Storm-proofing
In the second part of a series examing corporate counsels’ response to the economic downturn, Craig Sisterson looks at what can be done to future-proof in-house practices
In the last issue of NZLawyer, we looked at the steps local in-house counsel are taking to not only survive the current economic storm, but to thrive. Whether it’s the implementation or acceleration of internal changes, both in terms of the type of legal work done and how that work is done, or a shift in the relationships between internal and external legal providers, Kiwi General Counsel are looking to harness the storm by providing better legal services to their businesses, at lower or static overall cost.
According to Ron Pol, director of specialist legal services consultancy Team Factors Ltd, the smartest in-house counsel won’t stop at current cost savings, but instead “will then also invest time and resources into identifying and developing systems and processes that lock those benefits into the future”. Many of the local General Counsel I spoke with echoed Pol’s comments, noting both ongoing internal changes and their desire to develop or continue long-term relationships with the external law firms that best suited their changing business needs.
“The downturn is a timely reminder that change is the only constant in corporate life and that the legal function needs to stay ahead of the curve to maximise its value to the business,” says Tristan Gilbertson, Group General Counsel for Telecom.
Going steady
While some would argue cost-cutting management decrees sparked by the economic downturn might provide a prime opportunity for General Counsel to pressure external law firms to offer lower rates, others prefer a broader view. “If [in-house counsel] just keep chipping away at hourly rates, they’ll certainly make some short-term savings, but as soon as the economy picks up, so will rates, and any benefits will evaporate,” says Pol.
More beneficial than temporary cost savings in terms of lower hourly rates is the potential to use the current pressure-packed economic environment as motivation to cultivate better long-term relationships between in-house teams and their most suited external lawyers – relationships that provide ongoing benefits for both.
This could involve a shift in how law firms perceive their relationship with in-house counsel. “People [can] fundamentally misunderstand … the different value propositions that internal and external lawyers give, which is to say, external lawyers have in the past often seen in-house teams as a competitor, and I think that’s the wrong approach,” says Debra Blackett, General Counsel & Company Secretary for ANZ National Financial Banking Group. Blackett notes as internal lawyers only have one client, they know the client extremely well, are imbedded in their strategy, and carry a lot of institutional history. In contrast, she says external lawyers can have a better industry overview due to their huge range of clients, and often have better legal resources. “When you bring those together, what you should have is a perfect marriage … leveraging each others’ strengths.”
As part of an internal business alignment project, Blackett is aiming to create closer relationships between ANZ National and the external firms on its legal panel. “I want law firms that are ‘one team’ with us,” she says, “that understand all the stuff we understand about our business, that share in the risk, and share in the upside.”
Contact Energy General Counsel Steve Bielby is similarly looking to grow strong long-term relationships with his external lawyers. The economic downturn has provided an opportunity to accelerate Contact’s use of value-billing systems, which are one of the future-proofing options Pol mentions, but Bielby doesn’t think in-house counsel should unduly squeeze law firms. “It’s [not] a matter of trying to extract undue value from the firms – I am a believer in long-term relationships,” he says. “We have to help the firms grow their people, and you have to look to the long-term.”
One way firms can grow their staff is through secondments to key clients. Bielby, Blackett, and Gilbertson have all seen some evidence of external firms being more willing to provide secondees on a wider variety of terms in the current climate. The closer links forged by such secondments may also help with future-proofing. Gilbertson is “a big believer in the value of secondments, for both Telecom and panel firms”. Bielby thinks they can “be a real win-win”, and Blackett likewise sees the value for both the in-house team and the external firm in secondments.
“The … thing I really like about secondees is that it does really increase the value of the people working for you – once you’ve had them for three months, six months, they know you, your team, the bank, and they’re much more effective sitting outside,” she says. “So I do think it gives the [external] firm a lot more value than they think.”
As Pol sees it, the external firms who use the opportunity provided by the economic downturn to re-evaluate and possibly fundamentally change their relationships with in-house counsel, seeking “to truly understand and respond to the client perspective”, will be well rewarded long-term. “Although there is much talk of doom and gloom,” he says, “it seems to me that the future could not be brighter for the relationship between law firms and their organisational clients.”
Strengthening your own house
But future-proofing your in-house team goes beyond the relationship you have with external lawyers. “Especially when [you] are asking law firms to offer innovative solutions, some client organisations might be a little more open to new ways of doing things themselves,” says Pol. Gilbertson adds to his comment about constant change and the need for legal teams to maximise their value to their business by noting in-house teams can “always be future-proof if you constantly strive to operate as a strategically driven and commercially focused partner to the business – no matter what the economic climate.”
Blackett notes that once in-house counsel have “steered [their] business through [the economic downturn], and assuming it survives”, they should make sure they identify the lessons learned, and “build that into the governance structures … even if [they] are a one-person team”.
Different in-house teams can bolster the partnership they have with their business in different ways. Carl Rowling, General Counsel for Auckland City Council, has been overseeing an ongoing strategy of “lifting the level of work carried out in-house… a deepening of resource and capability”, including adding several more legal staff. “Undoubtedly, the current economic climate adds a sense of urgency to achieving this deepening,” he says, “as it delivers substantial cost savings and other efficiencies to the organisation.”
Such capability increases are one example of in-house counsel utilising what Pol says is the opportunity to develop or hone systems that lock in long-term savings: “investing in the future they want to see”. Gilbertson notes he is “putting in place a raft of new measures to ensure [his] people are recognised and rewarded for their efforts and have access to the training and development opportunities that a leading corporation such as Telecom should provide”.
One of the results Blackett is expecting from her internal projects is the creation of an enhanced understanding between her legal team and ANZ National management. She expects her legal team to go beyond just what management expects, to find out what management don’t know they need, to get in there, identify legal risk, tell management what they need to know, and also execute on that.
“It’s about us getting closer to the business,” she says. “All businesses … will be dealing with risks that have floated up like dead fish on a low tide… [T]hings that went well for decades, and are now staring them in the face. And all of us need to identify those risks, and make sure we are covered for next time.”
Preventing earthquakes – not just storms
Of course, ‘next time’ may be quite different in appearance. Blackett notes an important consideration for all in-house counsel is that the next big risk will likely be completely different to the credit crisis-sparked economic storm we now face. Rather than working predominantly on preventing this same risk happening again, we should be preparing for a wide range of unknown future risks. “It’s thinking about random events, and how well you’ve constructed your business to face those in the future,” says Blackett. “How good are your governance structures, and how good is your risk management?”
“In-house counsel keen to future-proof their operations might need more active involvement in identifying and implementing some of the best systems and processes,” says Pol. Rowling says the key to future-proofing for in-house counsel is to “never take your eye off costs, and the strategy you are pursuing must be sufficiently robust to be able to adjust to [any] significant change in externalities”.
Such robust strategies must go beyond the current crisis, and address wider risks than those now faced by businesses, their in-house legal teams, and their external legal providers. “The key is not to be too myopic and backwards de-risk,” says Blackett, “but to future de-risk … on the assumption that the next thing will look like something, but it won’t look like this.”
But just as fire forges stronger steel, the current crisis provides an opportunity for in-house counsel to build relationships both inside and outside their businesses that will not only help them survive (and even thrive) now, but also be better placed to withstand any future risks, whether they be economic storms, economic earthquakes, or economic volcanoes.
In the end, it’s up to each in-house team to take the steps necessary to future-proof their own business. Or, as Bielby says: “These are going to be testing times on a number of fronts, and they are going to test [business] relationships in the same way you might have in domestic relationships; you’re either going to come out of this stronger in your relationship with firms, or you won’t.”
NZLawyer, issue 109, 3 April 2009