Today, 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. Last month, this two-part article looked at the trend toward convergence, benefits of convergence for companies and firms and one example of a company that has reduced panel counsel. This month we will look at another example of a company that has reduced panel counsel and best practices on managing panel performance.
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 panel firms:
-7-Eleven recently began a program to adjust its number of outside counsel in order to more effectively handle their caseload, improve collaboration with firms, and reduce costs. 7-Eleven had acquired a huge portfolio of firms through random engagements and they felt that too many firms on their books were hindering value. This group was difficult to manage for their internal team and due to the ad hoc nature of their engagements, the firms weren’t taking the time to understand 7-Eleven’s values. If they didn’t consolidate to a group of preferred providers, 7-Eleven felt that they were missing the chance to negotiate lower fees and establish true partnership arrangements with the firms. They decided to reduce their firms in order to enable them to tackle their legal needs across a range of expertise and geographies. After the convergence process, 7-Eleven’s group of firms went from 200 to a group of 22 that exemplified innovative practices as well as expertise and efficiency in core areas.
A Smaller Panel. Now What?
Once a company has gone through the process of convergence, how do they know that they are getting the best service from their panel counsel? Frequent reviews and the identification of key performance indicators are a few of the best practices followed by some organizations. The following instances illustrate some of the methods used by DuPont, Pfizer, and 7-Eleven:
-Every year since 1996, DuPont, for example, reviews whether panel firms are delivering efficiency and keeping costs under control through their Benchmark Survey. Firms that do not score well (do not show continuous improvements) do not stay on the panel.
-Pfizer, another company that went through the convergence process, uses a balanced scorecard approach as well as online assessments for the firms and in-house teams. Once the results are received, the firms are ranked against the other firms in the panel and the rankings are shared with the entire panel.
-This fall, 7-Eleven will review their panel firms for overall effectiveness and efficiency. Their review committee will also assess the firms’ contribution to their business strategy as well as how the outcome of matters supported 7-Eleven’s goals (i.e., How accurate were early case assessments? Did settlements or other dispositions fall within desired limits?).
These three examples demonstrate the importance of providing constant feedback and a structured review process for firms once they are selected for a panel. The following are some of the best practices used by other organizations when designing panel evaluations:
-Appoint a dedicated panel counsel manager if resources permit.
-Establish billing guidelines for panel firms and make certain firms understand and adhere to the guidelines.
-Use a bill review program to assist in tracking spend and analytics.
-Develop a set of objective key performance indicators for use in firm reviews (average case cycle time, case disposition statistics, average cost per case by practice area, staffing efficiency, budget performance, and adherence to billing guidelines).
-Let the firms know how they are being evaluated.
-Design reports to monitor fees and spending.
-Set up a plan to measure/evaluate firms at regular intervals (i.e., twice a year).
-Beyond formal reviews, communicate with firms on a regular basis.
-Immediately address any performance issues.
Additionally, some organizations take panel performance one step further. They evaluate items such as which firms provide supplementary benefits outside of the contracted services or which firms offer continuing education meetings for the company’s in-house staff.
Many companies have moved to reduce the number of their panel counsel. Whether the corporate objective is to reduce cost by bringing more work in-house, build specific subject matter or geographical expertise, or lower rates due to stronger negotiating power, convergence is a trend that continues to gain momentum. Smaller panels have benefits for both the organization and their firms. Companies can reduce cost but they also benefit from reduced management time, and they have the opportunity to build stronger relationships with their firms. The panel firms receive more work and develop a long-term interest in the success of the company. With a stronger understanding of a company’s goals and objectives as well as risk tolerance, the ultimate benefit for most companies is higher quality service from their firms at competitive rates.