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AST JULY, WHEN A fat Brooklyn, New York, man sued McDonald’s Corporation for allegedly causing his obesity, the lawyers for the hamburger giant didn’t laugh it off; instead, they jumped into action. Despite the seemingly outlandish claim, they feared the case had watershed potential. But the Oak Brook, Illinois — based company didn’t send the case to either of its faithful litigation firms in Chicago: Sonnenschein Nath & Rosenthal or Kirkland & Ellis. Instead, McDonald’s held a beauty contest and selected as one of its lead counsel a firm with a midwestern reputation: Wildman, Harrold, Allen & Dixon, Chicago’s eleventh-largest (the company also tapped Chicago’s Winston & Strawn to help with the suit). A generation or so ago, hiring a regional firm to handle a headline-grabbing lawsuit for a major company might have been dicey business. If the gamble were lost, the general counsel risked landing on the unemployment line — or at least feeling the wrath of the company’s board of directors. But according to Corporate Counsel’s first ever “Who Represents America’s Biggest Companies?” survey [see page 66], the McDonald’s experience is the tip of a trend among Fortune 250 companies. “It was sort of surprising,” admits Phillip Rudolph, the company’s corporate vice president and international general counsel. “But Wildman, Harrold had a group of lawyers with expertise defending allegations with similar subject matter. So we went with them. And so far, we’ve been very happy.” Of course, the nation’s biggest companies aren’t about to end their love affairs with the priciest blue-chip law firms. Familiar names like Kirkland; Skadden, Arps, Slate, Meagher & Flom; and Jones, Day, Reavis & Pogue still dominate the survey. But corporate America is undergoing a sea change in the way it picks its outside lawyers. Increasingly, companies are making like the Golden Arches and venturing into uncharted waters, a trend that’s diluting the whole concept of “primary outside counsel” — and possibly putting it on the cusp of obsolescence. The reasons? For one thing, companies feeling the pinch of the economic downturn are looking to farm their more routine work out to less expensive lawyers; by the same token, the big, highest-priced firms aren’t as interested in the small stuff either. What’s more, as companies spread their wings both domestically and worldwide, many are adding local law firms to service complicated work in far-flung jurisdictions. And then there’s been an attitude shift: In recent years, lots of companies have started keeping more work in-house. So they’ve had to hire more sophisticated lawyers, who typically bring their own sets of trusted contacts to the table. As a result, general counsel have a lot more ready-made sources to tap for outside help. The result? “The marketplace [for legal services] feels more in flux than ever,” says William Barr, the general counsel of New York — based Verizon Communications Inc. “We try to limit the number of firms we use, but nowadays we’ll always give a new firm a chance if we see something that attracts us.” Casting Wider Nets That attitude represents a change in the way companies are picking outside counsel. About a decade ago, some executive committees and general counsel took a hard look at their legal departments and saw inefficiency. Their verdict: too many law firms. Too many bills. Too much paperwork. So they demanded that their departments streamline operations and cut costs. The GCs concluded that they could save money by pushing more work to fewer firms, many of which were happy to extend bulk discounts. Legal departments created tiered ranking systems of their outside law firms and established rigid protocols for farming out cases and deals. “Consolidation” became the buzzword. And it promised to be the wave of the future. But today, companies have learned that consolidation can be taken only so far. Take New York’s Viacom Inc. The company’s general counsel, Michael Fricklas, says that a few years ago he realized that a company’s legal problems couldn’t “simply be solved by people all sitting in one place.” So he adopted a more realistic stance on consolidation. Fricklas says that, last year, media giant Viacom sent the vast majority of its work to several dozen law firms (which represents an expanded pool of firms from past years), and the remainder to several hundred. “Consolidation is only one part of the equation,” says Fricklas. “We look for the best person to handle each piece of work. And [being familiar] with a lot of firms is the best way to ensure that we’re doing that.” And how are these firms finally chosen? Fricklas and other GCs still rely on the time-tested dog-and-pony shows. Two Tiers Is the shift away from consolidation altering the way companies dole out their legal work? Yes and no. Generally, many companies still send their most paper-intensive litigations and cutting-edge transactional work to the biggest firms in the biggest cities. For example, New York — based Skadden, which employs over 1,600 lawyers worldwide, received more than twice the number of corporate transaction mentions in our survey than did either of its closest competitors, Davis Polk & Wardwell and Wachtell, Lipton, Rosen & Katz — both of New York. And for large litigations, a handful of usual suspects — Kirkland; Skadden; Jones, Day; and Los Angeles — based O’Melveny & Myers — were all clustered near the top of our survey. “There’s definitely a very small concentration of firms that can handle our most complicated work,” says Ernest Patrikis, the general counsel at New York — based American International Group, Inc. “Reinsurance, derivatives, big litigations, big M&A work. That work all goes to a fairly select group of firms.” At AIG, the group includes O’Melveny and New York firms Cahill Gordon & Reindel and Sullivan & Cromwell. But the flip side is that companies confronting novel or hyperspecialized legal problems are increasingly following the lead of McDonald’s. They’re looking past firm names and reputations and searching high and low for the one or two individuals best equipped to handle a given job. Take, for example, the experience of Carol Ann Petren, the deputy general counsel of litigation at Sears, Roebuck and Co. Recently, the Hoffman Estates, Illinois — based company needed a lawyer to handle, in Petren’s words, a specialized piece of litigation (Petren wouldn’t divulge the details). Petren’s team flipped through its Rolodex of outside counsel, but didn’t find the right match. So the company began a nationwide search. After several weeks of interviews, the company settled on a lawyer in the 12-lawyer Washington, D.C., office of Schiff Hardin & Waite, a midsize firm based in Chicago. “We were looking for a very specific set of qualities,” says Petren. “And we had to look at new firms to find them.” As the specialists grow pricier, companies are increasingly looking at lower-cost firms to handle their more routine work: premises liability cases, basic contract disputes, and the like. “We’ve become very price-sensitive,” says AIG’s Patrikis. “And we know that we don’t need to use the most expensive lawyers for everything. We’re always trying to find the right mixture of quality and price.” Finding That Perfect Match And increasingly in-house departments simply keep the work at home. For example, in recent years, Verizon’s Barr has made a point of hiring lawyers who can handle much of the company’s most sophisticated regulatory work. “It’s high-margin work, so keeping it inside saves us a good amount of money,” he says. It’s also some of the most interesting work the company generates, adds Barr. And that’s leading to an interesting dynamic, not only at Verizon, but at companies across the country. “We’re keeping a lot more of the cutting-edge, challenging work inside, and using outside counsel to do more of the grunt work,” echoes Hayward Fisk, the general counsel of El Segundo, California — based Computer Sciences Corp. “It’s a flip of the old notion that the outside counsel has to be the creative point person on every deal.” So how are the law firms dealing with the turmoil? Not surprisingly, they’re trying their darnedest to stay cozy with their prized clients and drum up new business. “Some days, the phones won’t stop ringing,” reports Rudolph about the solicitations he gets from firms. “It makes me feel like the most popular guy in the world.” Even firms that fared well in our survey, such as Los Angeles — based Latham & Watkins, aren’t taking things for granted. “We know that if a law firm isn’t delivering its value, in-house departments are taking their work elsewhere,” says Robert Dell, Latham’s managing partner. “And in the current economic climate, yeah, we’ve got to figure out ways to keep our departments busy. Everyone does.” The big, expensive firms know that these aren’t the good old days when clients professed loyalty — and stuck by it. Now firms expect an inevitable amount of client attrition. “You hate to miss opportunities for work,” says Thomas Yannucci, Kirkland’s managing partner. “But we’re very busy right now. And we know Kirkland isn’t the right fit for everybody all the time.” Most general counsel couldn’t agree more. n

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