Wednesday, 12 September 2018 14:27

New thinking required

Many clients’ approach to selecting law firm panels could be fundamentally flawed and result in them receiving a poorer service from firms that are difficult to replace

bombilla pictureClients in Spain are increasingly adopting more formal approaches to selecting preferred law firms, and this includes the greater use of law firm panels. It’s a trend that is causing controversy. A number of partners at Magic Circle firms in Madrid, for example, have highlighted the fact that a growing number of banks and financial institutions are introducing much tougher law firm selection processes, which sometimes includes the creation of law firm panels. The partners claim that this is merely an excuse to drive down the fees they pay for their legal advisers. They also argue that this trend means legal service providers are increasingly selected on the basis of price, rather than quality, and consequently clients will receiver poorer advice.

However, the fact is that a growing number of clients see significant advantages in having a small panel of preferred providers. They argue that the benefits include the fostering of closer relationships with external legal advisers with the result that they develop a better understanding of the clients’ business. Clients also believe that having a law firm panel is, ultimately, more cost efficient.

This all sounds good in theory, but according to new research by Iberian Lawyer, clients are now waking up to some of the pitfalls to avoid when creating a law firm panel. As many as 71 per cent of general counsel in Spain and Portugal believe that one of the risks associated with having a law firm panel is that the firms on the panel “can become too complacent, take your work for granted, and their performance can suffer”. Meanwhile, 59 per cent warned that, having a panel of law firms can result in the client becoming “too reliant on the panel firms and this makes it more difficult to New thinking required replace them if their performance is unsatisfactory”.

The widespread nature of these concerns supports the view that clients’ traditional way of creating law firm panels is fundamentally flawed. Peter Cornell, former global managing partner at Clifford Chance and former head of the firm’s Madrid office, says: “Clients are finding they need to get the balance right between developing a closer relationship with a few firms or working with a wider pool.” Cornell is a founding partner of Metric Capital, which has recently made a number of recent Spanish acquisitions, and chairman of law firm advisers Lexington Consultants. “In my work in private equity, we need the flexibility to work with the right local firm for any specific deal,” Cornell adds.

CIBL79 Interior Página 18 tablaornell argues that clients’ methods of selecting law firm panels are often so fundamentally flawed that they are bound to fail and that clients that do decide to have a panel, often do not see any improvement in the performance of their external legal advisers.

Some experts experienced in creating law firm panels also argue that some clients opt to have a panel because they want to reduce the number of law firms they use. However, this type of thinking can create problems. When a client uses fewer firms, it tends to select larger law firms for its panel as they are likely to cover a wider range of practice areas. However, choosing larger law firms may not be the most efficient strategy as they may also be the most expensive and least responsive firms. In Cornell’s view, clients need to ensure there is the “right mix” in their panels in the sense that there are both larger and smaller firms as well as firms charging different levels of fees, as this can be “an effective check on less efficient firms”.

In addition, it is argued that clients’ panels should include two law firms for each practice area as this creates competition and avoids situations where law firms become complacent. Another mistake clients often make, according to specialist general counsel consultancy AdvanceLaw, is that when reviewing their law firm panels they merely “rubber stamp incumbents (which can confer a sense of entitlement), rather than including promising new firms”.

So taking this as a benchmark, are there any ways in which clients in Spain and Portugal could improve the way they develop their law firm panels? There is a clear indication that in-house lawyers in Iberia do not, in general, have “diversity” in their panels; that is, a mix of larger and smaller firms, a mix of firms that charge higher and lower fees, or at least two firms for every practice area.

The majority of general counsel who participated in the Iberian Lawyer research said that the number of firms included on their organisation’s panel was low, specifically five or less. Only 5 per cent of respondents said they included more than 20 firms on their panel. Around a third (29 per cent) said they had six to ten firms on their panel. A total of 14 per cent said they had 11 to 15 law firms on their panel. Meanwhile, the majority of in-house lawyers (52 per cent) said they did not have at least two firms for every practice area.

Not replacing poor performers
The fact that many clients in Spain and Portugal have developed small, and often unbalanced, law firm panels could have several negative consequences for their business. To begin with, they could be too reliant on the small number of firms they use and consequently, they may find it difficult to replace any of the firms that are performing poorly. Meanwhile, firms on the panel, facing little competition, could be taking the work they receive for granted and therefore be putting little effort into ensuring the best customer service for clients. Around one in three in-house lawyers in Spain and Portugal (38 per cent) acknowledged that it is “not necessarily more cost effective to have a law firm panel”, while 32 per cent said the creation of panels can mean “greater use of full-service firms, which tend to be more expensive”.IBL79 Interior Página 19 tabla

Meanwhile, it seems that, when reviewing their panels, a sizeable proportion of clients do not change any of the law firms they are using. One in three in-house lawyers in Spain and Portugal (32 per cent) said that when they reviewed their panel they “usually keep the same firms without adding any new firms”. Such a strategy could potentially lead to a sense of entitlement among the firms on the panel and result in them doing little to improve the service they provide.

If clients want to maximise the value of law firm panels, it’s vital that they rethink their approach to how they design and manage them. In general, it’s a good idea to increase the number of law firms on the panel, ideally so that there are at least two firms that cover each practice area. This creates competition, reduces complacency and ensures that firms put maximum effort into ensuring the service offered to the client is of the highest quality. Similarly, it pays to change at least some of the firms when conducting a panel review; it’s not beneficial to have your external legal advisers taking you for granted and they are more likely to provide a better service if they know there is the possibility they will lose your business if they are underperforming.

More in this category: « More liquidity
Mon Tue Wed Thu Fri Sat Sun
    latam sept18 cover

Click image

This website uses cookies

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on the IberianLawyer website. However, you can change your cookie settings at any time. Learn more

I agree

What do I need to know about cookies?

A cookie is a small text file that’s stored on your computer or mobile device when you visit a website. We use them to:

  • Remember your preferences
  • Tailor our sites to your interests.

There are different types of cookies

First party cookies

These are set by the website you’re visiting. And only that website can read them.  In addition, a website might use a separate company to analyse how people are using their site. And this separate company will set their own cookie to do this.

Third party cookies

These are set by someone other than the owner of the website you’re visiting. 

Some IberianLawyer web pages may also contain content from other sites like Vimeo or Flickr, which may set their own cookies. Also, if you Share a link to a IberianLawyer page, the service you share it on (e.g. Facebook) may set a cookie on your browser.

The IberianLawyer has no control over third party cookies.

Advertising cookies

Some websites use advertising networks to show you specially targeted adverts when you visit. These networks may also be able to track your browsing across different sites.

IberianLawyer site do use advertising cookies but they won’t track your browsing outside the IberianLawyer.

Session cookies

These are stored while you’re browsing. They get deleted from your device when you close your browser e.g. Internet Explorer or Safari.

Persistent cookies

These are saved on your computer. So they don’t get deleted when you close your browser.

We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.

Other tracking technologies

Some sites use things like web beacons, clear GIFs, page tags and web bugs to understand how people are using them and target advertising at people.

They usually take the form of a small, transparent image, which is embedded in a web page or email. They work with cookies and capture data like your IP address, when you viewed the page or email, what device you were using and where you were.

How does the Iberian Lawyer use cookies?

We use different types of cookies for different things, such as:

  • Analysing how you use the IberianLawyer
  • Giving you a better, more personalised experience
  • Recognising when you’ve signed in

Strictly Necessary cookies

These cookies let you use all the different parts of Iberian Lawyer. Without them services that you have asked for cannot be provided.

Some examples of how we use these cookies are:

  • Signing into the IberianLawyer
  • Remembering previous actions such as text entered into a registration form when navigating back to a page in the same session
  • Remembering security settings which restrict access to certain content.

Performance cookies

These help us understand how people are using the IberianLawyer online, so we can make it better. And they let us try out different ideas.
We sometimes get other companies to analyse how people are using the IberianLawyer online. These companies may set their own performance cookies You can opt out of these cookies here.Some examples of how we use these cookies are:

  • To collect information about which web pages visitors go to most often so we can improve the online experience
  • Error management to make sure that the website is working properly
  • Testing designs to help improve the look and feel of the website.
Cookie nameWhat it's for
Google DoubleClick The IberianLawyer uses Google DoubleClick to measure the effectiveness of its online marketing campaigns.Opt-out of DoubleClick cookies
Google Analytics From time to time some IberianLawyer online services, including mobile apps, use Google Analytics. This is a web analytics service provided by Google, Inc. Google Analytics sets a cookie in order to evaluate use of those services and compile a report for us.Opt-out of Google Analytics cookies