Pfizer, RBC, GSK, Tyco, Whirlpool: ACC ‘Value Champions’ panel on alternative fee arrangements

This morning, the Association of Corporate Counsel (ACC) hosted a fascinating panel discussion on non-hourly legal fee arrangements and how they can be used to reduce corporate legal spend.

The panel of ACC “Value Champions” included such heavyweights as:

  • Ellen Rosenthal, chief counsel and vice-president of Pfizer Inc. (which through its “Legal Alliance” program has managed to wring major cost savings from external counsel).
  • Jonathan Hegre, senior counsel, employment, at RBC Capital Markets, along with legal adviser Richard Rosenblatt of Morgan Lewis & Bockius LLP.
  • Dennis Lynch, vice-president and chief litigation counsel of Tyco International Ltd., along with legal adviser Paul Williams of Shook, hardy & Bacon LLP.
  • David Grumbine, senior counsel and director of dispute resolution operations at Whirlpool Corp., along with legal adviser Michael Williams of Wheeler Trigg O’Donnell LLP.
  • and Bob Harcut, vice president and associate general counsel of GlaxoSmithKline.

The following are are just a few of the highlights from that discussion, the full audio of which is available from the ACC.

***

To start, RBC Capital Markets’ Jonathan Hegre shared some thoughts on his company’s successful practice of tailoring fee structures to specific matters and portfolios, resulting in a legal savings of 35%.

“We’ve successfully explored a variety of value-based arrangements. Those have included: fixed fees for the life of the matter paid over a monthly basis; fixed fees with risk-sharing provisions; fixed fees for all work on the matter, up to a certain trigger point, followed by blended rates and capped fees.”

Richard Rosenblatt of Morgan Lewis then chimed in with his own thoughts about the evolution of its relationship with RBC Capital Markets:

“Fortunately at Morgan Lewis, we’ve gotten past that [reluctance]. All of our partners are constantly looking for ways to pitch alternative arrangements to clients and prospects. … Legal process management is a key to success in this realm. We’ve trained all of our lawyers on concepts of legal process management and have really acculturated our folks on really what it means to be an efficient provider of legal services.”

The discussion then turned to Pfizer’s Ellen Rosenthal, who spoke about how her company’s Legal Alliance initiative has impacted its relationship with the company’s colleagues in finance, given the premium (at least up front) demanded by predictability on legal spend. Rosenthal also hints that the company may be extending its program to non-legal service providers (accounting firms perhaps?):

“Ours was a fairly radical change. We went one day from having a wide variety of law firms doing our work on somewhat of a traditional basis to a radical convergence program that was paid entirely on a fixed fee. … They [finance colleagues] may not like the number at the beginning of the year, but it’s the same number at the end of the year, and the predictability has huge value. Of course, even though the number may still be large, year over year we have made substantial cost savings, to the point where some of our business colleagues are considering implementing similar approaches with other partners of the finance group.”

Later on, Michael Williams of Wheeler Trigg O’Donnell LLP (which represents Whirlpool) described some of the challenges around fixed fees and where firms might avoid rigid fee structures:

“The two biggest challenges were, one, working on consumer class actions that by their very nature are hugely unpredictable. Tiny decisions on discovery, for example, or procedural motions can have an enormous impact on how the case proceeds … If I were to say one thing we’d do differently, we probably would have spent more time brainstorming what could go wrong from the law firm side … There have been years where we had a one-size-fits-all approach, and that worked great for the client and not as well for the firm.

“The second thing is, we didn’t fully appreciate how much closer to the business it would bring us. It really has made us an extension of the in-house law department, and has encouraged the business and the engineering community to pick up the phone and call us, which has been wonderful. … I believe we have actually avoided case filings and reduced risk in numerous cases as a result of that collaboration.

“One thing that’s come out of that is essentially a fixed consulting fee to encourage even more of that, so that folks don’t think that there’s any cost added. That was something that was added to the program in the middle of the five-year period.”

A little while later, Bob Harcut of GlaxoSmithKline talked about the company’s electronic reverse auction procurement process, and the developing relationship between the company’s legal department and its procurement department. … One particularly insightful piece of advice suggests appointing what Harcut calls a SPOC:

“One of the lessons that I’ve learned over the past seven years is, in order to make this relationship work, it’s very important for the law department to appoint someone to act as the single point of contact, or what I like to call a SPOC, to work with procurement and be a conduit through which the ideas and tools of procurement make their way into the law department. So our procurement folks don’t contact anyone in legal unless they do it through me, so I’m the SPOC. …. Having someone serve as the SPOC in the law department can really pay dividends because the lawyers know that I understand what they and outside counsel do … so I can act as the buffer and translate the procurement-ese into concepts that will work with my law department colleagues.”

When asked whether top law firms (think Magic Circle and White Shoe) will ever accept alternative and fixed fee arrangements, Ellen Rosenthal of Pfizer reminded the panel that the company’s Legal Alliance includes some big names indeed:

“I would just like to point out that members of our alliance include firms like Clifford Chance, DLA Piper, Ropes & Gray and White & Case, among other top firms. … They participate in the Pfizer legal alliance on a purely flat fee basis.”

Dennis Lynch of Tyco then chimed in with the company’s own preferred-rate arrangement with Eversheds, and Bob Harcut of GSK mentioned that the company’s reverse-auction process has enjoyed participation from 84 firms, many of which can be categorized “White Shoe” or “Magic Circle.”

Again, full audio of the webcast is available from the ACC.

-David Dias

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