ACC conference flags up irreversible change to GC-private practice relations

Partner, not firm, loyalty and cheaper, quicker advice emerge as top issues.

Law firms were warned last week to expect a “sea change” in their client relationships over the coming years, while any expecting a swift return to the halcyon days before the collapse of Lehman Brothers were ­”deluding themselves”.

These were some of the comments made by a selection of senior general counsel at a round table discussion hosted by the US-headquartered Association of Corporate Counsel (ACC) last week. The Lawyer popped in to hear more.

The panel, which featured ­general counsel from major multinationals ­including Coca-Cola, Kimberly-Clark and BT, met up to discuss, among other things, the impact of the economic downturn.

Most agreed that over the past three years internal legal teams had been subject to cost-­cutting constraints that had resulted in reduced staff and efficiency drives.
But while most private firms expect to bounce back when the upturn eventually kicks in, the in-house lawyers appeared far less optimistic.

Most on the panel, which also included representatives from Unisys, NEC Europe and Boston Consulting Group, agreed that in-house budgets were likely to remain flat in the coming years.

“If we want to retain alignment and credibility with the rest of the business then we have to participate in acknowledging costs,” said Coca-Cola European general counsel Christopher Barnard.

This position was supported by BT chief counsel for Europe, the Middle East, Africa and Latin America Liz Walker.

“We’ve kept spending flat, and that’s something we really need to continue doing,” she stated.

Aside from redundancies, the push to drive down costs is being pursued by a variety of means, including increased use of ­technology and standardising work such as non-disclosure agreements.

Unfortunately for law firms, the biggest driver was reducing external legal spend and attempting to keep as much work in-house as possible.

One way to achieve this, according to Walker, is to make it mandatory for all legal spend to be signed off by the legal department, thus reducing the ad hoc legal spend by departments such as HR.

External spending was also being reduced by intensifying value-based negotiations with firms and seeking fixed retainers and other alternative fee arrangements.
Unisys general counsel Pavel Klimov said a flat budget is “the new norm”, a change that has resulted in his company increasingly moving away from billable hours.

“We looked to external providers to find creative ways to meet challenges,” Klimov said. “Some were creative, but others weren’t prepared to do that; those we stayed with were willing to help us meet the challenges we were facing.”

Other alternatives include demanding that senior partners be involved in work instead of a team of associates, ensuring the work is completed quicker and, as a result, often cheaper.

Mark Maurice-Jones, Kimberly-Clark chief counsel for Europe, the Middle East and Africa, said his team now looks far more closely at the tendering process after ­identifying huge discrepancies in the fees being charged by firms.

Barnard feels the legal industry is witnessing a “sea change” in the relationship between firms and their clients.

“Clearly the relationship between law firms and clients has changed,” he stated. “I don’t think relationships between clients and full-service firms exist anymore, it’s more about partner relationships than firm ­relationships. Clients now hop from firm to firm much more than they used to. The loyalty is to the partner and not the firm, whereas ­previously ­loyalty was to the firm because they were full-service.”

Maurice-Jones agreed, adding: “We go for the individual now, ­people who we know are tried-and-tested.”

The bad news for firms, most of the lawyers on the panel agreed, is that changes introduced as a result of the recession are here to stay.

“There’s now an increased ­pressure to increase efficiency and I can’t see us going back to how things were a few years ago,” said Maurice-Jones.

“These changes will be ­permanent,” added Barnard, “because they were driven by ­productivity and efficiency – there’s no going back.”

Not only has the pressure on external counsel increased, but also on in-house lawyers. What makes a successful in-house lawyer was another key area of the discussion. The consensus was that it is no longer enough to simply be a good lawyer.

Lawyers are now expected to go above and beyond the traditional role, while having “passion” and a deep understanding of the ­business are just as important, according to the panel.

“Having a passion and interest in the business is important; ­managers like that – it’s a virtuous circle,” said Barnard.

The panel also felt that being a successful general counsel was as much about being a good ­manager of people as it was about being a talented lawyer, a factor which has often been ignored in the past.

The discussion was chaired by ACC president Fred Krebs, who revealed that he is “consistently amazed” wherever he travels by the ­similarity of the issues raised by
in-house lawyers.

“Sometimes the responses differ, but the issues remain the same,” he continued. “Relationships with outside counsel, and their ­obligations toward their clients, are ­common issues that every in-house lawyer faces.”

What particularly struck Krebs about last week’s discussion was the sense that the changes were not only here to stay, but that they were just the ­beginning. ­Consequently, ­external counsel should expect a lot more to come.

“There’s a great deal of diversity in the legal profession, but having said that, I think many ­external counsel will have to change their business models and become
more efficient and more cost-­competitive in all but the most high-end areas,” Krebs emphasised. “They need to recognise that most work isn’t strategic, ’bet the company’-style work. Most ­matters can be handled by any number of firms.

“They’re going to have to become more cost-­attentive, because that’s the ­situation their clients are in.”