Partnering In A Flat World

Monday, May 1, 2006 - 01:00

Editor: Why the title, "Partnering in a Flat World"?

Smith: The reason is that the firm's and my experience of partnering derived from our appointment eight years ago as the first non-U.S. law firm to be a part of the DuPont Legal Model. I watched with interest as to how the wind has blown from the West; the ideas of partnering were picked up five years ago in the UK. We're now seeing the phenomenon spread into western Europe. Last week, I started a dialogue with a major multi-national company that wants to reorganize itself "DuPont-style" in central and eastern Europe. The model has definitely become global and so I think, as companies have to adapt to the various challenges in the world, partnering is increasingly the answer in jurisdictions outside the U.S.

Editor: What do you understand by partnering?

Smith: The best definition I've ever heard was from Tom Sager at DuPont. He simply said, "Only optimists need apply." For me, partnering is all about common sense. All it amounts to is applying business thinking and processes to the practice of law - challenging the traditional way of doing things. Another very useful definition is- a long-term relationship based on trust because that essentially is what partnering is all about. The concept started in Japan after the war with Edward Deming, who successfully persuaded the Japanese automobile industry that it should recognize the long-term community of interest it had with suppliers and vendors. I think that really summed it up. If you have that long-term commitment to a relationship, it's bound to be a more fruitful relationship than if it is purely transactional.

Editor: What are the benefits of partnering?

Smith: In terms of the law department, there are various reasons why law departments have gone down the route of partnering. Originally, DuPont entered it to save costs. It did that quite dramatically, but then discovered that there were all kinds of other benefits to collaboration between in-house legal departments and external law firms. DuPont realized that it enabled them to manage their caseload strategically as opposed to micromanaging, which resulted in having their internal resources duplicating work on cases with the external law firm. Strategic partnering is another expression that sums it up - strategic management for the law department. For the external law firm, it's the fact that you have these long-term relationships of trust, where you can be guaranteed that business will flow to you as a result of your being a partner firm. That enables you to invest in the relationship and over a period of time build a great deal of knowledge about the client's business. It's a win-win for both parties.

Editor: And I suppose that as a law firm partner, you're looking at the long-term interest of your partner, the legal department. You're looking at policy issues, political issues, economic issues that could affect their business, which you might not do on an occasional assignment basis.

Smith : Absolutely. This is part of the DuPont program now; I look for opportunities to advance the business of the company, to recover money and to take the relationship to a wholly different level.

Editor: You use the term "challenging tradition." What do you mean by that?

Smith: It's interesting that as I've seen the wave beginning in the U.S., then the UK and then western and central Europe, this is very much a program that challenges the traditional way that lawyers do things. Some lawyers get it and some don't. Some are in their comfort zone looking at the purely legal issues, rather than looking at the subject of law in its full context while looking at the commercial and business issues at the same time. That's what separated the firms that are on these programs and those that are not. That's been the real challenge for me: to take the DuPont legal model and adapt it to all areas of legal practice, not just litigation, and apply it in a non-U.S. context. What I also mean by "challenging tradition," refers to not only the way that lawyers do things, but also the way that lawyers are hired. In western and central Europe, it's still the case that lawyers are often hired because of contacts or family relationships, rather than by reference to cost and business efficiency, but that element is changing. Because companies at every level are increasingly operating on an international basis, they have to put in processes to control their costs.

Editor: Besides costs, you have mentioned other reasons as to why partnering is a desirable approach for in-house legal departments.

Smith: Cost and the sharing of knowledge are critical in all partnering programs. There is an extranet or some other means by which general counsel and external law departments can capture and share information, rather than re-inventing the wheel on a constant basis. The sharing of knowledge, strategic management, containing costs are the main ones.

Editor: Is Eversheds also representing DuPont in the Far East?

Smith: No, we're not. It remains to be seen whether the principles of partnering will extend to Asia as well. We are part of the partnering program for another major multi-national company, which includes Asia, which is quite unusual. Conventional wisdom is that it is quite difficult to get Asian firms, which have a very different mind-set, to adopt the principles of partnering, but doubtless that will change in time.

Editor: How do you go about creating a partnering program on a multi-jurisdictional basis?

Smith: There has to be a catalyst or reason for doing so. From my experience, that usually is a visionary general counsel who wants to change the way in which legal service is delivered plus the way in which the department interacts with external counsel. Another driver has been from the CEO and CFO who look to legal spend, looking for greater efficiencies in the way in which the company spends money externally.

Editor: How do you liase among your many offices around the globe?

Smith: Increasingly, we tend to operate on a project management basis so that our offices in different jurisdictions apply the same template or principles. A good example of that is early case assessment in litigation, which is an essential part of the legal model. We've trained our lawyers in the techniques of early case assessment. We recently had a major U.S. client who was faced with a class action in Italy. We worked with our colleagues in Milan and produced an early case assessment report for the client in the States. They were hugely impressed because that wasn't something they would expect from the Italian market.

Editor: Do you cover every piece of external work for your clients or specialize only in certain practice areas?

Smith: The essence of Eversheds is that of a full-service law firm. Increasingly, as the world has become smaller, we've begun to work more on a pan-European basis. There will inevitably be areas of work for which the client may be better served by going to a super-specialist, if we do not have one within the firm. Commonly, when you're dealing with regulatory work, common sense tells you that you need to hire a lawyer local to the specific location where there is an issue. For example, you wouldn't send a Parisian lawyer for a regulatory case in Marseilles.

Editor: Do you create a partnering relationship in stages or all at once?

Smith: I work on a regular basis with various companies who are considering implementing a DuPont style model. At the end of the day, they want their own model suited for their circumstances. A question I'm often asked is "Should we do it all at once everywhere in the world, or should we do it by practice areas, or should we do it by geography." My advice is always that the company should really go for a big bang, rather than piecemeal. It should introduce it all at once, revealing all of their suppliers worldwide at the same time. I think it makes sense in the flat world that these things are done at one time, rather than on a staged-in basis.

Editor: Otherwise, you cannot really weigh the effectiveness of convergence.

Smith: That's right. Convergence, reducing the number of suppliers, is absolutely critical. If all of the work is spread among hundreds of firms, you don't get the force behind the partnering arrangement. You need to concentrate the work in the hands of a few firms and to leverage the efficiencies that come from that. Interestingly, some clients take the view that they cannot implement partnering for every type of work they do. So there's a common knowledge that general counsel refer to as a triangle, with the top five percent as "bet the ranch" work that they will always retain the right to take elsewhere; then, the big fat 70 percent in the middle is the general work of the company from M&A to litigation to product liability; and, then, at the bottom, the commodity work, the debt collections, the routine labor law and employment law. Some general counsel take the view that it's such a monumental job to control every element of external legal work that they don't interfere with the referral of local work by business people to local lawyers. Yet, there are other clients who take the view that they should have a handle on every piece of work that is sent externally in order to completely control every external lawyer. The reason they give for that is compliance, Sarbanes-Oxley, the fact that what happens in one part of the world can immediately affect what happens back at home base. So, there are different schools of thought as to whether you try to regulate every piece of external work or just the mainstream.

Editor: I would assume that there's a greater tilt to the latter school of thinking in view of the regulatory climate in the U.S., with the long arm of U.S. regulation reaching out to monitor businesses all over the world with any U.S. basis.

Smith: That's right. When you realize that in some countries in western Europe there is no requirement of discovery, e.g., a document can be destroyed or not shown to the other side, it's a completely different culture. And yet, if those actions took place in one jurisdiction, they would be judged through the eyes of a much harsher U.S. system. For all kinds of reasons, the tilt is towards control of all external referrals to make sure that the compliance and the SOx piece is properly handled. Another key driver, because of globalization, cost control and SOx, is the whole question of procurement in hiring external contractors, including lawyers. We're seeing a greater influence of the procurement department, which again would favor the more inclusive view of controlling everything that is sent externally.

Editor: Eversheds works collaboratively with clients. The quote on your website is "We work with rather than for clients." Explain your approach to cost control on a project.

Smith: Increasingly we're doing more and more of our work on a fixed fee rather than an hourly basis. Certainly, with the project management approach, we're doing M&A work and litigation in its various stages on a fixed fee basis. But there are still clients who are more comfortable with the hourly rate because it's something they are familiar with and easier for them to compare one firm with another by reference to hourly rates. The hourly rate isn't dead, but certainly, as far as we're concerned, all of the work we do is moving rapidly toward a fixed fee basis.

Editor: Would you summarize a few qualities that Eversheds as a firm has that make it unique?

Smith: I think the way that DuPont has influenced how we approach legal service and the way we've adopted with great enthusiasm the principles in litigation of early case assessment, of cost control, of the way in which we approach legal problems has given us a huge competitive advantage. I think what it does mean is that we, probably more than most firms, understand the issues, needs, and problems, that general counsel face. We're a very user-friendly firm for general counsel.

Please email the interviewee at paulsmith@eversheds.com with questions about this interview.