The new black

In her much-touted new book on bolstering team-working in professional services, Smart Collaboration, Harvard Law School professor Heidi Gardner argues that sophisticated buyers are increasingly expecting an open-house approach from advisers in delivering their wares.

new-blackGardner asserts that because clients are investing in those relationships, they need to know that the firms who serve them are ‘financially, technically, and ethically solid ground for the long haul. If they like what they see, they’re willing to pay more for access to that quality operation’.

Speaking to The In-House Lawyer, Gardner notes: ‘Collaboration is a business imperative stemming from two competing forces. Lawyers increasingly need knowledge specialisation to keep up with change. They are becoming experts in narrower and narrower domains.’

‘In the past you could have a single specialised lawyer – now you need multiple specialised experts weighing in on a topic. That is the definition of collaboration. It is the integration of specialised expertise to tackle complex problems. That’s why it’s essential for clients.’

Gardner’s new book is the most high-profile example in the legal profession of lofty claims made regarding the need and client demand for collaboration. But does the reality match up to the hype? The most publicised attempt to foster inter-firm collaboration – Pfizer’s now defunct legal alliance – was recently abandoned amid some controversy.

And detractors argue – with some justification – that forcing law firms to work together frequently makes buying and managing legal services more complex, and therefore expensive. Most agree that the gain won’t come without some initial pain.

To gain perspective, The In-House Lawyer canvassed a dozen seasoned general counsel to assess how much collaboration has moved from buzzword to everyday reality for forward-thinking legal chiefs. Of the more utopian vision of law firms holding hands, the converts remain a relatively rare breed. But viewed more prosaically through the pragmatic language of panel reviews, unbundling legal services and rigorous procurement, collaboration of a sort is spreading through the legal market.

Circle of trust

In recent years Vodafone has been one of the most vocal bluechip teams in pressing legal advisers to work constructively together, as GC and company secretary Rosemary Martin faced pressure to cut costs and headcount internally. Its commitment to the initiative included hosting an unusual conference that brought advisers together with senior members of its legal team.

The conference was relaunched in 2013 as a one-day event with more than a hint of TED-style discussions, dubbed ‘Vodafone Un-conference’ – a programme structured to foster dialogue and networking in an informal setting.

Vodafone’s head of legal, technology and outsourcing, Steven Jebb, says the legal team has since shifted its thinking as it has gained more experience of encouraging law firms to work together. ‘We tried to go down this route and firms were receptive – bigger firms in particular that sat on our UK panel.’

Richard Tapp, General Counsel, Carillion plcBecause it’s different, we do have to take responsibility for making it work, but our experience is that it’s worth it.
Richard Tapp, Carillion

Jebb recalls one collaboration during Vodafone’s £1bn acquisition of telecoms group Cable & Wireless in 2012, where Slaughter and May began offering the services of construction giant Carillion’s low-cost legal arm Carillion Advice Services (CAS) to its own clients. Slaughters previously used CAS to strip out the more commoditised elements of its instructions from the construction giant.

Jebb says: ‘That worked very successfully. What’s been happening is a lot of firms have woken up and realised the lay of the land. Being forced by clients to work with smaller firms and alternative suppliers showed many had gone their own way and created their own delivery features, whether through a Belfast office or elsewhere.’

Carillion company secretary and director of legal services Richard Tapp has long been an advocate for law firms to combine for a single client. Tapp has been operating a legal network for the last decade, where Carillion’s panel firms are expected to work together ‘seamlessly’ and pass instructions between one another.

Comprising 11 firms in the UK, in addition to smaller regional networks in the Middle East and Canada, Tapp has put in place a structure to back the initiative, including a SharePoint portal for communication and reporting across the network.

‘We ask that work is done wherever it is most efficient and economic, so we do unbundle work on individual projects between ourselves, one or more law firms and CAS. This has proved very effective both in terms of cost reduction and delivery of a timely, high-quality service. Inevitably, because it’s a different way of working, we do have to take responsibility for making it work, but our experience is that it’s well worth it.’

Uber UK legal chief Matt Wilson, who is currently part of a cross-border legal team carrying out a panel review for its European, US and Asia-Pacific operations, says his company has had firms enter partnerships on a targeted basis. ‘We might have employment specialists and regulatory specialists, and say: “You guys talk to each other and carve up the answer.” You want the best people working on important matters. Sometimes you need to take one team from one law firm and one team from another.

‘As for a more defined programme, it’s not something we’ve looked at, but I wouldn’t rule it out. It would be difficult to make it work if the law firms were continuously fighting over who does what.’

More recently, clients showing renewed interest in the collaboration model include Barclays. Six of its core advisers, including Ashurst, Simmons & Simmons and Eversheds, won spots on a new legal innovation panel being piloted for the bank. Selection was based on four key criteria: the use of legal project managers, sophistication around pricing arrangements and thought leadership, and, notably, collaboration with other law firms or other services providers.

The hurdles

It must be said that there are many practical and professional barriers to collaboration, at least with the more progressive models. Some GCs cite concerns over conflicts and client privilege. Bjarne Tellmann, Pearson’s senior vice president and GC, says: ‘In other industries, such as ours, most of the work is very client-specific, raising problems of confidentiality and privilege, as well as relevance for others that prevents this from being a viable path.’

He adds, however, that the model may be more attractive to highly-regulated industries, including financial services, particularly ‘where there is a high volume of general regulatory guidance that is not client-specific and that can be dealt with collectively’.

However, Chris Fowler, BT’s GC for UK commercial legal services, takes a different stance on legal privilege: ‘If you look at research and development organisations, whether it’s start-ups in Silicon Valley or even BT’s own facility at Adastral Park, they flourish through the sharing of ideas and collaborative learning. Why law feels it should be different is beyond me. Yes, there will be limitations around confidentiality and competition law, but I see them as boundaries not prohibitions.’

A bigger barrier to collaborative behaviour is the business model of law firms, which is still heavily based on time-based billing, rather than charging for tasks. Many observers go further to cite the typical lawyer personality, or at least the behaviours that are re-enforced in lawyers through education and professional careers, as a barrier.

Gardner, who spent five years at consulting giant McKinsey & Company, argues that partnerships and their incentives actively obstruct the sharing of expertise.

Prabhu Amol lawyer photo.You want your client to hire you again. Do not see these alliances in the context of one transaction. Lawyers need to realise there’s more than one deal.
Amol Prabhu, Barclays

‘There is a frustration on the part of clients that firms are not willing to co-invest. When I was at McKinsey, the dominant theme was how to get the soundest answer for the client. Tailored and custom answers are necessary, but cost-effective too. The idea we wouldn’t have a conversation with a separate expert because we couldn’t directly bill the client for it was out of bounds. Needing to write off an 18-minute phone call drives clients round the twist. I’m not saying give free advice; I’m saying marshal resources and stop thinking about time billing.’

For context it is worth noting that many of the habits that Gardner has challenged in her work are more pronounced in the hired gun accreditation-driven pay systems, which are more dominant in US law firms. Much of Gardner’s research is focused on the win/win for advisers in having multiple contact partners for major clients, in embedding the relationship, pushing the law firms towards more complex matters and fostering efficiencies.

While some of this behaviour is clearly relevant to the UK-based law firms, their lockstep-based pay models and client relationship programmes that typically aim to give major clients multiple points of contact, have addressed some of the issues Gardner is tackling – as least regarding lawyers collaborating within one law firm.

But sounding out GCs, it is clear that there remains considerable scepticism about some of the lofty claims made for collaboration with, for example, Uber’s Wilson and Phoenix legal chief Phil Hagan being among those cautious of the hype.

‘It’s worth trying collaboration,’ says Hagan. ‘I’m just not sure it’s as important as getting cost certainty or getting the right people on board when it comes to managing transactions. I can’t get over how you get through that initial period of law firms being suspicious of each other. It feels like you need a period of things to go right to create momentum.’

Paul Hughes, head of The Praxis Centre for Leadership Development at Cranfield School of Management, says that while collaboration can be useful, its proponents should be realistic of the fact that it is often difficult to manage, at least in the initial phases.

Here, there is some consensus among GCs that inter-firm collaboration tends to work best with a clear framework, where you are getting very different things from different law firms, such as one firm acting as lead corporate counsel on a deal while another handles high-volume work, like due diligence or document review. It barely needs saying that such approaches mean the firms are not direct competitors.

Barclays head of commercial management Stéphanie Hamon says the bank’s efforts to bolster collaboration have tried to reflect such commercial realities. ‘That is what we are trying to do – it is more around sharing best practices. You see people who really get it. It is also a question of how comfortable they are with their own strategy and their own strengths. And you have got some law firms – it’s just not in their culture yet; it’s not in their DNA.’

Hamon’s colleague, Amol Prabhu, head of EMEA emerging markets legal at Barclays, notes that law firms need to take a long-term view with major clients to realise the benefits of this approach. ‘Let’s be clear, the benefit is you want to do a good job for your client so they hire you again. Do not look on these alliances in the context of one transaction. Lawyers are short-sighted. They need to realise there’s more than one deal.’

The next challenge

If there is considerable doubt regarding the rewards of collaboration, it also reflects that the dramatic expansion of the in-house profession in recent years means that GCs often feel uneasy at delegating collaboration to multiple external providers. Partly that is due to concerns over which institution stands behind the work, but primarily it is due to GCs wishing to retain control of their own work.

As Wilson notes: ‘I don’t see collaboration very often. And we’ve just resourced up our internal team – there isn’t enough outsourced in terms of volume for that model to make sense.’

Research and development organisations flourish through collaborative learning. Why law feels it should be different is beyond me.
Chris Fowler – BT

Nevertheless, breaking up work to divide among different law firms has become so common via the panel model as to be rarely commented upon in the profession. It is just that no-one calls that collaboration.

Married to the expansion of the ranks of non-legal professions within in-house teams covering operations, procurement and technology, clients have fought to gain the resource to be able to break up and parcel work themselves, and they often have little intention of surrendering that ground back to the law firms to work out their own collaboration.

In this regard, some GCs already frame the next front on inter-adviser collaboration as being less about law firms and more about pairing law firms with non-legal providers or New Law outfits using technology or low-cost models to handle volume matters.

This will create an interesting dilemma for law firms – and New Law rivals. Do they actively forge referral relationships that they then bring to in-house teams come panel review time, or do they instead opt to compete head-on with each other? The potential savings could be much greater than forcing law firms to work together. GCs will likely strive to more robustly break up legal work in future.

Vodafone’s Jebb notes rather ominously that the opportunities for law firms to work together have arguably reduced over the last five years precisely because of the demand for low-cost solutions, whether provided
by law firms’ own offshore centres or legal process outsourcing outfits. The advance of technology will surely only sharpen this process, with Jebb concluding: ‘The next challenge is how to move from that basic labour arbitrage play to getting on the [artificial intelligence (AI)] rollercoaster. For collaboration, a new model is developing for firms to say: “We would usually do it ourselves. Now we can do a mix of onshore, offshore and technology-assisted reviews, so we can get this partly automated.”’ They develop it themselves or partner with [AI specialists] Kira or RAVN. It will be really interesting to see the collaboration model changing.’

Collaboration looks set to become an increasingly central part of the legal services market in the years ahead. But it may look a little more red in tooth and claw than current rhetoric suggests.

Failure to launch: collaborative working the Pfizer way

PfizerWhile it was recognised at its inception in 2009 as a pioneering attempt to address the way bluechips instruct external advisers within a fixed-fee network, by late 2014 Pfizer was left ruing the collapse of its collaborative law firm project, the Pfizer Legal Alliance (PLA).

Championed by then chief counsel Ellen Rosenthal and former general counsel Amy Schulman – who have both since departed the company – Pfizer’s in-house team tasked its 19 panel firms to work collaboratively on much of its legal work. The firms – which included DLA Piper, Clifford Chance, White & Case and Skadden, Arps, Slate, Meagher & Flom – each received an annual fixed fee, regardless of how the work was distributed.

In November 2014, Rosenthal told The In-House Lawyer the alliance, which created closer relationships between outside counsel, enabled ‘cost savings, better legal services for the company, more engaged lawyers and more engaged in-house counsel’.

But just weeks later, Rosenthal and Schulman had departed their posts and, while Pfizer declared its commitment to the initiative, the market viewed the departures as evidence of it scaling back on its support for the PLA. While Schulman was understood to have been frustrated that similar initiatives had not been taken up within the wider in-house legal sector, critics suggested the main reason for its decline was millions of dollars in fines and jury awards that resulted from some PLA firms providing secondee lawyers to compensate for the low-fee structure demanded by Pfizer.

Schulman’s successor, Doug Lankler, was prompted to respond to speculation as to whether the pharma giant would persevere with the project. Lankler praised the PLA but declared the legal team was ‘reviewing where the alliance is and how it should continue to evolve’.

And, according to one partner at a PLA firm at the time, while the model had generally worked well, there were grumblings that it had been difficult to replicate elsewhere. They said: ‘US GCs generally miss the point, with comments such as: “Tell me about your rack rate and what discount you can give me. Is it 14% off? 15%? 16%?”’
Though widely publicised, there have been few examples of comparable initiatives from other major US corporates since.

When asked for an interview for this feature and for clarification on the current status of the PLA, Pfizer refused to comment.