The secondment has long been leant on by corporates to plug holes in their resources but, as the economy recovers and law firms’ resources become strained, does the model still deliver?
Often billed as a win-win for resource-strapped in-house teams and private practice firms looking to deepen their client relationships, secondments are arguably also a convenient window dressing for clients to get something for nothing in the name of relationship building.
During the downturn the arrangement has worked well; enabling in-house teams to obtain cut price legal talent while saving law firms the headache of under-utilised associates and giving them the opportunity to develop an insight into the clients’ business to boot. With some of the largest financial institutions now seeing 10-20% of their in-house legal workforce made up of secondees, the model has provided legal departments with a much-needed release from the budgetary pressures and headcount freezes that have dogged businesses since the downturn.
But as the market picks up and in-house demands become greater, there are signs that law firms are having to push back against and prioritise their clients’ demands, as the flux of associates going in-house becomes disruptive and hard to manage in growing periods of transactional activity.
And while the secondment remains a valuable and important tool for private practice, law firms’ staffing pressures are creating more space for alternative providers, which are undoubtedly a growing threat in the provision of on or off site, ad hoc talent.
Supply and demand
As attested to by the general counsel (GC) of one of the UK’s largest banks, demand for secondees at large financial institutes has gone up since the financial crisis, with increased litigation and regulatory work creating new pressures while on a broader level hiring is often restricted to maintaining headcount, meaning there is a gap between capacity and workload.
Jonathan Cary, who was seconded to two investment banks while he was a senior associate at Shearman & Sterling, now regularly acts against financial institutions in his current role as a commercial disputes partner at RPC. He says: ‘A combination of the fallout from the financial crisis, the subsequent banking scandals that emerged and an increased level of regulatory scrutiny led to a substantial increase in the demand for secondees by the banks, particularly at a more senior level.’
Stretched legal teams are also requesting extra help to cover extended absences, which wasn’t the case pre-2008, says corporate and commercial group legal director at Vodafone, Kerry Phillip. ‘At a previous company we used to cover maternity leave or temporary gaps within the team, but with a lean team that is really difficult.’
While firms were initially keen to supply as many lawyers as they could spare, demand has in recent times increasingly outstretched supply. One City partner comments: ‘At my former firm, there was a concern that there were actually too few lawyers in the office to do the work coming in. At one time around half the associates in one particular group were on secondment. It’s very hard to run a business on that basis.’
Unsurprisingly, GCs say that firms are pushing back. ‘When things were quieter in the law firms two to three years ago, firms were keen to provide us with their best and brightest to keep them incentivised, and in the last 12 to 18 months that has progressively tightened as firms have got busier,’ says the bank GC.
In addition firms have become increasingly strategic about where they place secondees, with large clients with the biggest legal spend at the top of the pecking order. ‘I am aware of occasions where firms have been asked to provide a secondee, but have had to say no on the basis that, on balance, the cost and investment involved outweighed the realistic prospect of receiving meaningful work,’ says Cary.
Citigroup’s senior vice president and associate GC David Johnson, who oversees a six-month rotating Linklaters secondee along with trainee secondees from Allen & Overy and Ashurst in the structured credit legal team, agrees. ‘Opportunity cost for [law firms] can be quite high so there is generally some resistance, and it depends on the relationship that you have with the firm and how they benefit from providing secondees. Thankfully we are generally a large enough organisation with a large enough legal spend,’ he says.
At Vodafone, Phillip has experienced firms carefully placing secondees in accordance with the practice area from which the most remunerative work may come.
‘Law firms are often strategic about their placement of secondees. We never struggle to find an M&A secondee, but do find it hard to get commercial associates. Equally we can usually find a secondee for a specialist area like competition law even though it’s a much smaller pool to draw from at the law firm. Vodafone does a lot of high-profile transactions which tend to generate higher fees, so these are attractive areas to place secondees for a law firm,’ says Phillip.
And there are signs that the pressure is bringing about innovation within an old-fashioned practice, with the telecoms giant having put in place virtual secondments, where lawyers who have a longstanding relationship with the company spend one day a week in Vodafone’s offices and the rest of the time in their own office, a novel arrangement, run with Wragge Lawrence Graham & Co.
However, at some of the largest corporates such as Shell, where firms provide two secondments per year as part of the panel arrangement, there has been little visible change in the willingness or frequency with which secondments are provided.
Speaking only for the litigation department, Shell’s global litigation head for Europe, Africa, Asia and Australia, Richard Hill, says: ‘There’s been no change at all, possibly because we have such an institutionalised framework.’
Secondments are provided on a clearly defined rotation with secondees coming from Hogan Lovells, Eversheds, Baker & McKenzie and Norton Rose Fulbright.
While Hill agrees that the sheer buying power of Shell may play its part, he adds: ‘It’s partly because people like working for us and are keen to develop on the litigation side, where we have a new specialist syndicate.’
Who really pays – and what?
The cost – or lack of – a secondee is a complex equation that takes into account the terms of a panel arrangement plus the value of the relationship less the true worth of a law firm over and above any alternative labour source.
At Legal & General, group GC Geoffrey Timms says: ‘A key requirement for all our panel firms is the provision of regular secondments.’
At Shell, Hill says the two secondments a year are free, commenting: ‘When we did our law firm panel review last year it was included in the pitch that firms would need to be prepared to provide a free secondee.’
According to one GC at a major financial institution, the number of secondees a firm is obliged to provide free of charge is calculated against how much the client has spent with the firm previously. ‘In effect we look to see how much they have billed us in the past and we use a graduated scale and then set down the number of free secondees they will provide us with in the future,’ he says.
‘Since the financial crisis, everyone is naturally focused on the bottom line. We have to make sure that when it comes to spending our limited resources on secondees, we get value for money,’ says Phillip.
At Aviva, GC Monica Risam adds: ‘We have had some secondees for free and some at employment cost, but it almost always makes more sense on the economics as compared to a contract lawyer. Having a secondee from one of our trusted firms also ensures we have an assurance of the quality of the support.
‘I’d love to have them for free, but even getting them at employment cost is a loss for the firm because they are giving up on the potential fees that associates would generate — we recognise that they are running businesses too.’
Law firms, which are often obliged to provide a certain number of secondees within their panel arrangement, sometimes take the decision to take a short-term hit by supplying additional talent free or heavily discounted in a long-term bid to increase their visibility with a key client and curry favour (see ‘Partner secondments’).
In Shell’s litigation department, subsequent secondments are often offered at a significantly reduced rate.
RPC’s Cary says: ‘Bank panels have generally broadened and those institutions that would previously have gone to the Magic Circle almost exclusively now use an array of firms of various shapes and sizes as they understand that, for different types of matters, the requisite level of quality and service can often be found elsewhere and at less cost.
‘To keep themselves front of mind, particularly when the significant instructions come around, firms recognise that providing secondees is part and parcel of the relationship.’
However, management consultant Jack Diggle, who was head of strategy for group legal at Barclays for two years up until early 2014, argues that, much like the proverbial lunch, there is no such thing as a free secondment, with law firms typically factoring in the price of the secondee into their rates.
‘When they do that, they are not factoring in the secondees at unit cost or salary cost but at the opportunity cost of lost billings, which is what the secondee might be earning revenue-wise, which could be three times the unit cost at times. Where in-house teams think they’re getting free resource, they’re actually paying for it in a much more expensive way,’ argues Diggle.
Indeed, some argue that the whole secondment culture is a distortion in the market that hurts transparency.
Some GCs have noted the change in cost per secondee in the last couple of years, with one GC at a large financial institution noting: ‘Whereas we might have got those people at cost, it’s now cost plus or even cost plus plus.’
Clients are doing their own pushing back and Nick West, who joined Axiom as managing director in April from LexisNexis, where he was director of legal markets, says: ‘Increasingly over the last few years, law firms have used secondments as a sweetener. They say: “The fees are X, but we’ll give you X number of secondments.” Increasingly clients are saying: “No, you tell us your best price and separately we’ll have a secondment panel and people who want to provide secondments can go on that panel.”’
The pros and cons
For busy law firms it goes without saying that losing a hand on deck can be difficult. ‘If a client says they need a regulatory lawyer and the firm is absolutely maxed out on a job, they have to extract one of their key regulatory lawyers to go across to the client,’ says Diggle.
Secondments can be valuable experiences, but associates miss out on training and career development if the most interesting in-house work can be reserved for a corporate’s own lawyers. ‘One of the other challenges that in-house face at the moment is trying to create interesting and sustainable career paths for their lawyers – it’s really important they’re incentivising them. The interesting work will therefore typically be kept for the in-house lawyer and so it will typically be the heavy-lifting work handed to the seconded lawyer,’ Diggle adds.
Hill disagrees. ‘Secondees see a huge range of litigation work and get to know how large organisations like this work.
‘For young associates in big firms the problem is they get stuck on big cases and a third-year associate may only have worked on three cases. Here they will have worked on 80-90 different litigation issues.’ The Rugby Football Union’s (RFU’s) legal and governance director Karena Vleck says: ‘At the RFU, we have had some excellent secondees over the years to fill temporary absences. Secondments definitely help to cement relationships with individuals and their firms.’
However, law firms often get no real guarantee of return for the sacrifice made. ‘We have no commitment to provide [law firms] with a certain level of work,’ says Phillip. ‘This is in our overall contracts with them: they have a commitment to provide us with a secondee but there is no reciprocal commitment from us to provide them with instructions.’
Realistically, if a secondment is successful it can lead to more work flowing in that direction even if it’s not in the small print, but for in-house teams, managing this constant flow of new secondments can be unsettling. ‘It’s not great from our perspective to have too many secondees. It is quite disruptive to have people coming and going and a level of corporate knowledge walking out the door,’ says one bank GC.
‘Secondees will have learnt a great deal about how to deal with processes etc and then you get someone else in with a blank sheet of paper again, which I see as a loss of knowledge. It’s like in private practice when you have a trainee revolving every six months, you have a new face you have to train up and then just as they’re getting good they leave,’ he adds.
For Citigroup’s Johnson, going through training each time a new secondee arrived was a time-consuming process that led him to implement an induction programme a few years ago.
‘This programme entails, among other things, having incoming secondees start before the outgoing, so the incumbent secondee will spend about three days training them on what their day-to-day responsibilities would be and orientating them. It’s more efficient than me and other full-time lawyers investing time doing this.
‘Before they turn up we also provide a bunch of template documents, negotiating procedures and guidelines. We encourage them to do a lot of pre-reading beforehand,’ says Johnson.
Vodafone too has developed a slick induction process, says Phillip. ‘We have… an online legal portal that provides all the information a new secondee or employee in the team needs to understand Vodafone and how it works. We recommend that secondees follow the induction programme in chunks that last over ten days,’ says Phillip, who estimates that over 10% of the telecoms giant’s UK-based legal team is made up of secondees, with around 15 across the board.
Alternative options
For clients who are dissatisfied with the secondment model, more options are available with the advent of alternative legal providers such as Axiom, Berwin Leighton Paisner’s spin-off alternative legal services provider Lawyers On Demand (LOD) and Obelisk.
Tim Bratton – who was GC at the Financial Times for ten years before joining LOD last year as its first practice development director – says he began to turn his back on law firm secondments between 2005 and 2006 in favour of LOD.
‘I needed to get in a senior lawyer for a period of time and we weren’t having luck with our usual firms.’
Bratton turned instead to LOD, finding their prices comparable to a junior lawyer at a law firm.
Risam says that in Aviva’s investment division, the legal team asks law firms for fund lawyers, but they are so in demand at times that they turn to an alternative provider like Axiom or Obelisk to source them instead.
And the banking GC adds: ‘Our need and fluctuating levels of capability mean that it is difficult to staff permanently and we are unable to pay the hourly rates of private practice lawyers. Alternative providers allow us to meet those expectations.’
However, in an oft-repeated accusation that flexible providers have not in all cases got their pricing right the GC adds: ‘I find they are still quite expensive and don’t have expertise in all the areas that we would need, none of them have made particular in-roads.’
Even if they do have their pricing right, it will always be a challenge to compete for a service that is often provided for nothing or at cost. Furthermore, they are not felt to offer the long-term relationship benefits of the secondment and Hill, who says he would consider using them on large transactions where secondments couldn’t cover it, says: ‘In a sense the problem is that they deal with the issues of the day rather than providing any long-term benefit in terms of developing knowledge and relationship.’
Servicing clients’ changing legal needs may not be met perfectly by either the traditional law firm secondment model as it stands or by alternative service providers, but the model it seems is here to stay, particularly given an evolving attitude towards maternity and paternity leave, which means companies have a constant and growing need for ad hoc cover.
‘What has given rise to the need for secondees has been the need for greater flexibility of the workforce, for in-house lawyers to take career breaks or paternity leave or other long-term absences beyond maternity leave that was always there. We will always have a need for some mechanism to help cover for the absence at any given time,’ says the banking GC.
‘Secondees provide a kind of release valve, as it were. That pressure may dissipate as time goes on, but I don’t think it will go away completely because firms have a long history of supplying secondees even during the boom times when there weren’t headcount restrictions like there are now,’ concludes Johnson. LB
francesca.fanshawe@legalease.co.uk
Partner secondments – the big commitment
For DLA Piper, offering up litigation partner Jeremy Andrews to cover a director on maternity leave from Barclays’ litigation and investigatory services team free of charge was a potentially costly strategic step.
‘We, as a firm on the bank’s general advisory panel, wanted to demonstrate our continued commitment to Barclays as one of our biggest clients, and to demonstrate the step change that had happened in our banking and litigation team in London following a three-partner hire, of which I was one, which took place at the beginning of 2012,’ says Andrews.
‘Under our panel arrangement, we provide a certain number of secondments, this was over and above that, and we tried to be very clear about what we were giving up on the one hand and what we hoped to receive on the other.
‘For someone who is a relatively junior partner, it’s a big ask because it’s the time when you’re developing your practice, but I tried to see the bigger picture and that actually it would be to my and the firm’s benefit just as much as six months plugging away at my own work would be and it was in line with the firm’s strategy to better serve one of its biggest clients,’ says Andrews.
Meanwhile, for Sarah Wiggins, who was recently appointed as Linklaters’ first female London corporate head as well as leading the firm’s energy corporate team, taking on the role of assistant general counsel in BP’s corporate function for eight months up until June last year was a balancing act.
‘I was still energy corporate head at Linklaters – nobody really took over that role – so I still did what group leaders are expected to do, coming back quite often in the evening,’ says Wiggins.
‘I had worked with BP since the mid-nineties but being on the inside is absolutely fascinating, it gave me a totally different perspective on the client. You do have to distance yourself slightly from the Linklaters perspective and enter into it with a totally straight bat. You are representing an in-house function, you can’t be seen to be partisan,’ she adds.