In-house. Getting in with the in-crowd
17 December 1996
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US lawyers have a reputation for being more business-minded than their UK coun- terparts, and nowhere is this better illustrated than in the role of the in-house legal adviser.
While many UK companies are only just coming around to the idea that employing internal counsel is a good way of cutting costs, for years, US companies have used their lawyers as an integral management tool, even as business advisers in their own right. Those US companies that have set up shop in the UK tend to have imported the more commercial approach with them.
As Nigel Liddell, commercial lawyer for car rental group Hertz Europe, points out: "US companies take their in-house lawyers more seriously than their UK counterparts, because they have become accustomed to having them around. Being in-house, we are involved in every aspect of the business, from advertising, sales and marketing to franchising and joint ventures."
According to David Condit, chief regional counsel for US telecommunications company AT&T in London, his organisation's in-house legal team makes an important contribution to overall business strategy.
"Our lawyers are not just drafters of documents and givers of legal advice," he explains, "they are part of the strategic business team on a particular project from the outset. They have an input not only into the legal aspects of the deal, but also the strategic implications for the company as a whole. Senior management expects us to perform this activist role. Naturally, the business groups are focused on their own particular projects and often we are the only people who can see what is going on throughout the group."
Condit adds: "We have to be careful. We can't say: 'Sign this deal instead of that one', but we can certainly give an opinion as to whether a deal is sound from a business perspective. Of course, ultimately, it is the decision of our internal clients as to whether to proceed or not. That is what they are paid to do. But we have a lot of expertise which is respected at AT&T and we are expected to bring it to bear.
"The degree of involvement of lawyers in business is unique at AT&T. Generally, our clients won't move a muscle without consulting us first."
A quick glance at the US giant's history and it is easy to see how such a pro in-house lawyer culture could have developed. As a well-established telecom- munications company, for decades AT&T has been heavily regulated by US federal government. "We had to have lawyers to help us navigate those shoals," explains Condit. "Lawyers simply became part of the furniture."
A US lawyer by training, Condit worked at New York firm Donovan Leisure Newton & Irvine before moving to AT&T in 1984.
But US companies do not solely appoint US attorneys to oversee their legal operations. For example, European general counsel at Control Data Systems is Reiner Kasolowsky, a German lawyer with experience of working in the US.
In addition, Robert Sharp, who, as a managing counsel at American Express Bank in London has responsibility for the bank's general counsel office outside New York, was employed by City firm Freshfields before joining his present company in the 1970s.
He was advised at the time by the chairman of a quoted company not to join a UK company as a lawyer. "It will be dead men's shoes and you will never get involved in any decision-making. Join a US company," he was counselled. "They understand how to use in-house lawyers." Sharp followed this advice and has never looked back.
"Some UK companies are much more enlightened these days," he says. "They are realising that hiring in-house counsel is the best thing to do, rather than second-best.
"But it takes time to learn the value you can get out of a lawyer. Even in those companies which have in-house counsel, lawyers are often treated like they are working for an outside firm - as if they are divorced from the inner workings of the company. A number of UK companies have had in-house teams for only a short time. In many cases, they are still working out the best ways to make use of them."
According to Sharp, there are still people who hold the view that in-house lawyers are the cast-offs of the legal profession. "In some quarters, a misconception persists that internal counsel is simply made up of the failures who did not make it to partner," he says.
As at AT&T, American Express lawyers are expected to do more than just provide reactive legal advice. Says Sharp: "General counsel is seen as a management tool. We are involved from day one on any new venture, which enables us to play an effective role in decision-making."
He adds: "I am often giving general business, rather than legal, advice. It is a role which can save the company a lot of money. We often act as interpreters, too, helping business people and lawyers to understand each other."
Needless to say, internal counsel at US companies are particularly keen on checking their outside legal advisers' fees. For example, one such in-house team at Proudfoot Alexander, a US-owned company in the UK, was told to reduce its costs by as much as 50 per cent.
Says AT&T's Condit: "We go through the bill line by line and always try to negotiate down. That is not necessarily to say that the fees are unreasonable, but sometimes things show up which should not be there - work which was unnecessary or inappropriate to the deal, for instance."
Another in-house lawyer adds: "You have simply got to remember that the words 'cost centre' are next to your name and that you are going to have to justify those 150 hours spent on outside counsel."
American Express recently conducted a global review of its operations with the aim of reducing legal costs across the board. Excluding the US, the company found that, although it operates in around 100 countries, some 80 per cent of its legal costs were concentrated in just 20.
It talked to its existing lawyers in those countries and discussed with them a range of techniques for cutting costs. These included volume-based discounts, blended rates (where one rate is charged regardless of who is doing the work), secondments, discounts for prompt payment, and adding to - or subtracting from - the existing list of firms.
Just as important, however, was educating internal clients. In those countries where there was no internal counsel, it was important to have an individual - such as the chief administrative officer or country head - to channel work through, in order to avoid duplication of work and to decide whether there was a need to go to external counsel.
In countries where American Express has in-house counsel, use of outside counsel has to be co-ordinated through internal counsel. In addition, only firms approved by in-house counsel may be used and all bills submitted must also obtain in-house approval.
Naturally, internal teams try to handle as much of their companies' legal work as possible. Hertz turns to City firms for heavyweight litigation, advertising and banking work. Control Data takes on computing law and acquisitions in-house and farms out all other work.
AT&T uses outside firms for particularly large deals or if it requires some special expertise. "However," says Condit, "there is always an AT&T lawyer involved who oversees the project. We do not just hand it to them and let them go."
Sharp believes an increasing number of UK companies are recognising the benefits of having an in-house legal team, and that those who have already seen the light are learning to use their in-house lawyers in more commercial, as opposed to purely legal, ways.
The gap between the two cultures is certainly narrowing as US and UK lawyers work increasingly together, in private practice and in-house.