GCs: We need more data to pick external advisers

General counsel at large international companies are crying out for a more sophisticated and data-driven approach to identifying and then instructing law firms.

This is the main finding of a survey of more than 300 general counsel located in Europe, North America and Asia-Pacific, conducted by The Lawyer in collaboration with technology company Globality.

Survey respondents say the breadth of firms’ industry and sector expertise is the most important criterion when it comes to selection. Prior experience of working with a firm is second-most important while seniority and experience of partners is third.

Paradoxically, most clients are not selecting firms in a way that ensures they end up with those that have the best industry and sector expertise. Some 44 per cent of survey respondents rely on the outdated method of appointing firms through existing relationships. This is more than double any other method general counsel rely on to select firms. An additional 24 per cent primarily rely on referrals, either from colleagues in their personal network or from outside.

This matters for two reasons. First, 62 per cent of survey respondents identify that getting to grips with local regulatory issues is their main challenge when operating in new international markets. Firms with such local expertise are more likely to be outside a general counsel’s personal network.

Second, the survey data shows that general counsel are seeking to instruct small and medium-sized firms with increasing regularity as opposed to large international firms. Such firms are much less likely to be on companies’ radar.

It is important to note that general counsel are not relying on outdated methods for identifying law firms because they are resistant to change. The survey data and interviews conducted for this research reveal that they are open to more strategic methods – the issue is the perceived lack of tools or services to do this.

Why smaller firms?

Survey participants highlight a number of reasons why clients are increasingly working with smaller firms.

Some 63 per cent of respondents outsource the majority of their work to smaller firms partly because they provide better client service. Around 40 per cent of respondents say they mainly work with smaller firms because they are more innovative, are easier and quicker to vet and have more expertise.

Illustrating the extent to which smaller firms provide a better overall service, only 6 per cent of respondents say they are generally dissatisfied with the services provided by small firms. More than three times this number (19 per cent) say they are generally unhappy with the services provided by larger firms.

This has not always been the case. Interviewees frequently mention that local firms in countries with less developed legal markets have significantly increased their level of service in the past five years.

“Increasingly, in India, China and some other emerging markets, there are very good smaller law firms that are keeping the international firms on their toes,” explains Wan Kwong Weng, group general counsel at Mapletree Investments. “It’s an interesting dynamic that has developed over the past three to five years. I think this augurs well for the legal industry in terms of upgrading standards and overall service level.”

Client service

Of course, good client service encompasses a variety of practices. Interviewees frequently mention that in addition to possessing specific areas of expertise that larger firms do not, lawyers at smaller firms are much more likely to go the extra mile to serve their clients.

“Instinctively, you feel that if you’re a more important client to a firm you will get a better service,” adds a general counsel of a UK retailer. “There is a nervousness that if you go to a big firm you wouldn’t get the same attention even though we’re a good client with good business.

“We’re not a FTSE 100 business so there might be a perception that we don’t get treated quite as well as we would be by a smaller firm.”

Companies are also becoming increasingly turned off by large firms due to their high prices. More than half our survey respondents say their primary frustration when working with larger law firms is cost. The next-most significant turn-off, identified by 12 per cent of respondents, is the lack of involvement of senior counsel. A perceived lack of innovation, selected by 10 per cent is the next-most significant frustration.