Cover Story
Embracing the law firm
convergence model
Increasingly, the notion of law firm ‘convergence’ has prompted meaningful change in many
of the world’s biggest legal departments. Here, Paul Smith, the new Chairman at Eversheds
expands on the convergence model and explains how a decrease in the number of law firms
per client has led to heightened efficiency and a reduction in costs. He also underscores the
importance of a deeper sense of trust between law firm and client.
A means of adding value
With continuing pressures on in-house
counsel to control costs, demonstrate efficiencies and add value to their organisation, reducing the number of external law
firms and suppliers they use continues to
be a top priority.
Convergence
The process of ‘convergence’ i.e. reducing
the number of suppliers is a key part of the
concept of ‘partnering,’ whereby buyers
and sellers realise that they have a mutual
long-term interest in each other’s success.
Its origins lie with the post-war management guru Edward Demming who is credited with helping with the transformation
of the Japanese car industry, recognising
that improvements in quality could be
obtained by having fewer suppliers and
that rather than short-term vendor/purchaser spats, benefits could be obtained by
entering into long-term supply agreements
based on trust.
The DuPont Legal Model
In the legal industry, DuPont was the first
company to apply this thinking. In the early
1990s, DuPont was under pressure to cut
costs and the legal department was not
exempt, DuPont spoke to their colleagues
who manufactured the company’s products
and discovered the partnering concept and
developed the DuPont Legal Model (the
DuPont Model.) The main principle behind
the DuPont Model is to apply business
thinking to the practice of law with the aims
of reducing costs, increasing productivity
and improving the quality of the service.
DuPont began the process by reducing
the number of firms it used through a com20 ASIAN-MENA COUNSEL
petitive tender process, the outcome being
a reduction from 460 to 30 firms. Some
firms had worked for the company since
the Civil War era and there were many
casualties, and new firms were added to
what became known as “the Wheel.” The
firms who were appointed had to sign up to
the new thinking behind the DuPont Model
which proved difficult for traditional law
firms used to hourly billing and the old
ways of doing business.
Fundamental to understanding the
DuPont Model is the need to realise that
DuPont and its legal team are at the centre
of the Wheel and that the law firms are
there to serve DuPont’s best interests.
Every year there is a Benchmark Survey to
determine whether the law firms and other
legal suppliers deliver efficiency and cost
control. The firms that do not continuously
improve do not remain on the panel and
there is no room for complacency. The
Benchmark Survey has been conducted
since 1996 and each year every law firm/
legal supplier completes an online self-assessment about its contribution to DuPont
in terms of cost savings, the application of
alternative fee arrangements, the use of
Nice work if you can get it – or, how
client demand is shaping legal service
There are still some firms in Japan, like
Iwata Godo for example, that have longterm clients that pay them a yearly
retainer. With a limited number of partners, a tradition of excellence stretching
back to 1902 and a steady and predictable income to divide up, such a firm is in
a place that most international legal partnerships can only dream of. Most law
firms are not so lucky.
Law firms are often
compared unfavourably to the Big 4
accountancy firms in
terms of business
strategy, but by
the very nature
of legal work,
it is unpre-
dictable, unlike the annual audit.
Curiously the retainer, that old fashioned
partnership between law firm and client,
may hold some lessons for the present
and the future.
The business strategy of a law firm
is intrinsically linked to both partnership and compensation. In certain circumstances, the concept of a full service
global partnership may be an oxymoron.
One general counsel shared his views
with me that certain international firms
would have to be smaller, and be disciplined enough to focus on their key
strengths and core values, and have the
bravery to surgically remove peripheral
services to that end. Radical perhaps,
but only the adaptable and fleet of foot
are going to survive in this, the Age of
Great Austerity.
Patrick Dransfield
www.inhousecommunity.com
Embracing the law firm convergence model
By Paul Smith, Eversheds
mediation and arbitration to the use of
technology and demonstrating diversity in
the team serving DuPont.
Another critical part of the DuPont
Model is knowledge sharing. A centralised
location for sharing information, such as
legal precedents, is set up so that the knowledge of the firms working with DuPont is
shared. This collaboration between the inhouse legal department and the law firms
takes place through an internet-based tool
called ‘The Edge.’ The Edge is used to cultivate knowledge sharing and initially it was
used by the in-house teams and law firms
working on major litigation cases to collaborate, but it is now used as well to share
knowledge on corporate and IP matters.
DuPont has saved hundreds of millions
of dollars as a result of the application of
the DuPont Model and specifically the use
of Six Sigma. Like the concept of partnering, Six Sigma is a concept derived from
a manufacturing background and it is a
statistical tool used to eliminate defects,
repeat work and waste. There is plenty of
scope for inefficiency in carrying out
legal work, and Six Sigma is used to
introduce greater process and efficiency
into the carrying out of legal work by
driving out wasteful work, facilitating
better use of paralegals rather than more
expensive lawyers, and by leveraging a
greater utilisation of technology.
The DuPont Model is an excellent
example of partnering. Every year there is
a legal meeting, which is attended by the
DuPont senior in-house lawyers and the
engagement partners from the law firms
and legal suppliers. There are various presentations on aspects of the DuPont Model
and an update on DuPont’s future strategy
from one of its senior business leaders.
Awards are given to the firms who make an
outstanding contribution to the success of
the DuPont Model. On a regular basis
DuPont places advertisements in leading
business and legal journals listing its firms
and suppliers and encouraging other companies to utilise their services. DuPont’s
in-house lawyers also make direct referrals
through instructions to other in-house lawyers to their law firms.
The DuPont law firms and legal suppliers are also encouraged to refer work to
each other, and some firms derive more
Volume 11 Issue 9, 2014
revenue from other firms in the network
than they do directly from DuPont.
The Tyco Legal Model
The legal model adopted by Tyco (the Tyco
Model) has many similarities to the DuPont
Model but takes the concept of convergence to the next level. In the US, Tyco
converged on practice group lines appointing one firm for labour law, one firm for
product liability law etc. In Europe, the
Middle East and Africa, (EMEA) they took
a more radical solution, appointing one
firm, Eversheds, to be their sole firm for
ried out of the work which was done on a
regular basis, such as commercial agreements, small litigation matters, employment
claims etc. which were classified as ‘Basic
Scope,’ and ‘Additional Scope’ work covered larger litigation matters and transactional work. In the period from 2007 to 2012,
Tyco reduced the Basic Scope costs from
US$5 million to US$2.4 million, and their
litigation portfolio was reduced from 327
cases to 145. Having one supplier enabled
the Tyco legal team to provide the business
with accurate figures on legal spend and
more precise budgeting for future years.
“The Tyco Legal Model
provides great visibility and
control over legal work with
better spend management and
improved budgeting –
producing significant cost
savings”
Paul Smith
this region following a competitive tender
exercise. In the process, 285 other firms
were removed and their legal costs were
reduced by 50 percent.
Tyco had made numerous acquisitions
in EMEA and in the process had acquired
many law firms as its suppliers with limited knowledge of which firms they used
and little control on how much they were
charging. Tyco also had limited knowledge
as to what work was being done internally
and what work was being done externally.
They also had no knowledge of the actual
sum they were spending on external law
firms. Also, they were failing to leverage
their buying power.
In carrying out the convergence process,
the legal team at Tyco was greatly assisted by
the internal procurement team who helped
with the tender process and the determination
of metrics and measures to determine the
success of the programme. An audit was car-
These cost saving results were
obtained in various ways. The first was
by the introduction of rigid controls in
that all instructions for work to be carried out by external firms could only be
authorised by the legal department and
only matters which needed to be outsourced externally were outsourced. Also
specific projects were identified in which
the work could be done in a more efficient way, utilising tools such as ‘heat
mapping’ where the spend in various
EMEA countries was analysed by reference to the level of perceived risk in
those countries and the size of the business there, enabling comparisons to be
made by reference to spending in practice areas and internal business lines.
The Tyco Model is another excellent
example of partnering for the benefit of the
client. Under the agreed Service Level
Agreement, the cost of each matter is
21
Cover Story
“Individual partners clinging onto the notion of ‘their
client’ will run counter to the partnership thinking
and the firms that survive in the future will be those
which can innovate and commit to these long-term
business to business relationships”
known at the outset and spend can be
tracked at the press of a button month by
month, business by business and country by
country. For Eversheds, they know that they
will receive all Tyco’s business in EMEA
for the following year providing greater
business certainty in their budgeting.
The rules in the Service Level
Agreement (the Agreement) are strict and
if cost estimates are not approved in
advance then payment will not be made.
There is also a provision of one lawyer per
matter unless otherwise agreed, to prevent
overlayering with clear definitions in the
Agreement as to what expenses and activities are payable by Tyco. The Basic Scope
work is performed on a fixed fee basis and
the Additional Scope work is carried out
on the basis of discounted hourly fees. The
Additional Scope work is agreed on a case
by case basis and Tyco has the flexibility to
appoint an alternative to Eversheds if they
consider that Eversheds does not have the
requisite experience/capability, although
this is seldom invoked.
The Tyco Model provides great visibility and control over legal work with better
spend management and improved budgeting – producing significant cost savings.
Other companies have moved to the ‘one
firm’ model such as construction company
Balfour Beatty who appointed Pinsent
Masons as sole adviser for all of its ‘business as usual’ legal work which is predictable or recurrent, and other legal services
such as M&A and complex litigation which
are handled by a small panel of firms of
which Pinsent Masons is one.
The Pfizer Legal Model
The Pfizer legal model entitled ‘Pfizer
Legal Alliance Program’ (sic) (the
Programme) has been in existence for over
four years and its objective is to ‘foster trust
and collaboration, promote practice solu22 ASIAN-MENA COUNSEL
tions-based lawyering and recognise the
value paradigm.’ The Programme covers
around 75 percent of Pfizer’s legal spend
with just 19 firms covering both the US and
the rest of the world.
An annual fixed fee is decided upon
for each firm, and the firm is paid in
monthly instalments. Like the DuPont
Model, collaboration between the firms is
actively encouraged with meetings between
the in-house team and all the firms.
It is a classic partnering arrangement
with a fundamental principle of the model
being that one of its main goals is to foster
long-term relationships and in the absence
of unusual circumstances, the law department does not envisage changes to the
panel from year to year. Ellen Rosenthal,
Chief Counsel for the Programme, stated,
“the notion of creating a long-term relationship goes a long way. We need to have
trust in each other because everything
doesn’t ‘match up’, if comparing hours to
dollars under the old system; there is no
true-up. What we do have is a sense things
will be made fair and that we are operating
in good faith. We understand that there
may be good years and bad years, but the
expectation is that overall this will be
positive for us and the firms.”
A very important element of the
Programme is the sharing of work between
the law firms, and projects will often use a
number of firms working together on the
same case. As with the DuPont Model, that
can only work on the basis that the client is
at the centre of the Wheel and that there is
trust between the law firms and the inhouse team. Pfizer vets measures and metrics through a balanced scorecard approach
with an online self-assessment for the firms
and evaluation form completed by the inhouse team. Results are collated and the
firms receive information on how they rank
numerically against other firms in the
Programme. DuPont similarly benchmark
their firms working with the Counsel
Management Group. For example, comparisons are made which contrast historic
spending with law firm budget proposals.
On a broader level, the Association of
Corporate Counsel recently carried out a
Value Based Fee and Budgeting Project
(the Project) covering integration across 60
firms involving total fees of US$460 million. The main finding of the Project was
the discovery that hourly discount deals
had far less impact than law firms generating efficiencies by working to new business models. Some firms took twice as
long to complete the same tasks as other
firms and prepared budgets seemingly
without reference to their historic costs.
Armed with this information in-house
teams will increasingly pay for results and
not the time incurred.
In summary, many companies continue to ‘converge’ and reduce the number
of law firms they use, be it down to a few
or just one. The results in terms of cost
savings and greater efficiencies are dramatic – reflecting well on the performance
of the in-house team. There is greater cost
certainty and transparency but these
relationships only work if there is a determination to continuously improve performance and provided that there is deep
down a long-term relationship based on
trust. For the law firms collaborating with
rival firms there are real challenges when
providing a joint service to the client and
when sharing knowledge. Breaking down
the walls between suppliers is a key element of these programmes and it is very
much a future trend. Committing to these
long-term partnerships creates greater certainty of law firm revenues but involves
careful consideration of potential commercial conflicts with other clients.
Individual partners clinging onto the
notion of ‘their client’ will run counter to
the partnership thinking and the firms that
survive in the future will be those which
can innovate and commit to these longterm business to business relationships.
[email protected]
www.eversheds.com
www.inhousecommunity.com