Strategic management of law firms: how can General Counsel drive value, reduce costs, and make data-enabled decisions?

This was the topic of Marsden and Melius‘s second Legal Operations roundtable held in February 2024, attended by 20 General Counsel from a variety of organisations and sectors. There was a lively exchange of experiences on several challenges faced by GCs.

General Counsel are under increasing pressure to reduce legal spend. How can they achieve this?

Spend on external law firms is the biggest cost for most General Counsel, and 90% of attendees reported that they were expecting to reduce spend in the short term.

This assumes that a GC has a legal budget to manage in the first place. Many don’t. General Counsel are sometimes at the whim of what a CEO wants and are required to obtain quotes for external services needed to support strategic projects on a case-by-case basis. This often depends on the size of the organisation, but it was perhaps surprising how many GCs were constantly having to remind their Boards that for new projects there needs to be budget allocated for legal and compliance costs. Some worked for companies that used zero-based budgeting across all departments, which was felt to be an effective way of scrutinising and justifying spend.

If you are a General Counsel required to reduce your legal spend, what are the steps you can take?

Ask your team if they really need to obtain external advice. Your team members know more than they think and in many cases are more than capable of providing the required advice without the comfort factor of asking a law firm. One GC noted that in some cases their team was actually upskilling their external counsel!

Talk to your team about risk tolerance and confidence levels in order to develop a standardised approach – i.e. when do we go external, and what do we keep in-house? For some companies the division is clear as they only outsource major transactions such as M&A deals.

Push back against legal spend which is not budgeted for. Be crystal clear with your CFO as to what your budget covers, and what it doesn’t. Setting expectations allows for future conversations about what the legal function will and will not do.

Be clear with the Board about the projects that can’t be supported. If they are not going to fund the legal team adequately then they need to share responsibility of a project going wrong. “It is hard to cut spend when we are all drilled to want to serve our internal clients,” said one GC.

An important factor to consider is that outsourcing to external law firms can free up time for the internal team to work on more interesting tasks. Teams can sometimes take too much on that they should outsource – and therefore trying to reduce legal spend can be counter-productive. If the internal team are over-worked and over-burdened because they are doing work which should be outsourced they may decide to leave – and it is much more expensive to replace staff.

How do you ensure that the right firms are instructed on the right work?

Less than a third of the General Counsel in the room had ‘very effective’ controls for this. Some just have broad policies – such as no team member being allowed to instruct a Magic Circle firm without their prior approval. One GC noted that they do not mind spending money on a firm as long as they demonstrate value and that they don’t always come up to the required standard – e.g. churning out 20 pages that the internal team did not ask for nor has time to read.

GCs need to ensure that they work with law firms aligned to their values and priorities and that also use similar billing systems. Many had run into difficulty with international law firms that do not even share common billing systems.

Reducing the number of law firms on a panel can be counter-productive when it comes to cost. If they have a panel firm on a full-service basis they can find themselves in the position of having to instruct a more expensive law firm for certain matters when a local boutique firm might be better employed. Most GCs have a hybrid model of having a core panel, with the additional flexibility to instruct smaller or local firms as and when needed.

Less than one fifth have billing guidelines in place in order to maximise the value they get from their external law firms.
  • Some are using e-billing tools which they say has helped them to save on law firm fees, since they interrogate bills against set guidelines and flag when firms are not complying. This generally delivered cost reductions of seven to 10 percent. While such tools have an implementation cost, it saves a team member having to manage billing manually.
  • Others said that they had looked at e-billing tools and come to the conclusion that the costs were not worth it and they would rather employ an additional lawyer.
  • A positive of e-billing tools is that they can help decide which firms are worth focusing on to see which were adding the most value; a negative was that they sometimes rejected law firms’ invoices for not following set protocols – often leading to awkward conversations.
  • While it is usual to adopt tools specifically aimed at the legal industry there are other tools used for managing suppliers within companies that the legal team was under pressure to use – but were not suitable for the team’s requirements.
  • One GC pointed out that since lawyers are supposed to have negotiating as part of their core skillset, why are they not good at negotiating with external lawyers? Others pointed out the need to query bills; it is not just about the right firm for the right work, but also about getting the right price.
Less than 40% of the attendees have taken steps to ensure that external services are delivered by diverse and inclusive teams.

Diversity and inclusion is one of the key factors driving the panel appointment stage – but many General Counsel agreed that promises made by law firms do not necessarily flow through.

  • Despite the fact that in-house teams tend to be more diverse—according to Law Society data—many GCs were aware that they needed to tackle the diversity within their own teams before demanding it of their external law firms.
  • For those without formal panels they often had preferred counsel and could still telegraph their requirements – i.e. expecting their preferred firms to reflect their diversity.
  • Many encouraged their team to build up relationships at the associate levels – which tend to be more diverse than at the partner level.
  • A lack of diversity can be more obvious in certain jurisdictions. One GC noted that often she is the only woman on the screen with multi-jurisdictional Teams calls – and that she had a policy of calling them out on this.
  • GCs can also help with law firms’ diversity – for example by being upfront about flexibility on deliverables and that firms should not always assume that clients are demanding 24/7 support. This might not be possible with an M&A deal – but there may be other areas in which accommodations can be made. This is a subject we have also covered at length in our Supporting Organic Diversity campaign.

If you are a General Counsel or Head of Legal looking to recruit for your team, or are interested in attending our future Legal Operations roundtables, please connect with Amanda Chard (interim) or Sarita Rai (permanent).