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General counsel cut size of legal panels

General counsel cut size of legal panels

In-house legal teams are cutting law firm panel numbers to save themselves time and make sure their external counsel are paying attention.

IN-HOUSE legal teams are cutting law firm panel numbers to save themselves time and make sure their external counsel are paying attention. 

Convergence, as it is called, involves corporate counsel reducing the number of law firms on their legal panels. 

The economy has played a small role in the increase of convergence in the past year, according to Australian Corporate Lawyers Association (ACLA) chief executive officer Peter Turner. 

The more firms there are on a panel, the more difficult it is to manage, Turner said. AS in-house teams are being sometimes radically cut in the global economic downturn, in-house teams have less time to negotiate with a large number of external counsel as a brief is sent out. 

"People are having less time in-house to manage the external resource, so it makes sense if you only have three panelists instead of 15. It's easier to manage," he said. 

Turner argues it's a valid management method commonly applied, particularly in the United States and the United Kingdom. 

But a bigger driver for convergence is the attraction of having external lawyers more committed to the business as a whole.

"There is some evidence that convergence is a tactic being applied. One reason is that if you reduce the number of firms on your panel, it means the legal fee cake is being cut up among fewer people."

General counsel have found in the past that if they have fewer firms on their legal panels, those firms become more dedicated to the task. They want the larger portion of the pie and will make the effort to better understand the client's business. 

"There is of course a greater level of commitment from those sharing the pie," Turner said. "Generally speaking the more dollars on the table the more people are going to sit up and pay attention ... That's the kind of thinking behind it."

In-house counsel want better results from their external lawyers, and better value for money. "Corporations are struggling to save money wherever they can. And spending with law firms is one of those things, it's like death and taxes," said Turner. 

CSIRO Legal corporate patent counsel, Richard Aarons, told The New Lawyer that in-house teams need to weigh up the benefits of building a strong relationship with fewer firms, against dealing with conflict issues with too few firms. 

"As an outsourcing organisation, if there are fewer firms, you can send more work to each firm on the panel, and that justifies them spending more time to understand your business," Aarons said. 

"You also need to have the ability to have a little competition between the firms if you're trying to manage a large number of matters." 

The issue of trying to manage many firms on one legal panel also raises problems for corporate counsel, he said. 

At an organisation like the CSIRO and within public sector circles, panel numbers are often around three firms. 

Aarons said he has heard anecdotes about the private sector cutting the number of firms they have on their panels, but is not convinced that is linked to the global economic downturn. 

Aarons argues other factors are influencing this trend. "I think ... the depth of a relationship with the firm, the volume of business that you can send them, the firm's incentive to invest in understanding your business ... are things that exist despite the financial crisis. 

"I know of many organisations that have been streamlining their outsourcing programs well before the GFC hit. I am not convinced there is a connection there. It may be that if a corporation had not got around to doing its rationalisation or streamlining, the GFC might add to the rationale of getting on with it. But I don't think it's a principal driver in itself," Aarons said. 

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