Aviva panel review: The inside story
23 September 2013 | By Jonathan Ames
23 September 2013
23 September 2013
24 September 2013
25 September 2013
21 October 2013
How law firms successfully targeted places on Aviva’s panel, with go-getting GC Monica Risam calling the shots
Monica Risam is not the type of in-house lawyer to hang about waiting for others to take the initiative.
After moving from General Electric in June 2011 she had been in post as Aviva’s general counsel for Europe for less than 18 months when she decided to kick off the insurance company’s first major law firm panel review for five years.
The process, motivated by the fervent desire of the insurance giant’s senior executives to slash costs,
resulted in a considerable consolidation of the number of practices bagging Aviva instructions, and included one dramatic surprise.
But the process was also notable for an internal working practice that many in the legal profession – both in-house and in private practice – reckon is a near-impossibility: Aviva’s legal and procurement departments worked side by side amicably and efficiently as part of what Risam describes today as a “dream team”.
There’s nothing like a chief executive hammering on about costs to encourage heads of legal to cast a sharp eye over private practice suppliers and their fees, and Aviva’s New Zealander boss, Mark Wilson, has made an article of faith his goal of saving some £400m.
Last year the company also restructured to remove its regional layers. Once that process finished Risam had a pow-wow with her boss, group general counsel Kirsty Cooper, and agreed that, with cost-savings permeating every corporate conversation, the time was ripe for a radical review of private practice instructions and arrangements.
“We wanted to look at what we could do as the legal function to contribute to the mission of cost-saving,’ explains Risam. “And we came up with the idea of conducting a panel review in two stages.” As The Lawyer reported in the spring, there was arguably scope for trimming, as 2012’s legal spend included £35m on one-off disposals and restructuring.
With Cooper’s blessing, Risam formed a panel review group that from the early stages included Aviva’s procurement department. Indeed, the review dream team was kept tight, consisting of Risam, senior procurement executive Stephanie Hogg and Mary Ward, Aviva’s head of legal operations.
Heading that team’s agenda was an analysis of the heavy-hitting advisers to the company’s board – the first time those firms had come under the microscope for around five years. Historically, Aviva has had two magic circle firms on that plc panel, which deals with all the business’s bet-the-farm issues, and the incumbents were Clifford Chance and Slaughter and May. Between November 2012 and April this year, the review team worked directly with Cooper assessing tenders from four magic circle firms for the two slots, with Freshfields Bruckhaus Deringer left on the sidelines.
Leading the pitch team for Allen & Overy (A&O) were M&A partner David Broadley and the partner head of the firm’s insurance group, Philip Jarvis. In dual point position for Slaughters were corporate and commercial partners Jonathan Marks and Richard Smith. Clifford Chance fielded a three-partner team of corporate finance specialist David Pudge, insurance expert Katherine Coates and banking and finance man Simon Sinclair, while Linklaters put up its own three-strong partner team of corporate M&A specialists Nick Rees, Aedamar Comiskey and Duncan Barber.
The early shocker was that Clifford Chance took a nosedive – Aviva reappointed Slaughters, while giving the nod to newcomer A&O for the plc roster. After the appointments it emerged that Aviva had demanded a 15-25 per cent headline fee discount for firms pitching for that panel.
With the plc panel appointment process nailed, Risam and her team moved on to the chunkier task of launching a wider review for tenders for spots related to the UK, Ireland, Spain, Italy, France, Poland, Turkey and Asia. Bidders were only able to pitch if they had an office in a specific location. The second stage did not involve fixed-fee
requirements, but the plc advisers – who were grandfathered onto the panel – could choose whether to maintain the discounts they had stumped up for membership of that much tighter group.
At the time Risam told The Lawyer that the process aimed to bring global rosters into line after an initially haphazard set-up. The review kicked off last May.
“We kept it quite light-touch,” says Risam. “I’d spent a lot of time with procurement to discuss the right way to do the process. We est-ablished procurement’s objectives and protocols for achieving the best outcome for the company.
“It was an organic and constructive dialogue with procurement. We’d not done something like this before so there were no rules of the road. Procurement just wanted to ensure they had an opportunity to support us in getting the best price, to understand all the value offerings and to push back on the length of time and discounts involved. Indeed, they were very focused on the costs side.”
The Aviva team initially cast the net fairly widely, writing to some 35 firms with invitations to tender.
“As it was the first time we were doing this type of review I wanted to ensure that we went to all the firms that had significant experience of dealing with Aviva, so everyone had an opportunity to show us what they could offer,” says Risam.
In addition to recognisable faces, Aviva included a few ringers in the first list – firms the company had not worked with in the past but that had triggered some level of interest with the legal department. Those included Philadelphia-based Morgan Lewis, because it had picked up an experienced team from Dewey & LeBoeuf after the New Yorkers went bust last year.
Magic circle players Freshfields, having not been involved in the plc review, asked to be considered for the wider panel. And the London office of Los Angeles-based international litigation specialists Quinn Emanuel Urquhart & Sullivan effectively cold-called Aviva in a bid to get in front of the legal team.
“They got in touch and came in to see us,” explains Risam. “We thought that, given the fact that historically Aviva has grown through bancassurance agreements and that can cause conflict problems for our core firms, it would be a good idea to have in our back pocket a firm that had no banking client relationship issues should we ever be in a position where we had to litigate. We were open to seeing the firm because we knew it had a good reputation and decided it was a good idea to have it tender.”
The group of 35 firms was told to submit written proposals by the end of May – a fairly stringent three to four weeks – as Risam and her team had no taste for conducting a protracted round of interviews.
“We didn’t do beauty parades because we’d already worked with a lot of the firms. We did more of that with the plc selection process because the chemistry between the group GC and the board and the firms was a critical element. For this process it was more about capturing costs and efficiency.”
Neither was Risam enamoured with a more recent innovation – online tendering.
“Having been at companies where they do that, I didn’t want to go down that road,” she says. “It’s sometimes a tool that Aviva uses but is probably more suited to types of functional procurement reviews other than legal as it doesn’t capture the relationship element.”
However, Risam did draft a standard template asking the pitching firms to detail the experience they had of working for Aviva. That form also allowed for a description of the proposed team, as well as the “value offering” – in other words, the discounts, bells and whistles offered. The firms also submitted their own pitches that gave a more detailed explanation of the teams that could support the business in jurisdictions Aviva might not have worked with before.
To whittle down the initial 35 to a more manageable shortlist the Aviva review team ran a six-point rating system. The firms were graded on:
- their market leadership and positioning
- evidence of capability of the proposed service, captured in their res-ponses to the request for proposal
- their relevant historical experience with Aviva
- the suitability of the proposed lawyers
- the overall relationship-management proposition, as firms offer varying degrees of extra elements apart from the basic agreement to discount fees
- and finally, the discount level, flexibility of pricing and additional volume discounts.
All members of the review team read each submission and compared notes. The team created a master chart and each firm was rated on a scale of one to five against each of the six criteria and a first cut reduced the group by around a third.
“We never had a preconceived idea about how big the panel should be,” says Risam. “As this was the first time we did it I wanted to see what would come out organically.”
Risam’s ultimate aim was for the panel to consist of three “buckets”. In the first was the elite plc panel of Slaughters and A&O.
“They are the board advisers and the firms that help us on big projects,” explains Risam. “They have been automatically grandfathered into the Aviva group panel. And because A&O has a lot of international offices, that gives it more traction with the foreign jurisdictions, whereas we see Slaughter and May primarily as a UK firm.”
Filling bucket three was also a comparatively easy task. It consisted of firms that could support Aviva in London and across the UK, while providing the type of value-for-money on fees for slightly smaller projects the magic circle struggles to achieve. Into that bucket ultimately went Pinsent Masons and Addleshaw Goddard “as they could help us in loads of areas across the UK and in London”.
That left bucket two – the core panel – which was the hardest to narrow. The Aviva team did not want to include more than four firms but they needed to be practices that could be instructed in most of the company’s practice areas and in most countries in which it operated. Winning places in that core group were US firm Latham & Watkins, Anglo-US giant DLA Piper, magic circle player Linklaters and fellow London firm Ashurst.
“There were a lot of firms contending for core group status,” says Risam. “And we negotiated a lot with the firms in this middle group, not that we didn’t with bucket three. But with bucket two we really pushed the firms to do better on rates, to hold the rates longer and to give us more detail of the added value they were offering.”
While Risam maintains the panel review resulted in essentially three buckets, there is also a bucket four that includes several firms appointed for specialist work. They include Berwin Leighton Paisner, Field Fisher Waterhouse, Nabarro and Proskauer Rose to cover the Aviva Investors side of the business, Mills & Reeve for employment work, Clyde & Co on reinsurance, Willkie Farr & Gallagher for US instructions, Arthur Cox and Matheson for work in Ireland, Garrigues in Spain, Bonelli Erede Pappalardo in Italy and Appleby for offshore matters. And ultimately Quinn Emanuel’s cold call paid dividends – the firm was appointed for specialist dispute resolution work.
Even at the shortlist stage for core panel firms, the Aviva team steered clear of anything resembling a beauty parade.
“We didn’t conduct face-to-face interviews because we didn’t have the time,” says Risam. “We spoke to people over the phone in some cases – if we had any questions we would ring them up.”
The final decision was announced at the end of August, the whole process running some six weeks longer than the Aviva team had anticipated.
Surprises and lessons learned
The biggest surprise of the exercise – to the in-house team and doubtless to the law firm itself – was that the king of Canary Wharf failed to hold on to its plc panel place as well as missing a slot on the wider group. The Clifford Chance partners and business development pitch team will have had several uncomfortable rounds of post-review analysis.
As to those that made the cut, Risam and her team profess nothing but contentment with the result.
“We’re very happy with the list,” she says. “These are all solid firms. I’ve not worked much with Pinsents and Addleshaws, but I’ve worked with all the others. We are delighted with where we ended up.”
She is also enthusiastic about the process as a whole.
“In the past, instructing firms had been done within business units and wasn’t really joined up,” she says. “A benefit of this process is that we’ve consolidated and, given the nature of the value propositions, we’re going to get more out of the relationships with this core group of firms. It’s a good cross-section of representation of our practice areas in our core markets, with the exception of Canada – because it’s a small legal market in that country, they have their own panel.
“All these firms have excellent lawyers, but the proof is in working with them. That’s why we’ve decided the panel will run for two years to see how relationships evolve. The rates are held until the end of December 2015. When we do the next panel review some things might have worked well and some may need tweaking.”
The main lesson for Risam involves the time commitment required for a comprehensive review.
“Even with the best will in the world, it takes longer than you think,” she says, in hindsight. “But how smoothly it ran is a testament to the working relationships within Aviva – and testament to our procurement team and the fact it was so supportive of the approach I wanted to take. I was delighted with the relationship with procurement.
“I was lucky that the person who supported us from procurement really understood that there was a relationship angle that doesn’t translate into pounds and dollars. And we were able to work together to get the criteria to reflect that. I had feared that when procurement got involved they’d run away with it, but we had a joined-up team effort. And the firms were aware from the beginning that procurement was involved – it was stated in the request for proposal.”
Risam also has a message for law firms involved in panel review pitches.
“Don’t try to be all things to all people,” she says. “All these international firms have offices in many jurisdictions and say they can do many types of work. But having worked myself in an international corporate for several years I really challenged the firms by saying – if you tell me you’re excellent in every one of these jurisdictions I’m not going to believe you.
“And, to the credit of most of the firms, the quality of the tenders reflected that advice, particularly with the firms we selected. One firm that is on our core panel does not necessarily have specialist insurance practitioners – but they are strong in corporate and finance. It was excellent that they didn’t promote an insurance specialism, but relied on their strength.”
All the firms that successfully bagged Aviva panel places will be well advised not to take their eyes off the ball over the next two years – the company’s in-house legal team certainly won’t.
Aviva: providing cover since the 17th century
Aviva itself traces its history back to the late 17th century with the founding of the Hand in Hand fire insurance mutual. Today it claims to be the largest insurer in the UK, with a worldwide customer base of some 34 million people.
The company’s figures for last year show an adjusted annual operating profit before tax of nearly £1.9bn, which dropped to slightly more than £1.4bn after restructuring costs were factored in. Last year Aviva recorded an after-tax loss of some £3bn, which it attributed to a write-down after the disposal of the US interests in Dutch insurer Delta Lloyd. But Aviva also flogged interests in that business in Sri Lanka, Malaysia and Russia.
The business, which employs more than 40,000 staff worldwide, had £23bn in gross written premiums for last year and some £311bn total funds under management. In that year it paid out £29bn in claims and benefits, and had 100 bancassurance agreements on its books.
Mark Wilson, Aviva’s tough-talking Kiwi chief executive, cited the continuing harsh economic environment and the business’s recent performance when hitting its top 400 managers with a pay freeze.
“Our overall spend on bonuses at senior levels will match business performance and [personal] performance levels,” he wrote in Aviva’s most recent annual report. “We will focus the money on our top performers who made the largest contribution.”