In 1992, DuPont began popularizing convergence, or the consolidation of legal work to a smaller group of firms. In fact, in 2014, 50 percent of US legal departments used 10 firms or fewer for 80% of their legal spend. Many legal departments are shrinking their group of panel firms in order to reduce cost, better manage their firms, and build stronger relationships. Through the convergence process, companies feel they benefit by receiving higher quality services at a competitive price. This two-part article examines the trend toward convergence, benefits of convergence for companies and firms, examples of companies that have reduced panel counsel, and finally, best practices on managing panel performance.
In a recent article published on May 27, 2015, BTI Consulting Group reported that clients have the smallest panels in 15 years, giving the example that a typical large company reduced their panel by 30% from last year. 2015 marks the second year in a row of convergence and corporate counsel show no indication of slowing down on the process especially with the demands to lower outside spending and reduce budgets. Given the pressure to lower outside expenses, general counsels are reducing panels as well as growing internal talent on their teams to handle more matters in-house.
There are many reasons for the trend toward smaller panels. As mentioned earlier, the pressure to lower outside spending can be a big factor in the decision to cut firms. With general counsels trying to move more work in-house, the need for large panels is lessening as general counsels build their internal staff with a broader range of experience. Additionally, by giving fewer firms a larger volume of work, general counsels can negotiate better rates or discounts with firms.
Other benefits of reducing the number of panel firms are time savings and often, better work product from firms. Internal legal departments are stretched for resources and managing a large group of firms can be a drain on time. With a smaller group of firms, companies have more time to manage their firms and since the firms are more familiar with issues, inside counsel doesn’t need to worry about spending time getting them up to speed. Also, with the potential for a higher volume of work, firms on the panel have more incentive to learn the business and develop a long-term interest in the success of the company.
Examples of Companies Reducing Panel Counsel
The movement toward smaller panels has been seen throughout companies in various industries and sizes. Below is a current example of a well-known company that has taken on the process of reducing its panel firms:
-In 2014, 3M had 165 firms providing litigation and M&A services. 3M, with budgets being held flat and pressure on costs, decided to shift more costs internally as well as cut their large group of panel firms. During their process of convergence, they divided their legal work into seven portfolios and then went about the process of sending out RFPs. They settled on 39 firms for the seven areas and 95% of their new work goes to a panel firm. Today, they feel like they have better communication with their firms and the firms are investing more in the relationship.
Next month, we will review 2 additional examples of companies that have reduced panel counsel as well as best practices on managing panel performance.