The New Law Firm Competitors: In-House Counsel (Live Post)
This is a live post from the Bloomberg Big Law Summit. Please excuse any typos or errors in how I capture proceedings.
9:45 am Panel Session: The New Law Firm Competitor: In-House Counsel
GCs from Fortune 100 companies share a candid discussion on how in-house legal departments have grown dramatically as they rein in costs and use outside counsel more selectively, a shift which has also created a greater emphasis on operational efficiency. Panelists will discuss the new role law firms have in this environment and provide an inside look into how the nation’s top law departments are reshuffling staff.
Moderated by: David Levine, General Counsel, Bloomberg LP
- Sabine Chalmers, Chief Legal & Corporate Affairs Officer, Anheuser-Busch InBev
- Michele Coleman Mayes, Vice President, General Counsel, The New York Public Library
- Christa D’Alimonte, Senior Vice President and Deputy General Counsel, Viacom, Inc.
- Mei Lin Kwan-Gett, Deputy General Counsel and Head of Global Litigation, Citi
- David G. Leitch, Group Vice President and General Counsel, Ford Motor Company
- Craig Silliman, Executive Vice President for Public Policy and General Counsel, Verizon Communications
David Levine provides intro…. There are many things law firms cannot do as well as in-house counsel. For example, pro-active risk management comes from the inside – from being able to interact regularly with the business teams. In-house counsel need to identify new issues – this may require more internal hires. This could result in more law firm consults, as new issues are unearthed. But as in-house counsel become better at finding issues early, legal spend should go down. In crisis situations, in-house counsel also have a leg up on outside lawyers.
Levine notes that many law firms have not changed their pricing, the economic crisis notwithstanding. They are taking a big gamble that [my words for his gist] price elasticity of legal services has not changed.
[I did not capture a substantial portion of discussion on issues about role of in-house counsel… am picking up as conversation with focus on outside counsel management]
Sabine Chalmers… 10 years ago, many business people went directly to outside law firms. That no longer happens. Also, there are many activities we used to do that we just stopped doing. We have moved away from model of global law firms managing local counsel; when we go outside, in-house counsel manage those firms. For some areas, e.g., antitrust or investigation, we work with outside counsel. The ones we select encourage use to internalize many of the functions. That brings down total legal cost but ensures that the toughest issues are handled effectively. So these firms “lose some work” but keep the business.
Christa D’Alimonte… in eDiscovery, we hire the right people and now have advantages doing the work internally over using vendors. Our own team knows the company – vendors and law firms don’t. For transactions, including M&A, we do work with outside counsel but our in-house lawyers can handle many smaller matters. So we use outside counsel for big transactions for their scale.
Q: Are top firms pricing themselves out of the market for all but the toughest work?
Mei Lin Kwan-Gett…. so much budget pressure that is very hard to justify outside counsel spend. We have to be convinced that top firm is so efficient that it’s worth paying their high rates. We may pair firms together, for example, use one firm for eDiscovery or investigation and another for appellate work.
Michele Coleman Mayes… if firms don’t raise the question of whether they are the right fit, then they will hear it in less kind words at end. Expects firms to say what they are really good at. “I have had firms withdraw from consideration; I appreciate that and respect those firms”. We have fixed fee arrangements with some firms but it’s hard to get there because we need a lot of data to do it right. eDiscovery is a key area – we set up an internal discovery unit. Had to get law firms comfortable though because they sign pleadings.
Q: As you outside counsel less, do you find them as effective?
Christa D’Alimonte… we have not seen this as an issue. We still build relationships with outside counsel. We understand firms need to understand our business if they are to serve us effectively.
David G. Leitch… our law firms do enough work with us that they know the company. Tells outside lawyers they should listen to earnings call – but don’t charge for it.
Q: How do you manage outside counsel? Is it more aggressive now?
David G. Leitch… Out outside counsel say its more aggressive. But today, firms understand we will ask for a budget and can provide it. Conflicts
Sabine Chalmers… We expect and demand budgets. We often run e-auctions. We almost always run RFP process for big ticket matters. External law firms are more used to this now. Ten years ago, it was a shock to them. Shares 3 year strategic plan with law firms so they know the business and “are in it together”. Those firms that remain have two qualities. First, they are hungry. Second, likes firms that are willing to put their fees at risk.
Q: What do your outside counsel guidelines specify?
David… We have many guidelines
Mei Lin… We have detailed OCG. Surprising how many firms don’t follow.
Sabine… With fixed fee, we don’t care nearly as much about OCG.
Christa… I’m relatively new in-house. I am shocked by focus on budgets. I thought I understood this as Big Law partner but moving in-house has been a shock. Seeing the budgeting and tracking has been eye-opening. We see which firms are good at budgeting and reporting on performance against budget. I have to report up to my management on budget. So law firm adherence to budget is key.
Michele… Idea that you can go to CFO and say you blew budget does not go over well. CFO wants to real-time info on budget issues. With real-time info, CFO might be more receptive to settling.
Q: Will Big Law always handle the biggest matters?
Mei Lin… We are so learn; we can handle smaller matters but use outside counsel for vast majority of litigation.
Christa… we do smaller matters in-house but used outside counsel for big or highly specialized matters. Outside counsel though may not always be Big Law. We are open to using smaller firms.
Q: How do you decide it’s time to hire someone internally for specific expertise?
David… When you can keep person occupied over long term working on that expertise. Having let go many lawyers, we are cautious.
Mei Lin… My own arrival at Citi answers this question in part. I was investigator / white collar crime lawyer. Citi needed that expertise.
Sabine… Hiring is both about risk management and costs. Two pre-conditions about hiring. Passionate about beer. Must have ability to change roles within 4 to 5 years. Can person hire a successor in that time frame and then shifting jobs, often into business (not law department).
Christa… Mobility within department / company is big issue for us. For hiring from outside, less about risk management as it is about new business or new focus in business (e.g., shift to digital).
David… I don’t think we compete with outside counsel. If they do, not on our list.
Mei Lin… We don’t view them as competitors.
Sabine… It’s a complementary relationship. But I’ve seen explosion in competition across law firms and other service providers.
Christa… We don’t compete. We need firms for many matters.
Michele… We don’t compete.
[RF comment on concluding comments: I think there may be semantics here. All the survey data show in-house is growing faster than than outside spend. There are very strong substitution effects at work. Whether we call this competition or not hardly seems relevant for Big Law management.]
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