At this year’s LMA, we were fortunate enough to have not one, but TWO sessions with General Counsel. This one took place at the end of the first day, and included a procurement guy – a first for the LMA. The session was titled "GC Focus: Project Management. Position Your Firm in Alignment With the Unique Challenges Faced by In-house Counsel."
Panelists included Keith Isgett, the Managing Attorney-General – Global External Legal Relations, GlaxoSmithKline (GSK), Justin Ergler, Sourcing Group Manager, Legal Services Procurement, GlaxoSmithKline, and Nat Slavin, Founder and Partner of Wicker Park Group, along with Moderator Alicia Brown, Director of Strategic Relationships for Bloomberg Law.
After their introductions, Isgett kicked it off by saying that he wants to receive the best representation for the best price, and part of the "best representation" is having a good relationship with the law firm. The procurement team is there to make sure that what they’re paying for is what they receive, and that there is value there. Isgett noted that "People are still talking about discounted hourly rates, which means we’re not as far along as I’d like us to be."
GSK went with discounted hourly rates for a while, but now they use other alternative billing arrangements. They couldn’t figure out what discounting the rack rate actually meant. But AFAs give client cost predictability. GSK uses different types of AFAs:
- Capped Fee: This is a moving target that depends on progress.
- Fixed Fee: They agree on a fee for a matter and receive "shadow invoices" so that they can track actual costs against the fixed fee. If actual costs are way less or way more, they either pay a percentage or get a percentage break.
The goal in this is fairness – Isgett said that they don’t want firms to be miserable, but wants everyone to be content at the end of a matter.
Another essential aspect for the relationship with outside counsel is communication, particularly about billing, Isgett said that firms shouldn’t be late on billing, and the bottom line is "no surprises." He told the story of having an accounts payable person at a firm hassling him over payment, while there was still some disagreement over the bill. GSK wants regular communication from the partner on the project, not the account payable person.
For example, Isgett expects the lead partner to call a month in advance if he anticipates going over the estimated costs drastically, saying "the last thing you want to do is surprise me with money matters."
Inside counsel are less concerned also about whether a project is handled directly by an attorney or not – they just want the confidence that a law firm has the matter under control. And while their procurement team won’t make all the substantive decisions in a legal matter, they will make the business decisions. They used Dechert as an example – they have a project manager who works with their attorneys to keep them in line with matters, and that’s what GSK wants.
In terms of pitching matters, while GSK wants to see substantive expertise, they’d also like to see a project manager and someone from accounts. They want people in that meeting who understand what the client is thinking from a money and business perspective, not just the legal perspective.
Slavin broke in at this point to ask the audience how many have client teams who visit their clients to find out how they define transparency and value – less than a dozen people raised their hands.
Everything lawyers do for clients is about solving problems – coming up with legal arguments is only a tool. What gets a firm in the door for a pitch meeting is being "smart." Clients want to know what a firm is going to do to solve a problem in a way that they’re not already doing using. So attorneys shouldn’t think about how their past experience is relevant, unless it’s about economics or an understanding of the clients’ needs. Clients don’t want to see an attorney’s bio – they want to see bullet points on how that attorney can help their business.
For any new significant matter, GSK has an RFP process, with a few questions that look to get the attorney’s key impressions of the matter. Isgett commented that there are a lot of law firms that can do excellent work, so separating the firm from others is where marketers can come into play big time.
In selecting counsel, GSK puts short-listed firms through a "reverse auction." If law firms want the work, they need to be nimble and adapt. Once GSK gets the fee offers, they arrive at a flat fee number. At the end of each of these reverse auctions, they have a feedback session with the firms who didn’t get the business, and this is mandated by the General Counsel.
Slavin asked Isgett whether GSK would be willing to pay an hourly fee for a project manager, and he said that they were open to the idea if it was rolled into the agreed fees and transparent. But paying for a project manager has never been proposed to them – it’s a fairly new position. Isgett added that if a firm wants to play ball and be more efficient, that’s what clients want.
The days of turning over every stone in a matter are over – for "bet the company" matters, yes, that’s what they still want. But for other things, it’s more important to find out from the client what their risk tolerance is instead. If a firm comes up with a creative alternative fee arrangement, that tells the client that they’re thinking and are interested in what the client wants.
Bidding out legal work the way that GSK does is fairly cutting edge, so they’re still working out the kinks, and along the way, they’re trying to find the best fit with a firm for a range of matters.
Slavin noted that throughout the discussion, GSK avoided the "t" word: Trust. He asked what it takes for GSK to trust a firm.
Isgett asked "Do I trust firms?" and then was silent, which was very telling for the audience.
He then said that he does trust firms at the start of a relationship, and that trust is a firm’s to lose. It’s not that he believes firms are out there being unethical, but he does think that there are 30-40 years of doing things in a way that needs to change, and he doesn’t think that firms are working as hard to change things as they should be.
GSK is now moving more towards just accepting flat fee arrangements, with no other oversight than a robust set of tasks – no shadow invoices. Isgett commented that they both do and don’t care about how firms get the work done, as long as they get it done for the flat fee. If a firm takes 50 hours to do something that they thought would take thousands, good for them – GSK just wants what they paid for. It’s not the clients’ job to ensure that the lawyer hits the threshold of their minimal billable hours.
Importantly, Isgett also pointed out that the lowest bid from a firm is not always the winner of the reverse auction that they hold as part of the pitch process.
Alicia asked the panelists to give their final thoughts, as time wound down:
- Nat Slavin: Relentlessly ask your partners what matters to their clients and share that at your firm, one size fits one.
- Keith Isgett: Train your folks on alternative fees speak, so that they understand what’s being said.
- Justin Ergler: Change with your clients – don’t react. Understand where they’re going, and be there with them.
Hearing clients say much of the same year in and year out emphasizes that what Isgett says about firms being unwilling to change is true. How is your firm working to listen to its clients, and in the process, differentiate itself?