Comeback kid

In April 2007 Tyco came close to firing Eversheds as the firm struggled under the weight of the 783 files it had inherited from 282 law firms in 28 countries. Tyco had given Eversheds a three-month transition period to cope with the new work, but the number of new legal matters was rising rather than coming down.

Europe, Middle East and Africa (Emea) general counsel Trevor Faure must have been wondering if the other main contender for the sole external adviser role, DLA Piper, would have been a better choice.

What is more, Faure's much-vaunted 'Smarter' legal model was not looking so smart. It is one thing calling your new invention 'Smarter', but it damned well better be smarter or you are going to look seriously foolish.

Eversheds' international network of offices and friends was a mess. There was no standardisation of service and a lack of management covering all resources. Which may not be surprising when it comes to dealing with firms as diverse as Ghellal & Mekerba in Algiers, Romania's Guia Law Offices, Iran's Dr Mohsen Mohebi and Naschitz Brandes & Co in Tel Aviv. But the firms were all co-signatories on the deal and Faure expected them to adapt to Eversheds' standards. Eversheds' relationship partner Stephen Hopkins, who was brought in to manage the Tyco relationship during this rocky period, admits: "The transfer of work from 783 cases from 282 firms was a major, major logistical issue and it took us some time to get it right. But we've managed to turn things around."

Both Hopkins and Faure attribute the turnaround to the introduction of Eversheds' Global Account Management System (Gams).

Gams is a web-based system that allows all of Eversheds' offices, and all the firms that are part of Eversheds' delivery mechanism for Tyco, to log in, provide cost estimates for each piece of work upfront and track the progress of each matter at any given point. "This has driven an absolute consistency of methodology and approach," says Hopkins.

While Faure was hopping mad back in April last year, he now admits: "They've done an excellent job in selecting and managing the non-Eversheds firms."

This was illustrated most recently by Eversheds' merger with South African firm Routledge Modise Moss Morris, a relationship that was built on the back of the Tyco deal. But it has not all been so easy. Finnish co-signatory Fennica dropped out this year to merge with Bird & Bird.

Just as important as new systems is the behavioural shift that the structure of the deal has forced on Eversheds. As Faure points out: "To make convergence work it takes significant change in the management of a law firm. It takes very particular partners and a very particular type of lawyer to achieve this."

"An unprofitable one," scoff some cynics in the market. Indeed, the basic work that Eversheds handles for Tyco is only marginally profitable. But the bonus system encourages the firm to achieve targets that are mutually beneficial.

There are five elements to the 2008 Eversheds-Tyco fee structure and all have been calculated using the data collected during the deal's first year.

The basic scope work includes all employment contracts, ethical and legal compliance, sales and marketing issues, product liability, customer complaints, IP and data protection. Eversheds provides four secondees for this work.

The fee is fixed and calculated on the basis of it taking 10,000 hours at an hourly rate, which is barely profitable for Eversheds. If it takes more than 10,000 hours then the excess work is handled for free, unless it exceeds 11,250 hours, in which case it is done on the same hourly rate.

The incentive for Eversheds is to carry out the work in less time. If it takes less than 10,000 hours, the firm will still receive the full fixed fee plus half the difference. For example, if the work is completed in 8,000 hours, Eversheds will receive another 1,000 hours worth of fees.

"There's no incentive to bill loads of hours," says Faure. "But plenty of incentive to be economical."

The next element of the fee structure applies to all disputes that are below $1m (£510,000) in value. Eversheds provides three full-time litigation secondees. The fee is a variable figure conducted on an hourly basis, which is a blended rate for all jurisdictions across the Emea region. Last year this work amounted to 10,000 hours. Eversheds receives a 25 per cent success fee for each case or is penalised 10 per cent for failures.

Of course, some cases will be unwinnable from the start, and in these cases the client and firm will decide what sort of settlement, for example, they ought to be aiming for and the bonus will be calculated on whether it is achieved.

For the first time, this year Eversheds will conduct all of Tyco's international company secretarial work outside North America for a $1m fixed fee. Any extra will be conducted on a discounted hourly rate.

The fourth part of the fee structure is where all the discounts and hard work start paying dividends - and is where rival firms might take notice. These are additional projects and disputes worth more than $1m. "Eversheds has earned the opportunity to do this work," says Faure.

This premium work accounted for more than a third of all fees in 2007. Big M&A work included the $88m (£44.44m) sale of fire systems company Ancon, which involved five jurisdictions. The firm also advised Tyco International on all the Emea facets of its ongoing restructuring.

"The big shift from where we were 12 months ago is with the additional projects," explains Hopkins. "The shift in confidence from the client is shown by the fact that there's a lot more premium work coming through now."

The final parts of the fee structure are the three big six-figure bonuses, which are just large enough to be worth aiming for, according to Hopkins, who refused to be drawn on exact amounts.

The first bonus is given for a 35 per cent increase in client satisfaction, measured by a survey of Tyco's internal clients. During 2007 client satisfaction was up 10-20 per cent.

The second bonus is awarded for proactive litigation avoidance. If litigation is 15 per cent lower than during the previous year then Eversheds wins 100 per cent of its bonus. If litigation is down between 14 and 5 per cent, the bonus is worked out pro rata, going from 99 per cent down to 50 per cent. Faure explains that if litigation drops by just 5 per cent, Tyco profits from it even after paying a six-figure bonus to Eversheds.

"For the first time the obligation is for the law firm to get into the business and stop litigation," says Faure. "The interests of the law firm and the client are absolutely interlinked."

The final six-figure bonus is awarded for a number of challenging diversity criteria. These targets were set in addition to Eversheds' existing diversity targets (see Diversity box). Again, for a UK firm these targets are unique.

"Trevor's certainly tried to influence what we're doing on diversity," says Hopkins. "It demonstrates to our entire business that this is an important issue to our clients, and that's a very powerful motivator."

The Tyco contract has proved a very powerful tool for instigating behavioural changes at Eversheds and its allies. But many firms were not ready for it. For example, Eversheds will identify the cause of any dispute upfront, identify the best possible outcome for the client and then estimate fees, but some firms that Eversheds was thinking of using refused to provide cost estimates upfront.

"It's counter-cultural for some firms," says Hopkins. "We've had to change a number of firms because they weren't openminded enough, or strategically they just didn't want to do it. We found enough firms, but in many jurisdictions this approach has virtually never been used before."

Eversheds is inspired by its Tyco relationship. It is seen as a model the firm can sell to other clients that have had enough of what Faure calls the "zero-sum game" - a no-win situation where clients and firms have diametrically opposing interests.

Eversheds has won new clients - such as Boeing, Brady and Severn Trent - on the back of pitches that relied heavily on its Tyco experiences. All three now work exclusively with Eversheds.

"Every client's unique," says Hopkins, "but the experiences we've had with Tyco are benefiting other clients significantly. And there are some basic issues that all clients are now beginning to want."

So from the brink of disaster Eversheds is now benefiting hugely from its Tyco experience. Chief executive David Gray has described it as the most exciting thing happening at the firm. It has certainly been a rollercoaster ride.