Long gone are the days when in-house lawyers were viewed as second-class citizens of the legal profession. As regulatory pressures on businesses have increased, in-house lawyers have become indispensible to senior management teams and internal legal departments have become increasingly sophisticated.

The tides have turned, and in the current economic climate the pressure is on law firms to think outside the square and hone their service offering to meet the needs of in-house clients.

Overcoming the in-house stigma

Going back 20 years, the in-house sector was commonly viewed as the second rung of the profession - the soft option for lawyers who couldn't handle life in the fast lane.

"Once upon a time, I think in-house was viewed as the easy life," says Telstra Group General Counsel Will Irving. "All the lawyers went home a bit earlier, they didn't have to deal with timesheets ... and the real lawyers were either at the bar or in the firms."

However, over the last decade, the convergence of a number of factors has led to a considerable rise in the status of in-house lawyers, and Irving believes they now rank equally with their private sector counterparts in the prestige stakes.

Australian Corporate Lawyers Association (ACLA) CEO Peter Turner agrees that the in-house sector has found its footing in the profession.

"Today it's widely accepted - both within the legal profession and within business and government where in-house lawyers work - that in-house lawyers do add value. [They] are very knowledgeable about the business and organisations in which they work, and often act as a one-stop shop - not just for legal advice, but for ethical and other strategic advice which management finds helpful in reaching decisions in today's pretty complex world."

The rise of in-house lawyers

A factor contributing to the rise of in-house lawyers' status has been the increasing volume and complexity of regulation affecting business. Turner believes that, for senior managers, having legal expertise on hand has become crucial in navigating this intricate maze - one in which a wrong turn can result in substantial penalties for both the business and managers personally.

"The environment in which we all work ... has just become so incredibly complicated and [senior management] just see huge downside risk. They're just terrified of putting a foot wrong and reading in tomorrow's paper of the disaster they've created," he says. "So ... if the in-house counsel does his or her job well, they become really trusted advisors in all manner of business activity."

Irving adds that these increasing regulatory burdens have allowed in-house teams to grow and become more specialised, meaning they're able to handle more high-level, specialised work which in the past would have been briefed out.

"If you've got one lawyer who has got to be a bit of a jack of all trades, it's harder to specialise. But when you've got five or 10 or more, you start to have specialists, and the relative efficiency of those specialists is far greater than the generalist, so the relative proportion of work done in-house starts to increase," he says.

Irving says another contributing factor has been the rise in the number of female lawyers. He believes the increased flexibility offered by in-house roles has made the sector more attractive for what is an increasing proportion of the profession. At Telstra, for example, two thirds of the legal team are female, including more than half of Irving's direct reports, which are the heads of the different Telstra business legal units.

"There's a degree of flexibility in the sense that work can be shifted to later in the evening in a way that is often harder in private practice ... and with in-house work you can shift between roles much more easily - [for example] go to part-time for a period, then step it back up to full-time - whatever your individual preferences require. I think that means in-house teams have probably disproportionately picked up that side of the profession," he says. "Whilst the law firms are now getting this right, if you went back ten years they were really struggling [with it]."

Patrick Dwyer, a partner at law firm Langes and previously an in-house lawyer for six years at GE Money, believes that the high cost of external legal services has also played a role in the development of the in-house sector.

"Companies are moving more and more legal work in-house because it's more cost effective. And as the size and scope of work being done internally increases, legal departments have developed in terms of their expertise and their management," he says. "The teams are getting better, they're getting more expertise and they need to attract better quality candidates to manage increasingly complex matters that are now being done in-house rather than being briefed out."

Take your pick

As in-house legal departments have become more sophisticated, they've also become more discriminating when determining what work to brief out to external counsel - and who to brief it to - Dwyer explains.

"If you're a home handyman, you're going to be very careful about getting a painter or a plumber to come in and work on your house, and you're probably going to stand there and look over their shoulder as they're doing it," he says. "So, as corporate clients develop that internal capacity to do legal work, then every decision to refer out becomes more selective. And there's more critical evaluation being done on the quality of external work because it's not a given any more that work is going to be going out to external providers."

ACLA's Turner says the onset of the GFC has added to this selectivity, because in-house lawyers are now under much greater pressure to reduce external legal spends.

"Both in-house counsel and their employing organisations have become much more discriminating in picking and choosing lawyers and in assessing the work they do," he says. "These days, there are a lot of senior lawyers who have been hand-picked, or who have chosen themselves to go in-house, and they know how the law firms work from the inside, and where the fat is, if there is any. So they're able to scrutinise costing very carefully."

According to Turner, time-billing, in particular, is being increasingly questioned by in-house clients, and they're putting pressure on firms to come up with innovative alternative billing models which offer greater certainty.

Irving says that in Telstra's recent review of its legal panel, firms were asked to consider alternatives to time-billing, and a number of alternatives models which involved greater risk-sharing were proposed. These models included, for example, setting a fixed annual fee for all legal services but incorporating contingencies in the case that significantly more or less work than usual was necessary.

"This also drives efficiencies, by encouraging the law firm to [complete] the work in as little time as they can, while still delivering the quality of what we need," he says.

Turner has noticed that some businesses are also trimming back their legal panels, and opting to use a smaller number of firms. "It means fewer firms are getting more of the pie and feel more committed, and I think they are able to, as a result, be more competitive."

As well as cost pressures, Irving believes in-house lawyers have become more discerning about the type and format of advice they receive from law firms.

"Clients are looking for pithier advice - short and to the point. Instead of wanting a long, detailed, formal advice, it's: 'Give me the answer - give me the key things I need to think about,'" Irving says. "I want to know that the law firm has done the detailed advice in the background, because obviously it needs to be done, but most of the time clients are not going to spend a lot of time reading a very detailed advice."

Shifting gears

Irving says in-house lawyers' raised expectations haven't gone unnoticed by law firms. He believes they have recognised the need to better tailor their advice to meet the commercial needs of in-house clients, and are taking steps to train lawyers accordingly.

"One of the things that most [firms] are doing now is sending their junior lawyers on secondments in-house because they therefore learn, at a relatively young age, how businesspeople think," he says. "Also, a lot of partners now do secondments whereas 10 to 15 years ago that was a very rare thing. So I think, frankly, the training of lawyers has got a lot better in terms of the depth of their commercial understanding."

He says firms' stronger emphasis on plain English drafting has also been welcomed by in-house clients. "Australia now has very good, simple drafting by world standards," he says. "So the law firms have put a lot of time and effort into assessing what clients want and trying to deliver it."