4 June 2018

Beyond relationships to more strategic selection of outside counsel

Insights News

This article was originally published on the Asia Law Portal on 4 June 2018. You can view the original here.

As the legal industry evolves, in-house teams are under increasing pressure to demonstrate a commitment to innovation and transformation. However, as legal departments accept and even embrace the need for change, one element stubbornly resists transformation.

Despite the growing availability of digital technology designed to assist with relationship management and engagement processes, the hiring of outside counsel is still overwhelmingly influenced by pre-existing personal and professional relationships.

According to a recent Globality and The Lawyer Research Service survey of over 300 General Counsel and other senior members of in-house teams across Europe, North America and the Asia Pacific, only 32% reported instructing firms beyond their existing network. The remaining 68% source providers from pre-existing relationships or referrals from their existing network or existing outside counsel.

However, when asked which factors influence engagement decisions, sector breadth and expertise rated the highest. So why the discord?

One argument is that personal relationships trump all. However, with the plethora of data now available, this seems too easy an answer.

The overarching problem isn’t how to move away from a relationship-based decision-making model. Rather, it’s how to identify and harness the data required to make strategic, results-based engagement decisions.

But for a team unfamiliar with the collection and analysis of data, where do you start?

Data collection by category

Data collection can be split into four categories: matters, personnel, finances and performance.

Matters

Types of matters

The first step is to list of all of the matters the legal team is responsible for and categorise them by type.

Next, separate the matters dealt with in-house from those dealt with externally. You may wish to begin with a broad overview and then drill down into shorter periods like quarters or months, or both.

Then consider: were specific types of matters kept in-house during specific times of the year, can external engagements be connected to staff movements, are certain types of matters always dealt with in-house or externally? Which firms continually deal with specific types of matters?

You may also notice different legal service providers being engaged for specific stages within a matter. E.g., legal process outsourcing providers may be engaged for due diligence, while some stages are kept in-house or briefed to external counsel.

Complexity

Are more complicated matters always farmed out to external counsel or kept in-house? Is this true generally, or is it restricted to certain categories? Does this highlight expertise held in-house, within specific law firms or external counsel?

This data allows legal teams to identify and define their areas of expertise. As the value add of the legal department is fully realised, fewer matters will be passed to external counsel, external legal spend will reduce and legal’s resources will be more efficiently utilised.

An additional benefit is the creation of a ‘go-to’ list of specialist practitioners, firms and alternative service providers which can be used for legal panels.

Length of engagement

For a spend/time analysis you can use to justify the decision to engage or not engage external counsel, consider:

  • Do external firms have management of matters from beginning to end?
  • When, and for which matters?
  • Do external counsel generally manage matters lasting a short or longer period of time?

Personnel

Who, what and when

Understanding who is briefing which law firm for which matter is extremely valuable, particularly in larger organisations operating across diverse geographic locations. Besides providing new insights and opportunities for process improvement, it also promotes greater transparency and strategic alignment. There may even be opportunities to streamline future engagement decisions, delivering potentially lucrative savings.

To make sense of this data, calculate how many personnel were involved in each matter, along with the types of personnel involved. Then layer in how much time each level of personnel spent on the matter and on which types of engagements.

Financial Management

Although engagement decisions should never be made on price alone, financial statistics form an important part of the story. Working on a matter by matter basis, collate the:

  • Original matter budget
  • End of matter costs
  • Anticipated costs and budget changes throughout the matter
  • Professional fees versus disbursements
  • Spend by month, year and law firm
  • Work in progress

For a critical analysis of engagement processes, it is important to collate the data for matters dealt with in-house as well as externally. Without this, it is impossible to uncover the patterns that underlie engagement decisions and determine whether relationships have exerted an undue influence.

Performance

By gathering data on partner and law firm performance, in-house teams can identify benchmarks and establish continuous improvement initiatives.

You will need to consider:

  • Commerciality of advice received
  • Firm and partner responsiveness across a range of matters and situations
  • Evidence of consistent and effective project management processes
  • Proactive communication of scope changes/amendments
  • Willingness to move away from hourly billing and explore alternative billing arrangements
  • Firms or partners consistently exceeding fee estimates

If engagement practices are to move away from a relationship-based model, ongoing performance management is an absolute must. Practical, actionable feedback should be shared with legal service providers on a regular basis, encouraging open, honest discussions about service delivery and the strengthening of ongoing working relationships.

Making sense of the data

To ensure the data collection and analysis process is as efficient and effective as possible, manual processes must be minimised or eliminated altogether. The data must also be accurate, securely stored and easily accessed.

Thanks to the growth of legal technology, in-house teams no longer have to rely on outdated data collection programs or applications designed for non-legal industries. The needs of the legal department are unique, and although bespoke systems are not a pre-requisite for successful data collection and analysis, programs built specifically for the legal team are.

Thankfully, the number of cost effective, user friendly tools built for the legal department is continually growing. However, there is no such thing as a ‘one size fits all’ solution.

Legal teams should clearly define and prioritise their needs and undertake a detailed needs analysis before implementing a solution. They should also incorporate change management processes from the time, budget, technical and human perspectives.

Internal stakeholders should also be included. This ensures the needs of every user is accommodated, and helps foster and strengthen a department, if not organisation wide approach to innovation. Sustained leadership support from management is also mandatory, and for the full benefits to be realised, the General Counsel or equivalent must also actively demonstrate their commitment.

With the advent of new technology designed to simplify and streamline a host of sometimes laborious legal processes, it’s an exciting time to be exploring change. With the right mindset and useful, actionable data on hand, in-house teams can seize the initiative and bring decades old processes into a new light.

 

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