Trying to slim down: In-house teams are cutting down on panel firms. Credit: Shutterstock

"Halved." "Slashed." "Slimmed." A recurrent theme is emerging around legal panel review stories.

The facts are simple. Corporate legal panels are getting smaller, the procurement process is getting tougher, and the way in-house teams approach and work with their legal advisers is evolving, with panels becoming more honed and composed of fewer select law firms.

Companies to have slimmed their rosters in the past couple of years include Network Rail, the Post Office, Heathrow, NFU Mutual, EDF Energy, Kingfisher, The Crown Estate, and Pension Protection Fund, among others.

To understand what's behind this trend and how it impacts law firms, Legal Week spoke to four general counsel who recently trimmed their legal panels.

"It was hard for me to maintain relationships with 23 different firms," says Pension Protection Fund (PPF) director of legal, compliance and ethics Dana Grey. 

She adds: "Because of the size of the panel and stream of work, it would be hard for the firms to invest as much into the relationship as they would if they are on a smaller panel where they get more targeted amounts of work."

Last January, PPF slashed its legal panel numbers from 23 firms to six following a six-month procurement process. Grey says the cull was necessary to ensure the selected law firms understood the company's business and objectives thoroughly, were available to meet face to face regularly, and felt more invested in their contract with the company. 

"It's the most thorough and extensive exercise we've ever done"

The firms on the reduced roster are Gowling WLG, DWF, Herbert Smith Freehills, Hogan Lovells, Mayer Brown and Osborne Clarke. Grey says the three main criteria for the panel were "quality of service, quality of advice, and consistency of cost".

The firms host half-day workshops that senior PPF staff attend, getting advice on areas such as regulation and project management. They also hold regular meetings so that their lawyers can combine with the company's in-house team, driving collaboration and fostering closer ties.

She adds: "The things we then looked at were: how and who would be providing the service; how we were going to maintain the relationships; and how we were going to keep it relevant to what we do as an organisation."

Come fly with me

Joining PPF in slimming its panel, Heathrow completed its legal panel review earlier this year, cutting its roster from nine firms to seven, with Freshfields Bruckhaus Deringer, Allen & Overy, Pinsent Masons, BCLP, Eversheds Sutherland, Towerhouse and Owen White winning spots.

Heathrow GC and chief of staff Carol Hui says that, while the company did not set out to reduce its legal panel, the process gravitated towards a select few law firms that were "more aligned with our vision and purpose, had better diversity and inclusion elements, focused on sustainability, and had a greater understanding of Heathrow".

Hui adds: "There are good reasons for slimming down. To work with fewer firms means you can build better and stronger relationships with them, making it more meaningful in terms of transactions."

"In looking at value and purpose, we have naturally gravitated towards a smaller number"

Heathrow's Hui believes that the procurement process is now more rigorous and the appointments are more important now, given the reduced line-up. "It's an extension of your organisation," she says, "so it's quite right that people should be put through their paces."

Network Rail's network

Network Rail joined the trend earlier this year, halving its legal panel from six to three. Group GC and company secretary Stuart Kelly says since he first joined the company in 2006 as a legal adviser, the company has worked with a panel of 50 law firms. Since then, this number has progressively dropped from 50 to 26, to 12, to six, and finally to three. The firms that remain are Eversheds Sutherland, Dentons, and Addleshaw Goddard. 

Kelly says there were five main reasons for slimming the panel: to make it easier to collaborate; to be able to give a greater volume of work to each firm; to reduce waste; to have a relationship with fewer lawyers, meaning there can be more focus on elements such as individual welfare; and to ensure each firm is working closely with the organisation. 

"It took us two years to get to that point – it's the most thorough and extensive exercise we've ever done," says Kelly.

The three firms Network Rail settled on are split across the company's five regions – Dentons covers three regions, while the other two oversee one apiece.

"This means there's very little competition between them," says Kelly, "so we have the ability to compare their performances alongside each other. Comparability is much more important to me than competition. And it means they talk with each other about what is and isn't working in each region."

The panel is running for a five-year term. Kelly says this longer timeframe demonstrates the company's commitment to the chosen firms, once again tapping into the trust element.

Vying for the crown

The Crown Estate is another company that has streamlined its panel, halving numbers across a three-year period. GC and company secretary Rob Booth says: "It's not just about wanting fewer firms, but in looking at value and purpose we have naturally gravitated towards a smaller number."

The two firms on the current panel are Bond Dickinson and Burges Salmon. 

"It's about being brave and moving outside your comfort zone, and becoming more efficient."

Booth says The Crown Estate deployed three key criteria in assembling its sleeker panel. The first is competency, as Booth says relationships will never compromise the need for quality advice.

However, unlike Network Rail, competition between panel firms – the second requirement – is crucial, with Booth highlighting "the need to have sufficient competition to get the top performance out of our advisers over time".

The final pillar is "achieving critical mass". Booth explains: "We have a real commitment and belief that we should have enough mandates to reach critical mass – that's the size that gives us a sustainable advantage. The critical mass part has been the key driver of us slimming down our number."

Through this, Booth says the company has created a "value equation" to ascertain the optimum number of law firms for its panel, and suggests that having fewer firms has allowed for "clarity and transparency".

To maintain closer relationships with its panel members, The Crown Estate holds quarterly meetings to create what Booth describes as "an increasingly sophisticated look forward".

The company uses a "panel map" to identify where key partners and key contacts are, and to establish how they might work together. "It's amazing what a difference that makes for law firms to pick up the phone to each other – they can then swap information in a transparent, collaborative space," Booth adds. 

"It was more difficult to collaborate with larger numbers"

When asked why companies continue to use such large legal panels, PPF's Grey says she believes it is out of fear. 

"It must have stemmed from nervousness about needing advice on random pieces of law," she says. "But people need to realise that if you don't have that capability on your panel, it's okay to go off panel. It's about being brave and moving outside your comfort zone, and becoming more efficient."

Booth believes panel slimming is "about unlocking the collaborative next step".

"Frankly, I think we've all confirmed now that it was more difficult to collaborate with larger numbers," he adds.