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Coach USA, a transportation company in Houston owned by Scotland’s Stagecoach Holdings PLC, recently outsourced all of its legal work to Jenkens & Gilchrist when Robert Longo, Coach’s former general counsel, joined the firm. Longo, Coach’s GC since July 1999, says the outsourcing arrangement met his personal needs along with the needs of the company. Longo says he wanted to return to private practice, and the company is in the midst of a corporate reorganization that will lead to the closing of Coach’s headquarters office in Houston. “It made sense,” says Longo, who is a shareholder in Jenkens in Houston. “I don’t know if it’s a trend. I think with changes in companies that it’s becoming something that people who used to be in-house are looking more to,” he says referring to outsourcing. Longo says he considered other firms, but chose Jenkens because the firm has been one of Coach’s outside firms for a while, and because the firm’s offices in Chicago and New York are convenient for Coach’s restructured operations. He says the company will eventually move corporate offices to the Northeast. Coach, which provides bus and taxi services, is slimming down its business and refocusing its operations in the Northeast and North Central regions of the United States. In September 2003, for instance, it sold its Texas taxi operations to a private investment group, and in June 2003, it sold its operations in the South Central and West regions of the U.S. to an affiliate of Kohlberg & Co. LLC. While apparently a rare move, Coach isn’t the only U.S. company deciding to outsource its legal department. In 2003, Peoples Energy in Chicago outsourced all of its legal work to McGuireWoods in Chicago and named partner Theodore Tetzlaff general counsel of Peoples Energy and partner Mark McGuire general counsel of several subsidiaries. “I would call it [outsourcing] a very valuable technique or tool that would be useful to companies facing particular challenges,” says Tetzlaff, who manages McGuireWoods’ Chicago office. Tetzlaff has experience with unusual in-house/outside firm arrangements. While general counsel of Tenneco Inc. from 1992 to 1999, Tetzlaff also was a partner in Jenner & Block in Chicago. Tenneco, which had in-house lawyers when Tetzlaff was GC, moved its headquarters from Houston to Greenwich, Conn., in 1996. Craig B. Glidden, who studied the concept of outsourcing when setting up a legal department at Chevron Phillips Chemical Co. in The Woodlands, says outsourcing an entire legal department to an outside firm is an “extreme option” but one that every GC should consider. “I think it is a rare instance in which wholesale outsourcing would be the right fit for most companies, but again, it’s one of those ways in which general counsel can really take a value assessment of their own organizations,” says Glidden, vice president and general counsel at Chevron Phillips, a joint venture formed in 2000 between Phillips Petroleum Co. and Chevron Corp. “Most legal departments outsource at least 50 percent of their work right now. So to view it as wholly in-sourced and wholly outsourced is to really misread the situation. It is currently, even at the most conventional companies, mixed outsourcing,” Glidden says. WORK IN PROGRESS Longo became general counsel of Coach right after Stagecoach acquired it in 1999. Formerly a mergers and acquisitions associate with Bracewell & Patterson in Houston, he joined Coach in 1997, about eight months after it went public, to help the rollup with an aggressive acquisitions program. Over nearly seven years, Longo says he helped Coach complete 120 acquisitions. Many of the companies Coach bought were small, privately held bus and taxi operations throughout the country, he says. But in 2002, Longo says, Coach executives started working on a restructuring. “What it did was reduce its dependency on the travel and tour segment and sold off some of those businesses and kind of returned to what it had originally done, which was more of the commuter and line-run [bus] operations,” he says. Longo says he wanted to return to private practice in Houston, but the company didn’t want to lose his institutional knowledge despite the long-range plan to close the Houston office. After about seven months of discussions that began in December 2002, Longo says they came up with a plan to outsource Coach’s legal work to him. Linda Bell, chief financial officer at Coach, did not return a telephone message left at her office in Houston before presstime on Feb. 25. Longo says she was out of the country on business. Longo says he talked to several firms in Houston, which he won’t identify, before joining Jenkens in November 2003. At the time he left Coach, Longo says he had two staff attorneys working for him but neither moved to Jenkens. Longo says the outsourcing arrangement calls for Jenkens to do all of Coach’s outside work the firm is capable of doing, providing there’s not a conflict. He expects work for Coach to take up much of his time over the next couple years, but he expects to leverage his experience as a GC and his knowledge of the transportation industry into new clients. Tetzlaff already is getting those opportunities. He says since Peoples Energy outsourced its work to McGuireWoods in 2003, in-house lawyers at five other companies have approached him with questions about the arrangement. “What I’m trying to do is just talk through with a prospective company how this might work because it’s new to people. It’s not for everybody at all time,” he says. Under the arrangement with Peoples Energy, 10 lawyers who had been in-house at the company joined Jenner & Block, some as partners and some as associates, Tetzlaff says. They do work for Peoples, but other clients as well, Tetzlaff says, noting that one of the objectives of the arrangement is to provide more opportunity and variety of work for the lawyers who moved to the firm from Peoples. According to Tetzlaff, Peoples also wanted to cut its costs. McGuireWoods will do all of Peoples’ work, except when a conflict arises, he says. “They’ve retained us for certain work and other work is paid on an as-needed basis,” he says. In the past, Tetzlaff says, the firm did some work for Peoples. Elizabeth Castro, a spokeswoman for Peoples Energy, did not return a telephone message before presstime. But at the time it announced the arrangement with McGuireWoods, the company said in a statement that it was a move to “address increasingly variable requirements for legal expertise.” Houston consultant William Cobb says outsourcing a legal department can work if it’s well organized and if the company fully trusts the outside general counsel. “If you are a smaller company and you really trust the outside lawyer, then it’s better to outsource everything than hire inside because you know you will get a higher value of return,” Cobb says. Glidden, the Chevron Phillips GC, set up a Legal Partnership Organization (LPO) at his company, which allows the company’s 17-lawyer legal department to operate seamlessly with outside counsel. He says outsourcing is an important topic, but most GCs will find a balance between doing work in-house and farming it out. “There are definite benefits to having lawyers on site and who are very familiar with the operation of the company, and the larger the organization, the greater the benefit you get from that,” he says. “It is safe to say the final chapter on this has not been written.”

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