Connection – it goes both ways

It’s a common refrain: law firms are not giving in-house teams what they want, in the way that they want it.

Amid the disruption of alternative providers and increasing automation of services, law firms should be listening closely to their clients. But, according to a recent report published by LexisNexis in collaboration with Judge Business School at the University of Cambridge, many are not.

‘Amplifying the voice of the client in law firms’ highlights a yawning disconnect between in-house legal teams and law firms in their understanding of value.

Advice versus solutions

There is a conceptual difference about the purpose of the external legal adviser among in-house and outside professionals. Simply put, clients want commercial solutions to business problems, informed by a solid grasp of the business context, whereas external lawyers often see themselves as an expert diagnostician, not equipped with the level of client-business understanding that would enable truly commercial advice.

Certainty and predictability

As legal budgets shrink and pressure from internal clients grows, GCs complain about the lack of certainty and predictability from law firms regarding costs and timelines. Law firm partners counter that much legal work is inherently uncertain, without making significant efforts to manage risk across their client portfolios.

‘Good enough’?

Law firms aspire to provide the highest quality with every piece of work, but in-house counsel don’t always need the ‘gold standard’ when ‘good enough’ will do. But without a deep knowledge of the client’s business exigencies, outside counsel don’t always feel qualified to decide what is merely ‘good enough’.

It’s not me, it’s you

Much of the dissatisfaction expressed by in-house teams in the report appears to stem from a belief that law firms are not making enough effort to understand them – in terms of their businesses, their budget constraints, or even the history of the firm’s own relationship with the company. For example, 75% of in-house teams interviewed had received little useful input from firms when they had asked for an analysis of their own portfolio of work, such as spends, trends, type of work, the life cycle of cases, impact, and so on.

This lack of analysis impacts on the broader connection between firms and their clients, not least because the in-house team expects its panel relationships to amount to more than a series of transactions. In short, opportunities for adding value are being lost because law firms operate on a mandate-by-mandate basis, and are often unable (or unwilling) to join the dots between activity across jurisdictions and specialisms, to illuminate big-picture trends.

The in-house response

Many in-house legal teams are responding by consolidating their own expertise and investing in internal resources, or by moving business to alternative providers. Clearly there is an onus on traditional law firms to look beyond the dominant big law model and address the disconnect between demand and delivery. However, could in-house teams themselves do more to define that nebulous buzzword ‘value’, and guide law firms towards achieving it?

There are some senior in-house practitioners who think so. Rob Booth, general counsel of The Crown Estate, which manages the hereditary property portfolio of the reigning UK monarch, has invested considerable time into developing models for engagement with the company’s panel of law firms. Put simply, he believes there is a competitive advantage in driving quality relationships with external law firms – and for a five-person in-house legal function looking after a £14bn estate, the performance management of outsourced legal advisers is a major part of the team’s own value add.

Reflect

His starting point was to undertake a reflective exercise to pinpoint what value actually represents for the company. Over the course of a year, senior in-house counsel engaged stakeholders in looking at business planning, strategy and approach to risk across the whole enterprise. The team identified a preference for smaller, bespoke client relationship teams (in line with the company’s own structure) as a front-of-house for broader resources, that good responsiveness was less about KPIs and process and more about being unafraid to challenge, through building diversity of thought into advice, delivered within a reasonable (but not immediate) time frame, and also that the business didn’t see value in terms of absolute cost alone.

These learnings allowed the in-house team to define ‘good enough’, which eventually translated to more targeted pitches from firms. Or as Booth puts it, ‘we are now picking between exceptional bids, rather than hoping that a couple of firms who are involved in the process will guess right. They need as much information as you can give to ensure that they are able to sell the best of themselves.’

At pharmaceutical company Novartis, the in-house team reviewed their own processes when confronted with uncommercial legal advice. Oftentimes, it was a lack of clarity in instructions causing uneconomical advice, says the legal team’s chief of staff, Maurus Schreyvogel, and a tendency to avoid precisely outlining the key commercial issue at hand or the parameters of the engagement. As a result, questions directed to outside lawyers were unfocused – and so was the advice.

Schreyvogel and his team rebranded value as ‘smart risk-taking’, requiring in-house counsel to carefully consider what a mandate is about, and avoid succumbing to the temptation to hedge legal judgement by going to a law firm unnecessarily. He admits that it can be difficult for all lawyers to adjust to this mode of thought, however. ‘We have been trained to deliver perfection, at law firms we are paid for perfection, and then we go in-house and it’s very hard to go from perfection to just “good enough”.’ But the smart risk approach has enabled the team to develop a statement of work that forces in-house counsel to consider a set of questions when reaching out to external lawyers. It sounds simple, he concedes, but ‘we can become good at instructing new matters without giving law firms the opportunity to do a PhD on a question that we ask.’

Communicate

Rob Booth of The Crown Estate was also keen to avoid fuzzy communication. After developing a structured value model, he disseminated the message consistently across both internal and external lawyers by creating a ‘panel pack’. He also calls quarterly meetings, or ‘downloads’ with operational and client relationship partners, which he conducts in a very structured way. ‘I think engaging with your panel firms without a reason might be good for the relationship, but it isn’t necessarily good for the performance,’ he says. ‘We’re very clear about why we’re talking, and what benefit it brings to them.’

At Barclays, group legal’s head of commercial management, Stephanie Hamon, explains how the team has sought to innovate in its communication with panel firms. The bank has adopted an unusually consultative approach, with the aim of developing a partnership based on transparency. Quantitatively, this has meant being much more open about legal spend data. ‘Now we can say, for example, “you are the third largest firm in relation to our total spend, you get the biggest share of, say, our litigation work, so stop asking for more because you are getting 80% of it. Instead, let’s discuss together other areas to explore”,’ explains Hamon. ‘That allows both parties to understand the lay of the land.’

Transparency also means a more honest and systematic approach to providing firms with qualitative feedback on their performance. Barclays’ in-house lawyers are assessed against a ‘capability framework’, and this was opened up to include external lawyers too. At the macro level, the firms themselves are rated a, b, c, or d, which then generates a two-way conversation about how these can be improved. ‘We might say, “The reason you are c-rated is you’re using more high-rate than alternative fee arrangements. How can we change that? Where can we apply it?” And so on,’ says Hamon.

In her view, value is a concept that both in-house and external lawyers struggle with, and so clients must clearly articulate what it means to them. But, in return, law firms must listen and engage. ‘Too often law firms are afraid to ask questions, and they go away and make assumptions,’ she says. Hamon has encountered this reticence even when firms have been asked directly for feedback. She recalls the bank’s recent panel review, during which she met with groups of five or six firm representatives, and asked for their feedback about aspects of the process. No one said a word. ‘It was quite surprising,’ she says, ‘because you’re giving an opportunity to the supplier to shape the client strategy, and they didn’t take it.’

But, in many areas, Hamon and her team have achieved a level of engagement perhaps uncommon between in-house teams and their law firms. For example, she describes how an understanding of the law firm’s own strategy can result in better matching of firm to mandate. ‘It might just be that Barclays is not a key client, so maybe the best conversation is to narrow the kind of work we’re sending to them. It doesn’t say we’re not willing to work with them anymore, but that the alignment might be in another space than we thought initially,’ she explains.

Disaggregate

The Crown Estate has also prioritised clarity and transparency around panel decisions, which included compartmentalising mandates and their counsel into two layers – strategic, non-volume matters, and portfolio transactions – and being open about this with panel firms. ‘It’s not, “I’m instructing you on this matter”, it’s “I’m instructing you on these sorts of matters for the year, and this is the sort of level I’m looking for”. It allows law firms to deliver against an expectation that is quite well-defined’, he argues.

Novartis goes even further in disaggregating legal services, working with alternative providers as well as traditional law firms in its drive for judicious resourcing. As part of this, explains Maurus Schreyvogel, the company might require collaboration between suppliers. ‘Even on a project basis it makes a lot of sense to think very carefully about who should be doing what.’ And it’s not just driven by cost, he says, but by quality, speed, and who the company wants to develop the knowledge and knowhow. Has this been successful? ‘Sometimes it works, sometimes less so,’ he says. But occasionally it can inform a change in law firm strategy, such as in the field of e-discovery: ‘Some of the law firms fight having to deal with another party, but some actually no longer keep, for example, electronic discovery resources on their payroll because they can’t do a better job than many service providers out there. Other firms develop captives and then compete with those.’

Barclays has also invited law firms to work collaboratively, tasking them to come up with innovative fee arrangements, approaches to legal project management, leadership initiatives, and other such topics. Twice a year, the bank gets its top 30 firms together and encourages information-sharing and dialogue. Success, Hamon notes, is facilitated by the fact that collaboration is one of the metrics on the feedback scorecard.

Delegate

To overcome the lack of joined-up thinking within individual firms, the LexisNexis report advocates the appointment of key account managers, who may or may not be lawyers themselves. Throwing non-legal skills into the mix is something that Barclays has done with the appointment of Hamon herself, who previously worked as a client relationship manager at a law firm before taking on the mandate of delivering a commercial management strategy for the bank’s legal team. Similarly at Novartis, although Schreyvogel is a former lawyer, he also has a background in legal operations management, and is currently responsible for strategy execution within the legal team.

The pooling of lawyer and non-lawyer skillsets is a growing trend, evidenced by the growth of operational roles within legal teams. LexisNexis itself hosts a number of forums in which legal knowhow and operational perspectives combine to solve extrinsic pressures of the in-house role. Examples include its CLO peer-to-peer network, in which lawyer and non-lawyer members apply joint insights to legal operations and drive peak performance, or LIKE (Learning, Innovation and Knowledge Excellence), which brings together knowledge and learning and development managers working in in-house teams.

So, if companies are applying business skills to their legal operations, are law firms applying account management skills in return? Not according to Schreyvogel, who has only encountered these roles among alternative legal services providers. They should though, in his opinion. He recalls a recent visit with an account manager as being ‘pretty cool – because we could do demand management.’ For him, the ideal candidate would be a business-oriented lawyer with an MBA, or an MBA holder who has also worked in a law firm. ‘If they’re completely foreign to the outside counsel or the corporate legal department mix, that takes quite some time to learn,’ he says.

At The Crown Estate, a key account manager is a core part of the delivery proposition for Rob Booth. ‘They have a different skillset and a different way of talking about problems that we face. I want someone challenging the law firm team in relation to whether they are delivering our value model, and I think in a world where delivery, efficiency, process and using technology is becoming more important to GCs, it’s a pretty silly thing for firms to not be doing,’ he says. This should be clear to potential pitchers from the fact that, in the last year, no provider has won a mandate from The Crown Estate without one.

Of course, an account manager should not replace quality relationships between in-house and external teams. As a member of its Strategic Advisory Board, comprised of GCs and heads of legal, reported to LexisNexis: ‘Law firms should spend time getting to know the whole team – not just the GC. And we want to know all the people in their team – the ones doing the work – not just the partner.’

Overhauling the client-law firm relationship might seem like a luxury for stretched in-house teams, and many have not invested significant time on the issue. Despite seeing the appeal of fresh-thinking disruptive providers, when dealing with law firms they tend to fall back into pre-defined patterns. Maurus Schreyvogel points out that there may not be much incentive among firms to change too much, either: ‘It’s always in the benefit of the service provider to have a less well-defined engagement. It makes their lives much easier when it comes to billing and budget overruns.’

Rob Booth predicts that future in-house teams may take greater ownership of law firm performance and share their own enterprise knowhow in areas such as customer focus, risk and governance, and sustainability – as does The Crown Estate. And if he is right, and if the efforts of GCs like those featured here become the norm, it would seem that clients and law firms are destined to become better partners in future – whether firms like it or not.