New Life for Old Relationships
Author: Richard Stock - Lexpert (April 2013, Vol 14, No 6 at pg 66)
IT HAS BEEN 17 years since CP Rail stunned the legal community by issuing a request for proposals to external counsel. At the time, General Counsel Marcella Szel announced that this was part of a rethinking of the company's relationships, practices and costs for legal services.
Since then, a good number, but not quite a majority, of Canadian legal departments have taken steps to structure their arrangements with preferred law firms on a more cost-effective basis. Doing so is now regarded as best practice for chief legal officers. Some companies have a third or even a fourth multi-year agreement in place. Yet the factors affecting the renewal or replacement of partnering agreements with preferred firms are not well documented.
Altman Weil's 2012 survey of more than 200 legal departments attempts to do just that. The survey asked chief legal officers to rank the factors that most influenced their selection of a law firm. The top six "influencers" and their median ratings (out of 10) were: demonstrated understanding of the business (9); referrals/recommendations (8); personal contact (6); written materials demonstrating the expertise of the lawyer (6); free seminars, CLE, etc. (4); and branding as a full-service firm (4). The survey did not stipulate whether the selection was for a single matter or for a portfolio. And cost was not on the list of factors to be ranked.
The survey did ask respondents to list other influencers. In order of importance, these were: subject-matter expertise, track record of success, prior relationships, and low cost. In summary, the survey confirms the relative and measurable importance of what has been known for years — that expertise and relationships are the dominant factors in selecting external counsel.
Finally, the survey revealed that CLOs were experiencing slightly more pressure (6/10 this year, compared to 5/10 last year) to change the value proposition with law firms. Their effort, however, will be met with passive resistance; more than 200 CLOs rated their law firms 3/10 for their willingness to change service-delivery models, a result unchanged from last year.
It has been almost four years since the Association of Corporate Counsel developed its Value Index to help legal departments and their law firms structure their conversation about value. I have read a lot of criticism about the index, which suggest that such approaches should only apply to "commodity work." Critics resist attempts to measure the contribution of law firms, rather than propose workable alternatives.
Still, it is difficult to argue against the six main factors in any business relationship: understanding of client objectives/expectations; responsiveness/communications; efficiency/process management; predictable cost/budgeting skills; legal expertise at the right level; and results delivered/execution. Perhaps these are not the best combination of criteria, but I believe that they are central to managing the health of ongoing relationships with primary law firms.
It may not be easy to transition from an unstructured relationship with a long-standing, preferred firm to one more focused on performance. CLOs hesitate, imagining that such arrangements threaten relationships, especially if there is no real intention of changing firms.
I recently sat in on a meeting of a legal department assessing its 10-year relationship with its primary firm. The session began with an evaluation of the firm's performance on service, results and cost in four major categories of work: commercial, corporate and regulatory, litigation, and labour and employment. In turn, each category was segregated into regular and extraordinary work. For instance, service in regular litigation could be scored as "exceeded expectations," "met expectations" or "did not meet expectations." The evaluations from each lawyer were tabulated and a composite performance profile emerged.
The legal team went on to isolate the firm's five strong points and five weak points. This scoring process proved to be a good starting point for debate about overall performance. It was also useful in deciding whether to enter into an improved arrangement with the same firm or going to market. A formal approach to evaluating the contribution of a long-standing arrangement with external counsel is by far a more effective management practice than relying on implicit, relationship-based feedback. Time to raise the bar for everyone.