Take your partners

With in-house counsel under pressure to cut legal spend, many are turning to partnering as a solution, and the relationship can benefit both clients and firms, says Lucy Trevelyan


Slashing legal costs is a permanent imperative for most companies. A partnering agreement – where clients select a small number of law firms with which they work closely, share their business strategy and provide lots of work in return for reductions in bills and closer scrutiny – is becoming an increasingly popular device to achieve this aim.

Food giant Nestlé has slashed its global legal spend by £34 million by introducing partnering, while the chemicals giant DuPont is expanding its partnering arrangements in Europe (see [2005] Gazette, 3 March, 9).

Partnering arrangements differ, but most have common elements, such as: an aggressive fee negotiation policy; an agreement to treat the partner law firm as the preferred or only law firm in a region or practice area; restrictions on external counsel working for competitors; reports on fees and project progress presented in a specified form; a dedicated client-service team and regular review meetings; training, knowledge and temporary personnel exchange; and mutual non-poaching agreements.


National firm Eversheds entered into such an arrangement with DuPont six years ago and, apart from intellectual property, handles all its UK legal work.


Partner Paul Smith explains that the partnering arrangement model was pioneered by management ‘guru’ W Edward Demming, and first used to revolutionise the Japanese car industry after the Second World War.


‘Instead of purchasers having an arm’s length relationship with their suppliers and constantly arguing about fees, delivery and so on, the idea was to realise that both had a long-term interest in each other’s business and to treat each other as business partners, working together and not against each other.’


DuPont adopted and adapted the idea in the US to apply to its legal services, but as Mr Smith reveals, transposing the model into Europe faced some teething problems.


‘It’s different in the US,’ he says. ‘There the model predominantly concentrated on saving costs of litigation, whereas in Europe there is less litigation. We have been instrumental in developing the model to apply to other areas of legal services. It was a struggle in the early days – I had to reinvent the model to apply to the type of work we were doing for them, which was at first mostly mergers and acquisitions (M&A) work, although lately we have been doing more litigation, commercial and employment.’


Mr Smith likens the partnering arrangement to a marriage. ‘You have to work at it and strive for continuous improvement. It’s important that you understand their business and culture, and we have devised a number of systems and ways of working which meets their requirements. This all means quite an investment in time.’


But he says the arrangement has been worth the effort: ‘We have learned so much from DuPont and, as part of the partnering programme, they promote their partner law firms to other clients – they pay for adverts in business magazines effectively saying “these are our preferred law firms, please use them”. We have been engaged by lots of US multinationals on the back of this. DuPont’s partner law firms are also encouraged to refer work to each other.’


Mr Smith says the give-and-take nature of the relationship manifested itself after Eversheds completed the first piece of work for DuPont.


‘After the first M&A job, they gave us feedback and then threw me by asking how they did – a client had never asked me that before. I said they were very nice, at which they looked quite disappointed. They really wanted feedback on how they operated and how things could be improved.’


The partnering arrangement, he says, will almost invariably fall apart if both sides do not put in the necessary effort. Problems can also arise if the law firm merges. ‘You’re effectively introducing a third party to the marriage, which can cause conflicts,’ he remarks.


Mr Smith suggests that European companies are increasingly following the US example of reducing their legal panels, converging and consolidating. But he says some law firms ‘just don’t get it’.


‘One law firm went to a potential client and when the company started talking about their requirements, the law firm said “don’t make any assumptions: we haven’t decided if we want to act for you yet”. Needless to say, they didn’t get the work. There was also a low-cost airline which asked its six law firms to come in and talk about the relationship but four didn’t turn up – they didn’t see the point in wasting billable time talking about the relationship.’


Partnering arrangements can certainly save companies money. Nestlé made its £34 million saving in two years by introducing a partnering arrangement, with City firm Norton Rose winning out as its preferred choice for capital markets and M&A.


Patrick Beringer, who heads Nestlé’s M&A team in Europe, says having one main counsel for capital markets and M&A work has brought numerous benefits – not just financial ones.


‘Because you have a closer relationship with the law firm and the lawyers understand your business more, it increases efficiency and the speed with which things can be done. It’s easier to deal with one firm rather than several and you don’t have to go through a tender process all the time. Also, if you know a transaction is coming up you can warn them in advance and get things started.


‘We do joint training sessions on legal issues a few times a year and in terms of fee arrangements, from the volume of work that we can give them, there’s a quid pro quo there.’


Norton Rose partner Campbell Steedman says the relationship between his firm and Nestlé is constantly evolving. ‘Because we have a better understanding of the client’s business, we are more aware of developments and can plan work in advance. It ultimately means we can offer a more efficient service.’


He says that although there is a core team working on Nestlé transactions that considers itself as an extension of the food company’s legal function, no Norton Rose lawyers work exclusively for Nestlé. ‘I would be cautious of that in anyone’s career. Lawyers need to keep a blend of work,’ he says.


Mr Steedman points out that although Nestlé closely scrutinises a project’s progress and requires a specific reporting system, it is not all one-way traffic. ‘They learn from our experience. We want to work in a mutually compatible way. They are looking for consistency in the way things are done across the office network. Things may vary somewhat in different jurisdictions but we are developing more common precedents and standards in the way we do things for them to increase efficiency.’


Mr Beringer says: ‘We want to know which lawyers are working on Nestlé matters and in terms of the way they present their figures, it is set out in a form that we want to see.’


He says he has never worried about putting all his eggs in one basket should the relationship turn sour. ‘We have regular meetings so if we feel that something is going wrong, there is time to rectify it.’


Daisy Williamson, CMS Cameron McKenna’s client development manager, says the City firm has a certain level of partnering with all of its clients but does operate a more formal structure with some major clients.


She says: ‘Each relationship is unique – some clients wish to instigate a partnering agreement when they begin to work with us, whereas with others we suggest that we begin to work more closely across different practice groups. It’s important to note that partnering means different things to different clients. It’s not a one-size-fits-all approach.’


Ms Williamson says that as clients are looking for cost savings by reducing the number of firms they work with, they expect those few firms to deliver greater benefits and a deeper understanding of their business needs. And word is spreading.


‘As more clients benefit from these partnering relationships, they share their experiences with their peers, who in turn desire the same level of service from their firms.’


She adds that too many law firms wait for their clients to tell them everything about themselves. ‘The key element is to ask the client the right questions. If you’re prepared to ask questions of the client about their business and their strategy, you’ll often be surprised at the level of response that you get.’


Paul Gilbert, Law Society Council member for the Commerce & Industry Group, warns that partnering is not for everyone and not for all types of work. Mr Gilbert, chief executive of legal consultancy LawBook Consulting, says: ‘It works best when the added value comes from a deep understanding of how the client works rather than for more commoditised, routine activity.


‘The main concern at the moment for clients is controlling costs. If partnering can achieve this, then it will be more popular. Many clients simply want to reduce their spend and that is creating a more powerful driver for change. Partnering arrangements which do not deliver real savings will fail.’


Partnering is not an idea that industry alone has embraced. James Snape, a partner at City firm Nabarro Nathanson, says his firm has partnering agreements with a number of bodies, the closest perhaps being with Essex County Council.


‘There’s no guarantee of work but we are the preferred supplier so we automatically get on the list if there’s a tender and if the work is very complex or urgent and is not going out to tender, we get it.’


His firm’s IT and human resources departments work closely with the county council, which can access the law firm’s intranet. The two exchange IT know-how, training and personnel on secondment.


But Mr Snape warns that law firms can have too many partnering agreements – and they should only be entered into if they are going to be mutually beneficial.


‘A lot of non-chargeable time is invested in the relationship – Essex has a trainee on secondment at the moment on a no-charge basis, for example. You have to be realistic about what you want out of it – there has to be some fee income forthcoming. We have been approached by some who want everything [all the benefits of partnering] but won’t give us any work because they say it’s too expensive.’


He says that for local authorities, giving law firms access to their business plans presents little problem since much of it is in public domain anyway. He was surprised, though, how willing commercial businesses are to present their plans to law firms.


‘We asked one client to do a presentation to our people on what their plans were going forward. They really enjoyed it and it really helped the staff working on that client account.’


Partnering may sound like an innovative arrangement, but in many ways the key to its success is a return to traditional values. Mr Smith says: ‘People talk about partnering being a new thing, but in a way it’s like going back to the old days where law firms really know their clients and look after their other interests, not just delivering traditional legal services. It’s simply good, old-fashioned relationship lawyering.’


Lucy Trevelyan is a freelance journalist