary resource to in-house legal teams, it is vital that they flex their model to keep up with their clients’ evolution.’

Also key to the development of the in-house recruitment market will be how in-house legal teams adjust to a period of working harder to secure a smaller pool of talent (). With rising confidence this year and a stream of bullish financial results from major law firms, it is easy to see how rising demand from corporate and private practice could combine to bid up salaries for strong candidates.

Some argue that this shift is already starting to happen as in-house teams begin to offer better financial packages after years of being spoilt for choice and primarily attracting candidates through flexibility and lifestyle factors. ‘If this model continues, it will lead back to a candidate-led market,’ says Stokoe. ‘Good candidates are hard to find in sectors like technology, construction, and upstream oil and gas.’

As yet, there is no indication that more scarce talent will deter GCs from steadily expanding their coverage in scale and range. It’s all a long way from the conception of the in-house department as glorified contract jockeys. LB

francesca.fanshawe@legalease.co.uk