In-House Counsel

Peter Leeson, The Invisible Hook: The Hidden Economics of Pirates (Princeton Univ. 2009), especially 164-171, explains why pirate ships often had sailors who were both black and free, not slaves. In essence, the benefits of slaves onboard were dispersed among all the pirates while the costs were concentrated ? a disgruntled slave who caused the capture and hanging of a pirate was for that poor soul a most concentrated cost.

Analogously, for an individual lawyer in a legal department, to conserve fees paid to outside counsel, to monitor a firm?s activities carefully, to pore over bills, and otherwise save money creates a dispersed benefit for that lawyer enjoyed by everyone in the department. Conscientious managers of external counsel share the public good of cost reduction with the free riders. The benefits spread thin.

But, if the matter blows up, the lawsuit is lost, the deal sinks because of a legal problem, the blame goes straight to the responsible lawyer. Everyone knows who was in charge of the transaction?s legal work and if there is failure or a blackeye, the repercussions to a career are real. The cost falls mostly on the individual lawyer. Hence, rare is the lawyer who risks walking the career plank for the collective good mostly of all the others.