Sole adviser – Having it all

Baker & McKenzie, Eversheds and Berwin Leighton Paisner are just a few firms synonymous with adopting the one-client-one-law-firm model, but just who benefits from these deals in the long run?

Robin Saphra’s life got a little easier at the start of the year. The Colt Group’s general counsel (GC), like many of his peers, was juggling a legal spend, that he had to stretch across more than a hundred European law firms.

Facing increasing pressure from the boardroom, Saphra was faced with the challenge of having to meet his company’s international growth needs, while ensuring that the legal services he bought were not only top quality but fit into his budget. And with only a tiny in-house team, he had no choice but to use external counsel.

Deciding last year to finally tackle the problem, Saphra had an epiphany and invited 45 firms to a conference to discuss the company’s needs. In the end, 29 firms pitched to become Colt’s preferred legal adviser late last year.

The outcome of the search saw Baker & McKenzie beat staunch competition for the work and sign on to an initial £3m, three-year contract with Colt, which started in January. The firm will be the telecoms giant’s main legal adviser on all corporate, IP, regulatory and technology matters across all 13 jurisdictions that it operates in.

While certainly innovative, the Colt deal is nothing new. Bakers already has similar arrangements with both Carlsberg and Unilever, among many others. In 2007, Eversheds signed a similar deal with manufacturing giant Tyco (which, at the time, stole headlines for being hugely pioneering). Berwin Leighton Paisner (BLP) launched its Managed Legal Services (MLS) business in 2009, seeing clients effectively ‘outsource’ their legal function to the City firm.

It comes as no surprise that large corporate clients are enticed by the single law firm model. Managing hundreds of small and local law firms is not only a logistical headache but also a costly exercise. While consolidating legal advisers is surely better for organisational purposes, GCs approached for this piece attribute the real benefit to the savings on their already tight legal budgets.

‘Overall it’s about trying to get the balance right,’ says Saphra, who manages an annual legal budget of Ä12m. ‘You’re always looking at costs. How do you make that money go further? The objective here is not to save but to get more from your spend.’

While the benefits are clear for the clients, who appear to be having their cake and eating it, what do the law firms get out of these deals other than guaranteed work from a particular client for a particular amount of time?

 

First slice

While Bakers will argue that it was operating the sole adviser model before any other firm came on to the scene, Eversheds says that it got there first. The firm struck up an exclusive deal to act as sole legal adviser to chemicals monster DuPont in 1996. The deal saw the UK firm score a role acting for DuPont on its £1.8bn purchase of three chemical divisions of Imperial Chemical Industries (ICI). While the DuPont deal was the first exclusive agreement that Eversheds signed, Tyco was certainly the deal that caught people’s attention. But initially the market wasn’t convinced by it.

‘Some people thought that it would fail and a lot of people were surprised that it worked,’ comments Tyco’s Europe, Middle East and Africa (EMEA) GC, Dave Symonds, who signed another two-year contract with the UK firm in October last year.

Former EMEA GC Trevor Faure struck the original deal in 2006. It officially began in 2007 and while it has gone through some minor alterations, it has remained relatively unchanged over the last five years. Faure left Tyco in 2009 to join accountancy giant Ernst & Young, where he is currently global general counsel.

‘They wanted to consolidate in EMEA, just like they had done in the US, and wanted to improve compliance in the region,’ comments Tyco relationship partner at Eversheds, Stephen Hopkins. ‘They needed a firm which could help implement the Tyco legal team’s strategy.’

Tyco, which last year posted revenues of $17.36bn, reduced the number of external firms it was using from roughly 270 to primarily one overnight. The deal was originally worth £10m a year to Eversheds on a predominantly fixed-fee basis and saw the firm organise the company’s legal spend.

‘We had to initially produce financial management information and we looked at what the trends were of the client’s spend,’ says Hopkins.

The result of the relationship between the two has seen Eversheds successfully reduce Tyco’s legal spend by 50% over the last five to six years, while the firm has benefited from an increasingly steady stream of work with fees understood to have climbed to £16m a year.

‘We are getting more interest from clients who are looking to move to a consolidated approach.’

But unlike other similar deals, Tyco has a firmer grip on the work that Eversheds does for it. While most of the high-volume work is run on a fixed-fee basis, the firm has to go through an approval process for every piece of work outside of that. According to Hopkins, the firm can only bill on work that Tyco has pre-approved before any costs
are accounted for.

‘From my perspective, the relationship is the thing that pushes you,’ explains Symonds. ‘You get more control. We’ve negotiated a competitive rate with them and they were happy to agree to the figure and so we’ve been happy.’

Eversheds takes on Tyco’s legal work across all disciplines across the EMEA region. Symonds has fine-tuned the contract and Tyco is now paying the firm in sterling for its UK work; euros for its European work; and US dollars in every other jurisdiction that it advises in.

Symonds says the deal has given him greater peace of mind. ‘When we have an issue, I just go to one person now,’ he says with a sense relief.

While some of the work Eversheds has done for Tyco remains small, the firm has also picked up some significant mandates. In France, the firm acted for Tyco both on the disposal of ADT France to The Stanley Works in 2010 and on the disposal of KD Valves in 2009.

Eversheds now operates similar contracts for a raft of corporate clients, including aerospace manufacturer Boeing and telecoms monster Orange.

The firm advises Boeing on issues across the board and takes on all of Orange’s commercial and regulatory work.

‘We are getting more interest from clients who are looking to move to a consolidated approach,’ says Hopkins.

Does committing to a client in this way put the firm at any kind of risk, should each client choose not to renew a contract or fall victim to the tough economic climate? Hopkins, much like some of his other peers, isn’t concerned about that happening. He believes the firm is well-hedged against any risk involving the Tyco deal or any other deal of the same nature because of the ability and experience of the firm to deliver on such relationships.

 

Multi-tiered

To explain its client programme, ‘Value Service Proposition’ (VSP), Bakers IP partner Paul Rawlinson draws a diagram, much like the diagrams the firm uses to pitch to new clients.

‘This is a framework where we talk to clients about the different services that we offer, and so we draw a picture. It allows us to map those needs against our global capabilities and service offerings both in the mainstream high-end transactional and “bet the company” type work but also in several specialist global practice areas and for local, domestic offerings at local office level,’ explains Rawlinson.

The picture consists of three circles. The top circle is entitled ‘high-value transactions/disputes’, the circle to the right is called ‘domestic/advisory services’ and the final circle is entitled ‘specialist and international services’.

Rawlinson explains that the VSP model was initially designed to help woo longstanding client Unilever, which first approached the firm in 2006 to help it sort out an IP-related problem. The consumer goods conglomerate was struggling to manage its 160,000 trade marks globally and was using a vast swathe of local firms. Unilever realised it wasn’t getting value for money from its legal advisers and decided to ask around 30 firms to pitch for the work.

Bakers prevailed and in 2007, signed an initial three-year contract to handle all of Unilever’s IP work – however, it did also include M&A support and some competition work. That contract is now a rolling one and has spread beyond just IP work, explains Rawlinson.

In a bid to save Unilever even more cash, Bakers created a division of its offshore centre called Global IP Service Centre (GIPSC) in the Philippines, which is solely dedicated to handling the volume-based Unilever work. The firm farms the trade mark management work out to a team of 40 paralegals who sit within its Manila-based offshore centre.

‘[GIPSC] has paralegals who work shifts to manage the very onerous workload that stems from managing 150,000 trade marks worldwide,’ explains Rawlinson.

The deal reportedly marked the first time a company of significant scale effectively outsourced a specific stream of work to a law firm.

‘Our relationship with Unilever is a good example of our value service proposition. It initially came to us because of our global capabilities and service offering in the IP space. As we have delivered on that it has opened the door to more discrete high value matters,’ says Rawlinson. While he admits that the firm will never pick up the big M&A mandates from Unilever (that work goes to Slaughter and May), Bakers is picking up its fair share of instructions across the emerging markets and beyond just IP work.

‘The concept of having a firm which is fully integrated and all-encompassing is very attractive.’

The firm now uses the VSP model to win the hearts of more than 40 large corporates and is currently attempting to lure more. Aside from the Colt deal, one such win was Carlsberg, which up until early last year turned to Norton Rose for all of its work. The move was something of a blow to Norton Rose as the Danish brewer is understood to have spent £16m in legal fees on the UK firm the year before moving to Bakers.

‘Carlsberg is a starter from scratch, while other clients have been slow burners,’ explains Carlsberg relationship partner and London corporate chief Tim Gee. ‘With that scenario, you have a GC with a clear strategic vision about what he wants to do with the legal support function within [his company] and a clear view of who he wants to partner with.’

Gee says that Bakers’ international platform helped the firm to win over the client and beat out a line-up of global rival firms. Those firms are thought to have included Norton Rose and Linklaters. ‘The secret there was to just try and tap into what the GC was thinking and what was motivating him. We tried to spot that early on and then offer him a whole new world,’ he says.

Bakers now takes on all of Carlsberg’s corporate, commercial and disputes work. Gee says part of the exercise was to convince Ulrik Andersen, the company’s Copenhagen-based GC, that the firm could remove the fear of picking up the phone and speaking to his legal adviser.

‘We tell clients to forget the old model and that we want to be in continuous dialogue with them. We say that if they want to turn something into a billable assignment, then that’s something we can discuss. Otherwise, we’re just here to talk,’ says Gee.

Initially, the tendering process saw 15 international firms vye to become preferred adviser to Carlsberg, but in the end Bakers won and signed on to an initial three-year contract with the drinks giant. Andersen says: ‘At the end of it, Baker & McKenzie’s geographical reach and abilities match with our own markets. The work is truly global and they are our preferred adviser.’ Other clients include Invensys, the engineering
and technology firm, for whom Bakers does
all of the company’s employment work on a fixed fee basis, and The Body Shop, where the firm has taken on the bulk of the health retailer’s legal work, including taking the
lead role on its 2006 £652m takeover by the L’Oréal Group.

‘The Body Shop uses us across the piece. Its mantra is that it wants to have maximum value from Baker & McKenzie,’ says Rawlinson.

Rawlinson says that most of these client relationships operate on fixed fees with capped retainers but that there is no one size fits all model. ‘We’re very flexible on pricing and more clients are talking about value billing,’ he says.

The Colt deal, however, doesn’t include the company’s employment work or a small number of its litigation matters.

Instead, the FTSE 250 company instructs Bakers’ rival DLA Piper on some contentious matters and in October last year, signed a similar ‘outsourcing’ deal with Greenberg Traurig Maher (GTM) to do all of its employment work. GTM sub-contracts Colt’s employment needs to a variety of European law firms. Saphra says: ‘They offered to provide both an excellent UK service as well as strong co-ordination over the law firms we use in continental Europe. They have a UK team who work seamlessly whether they are on-site or in their office, and manage Colt’s employment legal function in a very business-friendly manner.’

Much like Bakers’ successful coup of Carlsberg, GTM won the relationship from rival City firm BLP, which had originally signed Colt up to its MLS programme in September 2011. The two couldn’t agree on an appropriate pricing level for the work and very publicly parted ways a month later.

‘We looked at the enhanced level of services they wanted and we couldn’t deliver it for what they were able to pay,’ explains Stephen Allen, who is a commercial director at the firm, and the co-creator of the MLS programme.

 

Icing on top

When it launched MLS in 2009, BLP thought it had struck gold. The move saw the firm sign up longstanding client Thames Water to a deal worth £25m over a five-year period.

‘We’re not trying to do body shop work here, we’re trying to drive a better, simpler and cheaper solution for clients,’ explains Allen.

The Thames Water contract has seen the UK water company outsource its entire legal function and needs to BLP, with the firm already saving the company 30% of its annual legal spend. BLP has also dedicated a team of six lawyers to the portfolio, which corporate chief John Bennett manages.

‘MLS is about offering better value solutions, where possible, at a fixed price which works for both the client and the firm alike,’ says Allen.

While the loss of Colt was a huge blow to the programme, MLS has already signed up three other clients, which Allen is reticent to publicise. He does say that one is a bank where MLS is advising on the processes for handling the core banking documents and another is a public sector company. He points to the fact that MLS is already in latter stage talks with another five clients and that the programme is targeting companies within the financial, resources and public sectors.

The programme has divided some partners within the firm, however. Rumours have run rife through the market that partners at the firm are unhappy with the way it has turned out, particularly after the loss of Colt.

Allen defends MLS and says: ‘There may be individuals at the firm that don’t see it fitting in with their own business. BLP, however has taken the view that if it just continues to deliver regular advice, how will it grow? Like any outsourcing agreement, it can take up to eight months to land a [contract].’

What sets MLS apart from the initiatives that rivals like Bakers and Eversheds are pursuing is that BLP, from day one, set up MLS as a side business to the firm. While
still sitting comfortably under the BLP umbrella, the business that is generated by MLS isn’t part of BLP’s revenue figures.

‘MLS is about offering better value solutions, where possible, at a fixed price which works for both the client and the firm alike.’

In the 2010/11 financial year, BLP posted £229m in global revenues, however £8m of
that was attributed to MLS and the firm’s lawyer freelance programme, Lawyers On Demand. The firm’s actual fee income for the year was £221m. In fact, MLS is set to post
between £7m and £8.5m in revenue this year, according to Allen. The firm has hired Andrew MacNaughton as full time chief executive to move MLS beyond its current state as a start up, to become a full operational business, he says.

Could the firm spin it off and perhaps take advantage of the new Legal Services
Act by turning MLS into an alternative business structure (ABS)? Possibly, says
Allen. ‘Although it doesn’t need to be one at the moment. We’d need to ensure the structure would fit with an ABS,’ he says.

MLS has certainly gained much interest from potential investors looking to either take it over or at least go into some kind of partnership with the programme. Allen insists that BLP has yet to make a decision about what it might do with MLS but says it is something that it looks at every day.

What also differentiates MLS from its rivals, is that it is a largely UK-based programme, while Eversheds and particularly Bakers won client contracts on the back of their international offerings.

‘Thames Water is such a sizeable chunk of BLP’s [MLS] business. It is mainly doing domestic work because the firm lacks an international offering,’ comments a rival anonymously.

 

Leading the way

Whether taking on domestic or international work, it’s clear that the one-client-one-firm model is the way forward. Eversheds has signed another new multimillion-pound contract with one of its large water clients (although the firm wouldn’t specify which).

Other firms are beginning to adopt the model, although not in the same guise. Hogan Lovells, for example, is well known for its role on almost every major corporate mandate for drinks giant SABMiller.

‘If you take a broad view of what’s going on,’ comments Bakers’ Gee, ‘big multinational corporations are changing from being country-focused and blowing that model apart. They are reconstructing their global business so that they have functions where they want them, both from an operational perspective and a tax management perspective. They are ignoring borders and creating a more fluid and integrated entity.’

Gee points out that if companies are reorganising themselves in that fashion, the legal function and the way legal services are consumed will have to match those movements.

And competition among the global legal giants is only going to become fiercer as they adapt.

‘The concept of having a firm which is fully integrated and all-encompassing is very attractive,’ says Colt’s Saphra.

The word is spreading through the in-house community very quickly as well. Already Saphra has spoken about the Bakers deal with other GCs during forum discussions and he says it is generating a lot of interest. ‘People are impressed,’ he says.

‘The benefit to us is that the future [of legal services] lies within building relationships with the clients and we need to be innovative in order for that to work,’ says Colt relationship partner and telecommunications chief Peter Strivens.

Eversheds’ Hopkins agrees and says: ‘The benefits to us are that we have a sustainable and successful client relationship, which we can leverage in the market. With the encouragement of Tyco, we are seen as an innovative firm in the market.’

So it seems that both client and trusted legal adviser can have their cake and eat it too. LB