Legal panels – how to cross the Rubicon (a guide for general counsel)

Is your chief financial officer looking to you to curb the legal budget for the coming financial year? Are your procurement colleagues constantly talking about “Supplier Management” and “Supplier Relationship Management”? Has an old friend from law school, who now heads the legal department at another corporate, already implemented it: a panel for preferred legal services providers (i.e. law firms, LPOs and other alternative service providers)?

It all sounds too familiar to you?

Nothing wrong with obtaining better value for money, you say to yourself, and developing a sustainable partnership with your external counsel. What a fascinating idea to integrate them seamlessly into your daily routines and the strategic projects you are currently working on, but where to start?

Following the economic downturn and an ongoing drive to cut costs, legal expenses have come under the spotlight of CFOs and procurement departments. Consequently, legal panels have been considered the ultimate means to address the procurement of legal services. After all, most companies seek to manage their suppliers and subcontractors in this way, so why should it be any different with lawyers?

This series of articles looks at the various aspects of legal panels ranging from the motivation for engaging in, and expectations at the outset of, this time and resource-consuming process; the process itself in the context of observations and key lessons learned; and, finally, the different legal panel structures currently available in the market.

The initial question to ask yourself in the context of a potential legal panel structure is related to the role your department should play today and in the near future. Consider these aspects:

  • What type of legal advice would or should you keep in-house and what would or should you outsource to an external counsel?
  • What do you need to do to position your legal department as a strategic adviser rather than a purely reactive and operational unit?

In essence, how can external counsel help you address these aspects?

Consider the following core elements in detail to decide whether a panel approach is right for your legal department:

  1. Volume and cost efficiency: Will the legal service providers currently assisting the firm be willing and able to offer a more imaginative and attractive pricing model on the basis of a potentially exclusive agreement? Will they understand the value of an agreement of this nature ultimately yielding greater fee volumes and a more reliable revenue stream? Does the legal department and the firm overall have predictable volumes of legal work in specific geographic, business or legal areas that allow for consolidation?
  2. Budgetary discipline and risk management: Does the firm want to assert greater discipline and control in the use of law firms across the business to minimise risk and improve the effectiveness of legal spend? Does it currently use a wide variety of legal service providers and individual lawyers whose instructions are subject to a number of disparate internal decision-making processes? Is there a lack of discipline in terms of a transparent and agreed central selection process? Is the legal spend decentralised and managed by individual cost centres with the result that the rates, pricing models and service levels cannot be compared?
  3. Relationship management and visibility: Do legal departments and/or business functions work with various teams within the same law firm or legal service provider? If so, would greater coordination across the teams, with a core group of relationship contacts to oversee the provision of legal services, be beneficial? Is there a risk that preferred legal service providers are being conflicted out of, or monopolising, a particular type of work? Can the firm reduce the administrative burden by reducing the number of legal service providers?
  4. Quality: Is there a need to focus on a uniform quality standard to be attained by all legal service providers currently used? Are the envisaged quality standards regularly assessed and monitored across the business? The same applies to corrective actions which should be applied, tracked and measured in a consistent way.
  5. Value-added services: Does the firm encourage its legal service providers to invest in non-billable, value-added services such as training, secondments and ad-hoc advice. If so is there a regular review process in place? Does the firm receive varying levels of investment in value-added services from different legal service providers? Would it like to create more certainty around the provision of these items?
  6. Best practice: Does the firm encourage cooperation and collaboration among law firms? Does it strive to create a framework to develop best practice and knowledge-sharing? Does it support the legal department’s continuous improvement process?
  7. Trust: Does the firm aim to build lasting relationships with a smaller group of legal service providers who know how it operates and know its business – ultimately improving the quality of service?
  8. Diversity, Corporate Social Responsibility and Corporate Social Investments: Is the firm interested in encouraging a greater commitment to diversity in the legal profession and CSR/CSI/pro bono initiatives linked to the firm’s own values?

If you have answered most if not all of these questions with “yes”, a panel may be the appropriate approach to manage key relationships with your legal service providers.

The type of panel, appropriate to the business is dependent on the initial assessment of the legal department and its objectives and is dealt with in another post.