In-house power supply

Anne Mizzi surveyed in-house lawyers and discovered they want more from City firms and why going in-house is now a more attractive option for lawyers.

The end of a century is generally regarded as a time of change, and in the volatile legal market, private practitioners have not escaped the turbulence. The worm has turned. As competition hots up, company solicitors are demanding high quality legal advice at a reasonable price. And they are prepared to go elsewhere if they do not get it.

Although the vast majority of company solicitors interviewed say they continue to outsource the same amount of work to law firms, there is a constant push to downsize, with many companies aiming to bring more legal work in-house.

But while hauling in work may save companies money on some transactions, there is still a place for City and regional corporate and commercial law firms.

Expanding companies say they are using more law firms as their businesses branch into new areas, but overseas expansion means that the companies will also be bringing in local foreign lawyers.

In-house counsel point out that a key part of their function is to keep law firms under constant review. As a result, firms have been forced to face the fact that they have to work to keep their clients.

David Lillycrop, director and general counsel at international manufacturer TI Group, says: “There is more concern about service and clients are better at demanding a high service.”

Colin Anderson, legal manager at Standard Life Assurance, applauds the efforts being made by private practice lawyers to improve the quality and delivery of their product.

“They are very keen to get to know your business. Some of the panel firms have been quite receptive to coming in and doing seminars for sub-divisions and business managers. They see that as part of the service,” he says.

However, there is a consensus of opinion among in-house lawyers that is critical of the cost and performance of the leading City firms’ lawyers, with one result being that in-house lawyers are handing out bigger chunks of work to regional firms.

They claim that magic circle firms are now so busy that they are turning down work and letting clients fall by the wayside. Richard Wiseman, Shell International’s UK general counsel, says: “There is a noticeable tendency for more transactions to be under resourced, both for us and on the other side. Firms have got too much on and they don’t turn enough work away.”

It is a situation which is worrying the in-house solicitors. One industry source says: “As a client I am a bit suspicious of lawyers working long hours. It worries me a lot. If I go to a top law firm because I want them to think, that’s exactly what I expect them to do. There is an element of working at top City firms that is like working in a sweat shop.”

Most company lawyers also complain that fees charged by big City firms are “extortionate” while regional firms are described as “good value”. Wiseman complains that fees “keep going up”, with the result that Shell increasingly uses small and provincial firms when possible. One source says: “There is not much point in bargaining with City firms because they have got so much work.”

A pricey bill will not necessarily mean the end of a relationship, although the majority agree they would change law firms on this basis. Many companies now have a policy of negotiating fees all the way down using a mix of volume-based blended rates, retainers and hourly rate discounts.

But Lillycrop argues: “I can’t conceive of a situation that the firm insists on a price. Fees have become negotiable and renegotiable which is good news for clients.”

In line with the “bringing work in-house” policy, company solicitors say they would like to use fewer firms, but in reality they expect their list of law firms to grow. Wiseman says: “We have used some firms less this year and do a lot of work in-house. I would like to say we are using fewer firms but expect we will use more.”

Lillycrop agrees: “The number of firms we use will probably gradually rise. It would be rare to sever a relationship with a law firm.”

However, law firms are facing further competition as it becomes more accessible for companies to go direct to the bar. Company solicitors say they are increasingly instructing counsel direct for opinions, although they still rely on law firms in litigation.

Bringing more work in-house means that in general in-house departments have grown or remained static, with cuts only made following mergers.

The growth of in-house legal departments has coincided with the growing popularity among lawyers of working in industry.

The long-hours culture that permeates throughout private practice is one reason for the growing popularity of in-house positions.

A banking source says: “In the old days, private practice was the pucker thing to do and in-house was the poor man’s lot. It is not the same any more. Private practice has a different set of politics than business. The pendulum is swinging more to the side of industry. Money is not the be all and end all, given that the chance of earning a lot more and killing yourself is the other option. In some firms it’s the done thing – to strain yourself to the limits to make partner and to be seen to be doing that.”

Anderson echoes the worry. He says: “There is the macho thing of working through the night. Every completion meeting has to finish in the middle of the night or there’s something wrong. I’m not saying that we don’t put in long hours – there is a lot of work to be done – but I wouldn’t be prepared to work through the night.”

But in-house lawyers say the workload is increasing across the board. Wiseman says: “In-house people are increasingly being asked to work longer hours. The gap is closing.”

And the equity partnership is still regarded as the safest bet in a tempestuous market. Lillycrop says: “If you are an equity partner that probably gives you more security than any other structure. I don’t think any individual is indispensable in a big company.”

Although the corporate structure has a traditional reputation for offering security, continuing merger activity means that no company solicitor is immune from the threat of job loss in a takeover situation. Or as Wiseman puts it: “There are no jobs for life.”

In spite of this, in-house work is still attractive to up-and-coming young lawyers. A source at an international bank says: “The firms are so busy and they are worried secondees will enjoy it so much they will subsequently leave, either to come to us or go in-house somewhere else.”

In general, company solicitors continue to earn less than they would at a top City firm. Richard Shoylekov, Agip UK’s business development and legal manager, says: “You can never pretend to be fully competitive with private practice when you recruit.”

But Anderson says things are changing: “In-house lawyers have a much higher profile these days.”

And it is an appealing route for many lawyers despite the smaller pay packet and most are upbeat about remuneration. Wiseman says: “We all get paid more than nurses. No one earns as much as the senior partner of a US firm.”

Another industry source says: “A senior partner earns a hell of a lot more, but in regional firms they are probably not earning as much as a junior partner in the City. We all read about the enormous amount that senior partners earn, but there is also quite a wide range in industry. There are a few people earning comparable salaries.”

Lillycrop was reluctant to compare salaries. He says: “I am doing the job I want to do. If I was working for a US investment company I would be earning more.”

But he envisages some changes for in-house practice in the future. He says in-house positions will become more appealing if lawyers have a chance of winning a place on the company’s board. He says: “There is a reluctance of British companies to put lawyers on the board of directors. Lawyers can make excellent main board directors. We will see a lot of appointments of lawyers to main boards and this will redress the imbalance between lawyers and accountants.”

All lawyers surveyed revealed that they think they are overworked, but are adamant that they still have the edge on law firms in terms of the working environment.

The view that an in-house lawyer has more of a chance of leading a full life outside work still appears to hold water, although they are working longer hours.

The relationship between internal and external legal services is changing as communication improves. Law firms are confronting the need to get in touch with business culture as the in-house departments adapt to an increasingly competitive market.

The one constant is the drive on both sides to deliver improved legal services, but City firms beware – if cost and performance does not get better, clients will go elsewhere.

The survey results

Work outsourced: The vast majority say there has been no change although many companies aim to do more work in-house. Of the rest, some have decreased their use of outside firms by around 10 per cent. There is more outsourcing in areas of expansion, such as IP and e-commerce, overseas acquisitions and joint ventures and contract renegotiation.

Instructing counsel: Companies are increasingly cutting out the law firm middle man and going direct to barristers. Almost all instruct counsel direct, but for litigation would continue to rely on their law firm to instruct counsel.

Attitude of private practitioners: Law firms are more willing to build a close relationship and get to know their client company but there remains a range of attitudes, from the ‘helpful’ to the ‘patronising’.

Changing law firms: General counsel are keeping their law firms under constant review. Many have changed their panels over the past year and increasingly prefer regional to City firms. In line with the ‘bringing work in-house policy’ company solicitors say they would like to use fewer firms, but in reality they expect their list of law firms to grow.

Fees: In-house lawyers are divided about the pricing of legal advice. Although most say fees charged by big City firms are ‘extortionate’, heads of legal using regional firms insisted they were getting ‘good value’ for their money. There is some evidence that fees are becoming more negotiable.

Workload: All in-house counsel interviewed say they are overworked.

Remuneration: All admit they earn less than they would at a top City firm, but say they are better off than regional practitioner counterparts and the benefits are attractive.

Growth in legal departments: The size of in-house legal departments has grown steadily, in most cases by around 10 per cent. However, there is some downsizing following mergers.

Job security: The perception is that magic circle firms offer the most security, while middle tier firms are regarded as less safe. The equity partnership is considered a safer structure to work in, while continuing merger activity means that company solicitors are vulnerable in a takeover.

Family and social life: Company solicitors agree that the gap is closing between the hours worked in law firms and companies’ legal departments. In general, in-house lawyers still consider themselves to have more time to devote to outside pursuits than they would in a City law firm.