Taken from LexisNexis Martindale-Hubbell’s Counsel to Counsel forum, “Optimizing the In-House Counsel/Law Firm Relationship

Session Chair:
Dan Fitz, general counsel and company secretary, Misys plc
Giuseppe Sanna, senior vice president and general counsel, CHEP Europe

Session Co-hosts:
Mark Wegener, Howrey LLP, Partner & Head of Global Litigation, US
Melanie Willems, Howrey LLP, Partner London Office
Mark Chidley, DLA Piper, Partner London Office
Helena Samaha, DLA Piper, Partner London Office

Session Facilitators:
Derek Benton, director international operations, LexisNexis® Martindale-Hubbell®
E. Leigh Dance, ELD Project Marketing International

Building a solid working relationship is the Holy Grail for both general counsel and their external legal advisors. But, while both sides will always claim that they want their relationships to succeed, in reality it is often fraught with difficulties. In the second London-based Counsel to Counsel forum of 2006, representatives from both sides of the divide discussed how they could best manage their relationships, and overcome common problems.

Asserting your authority

In an era where good corporate governance requires companies to follow defined procedures when making key decisions, several speakers suggested that general counsel should take advantage of this new culture. In particular, they argued that heads of legal should use corporate governance principles to insist on playing a central role in the selection of all external law firms.

However, as those around the table made clear, implementing this objective can be fraught with difficulties – particularly where local managers have historically selected and instructed their own local counsel. One law firm representative recalled how, when working in-house, it had taken them months to assert their authority over local businesses business managers. “I had some terrible experiences when working with external law firms in Africa,” they said. “At one point I gave into pressure to use an alternative firm – it was a disaster. On another occasion I came back from holiday, only to discover that my local managers had fired the only external lawyer in the country I trusted – I had no one else to go to.” Another in-house counsel recalled how they had permitted local managers to instruct local law firms – but had then discovered that the “local firms don’t respond to our questions”.

In the battle to assert the authority of the general counsel’s office, the forum proposed two practical suggestions for consideration. Firstly, it was suggested that local business units should be banned from spending any money on outside law firms whatsoever. Firms should be informed that, if they performed any work for local business units without authorisation from the central legal function, they simply wouldn’t be paid for that work. Secondly, it was suggested that, even where advice is sought from local units, all advice should be reported back to the central legal function rather than the local unit itself. This would help ensure the quality of the advice, and that the central legal function was kept up to date with all local law developments.

The use of law firm 'panels'

A significant proportion of the debate was taken up with discussing the benefits (or otherwise) of creating a panel of trusted legal advisers. For some, the creation of an approved panel was an important landmark in their department’s attempt to control the purchasing of legal services in their company. Panels were also felt to be useful in a crisis situation, where there would be no time to identify a suitable law firm from scratch.

For panel enthusiasts, such arrangements can offer increased efficiency and quality of service. One former in-house counsel recalled that, before an approved panel had been put in place, various divisions within their company had used 30 different firms to advise them on a new piece of data protection legislation – a wasteful duplication of work. It was also suggested that a panel system helped avoid the trend where local managers “shop around” to obtain the legal advice they desire. But in order to work effectively, it is essential that firms should be appointed to a panel in a manner that is “scientific, meritocratic and objective”.

But some around the table questioned the value of the panel system. Most importantly, they complained about the administrative burden in keeping a list of approved suppliers up to date. It was agreed that a panel should, ideally, be reviewed every six months, in order to ensure the list continued to comprise the most appropriate legal advisers. In addition, some speakers were instinctively opposed to the whole panel mentality, because it diminished the importance of long-standing personal relationships. “We have one firm that we use for absolutely every matter, because I want them to build up an ‘institutional knowledge’ of our business,” said one in-house counsel. “I want someone to be able to tell me ‘hang on, we tried that three years ago and it didn’t work’. I could spend all of my time tracking down the best lawyers in every discipline, but they wouldn’t have a proper understanding of how our company works.”

Some speakers also warned that panels could result in mutual complacency, both on the part of the in-house lawyers and also for their external advisers. For in-house counsel, a firm’s presence on an “approved list” could result in them unthinkingly selecting an approved adviser, irrespective of the quality of work they actually provide. Here, a key test of the panel’s effectiveness is whether a previously trusted firm would be dropped if the quality of their work diminished. “Sometimes in-house lawyers complain about the quality of the private practice lawyers they instruct but, when asked why they continue to use them, they just say “because they’re on the panel,” said a private practice lawyer. “Just because a lawyer is on your panel, it doesn’t mean you have to use them!” Another in-house counsel also warned against lapsing into an lacklustre panel mentality. “We put a three-year panel in place in 2004, but I do sometimes wonder if they can become a barrier to entry,” they said.

Defining roles and managing matters

In some situations, outside law firms are required for obvious reasons, such as overcoming gaps in capacity or expertise. But, as one in-house lawyer explained, counsel occasionally had a less obvious agenda for instructing an external lawyer. In some circumstances, they may wish to “piggy-back” a firm’s reputation when acting on a high-stakes transaction. In others, the company may wish to share risk – particularly in relation to litigation – or to make use of a firm’s “deal room” technology. Indeed, the provision of deal rooms or electronic discovery systems are increasingly been seen as a prerequisite for instructing law firms on major matters. Not only do such systems quantifiably save money, it is often quite simply impossible for in-house counsel to develop such resources internally. An in-house lawyer belonging to a small in-house legal function spoke for many when they told the forum: “I don’t have an IT department to support me!”

In any new instruction, it was suggested that counsel should instruct their external law firm on precisely what tasks they were expected to perform, and how they should go about it. In addition to a straightforward retention letter, one private practice lawyer suggested that counsel should insist on having a face-to-face ‘retention’ meeting with their law firm on every significant matter – “which they should attend at their own expense”. “This meeting should set out the rules of the game, and ensure the firm performs according to the standards you want, not according to the standards they think you want,” they said. “In a litigation matter, this retention meeting should be followed up with an early case assessment.”

As the discussion progressed it became clear that, even within the group, in-house counsel had very different expectations in relation to the type of legal advice they expected to receive from their external lawyers. For example, some in-house counsel said they preferred to receive detailed advice, which they would then “edit” and summarise for their internal clients. By contrast, others said they preferred to receive a simple summary of their position, which they could then forward direct to their management team without further revision. In a related discussion, counsel also discussed just how much law their advisers should provide when giving their recommendations. For some around the table, it was felt that some external advisers had gone too far in their quest to provide “commercial” advice, to the extent that the actual legal content was now inadequate. Again, it was vital that counsel make their preferences known to their law firm advisers from the outside, in order to ensure that they received advice that was genuinely useful to them.

Managing expectations

In many circumstances, when external law firms are instructed, there can be a huge gulf between the expectations of in-house lawyers and those of their senior managers. Whereas in-house lawyers tend to rate the technical competence of their outside counsel as their most highly-prized quality, the key criteria for non-legal clients is often “responsiveness” – can advice be provided quickly? The challenge for in-house counsel is to ensure that their external legal advisers are given sufficient time to provide high-quality advice, without unduly antagonising the company’s management in the process.

Of course, in many circumstances, it is legitimate to criticise law firms who fail to advise their clients in a timely manner. Stories abound of firms who simply refuse to return calls or meet essential deadlines. However, as one counsel at the forum explained, senior management can sometimes be completely unrealistic in their expectations. “One of my companies expected to receive an opinion from a French firm in August,” they said. “Unless they had made it absolutely clear in their initial instructions that this matter was time-critical, I could have told them that this wasn’t a realistic proposition.”

Appraising outside counsel

It was agreed that feedback between the in-house function and external counsel was vital in order to maintain a productive relationship. However, opinion was divided on the best way to achieve this objective.

Several speakers thought appraisals should be an informal, ongoing process, perhaps bolstered by a more formal review after a major piece of work. Others, preferred the more formal approach. In some circumstances, this would involve surveying both the in-house legal team and key internal stakeholders in order to gauge their opinions on how their chosen legal advisers had performed on a particular matter. Sometimes – but not always – these results would be shared with the law firm themselves. It is not always necessary to provide firms with a detailed analysis of how they had performed – one counsel suggested that telling firms that they had been rated “X of Y” was sufficient.

However, some counsel suggested that it was not always easy to obtain an honest assessment of a law firm’s performance. “People are often willing to provide verbal feedback, but they are unwilling to put it in writing,” warned one speaker with many years experience of this issue. “Even when people do complete surveys, the results are often useless because they tend to be too nice.” A private practice representative agreed: “You shouldn’t be shaking the tree for negatives, but you have to recognise that constructive criticism does not come easily to many people.”

Pet hates

During the course of the discussion, counsel indicated a wide range of “pet hates” when dealing with outside counsel. Several counsel complained about in-house law firms who attempted to “cross-sell” the services of other departments, even when the in-house counsel had already stated that such work would not be forthcoming. “In the US, we have one lawyer who handles all of our anti-trust work, and our other advisers know that,” said an in-house counsel at a large corporation. “They have been told that, if they have a problem working with him, then we can no longer work together.” Another counsel lamented the attrition rate among associates, which made it hard for them to build lasting relationships with their law firm. “It’s all very well having good partner contact, but you know that a lot of the work is being done by the firm’s associates,” they said. “It’s often the case that, just when these associates become well versed in what you are doing, they leave and you have to start again from scratch.”

While these were legitimate concerns, the one issue stood out as being the main pet hate for most in-house counsel at the forum was the lack of transparency in relation to billing. At a time when many firms now offer on-line, real-time billing information to their clients, a lack of financial transparency was virtually guaranteed to damage any relationship between a law firms and their in-house counsel.

This is not to say that in-house counsel expected legal budgets to be set in stone, particularly in complex matters. However, unexpected costs were often seen as damaging to in-house counsel personally, because they suggested to the company’s senior management that they were not in control of their budgets. Here, the experience of one counsel was all too familiar to those around the table. “We were in the middle of a bidding process, and I got a call from our law firm telling me that we had already gone over budget,” they said. “It completely destroyed our relationship – why didn’t they warn me beforehand? I had to go to our chief financial officer and explain the situation. It was all very embarrassing.”

Whatever system they use to rate their external counsel, in-house lawyers warned against using non-lawyers to obtain this feedback. For one counsel, making use of a procurement department to assess quality was described as “a joke”. “They asked a whole bunch of stupid questions and we had a huge number of complaints,” they said. Nor should law firms make use of independent assessors to obtain feedback from their clients. “Do it yourself,” said one law firm speaker, bluntly.

Takeaways

■ Good corporate governance demands transparency in corporate decision making. Make use of this principle in promoting the role of the legal function in selecting and instructing external law firms.

■ Law firms panels can be useful, but also bureaucratic to maintain. A good panel is a living entity – it needs constant attention.

■ Do not expect a law firm to know how you want your legal advice to be provided. Do you want in-depth legal advice, or just a “commercial” summary of the options available? Explain your requirements to your law firm.

■ Expert legal advice can take time to prepare, and the best advisers are not always available. Manage the expectations of your internal clients, particularly in relation to urgent matters.

■ Appraising law firms can be difficult – people have an in-built tendency to be polite.

For their internal credibility, in-house counsel depend on their law firms to stick to their allocated budgets. Law firms should be able to provide timely and accurate estimates of how much their services are costing.

Last updated -22 January 08

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