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In the box seat

In the box seat

General counsels are becoming increasingly picky about what work they outsource and which firms they use.

You can’t be friends with everyone, so it is best to have a few close confidantes.

That is the approach Kate Munnings (pictured) has taken with the selection of her preferred legal firms.

Munnings is the chief risk and legal officer, company secretary, at Transfield Services, an ASX top 200 company with a global workforce of 28,000, 12,000 of which are in Australia.

Transfield predominantly uses only three firms for its external legal work in Australia, with DLA Piper, Baker & McKenzie and Minter Ellison the company’s preferred legal providers at the moment.

“I would rather concentrate my spend and be a big or influential client to a small number of firms than spread the spend around and be a one deal wonder with a broader group of firms,” says Munnings.

“I want relationship firms that I know will understand my business, have worked with us on various transactions, and that I have a relationship with, so I have some leverage when it comes to conflict, billing discussions, and staffing numbers on transactions or deals.”

That desire to be an influential client with law firms has meant that Munnings looks to use firms that are reflective of Transfield’s size and market position. She says she has eschewed using firms like Mallesons Stephen Jaques or the UK magic circle firms that have arrived in Australia recently precisely because their high-profile client list might mean that Transfield’s concerns would not be a high priority.

“If we went to a Clifford Chance, they will be servicing larger clients, and I don’t think our ability to get the same level of service is there,” she says. “They will deny it, but that has been my experience in the past, and I have taken matters away from firms for that reason.”

General counsels currently have a lot of clout within the Australian legal profession.

The arrival of global law firms has only heightened the level of competition in what was already a very crowded market, and over the last few years firms have been expected to jump through hoops in order to retain and attract clients against a backdrop of general counsels looking to simplify their external legal relationships and reduce the number of law firms on formal or informal panels.

The provision of alternative fee arrangements is one such burgeoning area of demand from general counsels, and Bakers, which has counted Transfield as an Australian client for five years, provides such a billing structure.

“Bakers provides a fixed fee for particular work, which is all about sharing the risk,” says Munnings.

“Some in-house lawyers get their credibility by having cheap legal services and, therefore, were always in a fuss about fees. [Law firms] know that I will pay them what is fair, but don’t rip me off, and make sure that your people are working efficiently.”

Munnings believes her decade-long experience in private practice, which included partnership positions at Corrs Chambers Westgarth and Baker & McKenzie, has given her a good knowledge of the general cost of legal work, and whether the law firms she engages are doing an efficient job.

“I say to external lawyers that I realise that the behaviour of our people can cause the cost to go up, and you need to tell me if that is happening,” she says. “I don’t expect you to sit there watching the clock ticking over and racking up the fees.”

According to Fisher & Paykel Appliances Limited general counsel Rebecca Holbrook, managing the external legal spend of law firms is one of the “key roles” in the suite of responsibilities of a general counsel.

“It is important that advice is provided in accordance with budget parameters/expectations,” she says.

“There are a number of ways this can be achieved – such as seeking high-level telephone advice only, or capping fees on a large transaction.”

One area where general counsels have demanded lower fees and changed the corporate structure of some of the world’s largest law firms is with regard to litigation services.

The provision of legal process outsourcing (LPO) providers to churn through much of the low-level due diligence, discovery and document review tasks associated with large-scale litigation has meant law firms such as Mallesons and Blake Dawson now have formal links with LPO providers.
These firms can now offer clients lower bills, which is much more palatable than losing the client.

“Large firms like Mallesons are conscious that if they don’t find ways to reduce the cost of their services to clients for certain work types, they will lose it,” said John Knox, the managing partner of Advent Lawyers, when talking to Lawyers Weekly in the wake of Mallesons signing a formal outsourcing agreement with Integreon in October last year. In April 2010, Advent signed a strategic alliance with New York and Mumbai-based LPO provider Pangea3.

A little personality goes a long way

While offering a mix of expertise and flexible fee structures will get a law firm a foot in the door, the union will not last if a general counsel and law firm relationship partner don’t get along.

Munnings says the relationship she has with the three key partners she uses at Bakers, Minters and DLA Piper – Leigh Duthie, Costas Condoleon and Stephen Webb – is the key component to her company’s continued use of their respective firms, and that she “trusts them implicitly”.

Munnings’ association with Duthie, the Melbourne managing partner at Bakers, stretches back to when they were colleagues at the firm, and their continued association when she went in-house was due to his “qualities as a person”.

“The first acquisition we did [after joining Transfield] was in the US in April 2006,” she says. “I knew that Leigh would source me the best partner in the US.

“I had investment bankers saying, ‘Use this lawyer, or this one or this one, and I thought, ‘I want someone I want a relationship with and not who the investment bankers have a relationship with’,” she says.

“Leigh got me a partner who impressed the whole company and who still does work for us over there. I needed that level of trust.”

Her association with Condoleon started after he and the firm were given work as a result of a deal where Bakers was conflicted, and she has continued to use him since that time.

“I trust Costas and he was honest with me and we clicked. There was no spin,” she says. “You meet people and you like them and you meet other people and you don’t like them as much.”

The international network of DLA Piper is what attracted her to use that firm, particular its presence in the Middle East. She describes Stephen Webb, who returned to Brisbane in 2010 after managing the firm’s Abu Dhabi office, as an “excellent lawyer who has been a great help in supporting our business in the Middle East”.
 

Doing more with less

Recent global economic volatility has put added pressure on the shoulders of in-house legal teams to reduce their external legal spend and operate within tight budget parameters.

“Our budget has remained static for the last few years,” says Fisher & Paykel’s Holbrook, who heads a team of four lawyers and one legal executive. “This will not change until the company’s profit increases.”

The New Zealand headquartered company has done it tough recently, with falling retail sales and the global economic downturn eroding profits and revenue.

The tightening of corporate belt buckles is being felt by in-house teams throughout Australia across a myriad of sectors.

“There has been a consistent message from many in-house teams that they are doing more work with less people,” says Brian Rollo, who manages the in-house team with legal recruiters Taylor Root.

“That could be due to a company having made redundancies or downsized through attrition, and that is probably due to internal pressure and restrictions on headcount spend,which is very common at the moment.”

Rollo says that this in turn is affecting recruitment and retention plans for general counsels, as they are often facing brick walls from senior management when looking to expand their team.

“By the same token, there is more of a focus on companies not hiring in-house lawyers rather than reducing external legal spend,” he says.

“If there is work to be done and they are low on headcount, companies would rather outsource the work than bring someone in-house, because it seems the actual barometer of meeting cost-cutting targets internally is to keep headcount low regardless of actual spend on outsourced legal work, which is something a lot of in-house teams have been talking about.”

Not surprisingly, this is impacting the in-house recruitment market, with the in-house market at the moment being even more sluggish than what is currently a quiet private practice market.

“There has been more evidence of wariness amongst private practice candidates looking to move in-house over the last year, particularly when you look at the banking sector, given the uncertainty surrounding that sector overseas at the moment,” he says.

“No-one really knows whether 2012 will be better or worse.”

While the gloomy economic outlook is putting added stress and pressure on in-house legal teams, Munnings retains a semblance of calm. She says her former career as a nurse at St Vincent’s Hospital in Darlinghurst has helped her maintain a sense of balance.

“I worked in Emergency and with alcohol-related brain damaged patients and people with AIDS and HIV and I learnt about people. They are the skills I bring to my role,” she says. “I worked with street kids, prostitutes and people released from jail.

“I never feel stressed here. Well, I do feel stress,but I try and keep things in perspective. Treating people after the fire at the Down Under Hostel in Kings Cross (where six people died in 1989), that is real stress.”

Like this story? Read more:

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In the box seat
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