I’m still recovering from the whirlwind that was #LMA15 – it’s always a festival of education, networking, mentorship, relationship-building, thought leadership, and having amazing, thought-provoking conversations about our industry and where its headed. And I love every minute of it. But one of my favorite parts, as you know, is the general counsel panel. This year’s panel was focused on “How we buy what you sell – and how that’s changing.” I had the pleasure of speaking with two of the three panelists in advance of the session, Joe Otterstetter of 3M and Virginia Sanzone of CareFusion, and their comments during the session were very much in line with our conversations. But before we get ahead of ourselves, let’s look at how LMA described the session:
You already know plenty about ‘The New Normal’ and how law firms are adjusting, but corporate legal departments are not standing still either. This year’s GC panel will share Association of Corporate Counsel (ACC) data and the perspective of senior in-house counsel on trends in law firm selection processes, outside counsel management, and unbundling and in-sourcing work. You will have a chance to take a look ‘under the hood’ at how legal services purchasing decisions are made and external resources are managed, including discussion of how ‘switching costs’ from an incumbent law firm are considered, the role of Procurement, how success is measured (including how the managers of outside counsel are evaluated), and more through open Q&A.”
In addition to Virginia and Joe, the panel also included Darragh Davis of Petco, and was moderated by Catherine Moynihan of the Association of Corporate Counsel. Caveat As we dive into the remarks from the session, I’ll mention a conversation with an industry friend I’d had the previous evening – there is a tendency to take what a GC says during a panel such as this and use it as gospel for all in-house counsel (such as one panelist saying he uses Twitter, and a subsequent tweet coming out that said “GCs like Twitter!”). The main takeaway from any general counsel panel should be that “one-size fits one,” and that firms and lawyers should continue to listen to their clients to identify what works best for them. For example, in three of the interviews I’ve done, we’ve talked about metrics and their impact on the inside/outside counsel relationship. In the first conversation, the GC said that relationships no longer matter; in the second, the GC said they’re still paramount, while in the third, he said it was a mix of the two. It just depends on who you ask. And that’s true for many things – while there will be trends and general truths for all in-house counsel, it would be folly to make sweeping assumptions based on what you hear from one or two people – instead, use this as motivation to speak with your own clients and talk to them about the issues that they’re facing, to find out what their perspectives and needs are. In-House Legal Trends – Insourcing The panelists started by discussing, as we’d done in our conversations, the trends they’ve been seeing in their own departments, which include strategic insourcing. As Joe Otterstetter had mentioned, 3M is on a path to shift from doing 2/3 of their legal work with outside counsel to doing 2/3 in-house. He noted that budgets are generally being held flat, and they’re being asked to do more with less – that’s something that law firms and lawyers hear a lot from clients. Joe pointed out that the average cost of an in-house lawyer is $211 per hour – you can’t even get a paralegal at that rate with outside counsel. That’s why many companies are moving more work in-house. 3M is trying to make the best use of their in-house resources, including using paralegals, technologists and process improvements. They keep the middle 80% of their work in-house, while the bottom 10% and top 10% end up going out. Virginia agreed, saying that there comes a point when you just can’t outsource anymore. Because we’re headed towards more in-sourcing, it’s an important time for firms to be partnering with companies and deepening their relationships. In-House Legal Trends – Convergence One way to do this leads to another important trend – convergence. In 3M’s convergence process, they reduced to 25% of their original 165 firms, because it was hard to have the trust-based relationships that they wanted with that many firms. They divided their work into 7 portfolios and sent out 300 RFPs. 3M brought in other companies to help shape their RFPs, and spent a long time looking at the data in the beginning to slice it up. The real value was found in the interviews, and putting together custom fee agreements. They ended up with 39 firms in 7 “swim lanes” – they like it better with fewer firms and work to keep their spending “in the family.” Keeping legal spend within “the family” is also how 3M earns the loyalty of their outside counsel. So whenever they have a new matter, their first question is “can we give this to one of our networked firms?” It requires the approval of their General Counsel to go outside of that network, so the end result is that 90% of their work goes to this pre-approved list of firms. Listen to Your Clients Another trend we’ve been seeing in the legal industry is the rise of the procurement professional. Procurement’s role in the purchase of legal services is here to stay, and it’s necessary to educate the procurement professional, says Darragh. GCs and outside counsel must help in that process. Bringing up the procurement role led to a discussion of a pet peeve with these panelists (which I suspect isn’t limited to procurement professionals) – they’ve had a few instances when they’ve put out a call for RFPs and found that the law firm answers the questions that they wish the GC had asked…but not the questions they actually asked. The panelists emphasized the importance of paying attention to the client or potential client’s expressed needs, rather than pushing an agenda on them. It can make or break the pitch. Joe added that there’s a lot to be said for brevity in RFPs. He also noted that he can tell when a firm really wants to work with them. So communicating passion, and again, identifying what pain points are important to your clients (brevity, etc) are key in putting together RFPs that get noticed. Alternative Fee Arrangements Not surprisingly, fees were another area of discussion for the panelists. Virginia said that they required firms to hold flat on their fees if they didn’t want to go through an RFP process, and many of them did. They monitor the staffing mix to assure that the right work is being done at the right level, leveraging paralegals and other staff. Joe said that 3M implemented a requirement to include non-incumbents and “value firms.” He added that if firms provide incentives for success, you’re more likely to have success, saying that marketers are in a position to advocate for non-hourly-based billing. This is more effective than simply buying hours. The panelists also suggested that firms share their internal realization metrics with their clients (much like we heard in the Viewabill sessions) – law compensation systems are not jiving with value-based billing structures, so there is more overhaul and transparency needed. Also, discussing CFAs with a client (Custom Fee Arrangements) makes the firm feel like part of the team instead of just a service provider – it’s the idea that we’ve been hearing again and again of firms being an extension of the law department. A firm’s receptivity to value-based fee agreements is a gating process for 3M, said Joe. Their customers expect to pay for value, so 3M asks the same of their outside counsel. It’s not just about pinching pennies. Fixed fees provide incentive for efficiency. Companies want you to bill them less, and make way more money. Value-based billing isn’t about squeezing every nickel – it’s about getting fair value for services and encouraging efficiency. Again, this is something we heard in the Viewabill sessions – the idea that clients WANT to be paying firms more money, as long as they’re getting value for their dollar. Getting in the Door is Tough But getting in the door is tough. Darragh commented that they only want to talk to the 20 firms that they’re already working with, at least in the first round of procurement. So it seems as though it’s difficult for firms to get into the fold without having already done work for them (unless the company has a non-incumbent requirement, such as 3M does). The panelists did mention that they look to networking, websites, blogs, recommendations and matching values when evaluating new firms, however, with referrals from colleagues still holding strong sway. Catherine then took questions from the audience via the conference app, and the first one to come in asked the panelists how they feel about seeing their outside counsel in the media. Virginia was indifferent, while Darragh said that obviously, it wouldn’t be good to see a quote about your current litigation. Corporate counsel will view it as a negative if their outside counsel is in the press without checking with them first – any mention including their matters should be coordinated with their communications department. Final Thoughts A few important thoughts that came up throughout the panel discussion include:
- Darragh Davis suggested that everyone read “The New Tycoons: Inside the Trillion Dollar Private Equity Industry that Owns Everything” as a way to help us to understand ownership structure, which she said is important – when selling to your client, you have to know the ownership structure of their company.
- One of the things that lawyers and firms may not have thought to ask their clients is “what issues can we take off the table?” Also, Joe pointed out that “Sometimes good is good enough and exactly what the client wants,” which again speaks to the idea of listening to the client.
- Face time still counts – Virginia said that she’s impressed when firms send partners for a day to their offices to discuss work at no cost. Clients are also looking for 360-degree feedback and offers of post-matter debriefings, at the firm’s cost. They also want to see the data.
- Continuity of the attorney-client relationship is important, so Darragh says firms should do more to retain their key attorneys. Losing a key member of the team can be very disruptive.
- We continue to hear that general counsel look to their outside counsel to help them look good – they want them to offer tools and suggestions, and to be a good partner. Joe said that he has a real thirst for thought leadership from his outside counsel, and asks them to think beyond the typical social events to partner on the community events that are important to them. Virginia added that CLEs on hot topics, such as data privacy in the healthcare industry, are also valuable.
Another great thought-provoking GC panel from LMA! Thanks to the panelists, particularly those who took the time to chat with me. I had the pleasure of meeting Joe after the session as well, and it was great to speak with him “in real life,” as we joked. You’ll be seeing a couple more recaps from me this week, including another GC-focused one from a presentation by the Wicker Park Group, so stay tuned!