As the roles and demands of in-house legal departments are evolving, general counsel say they want external lawyers who understand how their companies and business sectors operate.

Senior Spanish in-house lawyers made their message to law firms clear at Iberian Lawyer's recent Listening to Clients forum, when they said that their doors were open to law firms and that they welcome the opportunity to show how their businesses operate.

More than 60 general counsel and senior law firm managers attended the event, hosted by Iberian Lawyer´s In-House Club, where in-house lawyers (IHLs) from some of Iberia's leading companies said that their "doors are open" – they want external law firms to get to know them better. While cost will always be an important consideration, they want to use firms who know their business sector as well as how their own businesses work.

This new emphasis, they say, is indicative of the changing role of companies' in-house legal function. IHLs are now working more closely with the commercial, regulatory and strategic issues of their corporations. For some this signals a change from that of legal firefighter, policeman or even doctor, to becoming a business leader and risk manager of their organisation.

As a result, General Counsel are organising the legal function in new and innovative ways and adopting new approaches to their relations with external lawyers. Being a good lawyer is taken for granted, and what they now want and expect from external legal advisers is changing.

Changing roles

A key element of a law firm´s ability to understand clients' needs is clearly related to their ability to understand the changing pressures and responsibilities of legal departments.

"Our clients, the company, are expecting us to add value to the operations of our organisation and we therefore expect the same of our external advisers – and the key to doing this is to understand our roles, responsibilities and requirements," says John Rigau, Vice-President Legal, for PepsiCo Europe.

The in-house legal function of PepsiCo, he explains, has evolved from a simply reactive role, managing legal needs and outsourcing what could not be done in-house, to becoming a business partner – with greater involvement in strategic decision-making – is now becoming regarded also as guardians of the company's values.

"Now we are charged with making sure things work in the right way, and this encompasses ethics and compliance, corporate social responsibility, and even whistle-blowing issues. Clearly therefore the advice we are looking for from our external law firms has to take all of this into account – a one-size fits all approach will no longer work."

The sentiment is one that is shared by Manuel Alvarez Tronge, who as General Counsel of Telefónica International leads their global legal function. Only two years into his role, he has led major acquisitions across Colombia, Argentina, Czech Republic and China and was involved, at a strategic level, with the O2 acquisition in the UK. He also emphasises the added demand for speed.

"Nowadays the internal clients of legal departments want speed of response, and high speed at that. Our external lawyers have of course to know the law, but they also have to know our business, and to be able to tailor their advice to our specific needs. All of this helps to produce a better, quicker, response," he says.

But speed of response means nothing if the advice is no more than a mere technical analysis of the law, notes Jean-Claude Najar, Senior Counsel and Chief Compliance Officer, GE Commercial Finance, who moderated the forum. "I can look up the law myself. What I want to know, and now expect from my law firms, is an understanding of what the law means to my situation and within my business."

Important also, say in-house lawyers, is an understanding of the division of responsibilities within company legal departments and the relative priority of specific types of issue to the business. And a key aspect of this is understanding the importance of "compliance" obligations, particularly so in heavily regulated industries.

The misperception among some law firms, suggest heads of legal, is than a company's compliance function is less critical that so-called ‘legal' issues. But such an approach they say is not only frustrating but also short-sighted.

An understanding of capital adequacy requirements, for example, is fundamental to the operational viability of Iberia's banks, while helping to instil an awareness of anti-cartel issues and managing internal whistle-blowing procedures are now a growing area of emphasis for company legal heads.

"Our advisers must know how we operate our business. When we are looking for outside counsel we are looking for lawyers who can work with us, and to act as a team member," says Pilar Aranguen, Executive Director – Compliance, Goldman Sachs España.

A close working relationship with external lawyers who understand and respect the ethics and nuances of a business can prove significant in ensuring that "trivial" issues do not become "vital" ones, agrees Juan Ignacio Pardo, Senior Vice President, Legal & Compliance, Sol Melia Group.

He leads a team of over 40 encompassing legal, internal audit and corporate governance. "An important aspect of our role now is to help encourage the three ‘legs' of the company to talk to each other: the corporate governance element that establishes the company structure, the legal role that finalises how things are done, and the compliance function that can highlight what may be going wrong."

Changing emphasis

Elizabeth Wall, former General Counsel of global businesses such as Cable & Wireless and McDonnell Douglas, based out of both New York and London, and a consultant to in-house teams, notes that lawyers now have more responsibility within their organisations than at any other time. But in response to the greater operational pressures on them they need to look at their departments from different perspectives.

"We need to be able to distinguish between the legal work which is not necessarily important to our internal clients, and that which is both high value and highly important – and to see how these different types of work can best be managed, internally or externally."

Pardo at Sol Melia agrees. "It is important to be able to step back and to think what the legal department should look like in three years time, and in what areas we should we be placing our emphasis – indeed, what are the most valuable aspects of our role, and what can be outsourced."

Some suggest that the future trend is for legal departments to increasingly internalise more of the most important legal and compliance work, and to outsource a larger proportion of the less valuable, and less time-sensitive, issues. A critical debate for law firms.

"It is important that we are able to reverse the perception that often exists within a company of the legal department as putting up only barriers to deals and as a cost centre. We have to demonstrate that we are also a profit centre and that we can add value to the decision-making processes," says Tronge at Telefónica.

For some, this is evident in being able to demonstrate costs saved through effective negotiation, deal-making or even in saved litigation costs. In addition, there is now a drive also to delegate some "legal" issues to non-legal departments, such as labour matters to the human resources departments, and contractual issues to procurement and business units.

"With a team of only 16 lawyers covering continental Europe we have no choice but to be very focused," agrees Rigau at PepsiCo.

Law firms need to acknowledge these issues and to start working in different ways, says Ignacio Ojanguren, the managing partner for Clifford Chance in Spain and now also responsible for the firm´s global financial planning. "It is about efficiency, firms need to reduce costs and assist clients in reducing their costs too," he says. As an example, Clifford Chance now has a team of over 200 back-office support staff in India.

Changing counsel

This changing emphasis on the type of work company legal departments are now focusing on is inevitably impacting on the volume and importance of the legal work being sent out to external lawyers. But so also is the nature of the relationships that General Counsel are looking for with their external law firm advisers.

The dramatic upturn in mergers and acquisition activity across Iberia in recent years has put growing pressure on heads of legal to have external advisers prepared and onside in the event that a major transaction emerges. Companies have in the recent past readily used conflict of interest issues as a tactical legal weapon, notes Manuel García Cobaleda, Head of Group Legal Services, Gas Natural.

"Conflict of interest issues are clearly much more relevant than they were, and part of the objective of our legal department is now to ensure that we have advisers secured and lined up to achieve our strategic goals," he says.

Such a desire clearly brings a need to incentivise law firms to enter into long-term agreements. "If there is a major tactical transaction, or major arbitration, cost is much less of an issue than having the right people on board," notes Cobaleda.

The adoption of law firm panels, suggests Tim Cowen, General Counsel at BT Global, is one means of ensuring that law firms remain incentivised. "Our panel system has enabled us to reduce the number of firms we use and have to manage. We now have a preferred agreement with a core panel who handle the majority of our transactional issues, and a larger panel of firms that we utilise depending on the specific legal or linguistic issues at hand."

Exchanging ideas

Many General Counsel emphasise their willingness to make time to listen to and get to know law firms that are able to suggest new ways of working, and who are able to offer new ideas. But such approaches they say happen rarely.

"There is a need for a change of mindset among law firms, in order to demonstrate that alongside their legal expertise they are able to offer value for money to clients. While I was general counsel at Reuters, it was a pity that no law firm ever came to me and said ´this is how we think you can save your money and time'," says Rosemary Martin, CEO of Practical Law Company, and former General Counsel of Reuters.

Miguel Klingenberg, Head of Freshfields in Madrid, agrees that there is now a clear demand among clients for law firms to better understand their businesses and to offer more than mere technical expertise.

"Law firms have traditionally been very bad at talking about costs with clients, and to demonstrate that they are able to add value. Firms clearly have to understand that clients, even within the same sector, have different needs and are increasingly sensitive over issues such as conflicts."

The response of his firm, he explains, has been to undertake a third party review of its performance with key clients and to place more emphasis on the role of relationship partners. "They have to be able to communicate clients' needs to rest of the firm, to avoid communication blocks and the need to repeat information or to reeducate."

But Maria Segimon, a corporate partner at DLA Piper and until recently in-house at Ferrovial, notes that sometimes it may not be easy for firms to get to know the client. "Often the in-house legal department will only go to a law firm when it is vital to do so, there is a tendency to leave things to the last minute."

Rosemary Martin at PLC agrees that in an ongoing relationship it is equally important for law firms to educate clients on how best to instruct them. "Going to law firms only when absolutely necessary is inefficient but a common ‘Pavlovian' response."

Adding value

It is vital for law firms therefore to be able to demonstrate to General Counsel that they are able to offer more than mere short-term fixes.

"It is clear that the role of the in-house lawyer is changing and we have to adapt to meet these needs. We cannot offer the best and most relevant advice if we do not understand clients' businesses. But external lawyers can only add real value if there is trust," says Manuel Martin, managing partner of Gómez-Acebo & Pombo.

A clear demand exists however among legal departments for ongoing contact, through training, secondments and relevant legal updates.

"We are very happy to open up our organisation to law firms, to demonstrate our business processes and the key legal, risk, and financial issues that govern our operations. It helps to educate the law firms and to avoid the need to re-explain issues, which hopefully then translates into reduced time and costs," says Armando Zuluaga, General Counsel of Abengoa. Like many Spanish infrastructure businesses Abengoa has expanded internationally over recent years and Zuluaga leads a global legal team of over 80 lawyers.

Miguel Teixeira de Abreu, managing partner of Abreu Advogados in Lisbon, emphasises that law firms have to be there for clients through the bad times as well as the good times. "Lawyers must go and visit clients and their facilities, to understand their operations, and the pressures on them. It is vital to be able to offer solutions, not just legal opinions."

Juan Riego Vila, General Counsel at Carrefour España acknowledges that often law firms' attitude towards clients can be a key differentiator: "We want to be contacted by law firms that we do not currently work with, we like law firms to be proactive, and to send proposals on specific issues, and to demonstrate how they can add value to our business."

Likewise, Javier San Roman, General Counsel at Merrill Lynch España places greater emphasis on those firms that are willing to take the time to get to know his specific requirements.

"95% of the external lawyers that we deal with are excellent technicians, but that is no longer enough. What is necessary is for them to be able to show that they know our business and to understand that our culture and strategy is very different to other businesses, or even other investment banks," he says.

Clients are not always good at asking for help, but firms are often equally bad at asking what they can do to help, he believes. "In many instances we would welcome our external lawyers to build trust by coming and offering help to us, before we may even know we need it."

This includes firms who are available to talk through ad-hoc questions as they arise. "What we want to build are mutually beneficial and strong relationships. And this means that law firms cannot expect to get the major transactions in the good times if they are unwilling to help out on the day-to-day issues."

In a commercial environment in which there is greater emphasis on efficiency, legal departments are clearly not immune to the demands to save costs and to demonstrate value, say lawyers. But at the same time the operational demands being placed on legal departments are changing beyond recognition – they are therefore looking to place greater emphasis on the types of legal issue through which they are able to demonstrate their own value. By extension they are clearly looking for the same approach from their external lawyers.

"Ultimately what is increasingly valuable to an in-house lawyer is an external lawyer who understands their business, the prevailing commercial issues and is prepared to say: ‘this is what I would do in your situation'," concludes Najar.

The message from clients is clear, their doors are open to law firms willing to invest in geing to know them and their business sectors, although managing partners suggest, privately, that this may be "easier said than done".

It requires their firms to take a more cohesive and informed approach to clients, to commit non-chargeable time to get to know their individual business goals and processes, and to perhaps select key clients in different business sectors. A challenge, some say, for the more traditional firms where individual partners have a "my client" not "our client" approach.