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Sam Walton, the founder of Wal-Mart Stores, Inc., credited its success to smart inventory management. Now the world’s largest retailer is applying that same tactic to its law firms. The Bentonville, Arkansas � based company has spent the last 18 months assembling a “Capital Cities Network” of go-to firms that will handle regulatory work and other major legal matters. (The company will continue to rely on other firms for smaller things like minor personal injury claims.) The plan, says associate GC Samuel Reeves, is to have one law firm per state. Reeves says he’s given up on a target date for completing the selection process � “We’ve had several already” � but as of September the company had nailed down preferred providers in 44 states. Wal-Mart GC Thomas Mars says that shortly after he became head of the legal department about three years ago, he started to think about reducing the company’s battalion of 400-plus firms. At first, Mars says, “we thought we’d end up replicating the DuPont model,” referring to the best-known of the so-called convergence programs that aim to reduce the number and fees of outside firms. But Mars says that after a visit to the legal department at E. I. du Pont de Nemours and Company, “we decided it would never work for Wal-Mart,” given the vast geographic spread of the retailer’s 3,600 U.S. stores. So he and Reeves developed the Capital Cities Network. They started the selection process by issuing RFPs to law firms with a significant “presence” in each state capital. Although Reeves declined to give specifics on the criteria for making the final cut, he says firms were selected based on their fee arrangements � “just like any other client” � and diversity statistics. As for expertise, Reeves says they looked for firms with regulatory know-how, but that they also sought those with the “depth and breadth” to handle other matters. “We consider them our ‘first call’ law firms, to whom we can turn for a quick response if an issue arises in a state where we need legal advice and counsel,” Reeves says. He adds that the list consists of a mix of small local firms and branch offices of large national firms, including Gibson, Dunn & Crutcher; Manatt Phelps & Phillips; and Gardner Carton & Douglas. But the creation of the Capital Cities Network doesn’t mean that Wal-Mart is pink-slipping the rest of its legal lineup. Reeves says that the company intends to phase in the Capital City firms and use them more “as needs arise.” In addition to handling regulatory issues, these firms will also take on major litigation and transactional matters that arise in each state. Reeves says 15 of the Capital City firms already qualify as one of Wal-Mart’s 100 highest-billing firms, and he expects that number to grow. Reeves hopes that Wal-Mart, which currently spends about $200 million a year for outside counsel, will save money not only through competitive fee arrangements with its Capital City firms, but also by developing a roster of lawyers who know the company’s business better. “They’ll be able to be more proactive in handling matters,” he says, and “that will drive a lot of efficiencies.” The Capital Cities Network isn’t the only new program that Wal-Mart’s legal department has rolled out. In July, Mars announced that the company would require its top 100 law firms to nominate at least one minority attorney and at least one female attorney for the position of relationship partner [see "Wal-Mart's Diversity Threat," September]. The company hasn’t issued the same demand to all of its Capital City firms since some are fairly small, says Wal-Mart spokeswoman Linda Blakley. Wal-Mart has also retooled its relationships with the local defense firms that handle the bulk of its slip-and-fall cases and other smaller matters. For years, Wal-Mart had a reputation for scrimping on its legal spending, demanding a flat, per-case fee reportedly as low as $2,000. But after Mars became general counsel in 2002, the company dropped that policy, and Reeves says it no longer has flat-fee arrangements with law firms. Wal-Mart also sharply increased the size of its legal department, from just 24 in 1998 to 133 today, with “plans to grow it some more,” Reeves says. So is the beast of Bentonville being tamed? Don’t count on it. “We are a difficult client,” Reeves says. “We have very high expectations of outside counsel.”

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