In-house counsel must work in partnership with their law firms if they are going to add value to the business. External lawyers and in-house counsel must work with the business units if they are to provide an effective service. But place too many constraints on external firms and you may find that you lose trusted advisers.
These were the overriding views of 15 European heads of legal who gathered in the bowels of HMS Belfast for Martindale Hubbell's first Counsel-to-Counsel initiative on 13 September, which focused on how general counsel can add value to an organisation.
The closed forum gave in-house counsel the opportunity to exchange views on how best to run the legal function and provide value to the company.
Most participants said they used the 'preferred advisers' model of external legal advice and agreed that this model was the best way of making sure they built up a good understanding with their outside counsel.
But delegates recognised that both sides should acknowledge the commercial reality of the situation: law firms have to earn fees as well as in-house lawyers controlling budgets.
Law firms are also considering the clients they want and the institutions that will be most valuable to their long-term strategy.
The most extreme version of the 'preferred advisers' model is the 'partnership' model adopted by many companies. It is is most closely associated with US chemical giant DuPont.
David Eveleigh, senior counsel and company secretary at DuPont UK, described the DuPont Legal Model – of one relationship law firm in each jurisdiction – as the "common-sense way to deal with external lawyers". The model, which was driven by the need for cost effectiveness, has been in place for more than 10 years, and has seen the company reduce its external legal spend by millions. In the UK, the legal spend has been reduced by £2.5m since Eversheds became the company's main outside adviser.
But even with these savings, Eveleigh said outside legal fees remain the most pressing problem for his department internally. He predicted that if costs continued to go up clients would bring more work in house.
"In the UK and the US external lawyers still charge on an hourly basis. The fees are going up as the lawyers are being paid more. The only way to deal with this is for the in-house team to get bigger. This will be a definite trend," he said.
Eveleigh also warned that the difficulty with the 'one-on-one' relationship was that you had to be careful not to put all your eggs in one basket and there was a danger that the law firm could become complacent.
Another topic of debate was the use of beauty parades. Although a popular way of selecting panel firms, on a transaction-by-transaction basis the process received a thumbs down from in-house counsel.
Some felt that inviting law firms to bid for every transaction worked against building long-term relations with external advisers and taking on the lowest bidder for every deal was not necessarily going to save money.
Most delegates said the law firms that would be invited to tender for the work in a beauty parade would generally already have a good knowledge of how the company worked. But they emphasised that displaying this knowledge was crucial to the success of any pitch for work.
While DuPont's Eveleigh did emphasise the issue of fees, the bulk of the delegates at the forum stuck with the view that it is quality of advice, not the costs that would be the overriding determinant in selecting a law firm.
But even they noted that the control of legal spend was always an underlying concern. After all, the role of the in-house counsel is to serve the needs of its employer, and as a cost centre the employer is always going to be keen to know how much advice is going to cost.
To improve cost planning, delegates noted a growing willingness by firms to provide advance estimates of fees, but they also commented that firms diverge from these estimates more often than not.
One in-house counsel said he would refuse to pay the law firm's fees if they went above the initial quote without advance warning.
So one mechanism for dealing with this issue is to hold the adviser to the fee quoted, unless the firm comes back to in-house counsel during the course of the transaction for authorisation to carry out further work.
Another delegate said he had a system of requiring the law firm to justify on the final bill the divergence from the original estimate. Within this the firm would provide a 'management valuation' of the project, indicating what the law firm considered the value of the project to be to the business unit. In general, in-house lawyers called for external advisers to recognise that they want specific advice tailored to their business rather than reams of general legal advice.
But delegates recognised they needed to be clear about the scope of the instructions to get the best value from their external advisers.
They acknowledged that external lawyers can often receive unclear instructions, but argued that this can be because they come from the business units rather than the in-house team.
This issue emphasises the important role of in-house counsel to interpret instructions from the business units and transmit them to the external advisers, ensuring that everyone knows what will be delivered.
Delegates agreed that a post mortem with external advisers is always a good idea. One in-house counsel said he sets up a post mortem six weeks after every transaction when "detail is fresh and emotion is not high". Honesty, as always, is key, he said.
So the overall conclusion from the forum was that the relationship between in-house counsel and their external advisers has evolved significantly in recent years, with both clients and law firms now looking for a partnership of equals.
In-house counsel expect their law firms to better understand their business needs, but at the same time they recognise that they have a role to play to ensure that external advisers are able to provide best value to that business.