The 2015 Legal Business GC Power List puts the strength and depth of top in-house legal teams under the spotlight. With these teams largely forced to re-boot post-Lehman, what does it take to become the best in the business in a risk-driven economy?
In the last two years, Telefónica UK has reduced its reliance on external legal advice to the extent that its spend on law firms has fallen by 66%. Meanwhile, at BT, from which O2 span off in 2001 before being acquired by Telefónica in 2005, commercial external legal spend is down a startling 90% since 2010. Despite this, the volume of legal work required by both telcos hasn’t diminished: it is just being handled more efficiently in-house.
For successful corporate counsel, it seems Nietzsche was right: what doesn’t kill you makes you stronger. Many of the 50 diverse in-house legal teams that feature in the 2015 Legal Business GC Power List share similar stories. These teams have been recast in the face of adversity – forced to rethink strategy in the hurly burly of the global financial crisis to become stronger, more influential and much more efficient than before.
This economic tension came at the same time as global regulators in all industries started exerting more cross-border pressure on corporates. This meant ramping up the amount of work handled by in-house teams, which used the cheaper cost of internal sourcing to continue expanding, even amid the tough environment. And when the use of external counsel was absolutely essential, it was also absolutely essential that fees were knocked down as low as possible.
The teams featured in this Power List are unique to their businesses, as understanding the commercial and regulatory imperatives particular to a corporate are a prerequisite for any in-house legal team. Yet there are many common strands among these teams that tie them together – the most common being durability.
Mind the gap: The hallmarks of an underperforming team
According to a senior member of a leading in-house legal representative body, the gap between high-performing teams and those that are making little progress is increasing, as those at the top pull away. ‘Some legal departments still don’t add any value,’ he says. ‘They think their role is to be an A&E doctor and never look at the bigger picture. Their biggest worry is how they can stop people coming into work after ten pints.’
Certainly a lack of proactivity is one key factor in differentiating between the success stories and those legal teams still trying to win support. ‘Weaker teams are still trying to get invited to the table by the business,’ says Donny Ching, Royal Dutch Shell’s legal director. ‘And there are those teams that are still looking at their role as reactive – reacting to requests to provide advice, as opposed to being really proactive and almost leading the business.’
Conversely, one characteristic shared by the most successful teams is their team-wide approach to developing relations with senior managers in order to be involved in problems from the outset. At consumer goods company Diageo, general counsel (GC) Siobhan Moriarty says: ‘If teams don’t maintain that level of connection with the business and build relationships with the business, they won’t get involved at the early stages to help shape it. That’s when things go wrong and that’s when a legal team will most likely find itself in the unenviable position of saying “no” – whereas in the early stage you can create something that will allow people to get to a “yes”.’
For Edward Smith, GC at Telefónica UK, the ‘no’ culture is just one of the hallmarks of a weak team: ‘Over efficaciousness; a box-ticking culture; putting an emphasis on process over quality; a lack of trust in clients (particularly senior clients); an unwillingness to reform; an overreliance on experience over talent… If I was building a team, those are the things I would eradicate.’ However, senior industry specialists warn that there is a danger that even the strongest legal teams can weaken over time, particularly if they over-commit, meaning the infrastructure of the team becomes strained, as personal development, training and knowledge management take a back seat. LBC Wise Counsel chief executive Paul Gilbert says: ‘There are endless examples of teams who have left projects to build knowledge management and have failed to do it because they’re too busy fighting fires around the organisation. Any team which has not defined its role well enough and just says yes to the business constantly. A team isn’t bad because somebody made a bad call – it’s the attritional impact of inefficiency over time. It’s just set up wrong and not seen soon enough. It’s not specific to one industry either.’
Best in class
Top in-house teams, regardless of numbers and their business’ international remit, are recognised here because of qualities not limited to but including efficiency, innovation, career development, and industry influence and knowledge.
However, as demonstrated by a number of our top 50, the size of the team is not a prerequisite for its success. At Land Securities, which is the UK’s largest commercial property company with a market capitalisation of over £10bn, the reputation of the eight-member legal team far outweighs its size.
And while there was speculation from some quarters that corporate budget restraints and the advent of process-driven documentation would present a challenge to powerful and sizeable in-house teams, the threat has yet to materialise.
In fact, arguably the biggest risk for in-house teams is that posed by a tendency towards taking on too much work. With the enhanced role of the in-house team within the business, most legal departments are now finding themselves under pressure to do more for the business with much less time on their hands. Typical characteristics given as essential for a strong in-house team are an ability to ‘get invited to the table by the business’ or ‘to be more proactive than reactive’. And, as legal teams start to be accepted in the c-suite, the cliché of in-house teams having a better work-life balance than those in private practice is becoming more redundant.
But while in-house teams have heavier in-trays than before, at the same time, many are far more efficient through investments in technology and outsourcing arrangements. The 70-member team at multinational consumer goods company Reckitt Benckiser (RB), now uses a fully automated system, I-Legal, for client contracts and compliance. ‘It is basically a one-stop-shop for the client,’ explains Bill Mordan, senior vice president and group GC at RB. ‘It helps them to develop anything from a non-disclosure agreement to a material transfer agreement. These enable us to be extraordinarily efficient at delivering legal services as it is easier for people to help themselves to the solutions they need. I wanted to be able to free up lawyers’ time so that they could work on more exciting and interesting things and not just boring contracts all the time.’ Mordan insists that the use of better technology does not diminish the role of legal, as it retains complete oversight of every contract which is created and signed.
While outsourcing of work to alternative law providers such as Lawyers On Demand (LOD) and Axiom Law is often quoted as one method of increasing in-house efficiency, it receives mixed reactions from our Power List in-house teams. Some GCs believe that the low-cost outsourcing market is now either over-saturated with too many providers or that the service is only suited to certain sectors. ‘A lot depends on the nature of the business and whether what you’re doing lends itself to that kind of work,’ says Grant Dawson, GC and company secretary at Centrica. According to Dawson, the multinational energy company uses standard forms and doesn’t negotiate service agreements, therefore negating the need to use new law solutions for volume contract work.
However, for teams in other sectors, particularly financial services, new law providers are used regularly as a cost-cutting exercise, or alternatively as a method to free up time for more important mandates. In such sectors, the attraction of these providers is particularly strong for volume contractual and compliance-related activities requiring standardised procedures. Maria Leistner, managing director and GC EMEA at Credit Suisse, has changed her model significantly to try to outsource more, and uses Axiom Law regularly. ‘With law firms and other external service providers, we have numerous arrangements of outsourcing work of different shapes and forms, including teams in Wroclaw (in addition to Credit Suisse’s big local operations) and Belfast. Risk management is what I structure my team around as it is the most important priority – legal risk, operational risk, regulatory risk and compliance risk management.’
Vodafone, a team that has to deal with a lot of volume contract work, divides its workload between a mixture of its in-house legal team, offshore Vodafone lawyers and outsourced people, both at home and abroad. ‘It’s quite a mixture,’ says group GC and company secretary Rosemary Martin. In fact, Martin is now going further in her thinking on how to manage these multiple resources in a single-matter management information tool. ‘Years ago, Motorola had one,’ she says. ‘That is a service some of the newer alternative service providers are looking to provide as well and we are interested in that. So not only giving you the people, and keeping the management information systems themselves, but actually licensing out these management information systems so that you can run it from your in-house team.’
And with an in-house team comprising 350 lawyers spread over 26 countries worldwide and covering legal, compliance and corporate secretariat, the lawyers at Vodafone are adept at using new media to keep in touch and share best practice. The team uses a social media program called Vodafone Circle which, according to Martin, is ‘a very active channel for sharing news and keeping our people engaged and up-to-date with what is going on in the business’.
Having a team of engaged and motivated lawyers is certainly one of the hallmarks of a great in-house legal department. It is striking how obsessive the most successful GCs are at engaging, retaining and developing their talent.
Chris Vaughan, Balfour Beatty’s GC and chief corporate officer, picks up the theme: ‘It’s about getting great quality people properly embedded and proactively managing risk. The legal profession is a hugely people-focused, service-orientated industry and everything starts with hiring, motivating and retaining the best people you can possibly get. To me, that’s where it all starts.’
Some of the most powerful in-house teams have gone as far as identifying rising stars of the future in their particular industries, as well as internally within their own departments. In an example of forward planning, the legal team at Land Securities regularly identifies the rising stars in private practice real estate, to offset the business risk of not having good quality real estate lawyers around in the future. It is also an indication of how the team, headed up by group GC and company secretary Adrian de Souza, uses its external law firms as an extension of the work it does in-house. As head of legal Alex Peeke observes: ‘Because of the restructuring of real estate in London law firms, you have got a bit of a gap at the moment between senior associates who haven’t been made partner and partners coming towards the end of their career. Who are the big hitters in ten years time? We’ve got to identify them, support them through their career and make it clear to their law firms that there is a market for them, otherwise it is a huge business risk for us if there are no good real estate lawyers around in the future. We see our model not as an outsource model, but as a partnership. Our law firms are an extension of what we do.’
External relations
The Power List teams are typically hunting for new ways to update and redefine traditional relations between in-house and private practice and almost without exception pushing for better fees and more extensive service provision. A number of senior in-house teams, including Atos and ITV, have dispensed with the hourly billing model outright.
Most teams have confirmed a recent move towards alternative fee arrangements such as fixed or success-based models. Ching says: ‘We have made it very clear to our law firms, particularly in the last eight months or so, that we are looking to align our interests and by definition an hourly fee-based approach does not align our interests. We have been in tentative discussions with most of our panel firms already about moving to a world of “appropriate fee arrangements”.’
Peeke adds: ‘We have actually managed to get fee scales arranged with our lawyers that match up to our budgeting assumptions and hold our lawyers to them. In some areas, particularly at the low-cost end, that forces firms to drive more efficiency – either by using a senior associate to supervise or a paralegal to process some of the more routine documents.’
As well as driving the behaviour of their external counsel, top in-house teams are beginning to influence the industries that they operate in, challenging another traditional role of private practice. According to de Souza: ‘Because of our scale and size we try to influence the industry and create a competitive advantage for our business. We innovate and concentrate on the delivery of legal services.’
At Telefónica, the in-house legal team is actually assessed by the business on its wider industry clout. Kent Dreadon, head of legal, comments: ‘We work far beyond the typical legal and regulatory requirements in the business.
We’re encouraged and assessed on which industry-shaping moves we’ve made.’However, as the role of and demands on in-house teams continues to evolve, there is a risk that in applying continual pressure to supply greater efficiency and more value with less time and similar resource, something will have to give.
As Richard Tapp, company secretary and director of legal services at Carillion, says: ‘If you start on the principle that business got harder during the recession and there is constant pressure on costs and constant pressure to do more for less – the question now is how you cope with that while providing an acceptable work/life balance for your staff. People are working harder.’
Leon Shelley, GC UK/Europe at Westfield Shoppingtowns, picks up the point: ‘As the legal function develops and becomes more sophisticated, it comes under more pressure. It is an issue.’
Nevertheless, many of those in-house teams which have recognised that resources are becoming increasingly stretched, are turning to new technologies in order to plug the gaps while retaining control over the quality of their output. There is also something to be said for external counsel stepping up to the plate, a sentiment that all the teams in this Power List share.
And ITV’s group legal director Andrew Garard believes while we may be well into the glory days of the in-house profession, it doesn’t negate the need for innovative and responsive, commercially-minded external counsel.
‘The reality is we are coming up to the decade of the lawyer,’ he says. ‘There is an increase in the skillset of in-house teams and the value boards place on those teams. The next thing we need is law firms to come along on that journey and – if you ask for advice – provide a menu of more than just A, B or C.’
kathryn.mccann@legalease.co.uk
GC Power List 2015 – Methodology and Criteria
The research process for the GC Power List continues to expand as the project has grown into what is now its third annual edition. The research for this year’s report began in late November when Legal Business and its sister title The In-House Lawyer launched an online survey to canvass recommendations for outstanding teams operating in the UK and Europe.
Nominations were sought from in-house and private practice. The online survey posted three questions:
- Which in-house legal team would you highlight as outstanding in terms of all-round contribution to their business?
- What qualities would you say make this team or teams outstanding?
- Which, if any, individuals in the team would you highlight for their exceptional personal contribution?
The core criteria in which we asked for nominations was excellence in efficiency, risk management and added commercial value, as well as overall sophistication.
The online poll generated 150 nominations, which were used as an initial base. From 1 December through to the end of January, three journalists – our contributing editor Caroline Hill, senior reporter Sarah Downey and Kathryn McCann – began undertaking substantial additional research. All three regularly cover the in-house beat for Legal Business, and as such bring a substantial pool of contacts and relevant knowledge to the project, in particular Caroline Hill, who has focused on the in-house profession for more than five years.
In total, well over 50 substantive interviews with senior lawyers were conducted as part of the research effort, separate to the fact-checking process, focusing on both senior in-house and private practice. These interviews were used both to garner new recommendations and test out the most promising nominations.
In addition, several experienced consultants were contacted for their input and the majority of the top 50 UK law firms were invited to submit recommendations. As a secondary element, the editorial team drew on the research from the 2013 and 2014 GC Power List reports, both themselves substantial projects.
Particular weight was given to the number and quality of nominations, with most of the highlighted teams receiving multiple citations. In the overwhelming majority of cases, in-house teams were highly co-operative with the process, though in a handful cases we decided not to include potential entrants as we were unable to effectively verify information or elicit feedback.
From this process we selected 50 outstanding teams with substantive operations in the UK or Europe. By mid-January, the recommendations were reviewed by Legal Business’ editor-in-chief Alex Novarese.
The criteria applied was relatively simple: we were looking to highlight teams that have pushed the envelope of what an in-house team can do through technical excellence, efficiency, innovation and an ability to effectively partner with their sponsoring employer. Additional weight was given to teams with exceptional leaders and individuals that have successfully moved beyond the legal sphere to communicate and influence a wider group of stakeholders, both internally and externally. While such exercises will never be an exact science, we endeavoured to select teams on the basis of their excellence or for effectively punching above weight, not on the basis of being the in-house team at a hugely lucrative or high-profile client.
While the assessment of teams was the primary thrust of this year’s report, we also conducted research to identify a smaller group of ten outstanding rising stars, a definition primarily focusing on outstanding individuals between the ages of 30 and 45, working below group general counsel level or as head of legal at a smaller company. This line-up was formulated from well over 100 nominations received online and more than 20 nominations from our interviews. The research process for the teams and rising stars was directly fed into the shortlisting and judging process for the in-house awards at the 2015 Legal Business Awards.