Panel reviews: Partners on parade
9 September 2013 | By Jonathan Ames
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Panel spots are disappearing and clients are demanding some dexterous hoop-jumping to secure one. So what does it take to win a place these days?
London’s streets, festooned as they are with advertisements for Fashion Week catwalk shows this month, will trigger pangs of pain for many law firm partners.
Panel reviews may be the current description but major corporate clients are still effectively conducting runway-style beauty parades for a slice of their highly prized instructions. For firms, the process is time-consuming, costly, often unsuccessful – and even when climaxing in triumph they find that panel membership is only the beginning of the real battle.
The past 12 months have seen a welter of significant corporate legal department panel reviews, but that is by no means cause for breathless celebration and fountains of bubbly-quaffing in partnership management committee rooms. The trend is towards consolidation, with many corporate clients taking a scythe to panel numbers, making those remaining more grateful and arguably more compliant in relation to fees and added-value initiatives.
Earlier this year, The Lawyer conducted a survey of more than 1,100 in-house corporate lawyers and nearly a quarter described themselves as general counsel or head of legal. The In-house Attitudes Report 2013 – unveiled at the annual General Counsel Strategy Summit last April in Lisbon – highlighted factors in-housers consider when conducting panel reviews or instructing outside counsel.
Know thy subject
Sector expertise headed the list, followed by relationships with lawyers, personal contact and then price. Interestingly, one of the factors deemed to be less important was the beauty parade, with some 32 per cent claiming they never run selection processes and another 45 per cent saying they do so only on an ad hoc basis.
Nonetheless, the 23 per cent that run regular beauty parades and panel reviews are likely to be the multinational conglomerates – in other words, the big boys with the big budgets. And many of those clients seem hell-bent on reducing panel numbers to generate cut-throat competition among the survivors.
The strategy is simple. Reduce panel numbers so higher volumes of work go to remaining firms, allowing the client to insist on the lawyers it wants with an assurance they will concentrate on the company’s files. The second phase is to leverage that volume in relation to fee rates. Hourly billing may be surviving in principle but the march towards caps, fixed fees and volume discounts gathers pace.
Several other trends emerge from the most prominent panel reviews of the past year, with more than the odd firm left feeling shafted. Some corporates – notably the banks – have sparked much nail-biting by delaying and prevaricating over reviews. Others have invoked innovative techniques in their processes, while some have jumped into the panel game for the first time.
The most recent notable first-timer is Liechtenstein-based construction tools business Hilti which, a few weeks ago was laying the groundwork for an inaugural panel. It will advise the company in the UK, with the process overseen by legal and compliance counsel Amanda Baxendale.
She has bucked another trend in panel reviews by going light on detail in her request for proposals.
“We’d like our lawyers to be able to help us on commercial as well as legal aspects,” Baxendale says, adding that Hilti encouraged pitches from firms with which it had not worked before.
Internet TV service YouView also announced the launch of its first panel, with winners expected to be named in the autumn. Likewise, China’s state-owned conglomerate China Resources said it was in the process of putting together an international panel following the launch of a domestic version a year ago. And online bookshop Amazon also flagged up the birth of its first European panel.
Other first-timers included London’s City Airport, where director of legal affairs and compliance Jo Bushill appointed Birmingham-based Wragge & Co and Eversheds to preferred supplier status, while litigation places went to Holman Fenwick Willan and Plexus Law.
Heavy-hitters Clifford Chance, Hogan Lovells and DLA Piper all took leading roles on the first panel of the UK’s recently created Financial Conduct Authority, while those taking lesser roles included Pannone, Ashurst and Macfarlanes.
Thou shalt fret
While there were plenty of corporates putting a first toe in the panel creation water, the banks were, as The Lawyer reported earlier this year, becoming “the masters of panel review prevarication”. Barclays, Lloyds Banking Group and the Nationwide Building Society were highlighted as “shuffling their feet through the decision-making process, leaving firms across the land scratching their heads over where they stand”.
But the banks were not the only corporates keeping firms on tenterhooks. This summer, insurance giant Aviva postponed its panel review after announcing it would demand a 15-25 per cent headline fee discount from pitching firms. And at the end of last month the company announced that Clifford Chance had missed out on a slot on its new group and UK panel, following a similarly unsuccessful pitch for the plc roster in April.
The principal advisers on the new panel were Ashurst, DLA Piper, Latham & Watkins and Linklaters for London, Continental Europe and Asia, with places for Addleshaw Goddard and Pinsent Masons to advise the insurer’s regional offices in the UK.
The Pension Protection Fund delayed its review before finally announcing that it aimed to shrink its roster. And the Government also jangled law firm nerves – first when Whitehall’s procurement service delayed its review process for months before finally naming 48 firms. Then the Department of Health overcame a botched first attempt at a property review to appoint Bevan Brittan, Mills & Reeve and Wragges.
Innovative techniques were exhibited by in-house legal departments in their reviews. New York-based, multinational insurance behemoth AIG mooted a reverse auction for firms pitching for places on its Emea non-disease personal injury panel, while London City Airport’s legal chief took control of designing a tendering process from the ground up.
The growing importance of corporate procurement departments is also an issue for firms. In the not-so distant past, chalk-stripe-suited partners felt comfortable sitting across the table from equally chalk-striped general counsel – they knew what to expect and spoke the same language. But now those partners are having to acclimatise to questioning from geekish procurement boffins in short-sleeved shirts with biros protruding from their pockets.
No bathing costume required
Ultimately, the aim of corporates is to consolidate numbers through panel reviews, and many are casting doubt on the value of fully fledged beauty parades.
“We’ve got a big spend,” comments Natalie Jobling, general counsel (corporate) at Network Rail and board member of the Solicitors Commerce & Industry Group, “so it’s worth us spending a lot of time on it. But If you’ve only got £100,000 to spend a year, it’s not worth spending a lot of time on a panel review.”
Jobling’s business falls squarely into the consolidation category. In recent years Network Rail had already dropped from a panel of 20 firms to one of a dozen. But last April the infrastructure company cut even more, dropping to a core of one principal full-service firm in Scotland and four in England, augmented by three for specialist work.
Jobling maintains that old-style beauty parades were too vague and often allowed firms to produce slick senior partners who would disappear like morning mist once the firm was awarded panel status.
“You’d probably never see the people who came in for the pitch ever again,” Jobling recalls. “As general counsel you might have a meeting with the lead partner once a year. But the environment has got a lot more sophisticated – clients are asking for a lot more data up front.”
In Network Rail’s case, that meant asking firms to respond to a detailed brief in advance.
“We knock some out at that stage,” adds Jobling, “but we still want to see people in the flesh. We have a set of questions and tasks for that meeting. It was taken for granted they could do the legal work because we’d done that testing at the paper stage, but this meeting dealt more with the way they operated between themselves.
“For example, we’d ask them how they would manage projects. It was quite telling. Some would say they had all these fantastic methods for managing deals or making sure they were efficient and getting the right people doing things at the right time. But they wouldn’t mention those things in relation to our queries about a specific project. We found there was a gap between what was said in the paperwork and the nuts and bolts case analysis.”
In-housers speculate that the explanation for that disparity is rooted in the growth of a relatively new breed of law firm support function – business development (BD) dep-artments. Whereas historically lawyers drafted responses to tender invitations, the fashion now is for hordes of BDers to be brought to bear on the task in the first instance. And while those teams are adept at producing slick presentations that make it much easier for in-house
legal departments to tick boxes, they also can lean towards over-egging their firm’s capabilities.
“There’s a risk that what the BD team says and what then appears from the people doing the work doesn’t marry up,” warns Jobling. “They need to communicate better internally and not over-sell. There’s a bit of a disconnect in some cases.
“And some BD people fall so in love with their marketing tools and lovely graphics they do the firm a disservice. For example, we had some questions about diversity and only allowed two pages to respond. One firm had some fantastic graphics but those graphics meant they didn’t answer all the questions. It was a case of form over substance.”
Keeping a close eye on BD pitches is crucial for firms if they don’t want ultimately to disappoint by over-promising and under-delivering. As one legal profession consultant observes, firms that are successful in panel review meetings are those “that think round the proposal process. They say to the legal team, you didn’t ask us about this, but we’ve been having a think about that side of your business and we could save you money by doing this. Just answering the questions is not enough”.
Jobling agrees that preparation is key.
“Those that do well in modern beauty parades are firms that have rehearsed and practised to within an inch of their lives,” Jobling confirms. “They will have brought people in who know the client well to fire lots of questions at the pitch team so they find potential weak points that need managing.”
Firms must also be prepared to provide much more down and dirty internal data than would have been required only a few years ago.
“You see reviews being conducted with more specific information requested,” comments one observer. “It’s no longer simply a question of whether these firms are populated by so-called ‘good chaps’.”
For example, firms are increasingly required to provide relatively detailed financial information, and to explain how they would deal with conflicts. Clients will often also have views on which lawyers they want assigned to their matters.
“That means law firms are not able to throw random bodies at a file, with all fee-earners and their rates requiring prior client approval,” says an inside source.
Corporates are increasingly exhibiting a tendency to look at issues around law firm stability as a whole – why are lawyers leaving or joining and what is the firm’s financial position? The whole process is becoming much more intrusive.
Clients will also be looking for freebies, more formally known as added-value extras. That includes providing lawyers for secondment, making available continuing education programmes, precedent files and in some cases even managing a client’s databases.
Thou shalt do everything
“Law firms used to offer the earth on the assumption that most of it wouldn’t be taken up,” says Jobling. “Now legal departments are keener to accept those offers.”
Having offered the earth and bagged a panel place, firms can still not wipe their fevered brows, sit on their bottoms and relax. There will be competitors on the panel and senior figures in the legal department will not hesitate to set member firms against each other over rates and idea generation.
Indeed, firms that think they have done all the hard work by getting on the panel are setting themselves up for a fall by failing to understand it is the beginning, not the end, of the journey. General counsel now view panel membership as little more than an access pass, and once on board firms must foster as many points of contact as possible, not just in legal.
Crucially, partners should concentrate on forming a relationship with the general counsel. Other senior executives are vital contacts, but a balance must be struck, as partners must guard against the in-house legal team taking the view that it has been usurped. It is a diplomatic and professional minefield, but one that can’t be avoided when clients have the whip hand.
Panel games, 2013
The umbrella regulator of lawyers in England and Wales – the Legal Services Board – expands its panel to six firms and three chambers: Hogan Lovells, Bates Wells & Braithwaite, Bircham Dyson Bell, Eversheds, Field Fisher Waterhouse (FFW), Herbert Smith Freehills, 39 Essex Street, 1 Crown Office Row and 11 King’s Bench Walk.
German electronics giant Siemens slims down its UK panel from six to three following the appointment of Claire Carless as UK and North West Europe general counsel at the end of 2012; she moved over from Vodafone. Panel winners: Eversheds, Osborne Clarke, Reed Smith. Getting the chop: Hill Hofstetter, Manches, Pinsent Masons and Watson Farley & Williams.
Cardiff University adds local firm Hugh James to panel of Eversheds, Geldards, Morgan Cole and SGH Martineau. According to Christopher Turner, the university’s director of student services and governance, Cardiff’s annual expenditure on legal services runs between £250,000 and £290,000.
The Government’s procurement service keeps its panel at 48, but adds first-timers Burges Salmon, FFW and Addleshaw Goddard, while getting the push are Bird & Bird, CMS Cameron McKenna, Hogan Lovells, Linklaters and Norton Rose.
The Department of Health appoints Bevan Brittan, Mills & Reeve and Wragge & Co to its property panel.
Herbert Smith Freehills and Hogan Lovells win first-time slots on the UK Land Securities panel. According to the company’s general counsel, Adrian de Souza, Land Securities coughs up between £18m and £20m annually on fees to panel firms.
Heathrow Airport Holdings appoints newbies Berwin Leighton Paisner and Morton Fraser to its panel. Leading the review is Carol Hui, the airport’s general counsel and executive director, who joined Heathrow from construction company Amey in 2009.
German drugs giant Bayer gives the nod to three magic circle players – Allen & Overy, Clifford Chance and Linklaters – as well as domestic heavyweights Gleiss Lutz and Hengeler Mueller. Americans Cleary Gottlieb Steen & Hamilton and Jones Day also join the panel.
BT gets back in the panel review game, creating a network to advise it around the world, adding Carter-Ruck and Olswang to a list that totals more than 140 firms.
Half the UK’s recently born ‘twin peaks’ regulator the Financial Conduct Authority appoints a panel, with Clifford Chance, Hogan Lovells, DLA Piper, Eversheds, Pannone, Ashurst and Mcfarlanes all getting significant look-ins.
Manchester-based DWF is among four firms to be handed first-time spots on the panel of North of England NHS Commercial Procurement Collaborative. The others are: Hill Dickinson, Mills & Reeve and Weightmans.
Railway infrastructure business Network Rail slashes its core panel from a dozen to five firms. The survivors are: Addleshaws, Bond Dickinson, Eversheds, Dentons and Maclay Murray & Spens. Network Rail general counsel Suzanne Wise explains the cut as borne out of a desire to “drive efficiencies in line with the company’s business objectives. I wanted to develop deeper, more strategic relationships with fewer firms to drive better value and a more integrated approach to our work”.
Toothpaste purveyors Colgate Palmolive adds Bond Dickinson to its panel that includes stalwarts Freshfields, Slaughter and May and CMS Cameron McKenna. Associate legal director Chris Burniston takes charge, just months after joining the company.
One of Big Oil’s biggest players, Royal Dutch Shell, tops up its panel with some of Big Law’s biggest players: Baker & McKenzie, CMS Cameron McKenna and Debevoise & Plimpton jump aboard a bus already carrying more than
Legal profession watchdog the SRA awards first-time panel spots to Kingsley Napley and Simmons & Simmons, while jettisoning FFW. The authority’s head of legal and enforcement, Jennifer Johnson, oversees the process.
US conglomerate GE triggers a firestorm by wheeling in its procurement department to play a major role in a panel review that results in DLA Piper, Mayer Brown and Square Sanders winning places,
and Wraggs being left out
in the cold.
London’s mini-airstrip in the Docklands – City Airport – conducts its first-ever competitive tendering for a panel, with Wragges and Eversheds taking the big prizes. Holman Fenwick Willan and Plexus Law also get a look-in. The airport’s director of legal affairs and compliance, Jo Bushill, devises and implements the tendering programme.
Shopping centre business McArthurGlen appoints RPC as its primary adviser for commercial contract work. But the company’s head of legal, Giles Millerchip, says the deal is not part of a wider panel review.
Clients’ pet hates
Pay attention partners and your hordes of BD munchkins – general counsel, their senior assistants and procurement colleagues may well be smiling at you across the beauty parade table, but it is more than likely to be through gritted teeth.
It is well-established that in-house counsel have a litany of whinges over frustrating law firm behaviour. But just what are in-house lawyers’ top bugbears about the performance of private practice and their crack BD teams during panel reviews? The Lawyer prompted a range of leading in-house lawyers to vent their spleens.
“Firms being complacent and assuming that they don’t have to try because you know them and regard them so highly you will make sure they get through the process.”
“Including lots of standard marketing or BD stuff in the pitch, which is not tailored to your needs or the questions you have asked, so it doesn’t tell you what you need to know or it makes it hard work to find the answer.”
“Long and/or disorganised responses that take a lot
more time and effort to read and mean you have to search for the answers to your questions.”
“Firms that don’t read our questions properly or insist on answering the questions they’d rather you had asked.”
“Pitch teams that don’t prepare for interviews properly. For example, not knowing the written pitch so being inconsistent, not thinking hard enough about the client and how to show you understand them. And then not working out when you are boring the client and shutting up.”
“Lawyers that aren’t open and honest about their areas of weakness. It’s disappointing when the chat is better than the legal work. Law firms shouldn’t simply rely on their supposed reputations and their positions in the directories.”
Law firms’ pet hates
Just as general counsel and their senior in-house colleagues have pet hates about law firm behaviour in panel reviews, private practice partners and their BD gurus can produce their own list. Here’s a sample from the mouths of BD specialists at top UK and international practices.
“Sometimes clients are not sure what they want, particularly if it is the first time they have gone through a panel review. ”
“Corporates should allow time to speak with law firms so they can understand your business and needs. This will result in a more tailored response. Designate a single point of contact to manage a process and allow more time for the overall process than you expect – you will be deluged with information.”
“Procurement teams are a help when they understand the process, but if they are only used to buying products such as stationery it complicates things. ”
“It’s always a bad idea for GCs to allow the process to be led by procurement – indeed, some effectively abdicate the process. Procurement departments will prepare a load of generic documents, with little, if anything, tailored to legal services. What I want to see on the first page of a document is a simple statement of what the GC wants to achieve.”
“Online tendering systems are a complete waste of time. I’m convinced submissions are not downloaded, read and compared.”
“Really annoying are clients that have no intention of changing their panel members but just want a stalking horse in to shake up the process. We’ve got a good detection system, but I’m not revealing it.”
“Irritating are corporates that demand single hourly rates for all partners, notwithstanding that they have work that ranges from the routine to the specialised.”