Driving change

For a number of years now, we’ve all read and heard about the growth of the in-house legal department. The banks and telcos led this charge, steadily increasing their legal headcount as they discovered the value of having more lawyers employed internally to handle a variety of matters, especially the growing regulatory burden.

Other sectors followed suit. But lately, the buzz in most sectors seems to be more of holding the line, or growing cautiously while at the same time narrowing the roster of external partners. In some cases, cutbacks are happening in-house.

It seems our panel of in-house counsel for this year’s annual roundtable fits that trend model. For our 11th Canadian Lawyer InHouse Annual General Counsel Roundtable, we brought together the heads of legal departments from a range of sectors — old and new economy — but the common thread in the discussion was the challenge of how to do it all under constant budget pressure, often in times of growth but also with diminishing or flat revenue.

PayPal, Dell Canada, Alterna Savings, Navistar Canada, and Randstad Canada are all challenged to be both innovative and cost-effective in the incredibly competitive markets in which they all operate. In some cases, such as that of Barbara Silverberg at Dell Canada, the way legal services is procured is being driven by the way the rest of the company has done business for years. Silverberg talked about the company’s use of reverse online auctions for large, repeatable litigation matters. For about five years now, law firms wanting to do big-ticket litigation business with Dell have had to agree to this highly competitive process where there is no room for “beauty pageants” or glossy law firm proposals.

On the upside, this was the first year I heard in-house counsel tell me they are seeing law firms making real efforts to do business differently. Silverberg says there’s been a “noticeable difference” in firms being more proactive and trying to be more creative in how they go after business.

As Robert Soccio of Navistar Canada put it, given the economic climate in Canada, there’s always pressure these days on service providers to bring more to the table. So in our discussion Soccio and his peers discussed what they are seeing law firms offering to show additional value. And while we talked about alternative fee arrangements and requests for proposals, they all seemed to agree that for them, relationships still matter and still dictate who gets a good quantity of work.

Budgets also figured prominently in our discussion. As Jason Young of PayPal pointed out, legal spend is primarily driven by what the business is doing. Knowing what the business needs is also key to being valued as in-house lawyers, says Lara Speirs of Randstad Canada. During our discussion, Speirs said: “I think it’s also about rethinking how the legal department is viewed. Are you just a cost centre or can you be part of the strategic growth of the industry and the company?”

Young also made the point that while in-house counsel are often these days working to scale back on the number of firms they are working with, that kind of exercise can be mutually beneficial for those who are ultimately chosen. “I think when you are able to give more business to fewer firms, you are helping them better understand your business and that’s going to help you in the long run.”

I hope you find the discussion informative and relatable to your own experience. Watch for the video coverage of the roundtable at Canadianlawyermag.com/inhouse.

This year’s participants were Jason Young, Head of legal at PayPal Canada; Barbara Silverberg, Head of legal at Dell Canada; Lara Speirs, General counsel & vice president regulatory affairs, Randstad Canada; Robert Soccio, General counsel, corporate secretary, compliance officer, director of human resources, Navistar Canada; Alena Thouin, General counsel and corporate secretary, Alterna Savings and Alterna Bank.

•  INHOUSE: Are you looking to add lawyers to your legal departments this year or make reductions?

YOUNG
We just went through a separation from eBay last July. Two things are at play in our company today — we’re replacing roles that we lost in the separation, and secondly, now that we’re once again a public company we’re going through an organic maturation process, which requires that we look at growing functions in a different way than we have in the past. So we are in a growth phase.

•  INHOUSE: Do you have to justify the addition of new lawyers to the department against external legal spending?

YOUNG
I try and keep those separate because there’s a risk, I think, that you’re justifying internal growth, with an external spend budget, which you don’t want to be accused of. Our external spend is driven by business objectives. We are a company that puts innovation at the core of everything that we do and so that means we’re constantly trying out new business models and new technologies, and, of course, the regulatory environment for payments is changing as well — that drives the external spend, I think, far more than “Do we need to increase growth internally in Canada?”

THOUIN
I think we’re probably in a similar situation where we have a combination of increasing growth and increasing compliance so my function is also driven by those requirements. As we make decisions about head count, some of the things we look at is the total spend. I also try to keep it separate; but for the people that I have conversations with, they don’t always look at it as separate and that’s normal, because to them it’s the final bottom line. But it’s not just the actual number at the bottom of your financial statement; it’s the value that the person you would hire would give you within the company. You have to talk about value; you can’t just talk numbers. I was able to build the relationship with our business partners in-house to show that having an in-house lawyer adds tremendous value, particularly if you’re in a regulated area like ours.

SILVERBERG
We operate under really tight financial constraints. It’s a very competitive business. When you’re selling computer hardware, margins can be pretty slim so we’re always very tight in terms of how we manage our budget and head count. I will say the Canadian legal team is incredibly lean for the size of the business that we own and manage. We’re the gold standard globally for other countries in the organization because our department can be half the size of comparable organizations around the world. We really work hard to maintain what we have and do the most with very limited resources. I don’t see growing my department in the near term.

SOCCIO
Historically, it’s always been a one-person position for the legal function. We focus on building key relationships with law firms and managing legal affairs as best we can and the type of legal work that Navistar Canada is involved in doesn’t really warrant a large department because it’s defendant-side litigation on the product liability side and some corporate-driven transactions, be it tax or finance, that are not routine.

SPEIRS
We’ve just recently reduced our department from two lawyers to one lawyer. We use the word lean a lot to constantly promote a high-value work product. We do use secondments and project-based work to manage volume at times. We also look at skill sets differently. So when a law clerk can do the work, we will have a law clerk do it, as opposed to a lawyer.

•  INHOUSE: Are your budgets looking flat or growing?

YOUNG
I think it goes without saying that we’re always trying to keep it flat. Our legal spend is primarily driven by what the business is doing. I have quarterly budget forecasting obligations. I have about seven reports I have to generate within a quarter. Some of them are monthly. It is a bit of a speculative exercise.

THOUIN
I have to submit a budget every year and then I have to update it on a quarterly basis, depending on what’s going on. The expectation is you do your very best to stay within your budget. If you can’t, or if there’s any changes to the external spend budget, that conversation has to take place on a bigger scale to understand why we’re growing all of a sudden.

SILVERBERG
Budgeting is a very important part of what we do. For my business, there are always pressures to keep the budget flat or even sometimes shrink the budget, depending on the environment. We’re a few months away from a very large merger in which we’re going to be inheriting more people, more budget, and so now is probably not the time for us to increase our spend until we know what we’ve bought in our $67-billion acquisition [Ed note: Dell acquired tech behemoth EMC last fall]. You can’t always plan out when you’re in defensive litigation or subject of a class action. I think everybody understands that, but in terms of your day to day, we are expected to get a pretty good handle on that. 

SPEIRS
I think the key to budgeting is the communication one has with the executive team. Everyone tries to reduce their budget as much as possible. At the end of the day, you want to have cost savings and you want to contain or shrink legal spend; however, sometimes, there are a whole bunch of variables that are beyond your control. Whether it’s transactions or litigation, you can’t always foresee certain things when you establish a budget at the beginning of a fiscal year. So, when that happens, I think the key is close communication with the executive team, with your CFO, with your CEO, so that they get the proper notification and can be part of the strategic planning of how you want to proceed.
There are certain times where spending more money in the legal department makes a lot of sense such as a very strategic litigation need. Sometimes, it’s very important that you get clarity in the law and there’s value in that. Sometimes, it is transactional-based, of course, but I think it’s also about rethinking how the legal department is viewed. Are you just a cost centre or can you be part of the strategic growth of the industry and the company?

SOCCIO
I think the challenge is that legal matters don’t start and end during the fiscal period. There is also what you plan to spend, and then there’s the unexpected. There’s always pressure to reduce, to do more with less.

•  INHOUSE: How do you go about choosing law firms?

SILVERBERG
There’s definitely a noticeable difference in law firms being more proactive and trying to be more creative and probably just more hungry for business than 10 years ago, certainly more so than 20 years ago. There are a variety of ways we choose law firms; it kind of depends on the matter and for some matters you may just go to the person you know who does it really well, but for larger matters we have lots of creative kind of ways of handling this. We even do reverse online auctions for some of our large repeatable litigation. We will set aside one particular day and a handful of law firms are prepared to go on and bid for the business and they bid, not only on price, but also on staffing and strategy, and it’s live, it happens in real time, and you see them kind of watching other law firms bid down their hourly rates and trying to do the same. We’ve been doing it for probably four or five years. It can work very well, and we don’t necessarily go lowest bidder because obviously managing litigation is about more than just the cost, but it’s definitely a factor. We do lots of creative things and obviously all of those include a fee cap — fee caps are a pretty important part of negotiating. Otherwise, on larger transactions or litigation, the sky is the limit as we’ve all probably learned the hard way.

SOCCIO
It’s a buyer’s market for legal services. The economy has changed, the legal profession has changed, and companies have changed. Given the economic climate in Canada, there’s always this pressure on service providers to bring more to the table. So a lot of firms are providing a lot of administrative support — a legal budgeting system or legal tracking system for matters, in particular, toward litigation, where you can access a portal and view the status of a litigation matter and review any correspondence from the litigation and where the current legal spend is at. I think that helps internal counsel, especially people like myself who are the sole counsel and don’t have the bandwidth to deal with the added administrative burden large legal matters attract.

SPEIRS
What I’ve seen is a greater emphasis on training and education and that’s very helpful — especially timely education and training when, for instance, a new regulation is just about to be enacted. That’s very helpful. Where I see a growth area is with project management when a regulation is about to come into force and they say they can provide a-to-z project management to roll it out to your company. I see a lot more of that and that’s very helpful. For instance, CASL would be an excellent example, or with amendments to the Privacy Act, for instance, the new Digital Privacy Act.

YOUNG
I agree with Lara that firms seem to be doing much more when it comes to useful content generation. I think part of that is a result of the CLE requirements that the Law Society instituted a number of years ago, but it’s also great for relationship building, too. I find that far more helpful. Time is precious so you often don’t have time to sit down for a two-hour lunch or even coffee some days. If I can build into my day relationship building through something else that I’m required to do or that will be useful I think that’s preferable. What works for me is less formality; so if firms feel that they can help me, let’s do away with the meet-and-greet and just focus on the content. I find that much more valuable.

THOUIN
We have a process for a more formal retention of legal services for a larger project, but there are situations where it’s a very specialized area of law and then you have to go out and find the right approach. I think the more successful law firms, at least the ones we deal with, always offer something else, whether it’s education sessions or project management. I think there’s an expectation, at least among the colleagues that I know, that there’s something else their law firm adds to the value that they give.

•  INHOUSE: What kind of experience have you had with requests for proposal?

SPEIRS
I like something in between where you don’t have all the cumbersome procedure that an RFP has, but you have some clear criteria of what you’re looking for that’s objective and measurable and that hits the right balancing act — that type of approach suits my needs. Let’s say we’re looking for a law firm that will do all our human rights litigation, for instance. Whether it’s financial criteria, education criteria, language criteria, because we do a lot of work in Quebec . . . and we take that criteria and then see who would fit the bill. It’s sort of like a defacto RFP or a sort of informal RFP.  I don’t need the dinners; I don’t need the free gifts. We have a no gifts policy.

SOCCIO
I’ve been involved with RFPs with firms on a “bet the company” case — litigation or some sort of specific transaction where you want to see what the two or three top lawyers in certain firms are going to do for you and what strategy they have, or what would be their costs. But on a day to day, I agree with Lara that you’re going to have your contacts in the firms that you use regularly and when a matter comes up, you know, you’re not going to RFP for that matter. We have no formal RFP process at Navistar Canada, but there is always a negotiation, there’s always a discussion, there’s always a request for a budget, in an informal way.

THOUIN
We have an informal roster and we do use RFPs for particular projects. If it’s a very large project or a large contractual arrangement or some very meaty kind of matter that will require a budget, a project plan, that’s a situation where I would look to get an RFP with a very set criteria of what it is we’re looking for, and I think most of the time law firms respond well to that. We’re also in a speciality area so there are only so many firms that do what we do, or, at least, can assist us with what we do. So if it’s a smaller matter, there’s a group of law firms where I can pick up the phone and negotiate a specific piece of work.

YOUNG
I have not used an RFP yet in Canada. I’m primarily focused on ensuring that we have strong relationships with the lawyers I think have the right expertise and perspectives for us, and I think that is going to go much further for the type of work that we do in terms of managing cost than a formal structure like an RFP process would. One of the first things I did when I came in was to reduce the number of relationships that we had with external firms. The purpose of that was to ensure that we were investing in the firm as much as the firm was investing in us. I think when you are able to give more business to fewer firms, you are helping them better understand your business and that’s going to help you in the long run.

•  INHOUSE: Are you looking at alternative fee arrangements or is this still early days for that kind of approach?

SOCCIO
We have a mixed bag of alternative fee arrangements, from caps to volume discounts, and a combination of arrangements like that. I see it as a continuing trend and there’s going to be a lot more pressure on law firms to commoditize their services or come up with a better way to show they’re providing value to a corporation be it on a piece of litigation or a transaction.

SPEIRS
I think certain subject matters really lend themselves to alternative fee arrangements and it’s absolutely the way of the future. At Randstad, we have several niche areas that are managed with alternative fee arrangements such as repetitive routine files such as real estate. If you have multiple branches throughout the country with leases that need to be renewed — that could be an easy routine thing that can have a flat fee. Certain health and safety matters could have a flat fee. Certain routine litigation at a certain tribunal could be a flat fee.

YOUNG
I have had experience with AFAs — we do use them at PayPal. It’s not something that I’ve used in Canada and I would agree with what Lara said — I think it’s really dependent on the work that you’re doing. For the work I do on the regulatory side, it doesn’t really lend itself. But for complex commercial agreements where there’s a good chunk of the deal that is a known quantity, an AFA would be perfect for that and I certainly have used those in the past. I have negotiated into our retainer agreements a “call us” capacity, which is that if it’s a small matter, I can call the firm and simply ask a question and I’m not going to get charged for it. They will keep track and there is a cap so that it’s fair on both sides.

SILVERBERG
I think it really depends. I would say for the most part we’re probably asking for them in setting expectations up front. Occasionally, a law firm will say ‘I know you may be under budget constraints’ or ‘I know this is an area where you would want to have a specific approach’ and they may be proactive, but I think generally we’ve got to put it on the table. It makes sense for repeatable litigation or even small claims court or lease renewals — things where it just doesn’t make sense to be paying straight out hourly rates for the kind of work that’s involved.

SOCCIO
It’s a natural reaction for lawyers and law firms to resist it because they would like to retain the hourly billing at a non-budgeted amount, but there are lawyers and firms that actually come to the table and offer the alternative fee arrangement — it could be a cap on certain things, or a volume discount. I’m finding a mixed bag out there of lawyers and firms that are sort of seeing that trend and coming forth and having that candid conversation and those that are just quietly sitting there and if you ask them, they discuss it.

•  INHOUSE: How do you view offers from some of the big firms to assist with project management?

THOUIN
Yes, I just had a recent experience and I think it’s great. I’m a small legal department — we don’t have a lot of resources — and when we do have projects, we have project managers within our corporation. When I have a big project, like Canada’s Anti Spam Law, I have to go fight for a project manager with all the other departments who are fighting for the same project manager. When the law firm can come and offer a project manager or some kind of software to help me manage the project, absolutely, I think it’s of value.

SPEIRS
Absolutely, I think it’s what’s needed for law firms to reinvent themselves. When there’s a new regulation that comes out, like CASL, we need help in rolling it out. Just a legal opinion or a memo drafting a summary of the law is completely unhelpful, that we can get through reading articles ourselves, that’s not what we need. We need an execution plan, which project management can deliver.

YOUNG
I see where it could be very helpful — CASL’s a great example. I’m a little skeptical that it is the wave of the future, only because for the types of projects where I have required a project manager or very much would have liked to have one, I think that function needs to sit within the business. It would be very difficult and probably not cost effective to have a firm doing that, in part because they don’t understand our internal structure and secondly because they’re going to have to charge fees for it.

SILVERBERG
I have to say I haven’t found law firms really stepping forward and offering project management. When I think about CASL, I think, wow, you know, maybe I should have tried harder to get some of it because for me it turned out to be a multi-year, extraordinarily complex, and expensive project.

•  INHOUSE: Are you involved in corporate social responsibility initiatives?

SILVERBERG
We try to put a lot of focus on corporate social responsibility and I think it comes in so many different forms. We have Dell giving charitable functions, volunteering, so we very strongly support our employees volunteering and doing, giving back to the community on Dell time. I’ve been heading that for Canada for the last eight years. As a legal function, we also evaluate our law firms and have both a diversity award that we give to law firms and a corporate social responsibility pro bono award, and we get law firms to do some pretty rigorous kind of work, vying for these awards. Last year, we had 20 firms apply and they can tell you how many hours they spent, how they support it, how they staff it. It very much governs how we choose some of the law firms we work with, so we try to do it on all fronts.

THOUIN
We’re very much committed to community support and social responsibility. When we look at law firms, it’s not as formal as Barbara would have it, but I think it definitely plays a role. I do have conversations with our law firms about what they do to promote that kind of environment.

SPEIRS
I find it very helpful when the law firm partners with your corporate responsibility goals — so when as part of being your partner they’re aligned so, whatever charitable causes or whatever community outreach you’d like to do that fits within your core business principles that your law firm’s right there with you.

YOUNG
Yes, so much like Barbara said, we have both global initiatives and local initiatives. Our global initiatives are supported by a corporate social responsibility team, headquartered in Washington, which is also where our PayPal giving fund is located. We’re actually launching, very soon, an internal pro bono program.