Report on selection and retention of law firms amongst in-house counsel

In the recent report "The Selection and Retention of Law Firms in Western Europe - Exploring selection criteria and the retention of preferred law firms amongst Western European In-House Counsel" LexisNexis Martindale-Hubbell present the survey result with obtained responses from 219 in-house counsels from 16 countries. The report examines some of the processes involved in the selection and retention of law firms and seeks to answer the question what the key factors are that lead to a successful long-term relationship between corporate clients and their outside counsel - or in short: what clients want.

The survey covered the following issues:

  • Selection factors and reasons for reviews of panel firms and frequency
  • Factors influencing the retention of firms for future work
  • Top reasons for the removal of firms from preferred panels/lists
  • Approach taken by in-house counsel to evaluate law firm performance and common themes in feedback
  • Value-adding elements of relationship
Martindale-Hubbell report 2012

The results were quite clear in that law firms must demonstrate that it understands its client's business needs to be successful and that there is a decrease in legal spend on outside law firms.

The responsibility for hiring law firm and work allocation is dominantly vested in chief legal officers, with only 20 respondents using their organization's procurement functions to assist them in this process. This means that chief legal officers play a dominant role in both deciding to instruct and appoint outside law firms. However, at the same time most in-house counsel experience a pressure to reduce costs, despite the fact that there will be an increase in legislation and regulations to handle. Unsurprisingly, the specialist expertise of external counsel was engaged more often for complex, high profile non-recurring matters, with local firms in the same jurisdiction being favoured. Magic Circle firms and those in other jurisdictions remained the next alternative, but it is interesting to note the preference to also instruct boutique law firms.

The law firm hiring and firing decisions are based on a number of factors, often in combination. One of the most important and consistent factors was the need for law firms to understand the client's business needs. Delivering poor service puts law firms on the fast track to being removed from a client's panel, as is not understanding the company's needs. Most respondents also consider removing law firms who treat them unfairly in relation to billing or fail to communicate effectively. Law firms should be under no illusions that the power of their brand or their personal connections to board members will prevent them from being axed, if they do not perform well. These two reasons were generally regarded as being two of the weakest justifications for continuing to use a less-than-satisfactory law firm.

Of value-added offerings, cost control remains the most important concern for the majority of respondents. However, only 16% of the respondents had been asked to discuss their challenges by their retained law firms.

Similar results were presented earlier this year in the American Association of Corporate Counsel Census Report, with the 4,161 in-house lawyers who participated in the survey reported that they are cutting outside counsel spend by taking on more work in-house, demanding discounts and alternative fee arrangements from their law firms, meaning many law firms are struggling to retain work. For more information on this report, please see " ACC Report on power shift from law firms to in-house counsel".

One aspect of cost control and the more for less challenge often expressed by Professor Richard Susskind is the collaboration model. In this Oxford University Press podcast, he talks outlines some of the key challenges facing the legal profession and how the pressure on costs will transform the legal profession. One way that is proposed is to collaborate. "Clients could share costs with like-minded others in either non-competitive industries or even share non-commercial services with competitors. For example, banks could collaborate to manage compliance issues."

From the report it is clear that knowing the law is necessary but not sufficient for law firms. In-house counsel want to know that you understand their business and can provide them with business-orientated advice, and even help them anticipate their needs and manage risk exposures in advance. There will also be a need provide legal services in new ways. Although high end legal work might not be so price sensitive, other legal services will have to be delivered in more efficient and cheaper ways.

To obtain a free copy of the full report, please visit www.martindale-hubbell.co.uk/Western-European-IHC

 

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