Legal Week’s client report found GCs are not happy with advisers. Alex Aldridge finds out why
Legal Week Intelligence’s FTSE Client Satisfaction Report 2008, published last November, is a timely reminder of the extent to which many in-house counsel at leading corporates feel neglected by their law firms. They complain that large City firms in particular have been concentrating on lucrative mandates from banks and private equity houses at their expense. Now that such work has dried up, the report suggests that many companies may be less than receptive to firms’ renewed advances.
“We were not as important as we used to be,” says Hank Udow, chief legal officer at Cadbury. “And now, suddenly, we’re important again.” He believes it was natural that firms prioritised certain areas during the boom years. “But the bottom line is that they didn’t show institutional loyalty, and institutional loyalty works both ways.”
Tony Williams, principal of legal consultants Jomati, has a similar take: “It is understandable: a £10m deal for a corporate client or a £1bn for an investment bank? I’ll take the £1bn deal, thanks.”
He continues: “But, having gone off with the bigger and bustier blonde, you’ve got to expect the redhead to be a bit iffy when you come back with your tail between your legs.”
Williams describes the big M&A deals of the mid-part of the decade as “all encompassing”, suggesting that they limited partners’ abilities to maintain regular contact with other clients. “And amid all the excitement, many firms didn’t pay sufficient attention to longer term plans,” he adds.
However, not everyone agrees with the Legal Week Intelligence findings. Chris Vaughan, general counsel (GC) at Balfour Beatty, says he “never felt remotely sidelined”, insisting that the panel of firms he uses “has always done an excellent job”.
AOL in-house head Tony Wales is similarly glowing about the firms he instructs, which include top 10 City firms Clifford Chance and Herbert Smith: “They haven’t neglected me, in fact, it’s quite the contrary. They were constantly badgering me throughout the good times.”
‘Arrogance’ and ‘trust’
Words that came up repeatedly in the post survey interviews were ‘arrogance’ and ‘trust’, the latter a commodity that appears to be in short supply between law firms and their corporate clients.
“Some magic circle firms displayed a tendency to act as if they’re doing you a favour,” says Streamserve acting GC Jeremy Evans. “You mention something that you’d like done slightly differently; they nod wisely, then go back to doing things exactly the same way.”
Cadbury’s Udow has had similar experiences. “Some of the big City firms are incredibly arrogant. They have this sense of entitlement. They are not all like that, but the ones that are will be losing pieces of work from us. They are already losing work from us.”
On the issue of trust, James Blendis, legal director at T-Mobile, is forthright: “Lack of transparency over billing is coming back to haunt firms. We’re moving into a more competitive landscape – and, frankly, there has not been value for money and efficiency of late.”
Not only was there overstaffing during the boom years, say FTSE in-house lawyers, but the lawyers assigned to deals often lacked experience. Tales abound of trainees and junior assistants being put on transactions previously staffed by highly-rated senior associates.
Still, many think it is going too far to question firms’ integrity. Despite broadly agreeing with the report’s findings, Jomati’s Williams believes the criticisms voiced by in-house lawyers on the issue of trust to be “more perception than reality. However, perception is extremely important”, he adds, continuing, “Thanks to the legal press it is widely known that some partners earn a £1m-plus and many over £500,000. The majority of FTSE 250 GCs don’t earn anywhere near that. In fact, most take home less than relatively young magic circle associates. So they are going to be questioning whether they are getting value for money or not. Law firms need to be aware of that.”
The 150-page report goes on to state that while City firms have been gorging themselves on private equity and banking work, changes have been taking place in the in-house sector.
Every year since 2004, when the survey was first conducted, respondents have recorded that their departments have grown. 2008 was no exception, with 38% of companies saying that they had expanded their legal teams in the past 12 months. Only 13% said that they had shrunk. FTSE 250 general counsel have been the most enthusiastic expansionists – 59% added bodies to their teams last year, suggesting that the trend to staff up in-house functions is moving further down the food chain. They are closely followed by FTSE 100 companies, 50% of which added internal capacity in the past year, although it is worth noting that almost a quarter (23%) reduced headcount in the same period.
Meanwhile, the average proportion of legal work sent externally by FTSE companies has fallen from 51% to 42% over the past five years. This pattern is particularly pronounced among FTSE 100 companies, 28% of which saying they will outsource less in the coming year, and 4% significantly less. Only 10% said they would outsource work more. With the recession creating more pressure to cut costs, this trend looks set to continue.
Getting clients back onside
So how should firms go about the challenge of winning back those disgruntled – and newly thrifty – corporate clients?
“Humility,” says Williams. “That means investing time to listen to in-house lawyers and understand the issues they face, which, right now, are truly daunting.”
“They need to add value,” says T-Mobile’s Blendis. “In other words, anticipating what is coming down the line and being proactive rather than just technical.”
AOL’s Wales believes that firms must get to grips with “a new post-Lehman paradigm”. “In-house lawyers are going to be much more focused on preventative work and risk management – law firms need to look at how they can fit into that,” he says.
In addition, all those whom Legal Week spoke with cited lower rates as a key factor.
Some legal heads, however, were less receptive to bridge building, claiming to be wary of City firms looking to fill their capacity in the short term until banking and M&A picked up.
Cadbury’s Udow has received a stream of lunch invitations recently from senior partners. “One thing is for sure: it’ll certainly take more than a free meal.”
Legal Week Intelligence FTSE Client Satisfaction Report 2008 – ACTION POINTS