Clients are pressing law firms to provide more secondments. But can in-house teams function well with large numbers of loaned lawyers? And are clients 'abusing the panel relationship'? Alex Aldridge reports

Secondments from advisers to clients are supposed to represent the classic professional win-win. The client gets legal talent at a discount, while the adviser gets to know the client better and cement a valuable commercial relationship.

And with law firms now left with spare capacity in light of the slump in commercial activity, and many in-house departments struggling to cover work due to recruitment freezes, secondments should – on paper – be the perfect solution.

But, as Legal Week reported recently, it doesn't appear to be working out quite that way. In particular, in the banking sector, where in-house teams are overloaded with compliance and regulatory demands while headcounts are being slashed, increasing demands for secondments are provoking anger at some law firms. Indeed, one veteran finance partner at a major City law firm complained of his assistants being treated as a "cheap resource" and clients of "abusing the panel relationship".

A partner at another firm added: "Law firms are feeling under considerable pressure to second lawyers to help in-house departments manage their workload, but this is not then giving revenue to law firms.

Disagreements over secondments are, of course, not entirely new. During the boom, law firms did have problems with financial institutions frequently turning secondments into permanent job offers, contributing to staff shortages in some key areas. However, this niggle was largely offset by the benefit of bedding down the relationship, with lucrative clients putting large amounts of work out to external counsel.

The current flashpoint is something else entirely, and arguably illustrates a new-found tension in the once-unquestioned relationship between law firms and banks.

While clients will understandably be inclined to dismiss moaning from law firms whose soaring profits during the boom were to a considerable extent driven by banks, some of these complaints are less easily dismissed.

For one, private practice lawyers complain that the sheer level of secondments that some banks' legal teams are currently relying on means that the traditional benefit of getting to know the client is simply not there as one firm's secondees get lost within a mass of secondees from other firms.

On this point, at least, in-house lawyers agree, with several estimating that it is not unusual to have as much as 25% of a major bank's legal department made up of secondees. Stories also abound of matters staffed by teams containing 50% secondees. Indeed, one mid-ranking lawyer at a large bank told Legal Week that of the 82 lawyers reporting to him, 70 were secondees.

It should also be remembered that law firms do expect to have a substantial number of lawyers out on loan, especially with banking clients. The large banking practices such as Allen & Overy, Linklaters and Clifford Chance typically have dozens of secondments out at any one time. Linklaters alone had 200 lawyers on secondment with clients last year – though the figure currently stands around half that.

As such it takes substantial demand to exhaust the supply from law firms, and clients in other sectors could argue that financial services legal teams, who have typically been showered with loaned assistants, are already getting more than their fair share of secondments.

Of the complaint that it is not economic for firms to have such large numbers of secondees out at any one time, banking clients are generally dismissive, arguing it is just a reflection of the tough market and banks' position as law firms' most valuable clients:

"It is part and parcel of the nature of the relationship you have with important clients," concedes Sean Pierce, co-head of Freshfields Bruckhaus Deringer's financial institutions group. "And banks are well aware of their bargaining power.

In-house concerns

Yet, talking to in-house lawyers, it is apparent that the situation is more complicated than high-spending clients throwing their weight around. For a start, a good number of lawyers at banks are themselves uncomfortable with the level of secondees they feel forced to use to manage their workloads. Chief among the concerns of permanent in-house lawyers at banks is the fear that having too many secondees creates a structural weakness in a department where stability should be at a premium.

"One of the key functions of a legal department, if not its raison d'etre, is to manage risk. So is it a good idea to fill them with people who don't really understand the business?" said one head of legal at a leading investment bank.

Another senior in-house banking lawyer questioned his procurement department's understanding of the importance of in-house lawyers, suggesting that they failed to understand the importance of risk management expertise and thought that "all lawyers were basically the same".

He added that private practice lawyers brought in to do temporary spells at his bank were not always appropriately skilled for the role required and often needed to be put through lengthy training – the burden of which fell upon already overworked permanent staff. He continued: "And when a secondee leaves, all their experience goes with them out of the door."

The other major gripe voiced by in-house lawyers about the secondment culture is that its transience damages organisational morale – with the constant turnover of lawyers on three- to six-month stints undermining team spirit and putting a strain on relationships with the rest of the business, who naturally prefer to deal with people they recognise and trust.

By common consent, neither are secondments under these circumstances that great for the morale of the secondees, who can feel like a bargaining chip, unvalued by their employing law firm and unsettled in their temporary work-place.

James Limburn of Gibson Limburn Search, which specialises in moves between law firms and banks, sees such complaints in the context of a general malaise prevailing at investment banks in the wake of recent job cuts. "Some in-house lawyers at banks are understandably disgruntled that their colleagues have been made redundant and essentially replaced by temps," he says. The situation is made worse, adds Limburn, by the fact that secondees – typically remunerated at law firm rates – are in many cases being paid more than in-house colleagues. He continues: "There is no PQE system at banks, with salaries instead reviewed every year, usually without an uplift in a bad market."

On a basic level, high level of secondments within teams can create an 'us and them' situation rather than the traditional dynamic, which is supposed to involve the secondees fitting in with the client.

Of course, many in-house lawyers are strongly in favour of secondments. "When resources are stretched, my experience has been that secondees are welcomed with open arms," says Richard Hennity, head of legal at HSBC Holdings.

Andrew Williams, EMEA general counsel at UBS, agrees: "Sending us high quality secondees – preferably at senior associate level – continues to be one of the most valuable things a law firm can do for us. We tend to use them mainly for maternity leave cover or when we are looking to expand into a new area which we don't have expertise in, with most staying between three months and a year."

Indeed, a recent debate on Legal Week's Linkedin group for in-house lawyers bemoaned the difficulty in getting law firms to second lawyers on reasonable terms, at least if you are not a major investment bank.

And even those not enthused by the current volume of secondee arrangements acknowledge that they are a useful resource in a market where GCs often find their hands tied by recruitment freezes. In short, no one is claiming that secondments, if carried out correctly, do not bring benefits.

An issue of trust

It seems the bottom line is that for secondments to work there has to be goodwill and trust between client and adviser, including understanding that both sides are supposed to get something out of the arrangement.

Mike Henley, a partner at PA Consulting Group and a former partner at Hammonds, argues that while law firms are often too short-term in considering whether to offer secondees, a considerable number of clients use such arrangements as cheap stop-gaps. He comments: "[Clients] should be prepared to engage constructively with the law firm and make the secondment a catalyst for building a better mutual understanding. It is not all law firms' fault – both sides need to be prepared to make an investment."

Mark Harding, general counsel at Barclays, agrees: "Provided secondees are well-managed, and arrangements are not abused, they help to build a bridge."

Jonathan Peddie, director of litigation and special investigations at Barclays, adds: "Secondments let lawyers understand their clients' priorities and report back, with the result that the firm grows in knowledge and fine tunes its strategy, leaving it better placed for instructions. There is a clear correlation between commitment to the process and growth in business. Those who commit properly get the work, and those that don't, don't."

And the good news for in-house banking lawyers who increasingly find themselves lost in an ever-changing swarm of secondees is that some of these people are likely to stick around when the economy improves.

"What has traditionally happened in the good times is that banks have looked to hire permanently some of those secondees," says Freshfields' Pierce. "And in the time-honoured fashion, that may be what we are about to see again."

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How secondments work

There is no single model for how law firms and clients manage secondments, though such arrangements tend to fall into several broad categories. Sometimes secondment arrangements are included as part of panel agreements – with firms required to provide a secondee per a certain amount of legal spend. This tends to be used by sophisticated clients who aim to incorporate secondees into their team in a strategic manner rather than as a stop-gap measure.

In other instances, secondees are offered by firms as a way of initiating relationships with a view to pitching for places on future panels. Often secondees are also provided on an ad hoc basis on request, sometimes to cover a specific skill-set or for
maternity leave.

Remuneration arrangements for secondees also vary, but the standard deal is for companies to cover the base salary of the secondee, but not added costs such as bonuses, healthcare and pension contributions. In a few cases, firms provide secondees for free, though this is usually only provided to very lucrative clients.

In other cases, companies are required to pay secondees salaries plus some of the opportunity cost of lost billing. Typically, this 'billing discount' has to be substantial as a law firm would expect assistants to bill between three to four times their salary annually, so covering anything like the entire cost of their lost billing is prohibitively expensive for a client.

Generally, secondees are between the newly-qualified and three-year PQE stage and are loaned out for between three and six months, although increasingly clients are pushing for more experienced secondees (see below) on a longer-term basis, with year-long placements becoming more common.

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The partner secondee

Colin Passmore, a senior litigation partner at Simmons & Simmons, became the first-ever partner-secondee in Barclays' litigation team earlier this year. His move remains rare for the legal market in the UK, though recently there has been more call for law firms to loan out more senior lawyers (it is also more common in the US).

Other firms that have loaned out partners in recent years include Travers Smith and Slaughter and May. Travers seconded Anthony Foster to the Bank of England last October at the height of the banking crisis for six months while Slaughters corporate partner Tim Pharoah went on long-term secondment with Morgan Stanley in the spring of 2008.

Passmore – now back at Simmons – describes the experience as "unbelievably fantastic", adding that he cannot think of a better way of improving lawyer-client relationships. "I went on the basis that I didn't want special treatment," continues Passmore. "I wanted to see exactly what they did, so I certainly wasn't swanning in late and disappearing off for long lunches."

Barclays has stated that it intends to seek more partner-level secondments from major advisers.