Preferred provider panels and alternative fee arrangements have been two of the most frequent changes that general counsel have put into place in the last decade to control their legal spend on outside counsel and to improve the client/firm relationship. However, early results from AdvanceLaw’s GC Thought Leaders Experiment shows that strategy is not always providing the results GCs want.
AdvanceLaw — a group of 180 general counsel who identify and retain top lawyers from firms that are vetted for quality, client service and innovation — held a webinar last week to release some eagerly-awaited early findings, based on eight months of research from its GC Thought Leaders Experiment. The 18-month experiment with 28 GCs was began to address GCs’ desire for service innovation and how GCs, law firms and law firm partners could determine what behaviors drive the best results, said AdvanceLaw founder Firoz Dattu, adding that the legal market doesn’t sufficiently motivate innovation and performance.
Law firm leaders and many others in the industry have anxiously watched and anticipated the AdvanceLaw findings and any resulting ramifications that could impact outside counsel hiring and retention.
The data for the GC Thought Leaders Experiment was gathered from an intake survey and monthly updates from GCs to help determine which law firms and general counsel practices predictably lead to better performance, higher client satisfaction and mutually beneficial working relationships. Last week’s webinar featured a panel of four GCs who emphasized the Thought Leaders Experiment will take the guesswork out of the equation and provide a roadmap to more successful partnerships. “This is the start of the modernization of law practice, but we have to professionalize how we do this instead of haphazardly doing it,” said Flex General Counsel Scott Offer, one of the panelists.
The panel outlined the following five findings:
- Preferred Panels
When looking at in-house lawyer evaluations of work performed by outside counsel on preferred panels versus work performed by outside counsel where no preferred panel was in place, the data consistently showed non-panel firms were evaluated more favorably by GCs in terms of cost and efficiency, quality of work, responsiveness, focus on solutions, and outcome vs. expectation.
Dattu noted that this doesn’t mean panel firms are not doing good or sometimes better work, but the takeaway is that having a panel of preferred firms does not in and of itself give better service. “Just having a panel isn’t enough — it depends on how you structure it and manage it,” he said. “You can’t rubber stamp incumbents or get complacent, as complacency can overcome the benefit of institutional knowledge.”
Another panelist, Paypal General Counsel Wanji Walcott, agreed. “I’m not making a judgment that panels are a myth or don’t work… but the result shows that forming a panel is the first step, not the last. You can’t form a panel and be done.” As the experiment continues, Dattu noted, they will look at factors affecting success, such as the number of firms on a panel, the amount of spend, if only similarly-positioned firms are considered, and if GCs are still evaluating firms after placement on a panel.
- Alternative Fee Arrangements
The results were also a bit surprising for ever-popular alternative fee arrangements, specifically flat-fee agreements. While most GCs enter into flat-fee billing for the predictability of cost, Dattu said he has heard concerns around a resulting decrease in quality of work as clients fear law firms might place less-talented teams on those matters due to the capped fees. However, the data did not show that, but rather showed a slight increase in the quality of work. Continued research will look into where flat fees work best and where they don’t, and where GCs can find the highest return on investment.
- Engagement Tools
Another key takeaway from the preliminary results are that outside counsel engagement tools — such as client summits or post-matter evaluations — drive better performance in all categories. Molson Coors Secretary & Deputy GC Lee Reichert noted that client summits serve a two-fold purpose: first, ensuring that outside counsel understand his company’s competitive landscape, consumer challenges and marketplace dynamics; and second, driving a closer relationship and connectivity between law firms that may end up working together on various aspects of a deal. “This gives our law firms a chance to see each other, get to know each other, and break down the law firm mentality for more of a team approach,” Reichert explained.
- Performance Evaluations
In terms of performance evaluations, the main benefit is staving off complacency, on both sides, according to the panel. The data showed that a feedback loop, between clients and law firms about what they can do better, can yield even better returns. Indeed, as the experiment continues, the research will delve into how to give law firms confidence and the most effective ways to provide critical feedback to a client, Dattu noted.
Law firm evaluations can serve also as an effective tool to drive diversity and inclusion in the industry and ensure the lawyers working with the client are getting credit for it in their own firms, said Paypal’s Walcott. “Historically, I have worked with great lawyers on critical matters but subsequently learned they weren’t getting credit due and owed for the work performed,” she said. “We as general counsel are best positioned to drive change in the industry.”
- Regional Cost Savings
The last finding yielded interesting results around whether lawyers in smaller, less-populated metropolitan areas — sometimes referred to as second-tier markets — provide a cost savings to in-house counsel or whether that results in lower-quality work, as some GCs have worried.
In this case, however, lawyers in smaller markets were seen as outperforming lawyers in the largest US cities on responsiveness, solutions focus and efficiency, and nearly even but often with a slight edge on quality of work and outcomes. Although the panel stressed that this preliminary data shows a bigger differentiation from lawyer to lawyer than geography, the main takeaway was that lawyers who scored the highest on quality and expertise tend to receive better scores from GCs on cost-effectiveness as well.