Tough times will mean tough talking with advisers in 2009. Leigh Jackson reports

As the financial downturn grew in intensity through 2008, a number of high-profile general counsel took proactive steps in response. ITV general counsel Andrew Garard, for example, banished the billable hour on completion of his panel review in November, and James Blendis, legal chief of T-Mobile, entered into a round of frank discussions with the company's legal advisers in a bid to drive down costs.

Earlier in the year, Tyco's much-heralded contract with Eversheds, which ushered in detailed billing transparency and widespread use of fixed fees, attracted much attention as evidence of clients taking control of legal services procurement.

But not all the in-house changes were positive – the continued loss of jobs in the banking sector led to widely reported losses in the legal teams at Barclays Capital and Nomura, with the cuts spreading to media companies including Channel 4.

As the legal profession faces the most uncertain outlook for a generation, what will the new year bring? Will in-house legal teams ride out the storm and drive innovations that prove their value in tough times? Or will the job losses continue to spread causing a new round of redundancies in-house?

A harder line

ITV, T-Mobile and Samsung are not the only businesses taking a harder line with outside counsel. Banking giants JPMorgan and Morgan Stanley have also insisted on discounts from advisers. And ITV's Garard believes that a number of other companies will push to cut their external spend by renegotiating with legal advisers.

He comments: "Some firms are still operating with the view that people will pay their rates for quality alone, but GCs will begin to question their value. Firms will have to become much more innovative with their billing in order to retain business."

The actions of the likes of Garard and Blendis look to have had an effect on acting general counsel of Streamserve, Jeremy Evans, who will enter into discussions with the company's advisers at the beginning of the year as he seeks to reduce external spend.

"We will be having discussions with our legal service providers in Europe in an effort to sharpen up the management of costs," says Evans. "One way of doing this," he adds, " is by asking advisers for a quote rather than just waiting for a bill – that will save money."

Evans hopes this approach will become the norm throughout the industry: "Hopefully, GCs will talk to their advisers and structure their deals more efficiently by looking at day rates and fixed fees."

Expectations that attempts to curtail the dominance of the billable hour have been further highlighted by the public call this month by the head of elite New York practice Cravath Swaine & Moore for advisers to embrace fixed quotes in place of hourly charging.

While fees are invariably central to any general counsel's plan to cut costs, a number of in-housers think the way in which advice is provided will come under scrutiny.

Richard Reade, general counsel of facilities company ISS, says that the economic climate makes it important to ensure that firms give the right sort of advice.

He explains: "It is, in my opinion, crucial to review the way advice is given."

Reade continues: "Some firms could save time, and help their clients, by giving less detailed advice. Sometimes all we need are bulletpoint notes. Often, in a busy commercial environment, we only want answers and we don't want to pay for advice that we don't use."

Reade's approach to cutting costs in the difficult market last year extended to outsourcing some of ISS's work overseas and other parts of the UK. Reade thinks that other companies are likely to follow his model in 2009.

He explains: "In terms of offshore outsourcing you get the leaders and you get the 'me toos'. Many firms are watching to see how we get on with our outsourcing. The leaders are often less risk averse, so we will have a go now," continues Reade. "The 'me toos' will wait to see if any improvements can be made and then will have a go themselves. I wanted a saving this year, not next, so I am happy to be in the leading pack."

Similar steps have already been taken in the financial sector. Deutsche Bank outsources some of its routine work, both domestically and abroad.

"We have started to outsource some of our internal legal work to our own operations in Mumbai and Birmingham and this is likely to be a growing trend," predicts Deutsche Bank European general counsel Simon Dodds. "Outsourcing should be on the agenda of major law firms as well. Too much routine legal work is currently being performed by expensive assistants in very expensive London. I am not sure that this is a sustainable situation," he adds.

Yet despite concern regarding costs at leading law firms, the consensus among in-house lawyers is that it is the mid-tier firms which are going to be squeezed the most.

ISS's Reade says: "The mid-market could be hit hard. Many of the big firms do things that no one in the mid-tier does. I admit there are exceptions, but a lot of mid-tier firms just aren't market leaders."

Reade, however, believes there will be opportunities for smaller firms: "A lot of the much smaller firms can pick up work from the mid-tier on the cost basis alone."

In contrast, current Commerce & Industry (C&I) group chair Sapna Bedi FitzGerald (pictured), who is head of legal at LSL Property Services, argues that size and reputation of advisers will become less important as clients push harder to secure value for money,

The crucial factor, she thinks, will be an ability to maintain a dialogue with clients. "Relationship management and engaging with external lawyers to discuss charging methods will be important this year, as it is every year. Of course, expertise and resources will also play a part."

Cuts

What is the outlook for in-house staffing levels in 2009? ITV's Garard believes that an increase in the size of the in-house bar is unlikely – and while companies will try to save in-house positions, there could be more losses: "I would be surprised if there was an increase in head count. Indeed, most in-house teams will be focusing on reducing external spend in order to protect in-house jobs."

Garard adds that there is a level of regulation that companies have to comply with, and a number of tasks that have to be conducted, that will ensure that a certain amount of legal roles are safeguarded. But he adds: "After discretionary spend is curtailed and external budgets cut, then some companies may be forced to look at headcount."

It appears that any cuts will be heavily dependant on the health of the respective sector. Streamserve's Evans says: "Interestingly, we are still seeing vacancies in-house in some sectors, but certain industries are obviously more vulnerable than others.

"What is clear," he adds, "is that we are more than likely to see people laid off than taken on. If a company is doing well, the in-house team should be okay, although it is likely that recruitment could be frozen."

Although there are certain guiding factors, without a crystal ball it is impossible to know what 2009 will hold for in-house lawyers. If the market's worst fears do become a reality, could we see a flight back to private practice?

Bedi FitzGerald does not think so: "I am not convinced anyone really thinks that they are getting a job for life anymore, and lots of lawyers who are keen to try in-house will still pursue this, even if it is only for a short term."

She adds: "I certainly would not be put off and I have not spoken to any in-house lawyers who have stated that they would avoid a career in, say, the financial sector because of the credit crunch.

Further, is any sector really immune from the downturn? What would you regard as being a 'safe' bet?"