Does size matter?

Appointing external legal counsel is a lot more complicated than it sounds. When recruiting outside advice, is it best to opt for the size and comfort of a ‘magic circle’ firm? Or is a better level of service available from smaller practices? Has consensus emerged about one-stop shopping, or using one firm for all a client’s major legal needs? Or is there still a demand for specialist boutique advice? In other words, does size matter these days?

The answer often depends on who’s asking. Multinational companies may feel they have little choice but to enlist firms with the size, depth and geographical diversity to handle their needs. Smaller companies may prefer specialists. Medium-sized corporations sometimes complain they get caught in the middle. ‘The classic legal answer to any question is that it depends, and that answer is apt here as well,’ says Bob Lamm, managing director and associate general counsel at New York insurance company Financial Guaranty Insurance Company (FGIC).

Rohan Weerasinghe, partner in the capital markets group of Shearman Sterling LLP, believes general counsel need to take into consideration resources, legal skills, cost and the ‘personality and fit’ of the lawyers they will be working with. ‘Does a firm have the depth of capacity to be able to handle the entire complexity of a transaction, and will it be able to pay appropriate attention to the project, given all its other projects?’ Weerasinghe asks. ‘Then, does it have the knowledge base and the depth of experience you need? A lot of firms may say they can do corporate governance work, for example, but how much have they actually done?’

What Weerasinghe describes as personality and fit is, by its very nature, more difficult to measure. ‘Can you work with the counsel or is there a clash of personalities and styles?’ he queries. ‘Does he or she have the appropriate communication skills to be able to explain something clearly and concisely? Can he or she make a decision, rather than say, It could be this, it could be that? Finally, I think one has to consider the question of cost and what you are getting for your money. You may go to the cheapest provider and then find that you lose a lot of the benefits you get with a more expensive firm.’

Building relationships

Lamm feels the third category is key. ‘The most important thing in selecting corporate counsel is the person you’ll be dealing with,’ he observes. ‘Most honest law firms will tell you, We have someone strong in this area and someone else who is not so strong and these are their rates. But you can deal with a second-string person at a first-rank firm and be much better off than with a first-string person at a second-rank firm. Obviously fees come into it. Firms that don’t charge as much but are not as responsive are probably not as good as firms that charge more and are always there when you need them.’

Fulbright & Jaworski LLP, based in Houston, decided last year to find out what companies look for when recruiting external counsel, sending out a survey that received 300 responses from general counsel at US corporations. ‘We wanted to know what companies look for when recruiting a law firm as they face litigation issues in the US,’ explains Bob Owen, partner in Fulbright’s New York office. 

Some 34 percent of respondents rank specific case experience as the number one priority, ahead of general competence and knowledge at 33 percent and reputation and success rate at 11 percent. Only 7 percent say the most important factor is their past relationship with a law firm and even fewer – 6 percent – say cost is the most important decider. Tallying the number of companies citing specific factors changes the order of responses: 72 percent mention cost or cost-effectiveness but past experience with the firm again ranks poorly, with just 15 percent of respondents mentioning it.

‘What it suggests to us is that in-house lawyers are quite sophisticated and will look for a firm with specific case experience rather than someone who has worked with them before,’ says Owen. ‘It tells us that we will always have to work hard to gain our clients’ loyalty and keep business.’

Fulbright’s poll also reveals the scarcity value of specialist advice in the field of intellectual property and technology as well as in the area of labor and employment issues. 

One-stop shopping

Lamm is skeptical that large general practices can match the quality of top specialists in such areas. ‘I am not really a fan of the one-stop shop because I think that very often it is hard to find one firm that can really do it all,’ he explains. ‘There are occasions when it is almost dangerous to use a one-stop shop, such as with certain employee benefit plans that have securities and compliance implications.’

Similarly, Lamm warns that specialists cannot know it all, either. ‘There certainly are areas where you call for specialists,’ he says. ‘Tax law is one that comes to mind. But the last thing you need is someone who is a
specialist in tax law and does not know anything about other legal issues.’

Weerasinghe is more positive on one-stop shopping. ‘If a firm has strong competencies in different areas and can coordinate your one-stop shopping, a general counsel can derive substantial benefits,’ he notes, warning that companies should measure the quality of the advice as if separate firms were providing it. ‘When using different companies, there is always a certain amount of duplication.’ One-stop shopping is particularly relevant to major international litigation or cross-border transactions, he feels.

Other attorneys say there is a problem with definitions. ‘General counsel want and deserve great service,’ says Linda Listrom, a partner with Jenner & Block LLP. ‘Great service involves something more than the one-stop shopping a full-service law firm has to offer. Corporate clients need lawyers who are skilled problem solvers and business advisers who can offer new ideas, get better results and provide access to experts in a cost-efficient manner. Clients want to know that you are their advocate and can give them customized solutions, and that you truly care about the personal and business relationship you have with them.’