LISTEN UP: With the gap closing between in-house and external counsel, are law firms ready to accommodate their professional needs?

There was a time within the legal profession when in-house lawyers were seen as the poorer cousins to their private practice counterparts. For some lawyers, going in-house was seen as a soft option. This is not the case any more.

"Moving from an external law firm to an in-house role is not a part-time job; your life will not be any easier," says Mike Ferraro, who was the general counsel for BHP Billiton between 2007 and 2010.

Now back at his previous firm, Freehills, as a Melbourne-based senior partner with a strategic role, Ferraro says the expectations and demands on all 75 lawyers within the in-house legal team at BHP were immense. "Based on my experience and the experience of BHP lawyers, you work damn hard. I probably worked harder then," he says.

Ferraro notes that one of the biggest changes within the legal profession during his career has been the growth in the number of in-house lawyers. They now account for more than 20 per cent of the profession and constitute the fastest-growing area within the legal fraternity.

He believes that with more lawyers moving into corporate roles, the profession as a whole has a greater appreciation for the skills of in-house lawyers and that private practice practitioners are becoming more cognisant of their needs.

"I now have a far greater appreciation of the pressures in-house counsel have to deal with," says Ferraro. "A common pressure an in-house lawyer faces is, what is the number of lawyers in-house available to do the work, and the concern of external legal advisers should be to work out how you can adequately support the needs of in-house counsel in such a way that you don't over-impose yourself and take up too much time of their time.

"You need to provide in-house lawyers with what they really need and make their life easier, not harder."

Step into my shoes

While more private practice lawyers might be aware of what in-house lawyers want, is that filtering through to the advice they give and the way they approach relationships with in-house lawyers?

According to Trish Hyde, the CEO of the Australian Corporate Lawyers Association (ACLA), her members tell her that a little bit of knowledge of their business goes a long way.

"You don't have to be an expert in the business, but you have to be prepared to go on a journey with that business," says Hyde when talking about the balance between technical legal skills and industry knowledge in-house counsel seek from their external lawyers.

"A company had some issues and they wanted to get some external legal advice," Hyde says by way of offering an example. "The response from the firm was for one of the partners to jump in their car and drive to the client sit around the table with them and discuss what the issue was before they started to do work.

"It was all about being aware of the issue from the in-house perspective."

"Moving from an external law firm to an in-house role is not a part-time job; your life will not be any easier" Mike Ferraro, partner, Freehills

In 2010 ACLA and the Corporate Lawyers Association of New Zealand surveyed 160 of its members and produced a Benchmarking Report. When asked the question "what is the most important aspect in service selection criteria?", the commerciality of advice topped the list of responses, ahead of the overall cost / value for money and optimal outcomes.

"From the perspective of understanding the business, it is all about the commerciality of the advice," Hyde says. "Is it applicable and practicable?"

That knowledge of what your client does might seem like a basic skill for law firms, but for in-house lawyers, it is not enough for their legal advisers to know about the market. They also need to provide solutions that take into account market conditions and the resources of the client organisation, while still delivering a result.

"When in-house go outside their business [and seek the advice of external lawyers] they are looking for something in particular that they don't have," Hyde says.

What they don't want is a lawyer with an overly formal and legalistic approach.

"I don't want a 'black letter law lawyer,'" says Gai Stephens, general legal and tax counsel and company secretary for Luxottica Asia-Pacific. With its head office in Milan, Luxottica is the world's largest eyewear company and has international brands such as Ray-Ban and Oakley under its umbrella. It also has an extensive Australian enterprise, employing nearly 2000 people with brands such as OPSM in its domestic stable.

"The lawyers you really rely on are the ones who can help you make a decision - you just don't want what the law is - you want them to say; 'if I was you, this is the way that I would be heading, because of this, this and this," she says. "I just don't want black letter law dished up, as I can go and read books myself."

"When in-house go outside their business [and seek the advice of external lawyers], they are looking for something in particular that they don't have" Trish Hyde, chief executive, Australian Corporate Lawyers Association

The legal skills between private practice and corporate lawyers is starting to become more defined, and with that increasingly level of specialisation comes a proviso that the advice provided by law firms will be commercial and innovative.

"I think the ability to articulate a legal risk is a commodity and you can acquire that from anyone and it is fairly straightforward, but what is not so straightforward is what I would call a 'loose definition of the X factor," says Richard Amos, the general counsel of Lion Nathan Australia and New Zealand, which is now part of the Lion Nathan National Foods group, owned by the Japanese company Kirin Holdings. Amos looks after the alcohol side of the business, which includes the brands Tooheys, Steinlager and James Squires.

Baker & McKenzie and Mallesons Stephen Jaques are the two firms that his legal team has formal arrangements with.

Amos describes that 'X factor' as "being able to deliver outcomes, which usually involves taking sensible risk, and that holds true whether it is in the context of litigation or big M&A deals."

"It is the people who are able to articulate the risk - but also give me a hand with which option I am going to take - that is my sense of an X factor."

Getting off to a good start

The ultra competitive nature of the Australian legal market has only been ramped up by the arrival of a number of large global firms in recent years. That means that clients are in a position to demand more from their relationship with law firms and the general counsel or legal head in particular.

The key to establishing that framework and preferred method of communication and reporting starts with the tender or procurement process, particularly with large organisations with a formal panel of law firms.

"I just don't want black letter law dished up, as I can go and read books myself" Gai Stephens, general legal and tax counsel, company secretary, Luxottica Asia-Pacific

Luxottica recently invited law firms to tender with regard to its franchising work, a new area for the company, receiving 10 submissions and choosing one firm in the end.

"All the stakeholders sat down and we put together a list of the key areas, such as technical expertise, coverage in different parts of Australia, networking opportunities, their resourcing and the need to have contact with the top person and the size of the firm," says Gai Stephens. "Price wasn't everything, but we wanted to make sure the price we got was competitive."

Stephens says that the firms who tendered for the work included "boutique smaller firms to the biggest in Sydney" and in the end she chose a firm she hadn't used previously based on what she believed would be a fruitful personal working relationship between her and the key private practice lawyer involved.

"That relationship at the end of the day is everything," she says. "Obviously, the lead partner is important and while I had not used that person previously for legal work, I had met them and networked with them a lot.

"They were given the opportunity to tender, so I had a feel for what that relationship would be like in one that was ongoing."

How would you like to pay for that?

Arguments about money have been the death of many a relationship.

"If you identify the top areas that in-house counsel are concerned about in their roles, it is about being effective with what they do, and part of that is around managing cost," says ACLA head Trish Hyde. "There is a growing desire, as shown in the Benmarking Report, to have alternative arrangements, but in practice there is a lag in implementing that."

That report showed an overwhelming desire for corporate lawyers to move away from time based billing, with only four per cent of those polled saying that hourly billing was "entirely appropriate and the best approach". However, that is tempered by 42% of respondents saying it is generally ok, but they haven't found anything better.

Alternative fee arrangements are now being demanded more forthrightly by companies, and they expect their legal providers to listen.

"A law firm needs the ability to understand that sometimes you might require a Holden Commodore and sometimes a Rolls-Royce" Richard Amos, general counsel, Lion Nathan Australia and New Zealand

A famous example of the power of the client in this regard is when Gilbert + Tobin managed to get on the books with Telstra, who traditionally used Mallesons for the majority of its legal work, by offering a multi-million dollar fixed fee structure for an unlimited amount of legal work on demand.

"They have listened when we have suggested flexible billing arrangements, but it has been with varying degrees of traction," says Lion Nathan's Richard Amos.

He says the advantages of having alternatives to the time-based billing system is that in a large organisation such as his is that "you don't have the same tolerance for cost across all your legal work".

"Some work is very cost sensitive and other work is less cost sensitive," he says. "Sometimes quality outcomes are more important, and a law firm needs the ability to understand that sometimes you might require a Holden Commodore and at other times a Rolls-Royce."

In addition to listening, in-house lawyers are also expecting their law firm counterparts to come up with alternative arrangements of their own.

"When we tender it is up to them to come up with some good ideas," says Gai Stephens of Luxottica. She says that one New Zealand firm even offered a fee structure for M&A work where you pay less if any proposed acquisition is unsuccessful.

"That is how we have ended up with what we have got (alternative billing arrangements), because people do come to the table with good ideas."

The top five law firm service selection criteria (importance of reach response is ranked from 10 to 1):	The top five reasons in-house counsel retain law firms (importance of each response is ranked from 10 to 1):
1. Commerciality of advice (10) 2. Overall cost/value for money (7.8) 3. Optimal outcomes (6.7) 4. Quality of documentation (3.1) 5. Identify value-add from outset (2.6) Source: ACLA/CLANZ Benchmarking Report 2010	1. Understand our business/industry/sector (10) 2. Reliable and responsive (9.4) 3. Expertise in specialist areas - lawyers (7.9) 4. Experience and judgment of lawyers (7.8) 5. Innovative / creative / problem-solving capability (5.3) Source: ACLA/CLANZ Benchmarking Report 2010