Lexpert Magazine

94 LEXPERT MAGAZINE | NOVEMBER/DECEMBER 2016 BY RICHARD STOCK | COLUMNS | Richard Stock, M.A., FCIS, CMC, is a partner with Catalyst Consulting. The firm has consulted to over 250 law departments over 20 years. Reach him at (416) 367-4447 or at rstock@catalystlegal.com. Changing Law Firms MORE THAN three-quarters of compa- nies have long-established relationships with primary law firms and local counsel. Still, times are changing for companies great and small, and the procurement/ strategic-sourcing team is always enthusi- astic to introduce more structure, process and economic targets when the company retains counsel. Collaborative technolo- gies and alternative fee arrangements have made it irresistible, if not inevitable, to as- sure leading practices in the management of the legal-services portfolio. Unsurprisingly, too few law firms initiate the business-to- business dialogue with key clients. Companies regularly cra requests for proposals (RFPs) for legal ser- vices in order to reset relationships in all dimensions: number of firms retained, work-intake and alloca- tion protocols, collaborative tech- nologies, management of the legal supply chain including of local counsel, pricing and innovation. At times the RFPs are bilateral and, at other times, they are high-stakes competitive processes that are disruptive and result in long-term value propositions for the client that differ dramatically from the status quo. reshold factors and RFPs do result in companies reducing and changing the configuration of their primary law firms. More than 70 per cent of the work referred to firms by corporate law departments is litigation or labour and employment work. Regular commercial work is typi- cally much more cost-effective to in-source, while complex transactions and financings are referred to firms that have the bench strength for this work. I was asked recently whether there are best practices governing how a company should replace one firm with another. When hourly billing was the order of the day, a law firm's services could be phased out over a few months and new work allo- cated to the replacement firms. Companies are better now at projecting the scope of work for multiple matters, specialties and regions. Many are prepared to make com- mitments for three to five years in return for stable legal teams and predictable pric- ing that is non-hourly. Without exception, law departments want to rid themselves of the administra- tive work that comes with retaining firms and processing fees in traditional ways. It follows that companies do not wish to pay a fixed fee to one firm that will overlap with fees paid to firms that are being tran- sitioned out. At times, a network of local counsel is replaced with a new network. At other times, primary firms are replaced, even for strategic matters. Companies are migrating from the tra- ditional model of a panel of firms ("I select the lawyer, not the firm") to more struc- tured business-to-business models. ere are two ways to manage the tran- sition. e first is to designate one or two firms as primary national, primary regional (e.g., the Americas) or primary global counsel. ese firms are asked to review all active files currently with the company, and then to propose a fast-track transition (four to six weeks) of the files. It is normal that some files will remain with legacy counsel until a certain milestone is reached or even until they are closed. ese "carve-outs" are estimated for fees, and the fixed fee of the primary firm is adjusted accordingly. e second approach to managing the transition to a new configuration of exter- nal counsel is to have the primary firms im- mediately oversee the work and the matter budgets of legacy firms, receive and approve their invoices, and pay them from the fixed fee they are receiving. is creates a better balance of incentives for the company, and for primary and local counsel to quickly reach a new equilibrium in legal-services delivery, in legal fees and administration. is latter approach has a bene- ficial side effect. Individual mem- bers of legal departments and business units form attachments to legacy counsel. Professional relationships, especially those that are effective, are difficult to disrupt. Some rank-and-file members of corporate law departments will passively resist changes to established legal-services delivery arrangements. A managed transi- tion prompts a dialogue for new expecta- tions, and introduces new players within a framework that is more businesslike. General counsel should insist on a clear transition plan from legacy firms. e plan should be fast-tracked in its execution and minimize duplication of fees and adminis- trative time from lawyers and others in the company to develop it and put it in place. e very best law firms should be tasked with proposing the details of transition plans and be evaluated on their success for doing so seamlessly. There are a couple of approaches for companies moving to systematic firm selection LAW DEPARTMENTS "THE GENERAL COUNSEL should insist on a transition plan from legacy firms. That plan should be fast- tracked and minimize duplication of fees and administrative time."

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