At times, it can feel like there can be a gulf of understanding between in-house counsel and their external providers. LACCA hosted a conversation between high-level GCs and law firm partners to try and bridge that gap.
Do in-house counsel and law firms have incompatible objectives? This question was at the heart of a recent webinar, organised by the Latin American Corporate Counsel Association (LACCA) and Greenberg Traurig LLP. Fielding considerable experience on both sides of the table, our panel found that with increased understanding and clear communication, the great divide should not be insurmountable.
Chaired by Juan Pablo Cappello, shareholder at Greenberg Traurig, and Clare Bolton, executive coordinator of LACCA, the webinar – ‘Trading places: what happens when an in-house counsel moves to a law firm and a law firm lawyer moves in-house?’ – looked at the impact of lawyers moving from one side of the fence to the other and the possibilities for improving understanding between the two roles it might present.
Luiz Sette of Azevedo Sette Advogados, formerly the chief counsel Latin America for Microsoft; Valeria Chapa-Garza, GC Latin America for Honeywell International and formerly with Baker & McKenzie; and Vale’s former GC and secretary, Veirano Advogados’ partner Pedro Aguiar de Freitas took part in the discussion. With the central theme of ‘knowing your business’, the conversation that followed identified issues that can stand in the way of an effective and efficient business relationship, as well as possible ways to overcome them. Overall, the discussion sought out the many ways in which these experiences can add value when one moves between in-house and external positions.
Change in perspective
Having made the move to her in-house position some eight months ago, Chapa has found that her view on what ‘knowing the business’ means has changed considerably: ‘Understanding the business means being a part of the business team and of the decisions that are made; analysing risks and implications of projects. You do not think of it as a specific project, you think of it as how this is going to help the business grow and tie it in with the rest of what we are doing,’ she says.
Around the same time Chapa started her in-house career, after 12 years with Microsoft, Sette decided it was time to go back to go back to the firm founded by his father. ‘What surprised me are the many things that you can apply entirely in the law firm, even though the environment and demands are completely different,’ he says, adding that he finds it fascinating – though not easy – to be back at the firm. ‘When you come back to a law firm, you have to find a way to specialise as much as possible because the client needs specialisation; that is why they pay the law firm, that is what they look for.’
Agreeing with Sette, Veirano’s Freitas finds that, after 20 years in-house and now back in private practice for some two-and-a-half years, there are a lot of similarities between how he coordinates projects now as to when he was a GC, but does point out that when it comes to firms realising the limitations legal departments have to deal with, there is still a lot to learn.
Increasing profit v cutting costs
The webinar highlighted an assertion that may be at the heart of the problem, which read: ‘law firms and law departments have incompatible objectives’. Whereas law firms are out to increase profit, clients try to best manage budgets – and cut costs – for the very same reason. Is it true that there is no clear-cut solution to this dilemma?
Though he didn’t participate in the panel discussion, LACCA member Carlos Eduardo de Castro Neves, regional legal counsel for international communications company Publicis Groupe, disagrees with this notion. ‘The objectives are the same: to resolve a legal matter,’ he says. ‘When I go through the process of selecting a law firm to assist me with my work, I want a firm that will do whatever possible to resolve said matter as quickly as possible and not try to stall in order to forcibly retain us as clients. The trick for the in-house counsel is to know when faced with such situation and to urgently end it.’
To help achieve such a desirable outcome and mitigate the discrepancies between what ‘knowing the business’means for in-house and external counsel, Chapa says her company prefers to have a relationship partner within every firm they work with. ‘Sometimes issues get lost within the law firm and if there is no single point of contact, the impression from the client’s perspective might be that the law firm does not understand the ultimate business objectives that you are trying to achieve,’ she says, and continues that though it is very important to communicate the business objectives to the firms, there can still be problems because ‘the information the in-house counsel has and what is conveyed to the law firm is not always the same.’
‘External counsel has to be an extension of who I am,’ says Castro Neves. ‘When I decide upon an external counsel to assist me with a specific matter, I share as much information as I possibly can. Not only to assist external counsel in providing his legal opinion, preparing a memo or drafting an agreement, but most importantly so I may get across my request as clearly as possible.’
Addressing the topic of budgets, Sette argues that though it is costly, a point of contact within a firm is profitable in the long run, as the lawyer in question will acquire the business knowledge. All participants in the webinar agreed that clarity on budget issues is essential from the very start. ‘Pre-approve the budget before the work starts’ is Chapa’s recommendation, and she feels that law firms are increasingly tuned in to the in-house counsels’ needs in those matters.
‘It’s not the way we charge but the way we do business together,’ says Sette. ‘We should keep our eyes open, be very sensitive and careful about when we charge and how we charge, and really engage in the discussion with the client and mostly I think law firms have been very open to that.’ In order to achieve a healthy business relationship, settling the bill on time should be a priority and might even be a way to reduce spending in the future, says Freitas. ‘As a GC, one thing I always said was ‘pay your fees promptly’; that is the best tool one has to negotiate better fees. If I am a good client, not only do I give the firms good business, but I also don’t delay the payment of fees, as the law firms have their costs as well.’ Following this strategy, he says it should not be hard to establish a mutually trusting relationship, which eventually helps in setting up fee arrangements, too.
More and more companies are seen to prefer a move towards alternative billing structures for different types of legal work, and although it indicates a loss of territory for the billable hour – once the mainstream arrangement – Sette does not think it will disappear completely. ‘It is a reality that clients ask for alternative billing and different ways of charging, and we are adapting,’ he says, but adds: ‘In most cases, especially in advisory and M&A work, the billable hour makes much more sense. In some other cases like litigation and specific projects, the market is not accepting the billable hour anymore and we need different arrangements.’ Whenever the billable hour is used, fee caps are common, says Sette: ‘We measure in months, cap the work in months [but] going beyond that is negotiable.’
Standing out from the crowd
The discussion then moved on to what, besides clear fee arrangements, in-house counsel value most from firms: creative solutions, industry experience or responsiveness? Freitas spoke for all panellists in rating industry experience highest: ‘I want creative solutions, yes; but it is not really necessary as long as there is a solution,’ and later adds: ‘In critical matters, you want someone who knows the business and understands all aspects.’
Though responsiveness was also important, Chapa does not expect her lawyers to be available 24/7, as if she were the only client. ‘Communication between the parties in terms of deadlines and expectations of knowing the scope of work and when do I need to complete this project to hear back from you with feedback is very important. Sometimes the firm can’t get back to you immediately, but when I get an e-mail with: ‘Hey I am out of the office but will have a look and get a response back to you as soon as I can’, that is what responsiveness means.’
What about law firm marketing materials – do they work? Chapa says that she does look at marketing materials, but that there needs to be something that catches the eye for her to take interest in the firm. She has no need for ‘materials that are super long and say what the firm does, providing general deal lists that are not tailored to your company in that country,’ but does like it when firms show they have made an effort, by sending ‘concrete proposals in terms of how they could help and how they are willing to work with the client, and would handle the legal matters even if there has not been a prior relationship.’
Freitas says marketing materials can help get the in-house counsel clued up on whether a firm can work as a business and understand business, but overall firms need to step up their game: ‘Materials of law firms mostly are all equal; even the pictures look the same. I do not think it is worth it when marketing materials from the firms say that they can provide everything from birth to death.’
Luckily for firms, there are other ways in which they can make themselves indispensable to their international clients. Understanding the internal workings of the company gives the lawyers the extra edge, says Chapa, who expects her lawyers to not just help with the immediate issue, but also take a pro-active approach and point out other complications or issues that might arise. She indicates that lawyers should be able to expect the same from her. ‘External counsel can’t always anticipate. Without giving them the necessary information, they cannot always give you the advice you need. The way to get to the point advice is by communicating fully.’
Comprehensive knowledge of the political and economical levels, how the government acts and how this may affect the client and their company, is another vital skill to acquire a strategic role in assisting the business, says Freitas, especially when the client is not based in the region. ‘When the client is located elsewhere, you are acting as local counsel to give this warning about developments that might happen in the future. The firm should be there to add value, and not waste a client’s time.
How do you know the working relationship is a success? In the end it all boils down to this, says Freitas: ‘How you feel when the client calls you or when you call the client shows how you feel about the relationship and if you are happy with it.’
Latin Lawyer Friday, 10th June 2011 by Marieke Breijer