Flexible work is on the rise. In the wake of the pandemic, Great Resignation, economic downturn and mass layoffs, many professionals are redefining what it means to be successful. Top-level workers are increasingly rejecting the daily grind and Disease of More, opting instead for a healthier, more sustainable and meaningful relationship with their work. Companies have undergone profound changes, too. Many are busy inventing solutions to the highly complex problems of our day but are faced with tighter budgets, cash constraints and reductions in their workforce. As a result, the desirability for flexible work arrangements has increased for companies and workers alike.
These conditions have turned out to be the perfect storm for a surge in the “fractional executive.” A fractional executive is a seasoned C-suite professional with a wealth of experience in their field of expertise. Most fractional executives boast an impressive career history with experience in various roles across multiple industries. Fractional executive arrangements allow experienced leaders to share their expertise, while enabling them to have more time for endeavors like better balancing family and work, finding personal fulfillment or supporting non-profits.
The rise of fractional executives has also benefited companies, especially cash-strapped startups and smaller companies in a growth phase, and even larger companies experiencing unexpected economic challenges. By turning to a fractional executive, many companies can gain access to an experienced professional who can – efficiently and affordably – help fill leadership gaps, solve specific problems or help the company expand, experiment or improve in new areas. Fractional professionals can work for companies on a long-term or project-basis, or serve in the interim while the company is searching for a full-time professional to fill the role.
What is a fractional GC and how is it different from other legal service delivery models?
The legal industry is no exception to this rising trend. Without a doubt, a legal perspective can be valuable in almost every business matter, and at some point, every business encounters legal needs that require the assistance of an attorney. Hiring an attorney can be cost-prohibitive, especially for start-ups and smaller companies. To save money, some business owners use a do-it-yourself approach to legal matters, using boilerplate contracts and entering into all types of agreements without any legal review, only contacting an attorney as a last resort. Others hire a junior lawyer who doesn’t yet have enough experience to spot issues or fully address the company’s legal needs. Unfortunately, such early stage cost-saving measures can end up costing tens- to hundreds- of thousands of dollars down the road.
Amy Duvanich, counsel at Scale LLP with a fractional GC practice, describes the phenomenon: “When I was looking to make a job change and was talking to companies about General Counsel roles, I noticed that a lot of them had already accrued what I refer to as legal debt, and a lot of it. Legal debt is when a company has made a lot of decisions with little or no legal advice or input. Companies often hit a point of realizing that they can no longer ignore these risks around the same time that they have the funds to hire a full time attorney. Once a company has reached this point, however, there are often plenty of things that cannot be undone or will be very painful to fix,” says Duvanich.
A fractional general counsel arrangement offers an elegant solution. The key to this model is that the engagement is determined by the needs of the company rather than the often intractable fee structure that large law firms impose, or the expectations that a full-time employee has. A fractional GC can serve the same role as an experienced in-house lawyer but does so more flexibly and often more efficiently as an independent contractor rather than as a full-time employee.
The other key to fractional general counsel arrangements is that they are flexible. Some fractional GCs work on full-time, short-term contracts while others opt for part-time, long-term engagements. A fractional GC may come in with the purpose of meeting defined goals and objectives or perform a variety of legal services as needed, including business formation and registration, contract creation and review, employment-related issues, business litigation and dispute resolution, commercial transactions, compliance, mergers and acquisitions, business financing and real estate. The work may be conducted on-site, remotely or in hybrid fashion.
What are the benefits and trade-offs of the fractional GC arrangement?
Fractional GCs are more than just an outsourced service and offer key advantages over hiring outside counsel. In-house lawyers handle a wide variety of legal matters that affect all aspects of the company. By and large, they have a far better understanding of a company’s business and are often consulted on policy-making and business decisions that might not be specifically legal in nature, in a way that most outside counsel are not. “What founders and CEOs tell me is that they want somebody who can deeply understand their business,” says Brian Elliott, a partner at Scale with a thriving fractional GC practice. “That's where I see a gap in the legal market today: We have lots of brilliant lawyers who are doing great work, but they're often not incentivized to spend the quality time with their client to really deeply understand the business,” says Elliott.
Many startups and smaller businesses forgo this valuable resource because hiring a full time attorney is expensive, and working with an outside attorney is typically based on an hourly rate, which is unpredictable and often unsatisfying. By contrast, when working with a fractional general counsel, a certain amount of the attorney’s time tends to be reserved to the client. This results in a much more collaborative relationship, in which the attorney becomes an integral member of the team and has a deeper understanding of the business. Over time, the attorney develops institutional knowledge about the company that fosters better legal advice. Case in point: Duvanich was inspired to “find a way to work alongside companies to allow them to be thoughtful about legal implications as they are building their products and relationships to ensure they are not getting themselves into trouble along the way.”
The benefit of a fractional general counsel versus a full-time in-house counsel is obviously a lower cost both in terms of salary and associated benefits. This advantage has become even more stark as the cost of in-house attorneys has increased. Corporate legal departments first became popular based on the idea that companies could save money by hiring full-time attorneys. However, recent surveys show that the strong demand for in-house talent has created a candidate’s market, and in-house lawyers are increasingly securing higher compensation packages. A recent ABA survey found that corporate legal departments spend more in-house than on outside law firms. Thus, in-house counsel can be more expensive than hiring lawyers for specific matters. With fractional general counsel, a company can afford to have a part-time in-house counsel without the high cost of a full-time employee.
Another major advantage of fractional GC arrangements is their multi-dimensional flexibility. For example, the legal needs of the company dictate the time a fractional general counsel spends working for the company, which determines the price charged for services. Instead of paying an in-house counsel to work 40 hours a week when there is not 40 hours’ worth of legal work for the attorney to perform, the company can pay a fractional general counsel for just the hours needed to complete the company’s work. On top of that, the company has an attorney “on call” that it can reach whenever there is a legal matter that needs immediate attention. Fractional GCs can also work flexibly as regards physical office space, working for the company at the company’s offices or from the individual’s personal office. The flexibility allows companies to choose an arrangement that works best for their needs, budget, and space.
Despite the many benefits of a fractional general counsel arrangement, there are several considerations to work through in order to reap the most benefit. First, the client should carefully consider the expertise and experience of the attorney or firm. Although a “general counsel” has broad knowledge of a wide variety of legal issues that pertain to a business, there will likely be gaps that have to be filled with other attorneys. The parties should be clear about the fractional general counsel’s role, including their role in managing these outside attorneys. It may seem that a large firm would be better suited to provide legal services because with more attorneys there are likely to be fewer gaps. However, one of the primary benefits of a fractional general counsel is having a single attorney with a deep understanding of the business, and large firms often bungle this by staffing junior attorneys instead of the attorney in charge of the representation, who eventually moves on and thus falls out of touch with the company.
Another issue is that a fractional GC will naturally work a fraction of the hours as full-time in-house counsel. Working reduced hours means that events occur while the fractional GC is not there as a full-time employee might be. But nowadays, tech helps bridge communication gaps. For example, async communication is increasingly common through tools like Slack, which help keep all relevant players informed of progress updates. And traditional methods work too: Fractional GCs can set aside time for weekly syncs to connect with the company’s leadership team, focusing on high-level strategy and changes.
Lastly, when leaders join a new company, they spend a great deal of time building trust across the organization. This may be more difficult to do on a reduced-hour schedule and may slow initial progress. In order to get the most out of a fractional GC, it’s important that mutual trust exists between both parties, so it’s important to pay attention to this at the outset.
How are fractional GC arrangements structured and how are they cost-effective?
Fractional GC arrangements can be structured in any way that serves all involved. One common arrangement is for the client to pay a fixed fee for a certain amount of the attorney’s time, usually on a weekly or monthly basis, with overages and shortages handled in a variety of ways. For example, if the attorney works more than the allocated hours, the overage can be billed at an agreed hourly rate. If under, the unused hours can roll over to the following month, with caps in both directions and periodic reviews to ensure the estimated need continues to work. Some arrangements can also include a built-in 10% buffer. For example, if the contract is for 20 hours per month, the fee would cover 18-22 hours of legal services.
Fractional GC arrangements often require a commitment to a minimum term, often with a minimum duration of 3 months but more commonly up to 6 or even 12 months. This is because the purpose of the arrangement is to promote an attorney-client relationship that fosters a deeper understanding of the business, rather than to solve for one-off legal needs.
Who should consider a fractional GC?
From a company perspective, small and medium-sized enterprises and startups are poised to derive the greatest benefit from working with a fractional GC because they can gain an experienced team member with a wealth of relevant legal experience for as long as they need, without the attendant costs and risks of making a full-time hire. Having an attorney who is deeply familiar with the business and can handle most of the company’s legal needs is a tremendous benefit. The fractional general counsel arrangement can be a win-win for all involved, offering right-sized fees, predictability of legal costs, and development of institutional knowledge in the business.
From the perspective of the lawyers providing these services, fractional GCs report an increase in flexibility, purpose and satisfaction. And with the rise of distributed law firms like Scale that offer an excellent platform for a fractional general counsel practice, the landscape for fractional GCs is teeming with opportunity. “What I love about the Scale community is that our group of attorneys are commonly focused on making businesses succeed and we share a love for entrepreneurship and building businesses,” says Elliott. “Many of our attorneys have significant in-house experience so we can understand problems from the point of view of an operator as well as an attorney. And it helps to really bring a full experience to our clients,” he adds.