Performance in the Law Department
8 CCCA Canadian Corporate Counsel Association FALL 2012
VEER.COM
It does not happen very often that
the general counsel of a corporate
or institutional legal department will
want to replace a preferred law firm.
Typically, fewer than five firms deliver
at least 80 per cent of the legal work
for companies with a national reach.
Over the last 10 years, many companies
have consolidated the number of
firms to create their preferred lists, but
only a few have done this using a documented
and formal process.
There are a handful of reasons or circumstances
that stimulate a review. First, a
new general counsel arrives on the scene
and uses the opportunity to shake things
up with the established firms. Second, the
law firm relationship partner retires or
moves to another firm and the replacement
has not been groomed by the law
firm to transition into the relationship.
The chemistry is just not there.
Third, although it may be a rare occurrence,
the law firm drops the ball on a
few important files. In these cases, the
legal department will shift work to the
remaining preferred firms. Fourth, the
company wants the legal department to
contribute its fair share of cost savings to
the company by moving beyond the usual
discount arrangements with its firms.
Many general counsel have read or heard
enough about processes to review legal
service delivery, about legal project management,
and about alternative fee
arrangements and so are more inclined to
initiate changes. In most circumstances,
the savings will range from 15 to 25 per
cent on projected legal spend. The economy
has not been kind to most companies
or to all levels of government. So,
more recently, savings are featured as a
higher priority and a key performance
indicator for legal departments.
The Pfizer experience
Pfizer Inc. launched its “Legal Alliance
Program” in 2009. The objectives were to
“foster trust and collaboration, promote
proactive solutions-based lawyering, and
reconfigure the value paradigm.” Ellen
Rosenthal is Pfizer’s Chief Counsel for
the program. She has written and spoken
about it frequently. The alliance covers at
least 75 per cent of legal spend and applies
to Pfizer in the US and internationally.
I have seen other arrangements in
Canada (HIROC) and in Australia
(Telstra) where firms receive an annual
fixed fee to cover all matters for broad
baskets of work. But these agreements are
often restricted to just one firm. Covering
a number of jurisdictions and various
legal specialties is quite another challenge.
Pfizer has innovated by applying a fixed
fee for dynamic portfolios of legal work
to 19 firms.
Its alliance steering committee is
designed to keep the portfolios balanced
and the annual fee paid to each firm fair.
The legal department uses tracking tools
and data analysis to monitor activity levels
as work goes out and bills are received.
Pfizer realized that it was not enough to
rely only on law firm feedback as a way to
adjust the allocation for a firm. Because of
this, the steering committee oversees and
works to adjust the allocation of files
streams essential to the success of the
arrangement with each law firm.
Meetings are held with firms to address
specific or systemic issues that crop up
with the arrangements. Interestingly,
Pfizer does not want to receive shadow
hourly bills — it believes that these do
not reflect the real value received from
law firms. The steering committee represents
different parts of the legal department,
and in turn those parts support different
business units. It makes sense for
the committee to serve as the deterrent to
referring legal work to other than alliance
firms. Sometimes, it makes sense to refer
work to other than alliance firms, but the
committee must approve it. This type of
mechanism and vigilance are important
Actively
managing
relationships
with law firms
Only the legal department
can maintain lasting relationships
with preferred firms.
By Richard G. Stock
Performance in the Law Department
AUTOMNE 2012 CCCA Canadian Corporate Counsel Association 9
because they underpin the trust that the
law firms must have if the relationship
with Pfizer is to work over the long term.
Otherwise, the fee will be viewed as a cap
with no upside when in fact it is possible
to be paid more than the annual fee when
results are exceptional.
Active management
More and more organizations spend tens
of millions on external counsel each year.
They do so globally and in multiple jurisdictions.
Firms can receive work from
many individuals within the company.
In cases like banks and
insurance companies, the
files are not channelled
through the legal department.
It is essential that
business units support the principles and
protocols underpinning alliance and partnering
arrangements for legal services.
The largest legal departments designate
one of their members to oversee innovative
arrangements with law firms. Procurement
departments and RFPs can help with data
analysis and tracking. But only the legal
department can oversee file allocation and
maintain lasting relationships with preferred
law firms. Doing this across
provinces, states and countries requires a
permanent investment in people and systems,
especially when the fee arrangement
is not hourly-based. A network of relationships
with law firms must be actively managed
if alliance and partnering arrangements
are to endure. Doing so proficiently
constitutes an important core competency
for senior in-house counsel, much more so
than it has been in recent years.
Richard G. Stock,
M.A., FCIS,
CMC is a partner
with Catalyst
Consulting. The
firm has been designated
the Preferred
Provider for Legal Department Consulting
by the Canadian Corporate Counsel
Association. Richard can be reached at (416)
367-4447 or at rstock@catalystlegal.com.
More and more organizations
spend tens of millions on
external counsel each year. “
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