BP's decision to slash the number of law firms it uses is just the latest example of a rationalisation trend, says Mike Yuille. City pages edited by Richard Tyler.
Petrochemicals giant BP is the latest blue-chip company to join the “panel beaters” club after revealing to The Lawyer last week that it plans to reduce its global panel of law firms from 120 to 12.
The company wants to slash its #40m-plus legal bill following its #67.5bn merger with US oil company Amoco. According to BP group counsel Peter Bevan, who will head the combined group's legal department, the use of outside lawyers costs BP alone some #20m a year.
The rationalisation has been in the planning stage for the past year. It is now coming to a head, with a series of interviews with law firms taking place at BP's London offices.
“Clearly, cost is important, but it's really to get a number of firms that we can manage internally in a cost-effective way,” says Bevan. “It's also a way of ensuring sufficient volume of work for each firm, and of developing closer relationships.”
To date, BP has referred work to a list of around 30 firms in the UK and another 90 more worldwide. It plans to reduce this list to a key panel of a dozen firms.
The move makes BP the latest FTSE 100 company to rationalise its legal functions, at a time when external law firms face a drop-off in many areas of corporate and financial work. Other major blue-chips are set to rationalise their panels, including insurance group CGU – which was formed by the merger between Commercial Union and General Accident on 1 June this year.
Imperial Chemical Industries (ICI) arguably started the trend towards smaller panels in 1992 when it appointed Hammond Suddards and Field Fisher Waterhouse to take on its outside legal work.
Since then, major names including British Telecom, Cable & Wireless, pharmaceuticals group Zeneca and retailer Kingfisher have all gone down a similar route.
“As legal departments and deals become more complex, large companies have concluded they need a better understanding and control of where they spend their money,” says David Cheyne of Linklaters. “Most FTSE-100 firms have a clear idea of what they want, and have no hesitation in telling you.”
Making the management of external law firms easier has been the reason for a number of other high-profile panel reductions.
Speaking at The Lawyer's Legal Monte Carlo '98 conference last week Thomas Sager, DuPont's associate general counsel, said his company had reduced its panel of law firms from more than 340 to 34, because it was “haemorrhaging” money. DuPont now instructs only one firm in the UK – Eversheds.
Last April, the National Health Service Litigation Authority (NHSLA), which handles the bulk of medical negligence claims, left 72 firms out in the cold when it cut its panel from 90 to 18. The NHSLA's chief executive, Steve Walker, said at the time that the previous arrangements were “simply unmanageable”.
Meanwhile, CGU is setting up a panel of firms. “We hope to have something in place by next Spring,” Kirsty Cooper, CGU's group legal manager, says.
This reshuffle may be one of the few instances where Linklaters loses out. Commercial Union used the firm almost exclusively for its corporate work, whereas General Accident used a loose panel including Clifford Chance, Lovell White Durrant, and Slaughter & May.
“We don't want a single source of advice because we think a panel gives better value,” says Cooper.
Alongside the panel-beating exercise, BP is also axeing jobs in its legal department. An estimated 30 of its 160 lawyers are expected to go as a result of its Amoco merger. The same number is expected to be axed from Amoco's similarly sized Chicago-based department.
Of BP's 160 lawyers, 110 are scattered around 30 countries. Forty of them are in the US, where the majority of Amoco's lawyers are based. Amoco has only nine lawyers in London, and they are likely to join BP's head office team.
After the review is finished, Amoco's general counsel, Steve Gates, will be based in London in a non-legal strategic planning role as BP Amoco's chief of staff.
BP's restructured panel will be complete by the end of the year, by which time the firm hopes to have completed its Amoco merger.
The merger is costing #102m in advisory and legal fees. Law firms include Linklaters and US firm Sullivan & Cromwell for BP, and Amoco's UK lawyers Freshfields and Wachtell Lipton Rosen & Katz. Sullivan & Cromwell is likely to remain BP's chief US lawyer.
Linklaters will almost certainly feature on the new panel. As well as advising on the Amoco merger, Linklaters is also BP's chief corporate legal adviser. And the firm has put senior partner Charles Allen-Jones on the merger team. Although the team is led by David Cheyne, Allen-Jones' presence should bolster the impression of maximum client care before the panel is set.
Freshfields, acting for Amoco, is also thought to be angling for a place at the BP-Amoco table and has thrown senior partner Anthony Salz on to a team lead by Will Lawes.
“BP is clearly not the sort of appointment you would want to miss out on,” says one Freshfields insider.
London and M4-corridor firm Morgan Cole is also expected to be on the panel because of its broad track record on downstream oil and gas work. And in Scotland, where BP has a massive 25 per cent of its assets, McGrigor Donald is also likely to remain the company's chief corporate Scots firm.
The panel will be split in two – one section for big-ticket corporate work, and another for niche areas such as commercial property, says Bevan.
While Linklaters has long enjoyed the lion's share of BP's legal work, other top names have also featured in the current list. These include: Clifford Chance, Herbert Smith, Ashurst Morris Crisp, Baker and McKenzie, Freshfields, Richards Butler, Dibb Lupton Alsop, and Nabarro Nathanson.
For niche work, firms include Sinclair Roche & Temperley and Clyde & Co for shipping, Masons for construction, Simmons & Simmons and Shoosmith & Harrison for employment, and Bird & Bird and Bristows for intellectual property.
Slaughter & May has worked for BP in the past but its loyalty to Shell is thought to conflict it out of many instructions.
For the firms who make it on to BP's panel, the future will be much more secure. For those who do not, it could be bleak indeed.