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GC MAGAZINE > IN-HOUSE SURVEY 2014

BUSINESS THINKING | IN-HOUSE MANAGEMENT

The usual suspects

As clients give advisers credit for improving value and service, our third annual in-house lawyer
survey shows some of the City’s top firms making the most ground


I N - H O U S E     S U R V E Y     2 0 1 4

‘When Magic Circle firms are appointed on appropriate matters, they offer real quality and value. The problem is, there is an ever-increasing type of work that is not appropriate to instruct them on as other firms offer significantly better quality and value. When the Magic Circle is retained on work that is not appropriate, my experiences are broadly negative.’

This response to our latest request for in-house counsel to describe their feelings about the service levels offered to clients by Magic Circle law firms resonates with our overall ranking of law firms according to clients last year. The key message coming across in our 2013 research was that the pressure on sourcing value legal services was leading clients away from the traditional elite.

This was evident when Eversheds emerged as the clear overall favourite in the 2013 in-house survey, receiving the highest proportion of votes for ‘value for money’ and ‘pragmatic commercial advice’. This year, we again asked in-house specialists to choose three firms for strategic, high-quality legal advice; three for pragmatic commercial advice and strong service delivery; and three for value for money. A higher volume of responses this year, from on average larger in-house teams (see ‘Where next, consigliere?’), means that the legal elite have fared better in our overall rankings. Twenty percent of our survey respondents have legal budgets in excess of £10m and with that increased buying power comes a flight to quality. Despite a reported backlash against the high-billing Magic Circle last year, Linklaters has taken the top spot as the best overall adviser in 2014, pushing Eversheds into second place.

And, while only 32% of survey respondents were positive about the quality and value offered by the Magic Circle in 2013, this has increased to almost half (47%).

However, while Linklaters takes the crown this year and positions have switched around somewhat, the top ten in 2014 comprises largely the same firms as 2013: the Magic Circle, plus Eversheds, DLA Piper, Pinsent Masons and Baker & McKenzie. The only significant change is the tenth spot, which sees Herbert Smith Freehills replaced by Axiom, thanks largely to a new question introduced this year asking general counsel (GCs) to identify the non-law firm providers most likely to make a significant impression with corporates.

The emergence of Axiom points to the fundamental issue of disaggregation in the legal services market. While Axiom has been marketed as a legal firm, structurally it is a corporate and is fully established as the pace-setting alternative law provider, challenging and winning work from leading City firms for clients such as Vodafone and, more recently, BT.

 

Best firms: Value for money

1 Eversheds (-)
2 DLA Piper (-)
3 Pinsent Masons (-)
4 Slaughter and May (NEW)
5 Baker & McKenzie (NEW)
6 Addleshaw Goddard (NEW)
7 RPC (NEW)
8 Hogan Lovells (NEW)
9 Allen & Overy (NEW)
10 Osborne Clarke (-4)

 

Best firms: All categories

1 Linklaters (+6)
2 Eversheds (-1)
3 Slaughter and May (+1)
4 Freshfields (-2)
5 DLA Piper (-2)
6 Baker & McKenzie (+4)
7 Pinsent Masons (-3)
8 Allen & Overy (-)
9 Clifford Chance (-3)
10 Axiom (NEW)

 

But while overall evidence from our survey suggests that alternative providers like Axiom have yet to gain serious traction in winning work from clients (see ‘Getting with the programme’), many GCs interviewed for this piece were largely positive about disaggregating certain work to alternative service providers. More importantly, the pressure is definitely on all firms, even the Magic Circle, to bifurcate business lines and price, varying work streams differently. Such pressure is manifest in initiatives such as Allen & Overy (A&O)’s Peerpoint, launched last November, which sees A&O-vetted freelance lawyers deployed to handle a range of fixed-term needs, as well as Berwin Leighton Paisner’s lawyer contracting service Lawyers On Demand, which has seen the City firm’s spin-off launch in Manchester during the last year.

Robin Saphra, group GC at Colt Technology Services, is one such advocate and says: ‘Law firms need to look at the middle market and decide how they are going to service that efficiently. I am certainly not going to pay £600 an hour for a Magic Circle firm to do that kind of work. In using a regional office of DLA Piper or Eversheds, they might offer to do it regionally for £250 to £300 an hour, but even that’s too expensive. I want someone to do it for £50 an hour. Law firms are just not looking at that and they are in severe danger of having their lunch eaten by this new breed of outsourcers and alternative business structures.’

Law firms have to frequently counter the scenario put forward by mobile giant Nokia’s chief legal officer Maria Varsellona, who says: ‘If you look at the overall legal cost and the pressure that companies have had in recent years, the logical conclusion is to increase the numbers in-house – it reduces cost. When a confidant is needed, quite frequently for the same types of issues, it’s better to have a lawyer in-house than refer to external counsel. This is what we are doing and many companies have been doing in recent years.’ Hence the need to offer GCs something they cannot get in-house.

Nonetheless, Linklaters, Slaughter and May and Freshfields Bruckhaus Deringer scored highest for strategic, high-quality legal advice, an area where law firms are most looking to excel. With in-house legal teams cutting back on their roster of law firms as they look to retain routine matters in-house, this is an area where law firms can really win work that comes at a premium.

 

Non-law firm providers of legal services

Having the strongest proposition for company clients

1 Axiom
2 Lawyers On Demand
3 PwC
4 Integreon
5 KPMG

 

Eighty six percent of survey respondents cited ‘quality of legal advice’ as the most important criteria for choosing a law firm, leading to the inescapable conclusion that despite the rhetoric espoused by non-law firm legal service providers, a perception of quality is what is holding clients back from employing the services of these aggressive newcomers.

‘If you look at the overall legal cost and the pressure that companies have had in recent years, the logical conclusion is to increase the numbers in-house.’
- Maria Varsellona, Nokia

Conversely, Slaughter and May also performed well for pragmatic commercial advice and strong service delivery and, as a consequence, is also considered excellent value for money. Richard Tapp of Carillion says: ‘Its expertise means it’s good at cutting through unnecessary issues and getting to the task: it wants you to be happy with what it has done and what it has charged, as it wants you to be back as a client for the next decade.’

Rosemary Martin at Vodafone, who used Slaughters as UK legal adviser when the telecoms giant sold its stake in Verizon Wireless for $130bn last year, says: ‘I always care how expensive a firm is. Slaughters agreed to work on a fixed-fee basis, which was agreed quite early on and although it can be expensive they can also be surprisingly reasonably priced because they bill on a value basis and not on hourly rates.’

As we show in our feature ‘The new boy’, Slaughter and May’s business model, particularly for corporate work, is proof that premium-priced but intelligently resourced legal work can deliver value to clients in a similar way to those promoting the cost-effectiveness of the volume-commoditised approach. That said, the middle way – providing high levels of legal expertise, efficiently handled and aggressively priced, is proving a successful combination for the likes of Eversheds, which retained its first place as the best firm for providing value for money and DLA Piper, which came second. Pinsent Masons, which picked up sole adviser contracts for both Balfour Beatty and E.ON in 2013, unsurprisingly came third in this table and also scored well for pragmatic commercial advice and strong service delivery.

 

Best firms: Strategic, high-quality legal advice

1 Linklaters (+5)
2 Slaughter and May (+1)
3 Freshfields Bruckhaus Deringer (-2)
4 Baker & McKenzie (NEW)
5 Clifford Chance (-2)
6 DLA Piper (+2)
7 Allen & Overy (-)
8 Eversheds (-6)
9 Pinsent Masons (-1)
10 Hogan Lovells (NEW)

 

Best firms: pragmatic commercial advice and strong service delivery

1 Slaughter and May (+3)
2 DLA Piper (+2)
3 Eversheds (-1)
4 Freshfields Bruckhaus Deringer (-2)
5 Pinsent Masons (-1)
6 Linklaters (-)
7 Baker & McKenzie (+1)
8 Osborne Clarke (NEW)
9 Addleshaw Goddard (+2)
10 Allen & Overy (-2)

 

With 76% of survey participants reporting that their company has a policy of retaining more matters in-house and the main reasons for instructing law firms being overwhelmingly split between a lack of resources or a matter being too complex, it is vital that firms, when they do get those mandates, staff them and price them correctly. It would appear that the overwhelming majority of clients feel that firms have got their resourcing under control, with 81% voting yes when asked whether law firms generally are resourcing work at the appropriate level – the same as last year.

However, one sure-fire way for firms to alienate their clients and move off the preferred adviser list is to present them with unwanted surprises: 61% of those surveyed said they occasionally get unexpected bills from their law firms and, increasingly, are taking a zero-tolerance approach to this behaviour. As one GC put it: ‘One of the reasons that our preferred firms are preferred is that they don’t give us unexpected bills’, while another adds: ‘Our retained firms have a relationship with us – they do not submit bills unexpectedly.’

The message is clear: while the elite law firms remain in demand from leading corporate counsel today, they are operating on a knife edge. Customer loyalty to leading City adviser brands is less forgiving these days. LB

sarah.downey@legalease.co.uk