Rent Instead of Hire

A growing number of mid-sized companies are using the services of fractional C-level executives, including chief financial, technology or marketing officers, or fractional general counsel. What is a fractional executive, what are the reasons behind this trend, and what are the benefits to the company?

WHAT IS A FRACTIONAL EXEC?

A fractional executive is a professional retained as an independent contractor on a part-time basis, rather than a full-time employee of a company. The executive may devote anywhere from a few hours a week to several days a month to the company, depending on what they agree to, and perform services for several companies at any one time. Sometimes these part-time executives might be called “outsourced” executives, although the term “fractional” has become more popular in recent years.

WHO USES A FRACTIONAL PRO + WHY?

Companies that use fractional executives are typically smaller to mid-market that may not be able to afford or need an executive in the particular area on a full-time basis. Those companies do, however, want the benefit of such executives’ deep expertise, experience and strategic outlook. In addition, companies in a transitional phase, such as after a major acquisition, may need a fractional executive to handle key areas. Often, early-stage companies will use a fractional executive, often at the request of their investors.

Fractional executives also bring other benefits, such as an extensive network of contacts, training and mentoring as well as an outside perspective. The process of bringing on a fractional executive is usually quicker and less expensive than hiring a full-time C-level professional, and allows the company and the executive to assess each other in the event the company does decide to make a full-time hire.

EXAMPLE: THE PART-TIME GENERAL COUNCIL

Most companies will hire a full-time CFO or CMO before they need a full-time general counsel, but may still find the need for ongoing legal advice. As with other fractional executive functions, a fractional general counsel can provide valuable legal advice and counseling at a lower cost than a full-time employee. The cost can also be lower than using a traditional law firm that bills at an hourly rate. 

The fractional general counsel model works the same way as with other fractional executives, and can offer the following to a company:

• Availability for routine questions and advice
• Draft, review and advise on agreements and contracts
• Advice on legal issues involving employees
• Board and governance support, including help with board meetings, minutes and resolutions
• Advise on compliance with regulations that apply to the client’s business
• Manage outside attorneys if the client faces litigation or needs highly-specialized expertise

This type of service is particularly valuable if the fractional general counsel has experience as an in-house attorney because he or she knows how to work with business people, knows the importance of learning the business, and how to put legal advice in the context of overall company objectives and risk mitigation. Most attorneys with law firms that offer so-called “outside general counsel” services have never worked in-house and may lack these important skills. 

Using a fractional general counsel rather than a traditional law firm makes financial sense for the following reasons:

• More predictability around ongoing legal costs, allowing the company to budget more accurately
• Less anxiety about calling the attorney to discuss routine matters
• More focus on risk mitigation and prevention, so that legal issues do not get out of hand
• Discounts on related services often come with the agreed-upon arrangement
• You get the services of an experienced business attorney without the cost of a full-time executive-level employee, including salary, bonus, and benefits.

Fractional general counsels, CFOs and other outsourced executives can bring substantial benefits to a growing company while helping to control costs. There are benefits both to the company and to the executive, who appreciates the flexibility and variety that fractional engagements offer. As with many trends toward the “gig” economy, the use of experienced executives on a fractional basis may grow in the coming years.