By Vincent Cordo, Global Sourcing Officer for Shell’s legal team; and Casey Flaherty, legal tech consultant and founder of Procertas.
Obviousness interferes with analysis. The obvious does not merit consideration. In larger law departments, the reliance on panel firms (or preferred providers, or whatever terminology you prefer) is so common that it is nearing the point of being obvious. Convergence is just what you do. This lack of reflection is by design. Prescreening paired with prescriptive retention processes is, in part, intended to reduce cognitive load and promote focus on the substantive legal issues. But the reasons why large law departments concentrate their spend are worth revisiting when the panel is up for review, as Shell Oil's panel is this spring.
Everything is obvious once you know the answer. And convergence has not always been obvious. Just as the last decade has seen so much new technology — the iPhone, Dropbox, Google Maps, YouTube, Instagram, Twitter — become 'natural' parts of our daily lives, our professional environment has changed dramatically without seeming fundamentally different. RFP tendering, metrics, and project management are now such a standard part of the landscape that their newness is easy to forget. They are among the many ways in which law departments are creating alignment — linguistically, procedurally, philosophically — with the businesses they represent in order to further their commercial objectives. Law departments have always been outcome oriented, but shifting orientation towards business outcomes, rather than legal outcomes, has been an important part of their evolution. The ultimate goal of this evolution at Shell is to be able to demonstrate how the law department directly contributes to company profits, rather than just how it controls costs.
Towards that end, the simplest explanation for convergence is reduction in administrative burden. Shell estimates that it will be able to reallocate three-to-six hours per lawyer per week by reducing communications overhead, collaboration costs, the proliferation of touchpoints, and other causes of administrative friction. Rather than the ramp-up costs of orienting new counsel, resources can be dedicated to deepening key relationships and better integrating external partners into the legal value chain. There are economies that come with incumbency and good reasons why even law departments without formal panel policies repeatedly return to known commodities.
While reducing administrative burden is a fair explanation for convergence in the first instance, it is — on its face — inconsistent with the idea of periodic panel review. Revisiting the panel introduces administrative strain and poses a potential threat to incumbents. Yet, unmitigated adherence to status quo presents two problems — entropy and stasis — that erode the benefits of convergence over time.
Entropy is a closed system's gradual decline into disorder. No convergence program is perfect. No planner anticipates every contingency or evolving reality. Quick fixes, workarounds, and exemptions accumulate. In isolation, these deviations and dispensations are rational responses where the dictates of the system conflict with the prime objective: get the legal work done. In aggregate, divergence and digression begin to undermine the system itself. Operating philosophies like Lean, Six Sigma, and Agile are critical for tempering the deleterious effects of entropy. But all of them recognize the need to periodically introduce fundamental change.
Stasis is a period of undisturbed equilibrium. The efforts to combat entropy in legal department operations are intended to maintain the status quo. Stability is not an end in itself but a means to pursue the law department's mission. While the demand for quality is constant, the world does not stand still. Technology advances. Priorities shift. Resources require reallocation. Eventually, minor adjustments are insufficient. Modeling current and desired future states can be useful in determining when eventually has arrived. This gap analysis can also provide a roadmap for where the law department's leverage ought to be applied.
Legal is a buyer's market. But the daily exigencies of representing the corporation's interests get in the way of exercising the attendant authority. The law department's leverage is often limited to negotiating discounts at the matter level rather than on an account basis. Discounts are fine. But systemic change requires something more. If we expect our law firms to make long-term investments in upgrading how they handle our work, then we need to make long-term, but not indefinite, commitments to giving them work. Structured dialogue at the portfolio level and service-level agreements can help shift the incentives that drive continuous improvement and align stakeholder interests. For Shell Oil, the priorities for the imminent panel review include:
- Positive impact on company revenue through effective legal management
- Increase the quality of legal representation
- Reduce total legal spend as a percentage of revenue
- Real-time awareness of all negotiations, i.e., leveraging the entire account
- Price successes more adequately to business worth, rather than cost of legal services
- Implement new performance metrics and KPI's
- Gain adherence to new matter management, tracking, billing, and reporting protocols
- Expand use of cap fees and other alternative fee arrangements
- Advanced cost and time accounting tied to expertise and efficiency
- Alternative expense management control
- Measure internal lawyer and administrative impact on legal service cost
- Reward law firms for innovation in integrating process and technology
- Make ever more progress on global diversity and inclusion
Each of the above priorities warrants a standalone article in this series. Each is an element in reaching the right business outcomes by ensuring that the right people are doing the right work the right way at the right price. Each is genuinely exciting to people who live and breathe the evolution of the legal marketplace. How often in any industry is there a chance to set a new standard that reflects changes of this magnitude?
For further reading, click here to download the ACC Guide “Leading Practices in Law Department Metrics: Company Best Practices”. Law department leaders offer vital advice on how to capture and use metrics results to drive enhanced law department and outside counsel performance.