Client rankings from our fourth annual in-house survey show that GCs continue to trust premium advice. Can non-law firm providers make headway?
During the 1990s, when ITV’s current group general counsel (GC) Andrew Garard was serving a stint as head of legal at Reuters, a deal landed on his desk that required external advice. A revolving credit facility which, he says, was the first-ever syndicated loan deal done via the internet.
‘I thought this was remarkably cheap,’ recalls Garard. ‘And Boardman said: “Well, Andrew, you and I both know the banks will only take a certain amount of negotiation on the documents; mainly that will be around the covenants. We can both write those covenants now. And as this is the first-ever deal of its kind, I want Slaughter and May to do it.”
‘I had received quotes from firms multiples higher. Slaughters is probably the most flexible firm on fees. It is among the most commercial in private practice. That flows through from the quality of the advice, which is very business-grounded, and it manifests itself in the way it manages its practice.’
This observation was true of the 1990s and still rings true today. Our in-house survey last year made it clear that premium external legal advisers, notably the traditional Magic Circle, are consistently recognised by GCs to provide not only strategic legal counsel but also advice that is pragmatic and, perhaps surprisingly for some, value for money. To borrow an advertising slogan that purveyors of Stella Artois used to notable effect (in the UK at least) until 2007, the attitude of in-housers to external legal advice is often that it should be ‘reassuringly expensive’.
This point is reinforced in our fourth annual in-house survey. The firm that ranks highest for providing value to clients is Linklaters, followed by DLA Piper and last year’s most value-for-money firm, Eversheds. But Linklaters also ranks first for strategic, high-quality advice as well, with other elite players Slaughters and Clifford Chance (CC) in second and third place. This leaves Linklaters as this year’s standout firm in both categories, although CC, DLA Piper and Hogan Lovells all score well for both value and quality. And, looming in the background in the strategic advice category is Latham & Watkins, ranking just outside our top ten in 11th place, illustrating the advances in the City of elite US advisers.
However, despite his praise of Slaughters, Garard says the traditional hierarchy and premium pricing at top City firms is waning: ‘Do I believe in the Magic Circle? No. Is it ridiculous to charge £1,400 an hour? Well, it depends how good your advice is. Two hours of great advice at that rate could save my company many millions. That looks like good advice to me. I don’t believe in the Magic Circle concept because I don’t believe the best lawyers necessarily want to work for them. A good lawyer can work anywhere.’
| Best firms: Strategic, high-quality legal advice | |
|---|---|
| 1 | Linklaters (-) |
| 2 | Slaughter and May (-) |
| 3 | Clifford Chance (+2) |
| 4 | Freshfields Bruckhaus Deringer (-1) |
| 5 | Hogan Lovells (+5) |
| 6 | Allen & Overy (+1) |
| 7 | Baker & McKenzie (-3) |
| 8 | DLA Piper (-2) |
| 9 | White & Case (NEW) |
| 10 | Dentons (NEW) |
New law or old rope?
The concept of strong lawyers working anywhere applies when charting the rise of alternative non-law firm providers of legal services. These New Law providers continue to waver in popularity for many in-house counsel, who have generally been slow to research their potential cost efficiencies as multiple players have emerged in recent years, including Axiom, Riverview Law and Obelisk. The market has also witnessed law firms proactively invest in low-cost, contract lawyer arms, with examples including Eversheds’ Agile, Pinsent Masons’ Vario, and Berwin Leighton Paisner’s Lawyers On Demand (LOD). Allen & Overy’s 2013 launch of Peerpoint also garnered much interest.
Axiom again is the most regularly acknowledged New Law provider by respondents to our survey but this year’s list is dominated by the Big Four accountancy firms that continue to gain traction in the domestic legal market. Although legal services have been a feature of the accountancy firms for some time – with little success over the years – it is interesting to observe how quickly the most recent push into legal services by these firms over the last two years – with applications for alternative business structure (ABS) licences and significant lateral hires – has registered with in-house counsel.
However, none of this has had a perceptible effect on clients’ attitudes towards New Law providers. Responses to the question: ‘In comparison to a traditional law firm – how positive are you about the role and value offered to clients by alternative, non-law firm providers of legal services?’, were just as lukewarm as last year, where just 15% of respondents were positive. Although this year the overall positive response nudged up to 18% of those surveyed, far fewer were neutral. Last year’s ‘neutral’ respondents have largely migrated into the ‘negative’ camp this year – almost half (49%) of respondents this year feel negatively about these providers, compared to 42% in 2014.
| Best firms: Value for money | |
|---|---|
| 1 | Linklaters (NEW) |
| 2 | DLA Piper (-) |
| 3 | Eversheds (-2) |
| 4 | Norton Rose Fulbright (NEW) |
| 5 | Hogan Lovells (+3) |
| 6 | Pinsent Masons (-3) |
| 7 | Addleshaw Goddard (-1) |
| 8 | Osborne Clarke (+2) |
| 9 | Shoosmiths (NEW) |
| 10 | Clifford Chance (NEW) |
Tyco International’s vice president and regional GC for EMEA, David Symonds, who last year extended the company’s sole adviser contract with Eversheds for a further three years after the company stripped back its roster of around 250 law firms to one in 2006, says: ‘The hesitance surrounding alternative legal suppliers may well be that internal business clients aren’t aware of their existence, being honest. I have to weigh it up, having been approached by more than a few, and balance what it might achieve, particularly in the UK. Does it benefit our overall agreement with Eversheds? At the moment, we don’t have a category of work that’s a sufficient size where alternative legal suppliers are the solution.’
In comparison to a traditional law firm, how positive are you about the role and value offered to clients by alternative, non-law firm providers of legal services?
Stuart Kelly, deputy GC at Network Rail, comments: ‘I haven’t used any yet. I have seen lots of them but the commercial offering isn’t yet as compelling as it should be. The reason they should be attractive to me is because they are so much cheaper. But if they are only just a little bit cheaper, then why would I bother? A lot of their marketing material is around innovative commercial models, but when it comes down to it, when you ask a straight question, they usually refer to the hourly rate or the daily rate and shave a little bit off what I might be paying to a private practice firm. That’s not hugely compelling.’
However, BT and Vodafone have each seen distinct advantages to using alternative providers. Vodafone group GC and company secretary Rosemary Martin is a vocal proponent of Axiom, Obelisk and LOD, while BT uses a suite of flexible resource providers, including Obelisk, Axiom, Halebury and SSQ Interim Solutions. In 2014, BT signed a three-year contract with Axiom for legal outsourcing and analytics services across the UK, US, Africa, Middle East and Asia.
| Non-law firm providers of legal services having the strongest proposition for company clients | |
|---|---|
| 1 | Axiom (-) |
| 2 | PwC (+1) |
| 3 | Deloitte (NEW) |
| 4 | EY (NEW) |
| 5 | KPMG (+1) |
| 6 | Lawyers On Demand (-3) |
BT’s GC for its UK commercial legal services division, Chris Fowler, who is currently undertaking a strategic review of the corporate’s internal and external legal operations, says of the reluctance of other GCs to use New Law providers: ‘Maybe people don’t understand how they can plug them in. We’re clear about the type of work we provide to them versus someone who will come inside the team. What’s changed in our mind, on the commercial side, is that now I struggle with the old way of working and using traditional law firms just for overflow. If I want a task doing, we’ll push that to alternative legal suppliers.’
Nonetheless, with 88% of our survey respondents selecting quality of legal advice as the essential factor in choosing a law firm, it would appear that, overall, clients are comfortable with the service levels from premium advisers. It seems the mantra for many GCs is now well established: if it’s routine and requires bodies, keep it in-house and keep costs down; if it’s tricky, send it to a law firm and pay a premium for it to be done properly. LB
sarah.downey@legalease.co.uk