With mounting pressure on legal teams to up productivity, a handful of pioneering GCs have attempted the fundamental shift towards becoming a commercial centre
‘A lot of people like to be seen to be innovative,’ says Richard Susskind, author of Tomorrow’s Lawyers, ‘but one shouldn’t pursue innovation in and of itself, it’s got to be relevant.’
While this means different things to different industries at different times, within the context of the in-house legal community in the grip of an enduring economic malaise, there can be little more relevant than the innovations of departments that have turned themselves from traditional cost centres into profit-generating or business development limbs of the overall enterprise.
Within only a short space of time, many general counsel (GCs) – elevated in status by heightened regulation – have been forced to re-think their own roles and that of their teams. With the added pressure of job cuts to focus the mind, it is surprising how much has been achieved.
‘A lot of general counsel say that the day after Lehman collapsed, their roles were completely transformed. Literally from September 12th they were completely different jobs,’ says Reena SenGupta, founder of legal research and consultancy firm RSG Consulting.
‘Suddenly they were in the board room all the time, being called on for a whole range of views on strategy, politics and economics, which some people weren’t used to giving at that point.’
This shift has opened up new ways for willing lawyers to contribute to their business. When RSG first started its joint venture with the Financial Times to research and host the FT Innovative Lawyers awards, the focus for in-house lawyers was very different, says SenGupta.
‘In 2007, for us a legal department was one that was passive, reactive, quite siloed, and you don’t really see that any more.’
Now, for a still small but growing number of legal departments, the lines are becoming blurred between business facilitator and generator.
In-house, out-house
If the real prize for in-house legal teams is to shift from a cost to profit centre, Kent County Council GC Geoff Wild stands out as a true pioneer. His team is remarkable in that it no longer receives any funding, subsidy or guaranteed work from the council and has a profit target instead of an annual budget.
The department’s trailblazing approach, which has won Wild and his team a number of awards, including legal industry pioneer at the FT Innovative Lawyer Awards 2012, can trace its origins back to well before the downturn when, as Wild recalls the moment of his appointment as head of legal services 15 years ago, his department was given the ultimatum: ‘Shape up or ship out!’
For Wild and his now 125-strong legal team this was interpreted literally, leading as it has to the transformation of an underperforming legal department into a business in its own right, selling the team’s expertise to around 340 other public sector clients, an initiative that delivered a turnover of £12.5m and net profit of £2.4m to the council last year.
‘The essence of it is transforming the image and the reality of the in-house legal team in local government,’ says Wild.
‘It was about coming up with a concept – and making it work – which turns the legal department from a cost centre, where it drains resources from the organisation and ultimately from tax-payers’ money, into one that not only covers its costs and has a neutral impact on the authority, but contributes a profit each year as well.’
What started as straightforward outsourcing, initially to the police and fire authorities, grew consistently year-on-year, servicing a growing number of public sector clients, including local government, health and education organisations.
In 2010, as Wild realised there was only so much further he could take the current arrangement in light of the council’s geographical position and the limitations of the team’s specialisms, Kent CC’s outsourcing took on a much wider dimension with the affiliation with Midlands-based private practice firm Geldards.
Wild explains: ‘Over a bottle of wine one day [Geldards’ chairman] David Williams and I conjured up this idea of creating something called Law:Public: an affiliation between the best of the private sector and the best of the public sector.’
Law:Public offers a flexible resource to local government clients. Much like new initiatives such as Lawyers on Demand and Axiom in the private sector, it gives small authorities with limited legal capability, or large organisations with a requirement for additional resources on a case-by-case basis, access to 120 public sector lawyers for a base rate of £90 up to an average headline rate of £150 per hour. Geldards offers the finance, banking and tax specialism that Kent lacks, while the council team focuses on family law, social care and some of the more esoteric government and local government specialist areas.
Now around 20% of the team’s workload is external, which Wild hopes to increase to 40% as pressure to increase profits grows.
In common with other GCs who increasingly appreciate that legal resources should be viewed as multi-faceted, for Wild, it is an endeavour that offers a true crossover model between the public and private sector. ‘This is where I think the future really lies,’ says Wild. ‘It’s a much closer collaboration, not a “them and us” mentality, or at least it shouldn’t be any more. There should be a much greater circulation of knowledge and skills and sharing of expertise.’
With profits above some AIM-listed companies, Wild is now turning his sights to teaming up with a non-legal partner to create a new business vehicle.
‘There are companies out there that are very interested in getting involved in the public sector because their traditional markets are shrinking – and these aren’t necessarily law firms I’m talking about; these are non-law firms, with whom if things work out we could be setting up an alternative business structure (ABS),’ he says.
ABS it
Wild is not alone in turning to an ABS to extend the brand.
In March, BT launched BT Law, a venture which subsumed its existing motor claims management group BT Claims, which already handled more than 35,000 corporate fleet vehicles, enabling the company to cover all motor claims from incident notification to investigation, resolution and litigation management.
BT Law has won three third-party contracts for companies with large fleets, including Network Rail, and is now looking to extend its portfolio to personal injury and employment work.
Still key to generating profit is cost cutting and BT’s dual US/UK-qualified GC Dan Fitz is unafraid to try new approaches. Much like Wild, Fitz believes that the ‘them and us’ approach to law is outdated and is a proponent of utilising both in-house lawyers, panel firms, outsourcers and flexible resources such as Obelisk.
‘We’re testing all parts of the new legal landscape,’ Fitz told Legal Business. ‘It used to just be who is on the panel, but more and more corporates will be looking at the entire ecosystem and for legal support that can flex up and down without spending a lot of money.’
Part of this plan involves BT entering into a new kind of legal process outsourcing (LPO) model, which will see the telecoms group pass on over 30% of its UK global services legal work to LPO firm UnitedLex, which has undertaken work for BT in the US and India since 2010 and is currently pitching against others to retain that work as BT also opens up the tender to suppliers for work in the UK.
Most significantly, UnitedLex is acting as a gatekeeper to triage legal work under what BT calls its ‘front door policy’. The India-headquartered LPO retains, sends on or reserves for a discussion legal work according to pre-agreed criteria.
Eaga to please
Another in-house legal team attempting to move into advisory services is Carillion. The construction giant took initially unplanned steps into the LPO market when it acquired heating and renewable energy provider Eaga in 2011. With it came Eaga’s pre-packaged, highly regulated legal aid service – now renamed Carillion Advice Services (CAS) – with five years’ experience in delivering telephone-based legal aid advice in debt, welfare, housing and employment.
Carillion’s company secretary and director of legal services Richard Tapp immediately spotted the potential in the group, which already delivered 40,000 hours a year of legal aid advice within tight processes and clearly audited systems, including legal aid employment work.
Tapp saw the group could be used to help the company tackle the huge quantity of employment work generated by Carillion’s almost 30,000 employees.
Having tested the water, giving the team small bits of litigation and basic contract work, Tapp moved CAS out of the energy services division and into Carillion’s legal team, forming an agreement with each of his 12 panel law firms that, as of January this year, they will pass on the commoditised element of their Carillion instructions out to CAS, replacing Carillion’s former legal processing outsourcing arrangement with CPA Global.
It is a venture that Tapp believes provides all the advantages of LPO, in terms of value for money and freeing up law firms to focus on the intellectual elements of deals, but with none of the perceived disadvantages. ‘We can control the quality and we know how it works. What we have is a resource that will help you deliver efficiently and to the right quality,’ says Tapp.
But CAS goes further. It lets Tapp and his team extend lower-cost legal services to clients outside Carillion, a model tested by the law firm Clarkslegal, which is the sole provider of employment advice to the construction group. Clarkslegal not only refers all commoditised elements to CAS, but also offers CAS as a lower-cost solution to its own clients outside of Carillion.
Such is the success of this model that it is now being rolled out to the clients of a number of Carillion’s other network firms, on a range of activities from data room work to contract review.
Tapp adds: ‘On the Carillion side, CAS is now doing work, particularly in terms of contract review, for both our Canadian and our Middle East and North Africa businesses, which allows us to benefit from consistency across the group and take advantage of the time differences.’
The group now has 70 staff and has just recruited six new caseworkers, who are all graduates or legal practice course-qualified.
New Frontiers
While GCs are commonly very much involved in the management of their companies, there is often a line past which they do not cross when it comes to business generation.
However, at Travelex, GC James Birch has worked on a number of initiatives that have seen the foreign exchange company penetrate new markets.
In one early example of this, a contact introduced to the company by Birch put Travelex in touch with the Malaysian prime minister, who in turn introduced the company to the governor of Bank Negara, Malaysia’s central bank. Birch and his team assisted the governor in preparing for the creation of legislation covering foreign exchange and wholesale bank notes, including a two-day workshop showing the bank how the system operates in the UK. Once the legislation was introduced, Travelex was the first company to be awarded a license in Malaysia.
However, the process hasn’t stopped there. Birch is now using this example as a potential springboard into other markets, including engaging in similar discussions in Turkey.
‘We have referred to it in subsequent meetings as a good example of how we can help,’ says Birch, who adds that it is often easier to refer to an example of how Travelex has helped than to spell out to a government how you can help them.
The Travelex team has also been recognised for changing the way VAT is applied to the sale of foreign currency in Australia.
Having lost both its initial case and an appeal in the Australian courts, Travelex decided not to risk funding a further appeal. However, convinced of the strength of the case, Birch brought in heavyweight UK legal representation and entered an arrangement with an undisclosed Australian company with an interest in the verdict, under which, if Travelex lost again, the Australian company would pay the legal fees.
Birch told Legal Business: ‘I can’t take full credit, but between me and our tax team we made it happen and I did the deal with the Australian company. It was really exciting, the final hearing was a day in court and I sent the entire Australian legal team to hear the case.’
Comfort zones
With budgets stretched to the extreme, many GCs have little time, resource or energy to focus on setting up innovative new initiatives outside of their day job.
‘The will is there,’ says Wild, ‘but the ability, the resources and the freedom to build such a venture is very limited at the moment with the economic climate as it is.
‘Legal departments are having to draw their horns in. Anything like this is seen as a bit left-field, and people tend to draw into their traditional comfort zones and not experiment as much, even though this is what they should be doing when things get as tough as they are.’ LB
francesca.fanshawe@legalease.co.uk