Partnering: Formulas For Success

Monday, May 1, 2006 - 01:00

Welcome to Duff & Phelps' first in a series of roundtables. With these roundtables, we hope to showcase law department best practices so that others can benefit from the experiences of some leading law departments. We select our roundtable topics with an eye toward law department management issues that can resonate irrespective of company size or industry. Jerry Kral and Jim Ewing of Duff & Phelps serve as moderators.
Our first topic is Outside Counsel Partnering programs. Made popular years ago by the "DuPont Model," these partnering programs have evolved significantly and continue to be an important topic of interest for law department management. Our participants include William Von Hoene, Jr., General Counsel of Exelon; Carol Ann Petren, formerly Deputy General Counsel of MCI; and Jim Neath, Assistant General Counsel Litigation, of British Petroleum. Thanks to each of them for participating.

Moderator: William, what were the motivating factors that led you to create a partnering program? When did you introduce the program, and how has it evolved over time?

Von Hoene: Exelon developed its partnering program because we wanted to consolidate our legal work with a limited number of firms to improve the quality and consistency of legal services provided to our businesses, and to control costs. Consolidating work also leads to increased efficiency from our outside counsel because performing work on a consistent basis improves outside counsel's knowledge of our business, people, risk tolerance and standards. Exelon expects to be among the largest and most significant clients of our selected firms, and we expect our firms to devote their best resources to our relationship. Partnering with a limited number of law firms also enables us to negotiate meaningful discounts and alternative fee arrangements with our law firms, facilitating cost control without sacrificing quality.

Exelon issued its first Request for Proposals (RFP) in the fall of 2001 and issued a second RFP in the fall of 2004.

Moderator: What would you consider to be some of the innovative elements to the partnering program at your company?

Von Hoene: Exelon holds an annual meeting for our outside counsel. The full-day meeting features presentations from legal department leaders and other senior managers in the company regarding Exelon, its strategy and objectives and expectations of outside counsel. The meeting is followed by a social event that allows for networking among our firms.

In addition, an Exelon lawyer acts as "Liaison" for each law firm. The Liaison is the primary contact for the law firm and promotes the relationship with Exelon. Responsibilities in managing outside counsel include conducting annual relationship meetings, overseeing the relationship and coordinating with other Exelon lawyers. Exelon also conducts three annual satisfaction surveys. We send the first survey to nearly 500 internal Exelon clients and ask for feedback on the quality of service they receive from Exelon's Legal Department and our outside counsel. We send the second survey to our outside counsel and ask for their evaluation of the relationship between the Exelon Legal Department and outside counsel. We send the final survey to our in-house lawyers and paralegals and seek input on their overall satisfaction with our outside counsel, as well as their specific experience regarding five critical service factors. We share the results with the Department and with outside counsel in an effort to improve the quality of service we provide.

In addition, we use an integrated e-billing and matter management system that enables us to agressively manage outside counsel costs and enables our law firms to get paid on a timely basis.

With regard to diversity, Exelon Legal implemented an extensive formal diversity program for its outside counsel, called the AAA Diversity Program. The AAA Diversity Program creates a programmatic framework for encouraging and evaluating our firms' internal diversity efforts. More specifically, the AAA Diversity Program requires and recommends various actions to be taken by our primary firms with respect to diversity, provides for the assessment of the firms' commitment to diversity and advises the firms that Exelon will make decisions regarding the level of work assigned to each firm based in part upon their demonstrated commitment to diversity. As a part of the program, we calculate the dollar value of billings for each firm attributable to lawyers of color and female lawyers and give each firm a "report card" assessing their diversity efforts as within the upper, middle or lower third of our primary firms. We announce publicly a diversity "honor roll" that reflects the outstanding firms in this regard.

Moderator: How do you measure success at your company? How have your clients benefited?

Von Hoene: We measure success of the program based upon the results acheived by our law firms and by the satisfaction survey responses of our clients, in-house lawyers and paralegals, and our law firms. We also measure success based upon the discounts and other cost savings obtained through our partnering program and whether we succeeded in meeting our budget.

Moderator: What advice or lessons learned can you offer a general counsel whose law department is just beginning to develop a partnering program? How should one get started?

Von Hoene: Discuss the expected benefits of the partnering program with senior management and in-house legal staff and secure both their input and support prior to implementing the program. Clearly communicate your objectives and requirements to outside counsel in writing and solicit their input on what your company can do to benefit them or improve the partnering relationship.

Moderator: Carol Ann, what were the motivating factors which led you to create a partnering program? When did you introduce the program and how has it evolved over time?

Petren: Partnering with your law firms is critical to developing the best strategy on behalf of your company and assuring that your outside legal spend is most cost effective. At the same time, the law firms must financially and professionally benefit from the relationship. I was involved in developing a law partnering program at Sears in 2001 and at MCI in 2003. The programs evolved over time based, in part, on the needs of the company but have consistently focused on certain fundamental concepts. The most important, in my view. is clear communciations and expectations by both parties. Another is a true partnership in the development and execution of strategy. Technology has fortunately responded to an increasing need for the prompt exchange of information between outside counsel and companies.

Moderator: What would you consider to be some of the innovative elements to the partnering program at your company?

Petren: Technology is the key to reaching the next level of partnering benefits. More specifically, a case management and electronic billing system are absolutely essential once a company's legal issues reach a critical mass. And there must be a real commitment to the technology by both in-house and outside counsel. The systems will only be as good as the quality of the information provided - so all counsel have to understand what the systems are designed to accomplish and jointly commit to entering the appropriate data. Finally, counsel have to take advantage of the available reports that provide valuable information on such things as the type and number of matters opened, the cost per case, the time required to resolve matters and whether there is a difference among firms as to these key data points.

Moderator: How do you measure success at your company? How have your clients benefited?

Petren: The real measurement of success obviously is in the value to the company and the outside counsel. Has the legal strategy truly protected the interests of the company at a cost effective level? Has the representation been financially profitable to the law firm? Of course, there is also the more intangible rewards that come with a relationship of mutual trust and loyalty that I believe is more likely to develop through meaningful partnering. In my experience, companies cannot effectively meet the challenges of signficant legal issues without law firm partners who understand the business and connect with the management team. Those relationships usually translate into financial and professional satisfaction for the law firms as well.

Moderator: What advice or lessons learned can you offer a general counsel whose law department is just beginning to develop a partnering program? How should one get started?

Petren: I recommend that the general counsel spend time with colleagues or consultants who have actually implemented successful programs. It is important to evaluate the needs of the business and determine what best practices would be most useful to the company. Keeping an open mind and thinking creatively about the parameters of a program are also essential to developing something that works long term for the law department and its clients. Oftentimes, a process or technology has to be revised to better respond to the company's needs. A meaningful partnering program, by nature, is an evolving process that must incorporate changes in the legal environment and take advantage of developing technology in the marketplace. The best advice I can offer to any general counsel is to reach out to other law departments and consultants with a commitment to effective partnering in not only getting started with a program but also assuring that best practices are maintained over time.

Moderator: Jim, what were the motivating factors which led you to create a partnering program? When did you introduce the program, and how has it evolved over time?

Neath: Ten years ago, BP (then Amoco) began an outside counsel partnering program emphasizing techniques for jointly managing legal projects using what we called "Litigation Work Plans." This form of law firm partnership added depth and responsiveness to the relationship and brought our outside counsel closer to the business. Today, BP applies these partnering benefits in the selection and rewarding of our outside counsel. BP's current law firm partnering program emerged five years ago following significant consolidation in the oil industry, which changed the scope and scale of BP's legal profile in the U.S. almost overnight. To capitalize on BP's growing legal services purchasing strength, to assure senior management that procurement discipline and process were effectively deployed, and to motivate outside counsel alignment and responsiveness, BP developed its "Core Counsel Programme."

Moderator: What would you consider to be some of the innovative elements to the partnering program at your company?

Neath: BP has identified 15 to 20 of its outside counsel as "core" to our legal business. These firms have earned the right to handle our most significant matters, for which they are paid the largest share of our outside counsel budget. Each year these firms are evaluated on more than 30 performance criteria, including case outcomes, litigation and project skills, cost, diversity and success in key relationships. BP meets with each firm to share its scorecard and to explore issues and opportunities in the relationship. Based on these meetings, BP moves business to those "core" counsel most closely aligned with company goals. We are told by these firms that the rigor and transparency of our process are unique.

Moderator: How do you measure success at your company? How have your clients benefited?

Neath: Our program is successful if it builds deeper and longer lasting relationships with our most important, institutional law firms. We are convinced that those partnerships generate better risk outcomes because the firms know us (and our business) more intimately, they are more loyal and available to us, they are more skilled in the areas most in need of such skill, and they are more attuned and responsive to our relationship. We measure success not only in case results and subjective performance evaluation, but also in financial metrics, which we track scrupulously across peer groups in the aggregate, by timekeeper across experience levels, and by weighted average rates.

Moderator: What advice or lessons learned can you offer a general counsel whose law department is just beginning to develop a partnering program? How should one get started?

Neath: First, understand thoroughly the law firms you currently are using and why you are using each of them. Second, be explicit about the goals of your program. What is most important to you: Better risk management? Lower legal expense? Predictability and avoidance of surprise? Flexibility? Knowledge of the business? Diversity? Finally, there is no substitute for good, hard, reliable law firm data: track it and use it.