In the first of our series of Thought Leader Interviews, we spoke to Jason Smalley of The Legal Director about the challenges faced by GCs, how they select their external legal advisers and the value of a legal directory ranking in that process.   

MD Communications (MDC): Jason, you took part in last year’s IBA webinar on legal directories and shared extremely useful insights and views on what GCs look for when selecting legal advisers, and the role that the legal directories play. We are hearing more and more about changes in the legal sector, from growing client empowerment driving firms to find increasingly efficient delivery models to the rise in alternative ‘outsourced’ models and the need for lawyers and their firms to be more agile and open to collaboration. In your experience, what are the key challenges for GCs and trends that you see in how they select and manage their external legal advisers?   

Jason:  Let’s go back to basics. A lot of GCs have the same challenges whether their in-house legal function numbers two or 200 people.  The wider business views the in-house team as a cost, there to service the legal needs of the business. The additional cost of instructing external counsel will in most businesses, necessarily be looked at closely. The two main justifications for going external are (1) competence – where the issue in question requires a highly specialist area of law or it’s a new type of transaction for the business (IP law is a common example); or (2) capacity – if the size of a transaction is going to swamp the in-house team leaving them unable to deal with day-to-day legal and compliance issues (and likely straining morale in the process). In these instances, it can make economic and operational sense to package up the work and either instruct your usual firm or put it out to tender.

Another big challenge for GCs, and one that has become more of a burden over recent years, is the increased responsibility as businesses and the regulatory environment become more complex. In addition to their legal role, GCs are required to deal with compliance, governance and regulatory issues –they are also anti-money laundering officers, anti-bribery and corruption officers, FCA officers and more.

The pressure of the role continues to grow. It follows that, bluntly, to help me as a GC, I need my external legal advisers to be seen not as an additional cost to the business, but for the value and benefits they drive and deliver for the business. Some law firms understand this well, others have some work to do to in presenting themselves as a value, rather than a cost.

MDC: So, you get over the internal hurdles and justify going out for external support.  How do you select the best-value option for the business?  

Jason: When I started out, the only choice available was to go with a traditional law firm, and the only variable in the selection process was the size of the firm. Now we can factor in a range of different models and options, for example, Keystone Law, Obelisk, Eversheds Agile, Vario and indeed, The Legal Director. However, traditional law firms have been slower at recognising that GCs have this array of flexible and agile options and that they need to be able to compete.

Another challenge for traditional law firms is the ability of GCs and other clients to instruct barristers without involving their lawyer in the first instance. In my view, not many businesses know that they can now bypass their solicitor when a barrister is required.  While of course, some will need the initial direction from their lawyer, GCs have the legal knowledge to go straight to a Direct Access Barrister, potentially reducing the overall cost to the business.

MDC: We attended last year’s IBA Conference in Rome and spoke to numerous GCs. The in-house community is very aware of the different mix of options available and there is a mix of encouragement and impatience for traditional law firms to catch up.  GCs are willing their law firm cohort not only to look within their own firm to come up with tailored and impactful solutions, but to look at external collaborations with the likes of legal software providers and having the flexibility and imagination to combine better value options for routine work with the specialist touch for more complex needs.

Jason: Yes, I think we will see more collaboration in the future with clients generally, not just GCs, becoming more sophisticated and aware of their options – and as legal problems and issues become more complex. The Legal Director brings this level of sophistication to SMEs by taking on 70/80% of work to be done and bringing in the right specialist where this will result in a more cost-effective solution for the client.

MDC: As part of the IBA webinar panel, you talked about the importance of evidencing diversity, something that was also reflected in the legal directories panel event at the IBA in Rome.

Jason: The problem for a GC is that you may have two dozen firms, equally competent and experienced. To justify the expenditure, they will look for another differentiator. Technical excellence in your field or sector is a given, so how do you differentiate? Cost is one area, but while there are encouraging discussions taking place across the sector, firms still overlook the importance of diversity in the selection process.

MDC: Turning to the impact of the use of tech, there is a lot of discussion about the use and availability of AI for routine tasks such as handling large volumes of data and that this is leading in-house teams to bring certain tasks back in-house, where previously they would have outsourced to law firms.  Are you seeing this change in the market or are law firms looking for that collaboration and changing their client solutions and pricing models as a result? 

Jason: I don’t see significant evidence of this, but the impact will be dependent upon the size of the client. I predominantly work in the SME market, and I think we are still about 10 years away from seeing any real impact. The clients I work with don’t require the ‘churn’ which is where the savings will be made.  However, for large corporates, and particularly those with large in-house teams I can see the benefit in the ‘churn’ being brought back in-house or modelled and priced far more efficiently by their external provider.

However, in my previous roles, for example as interim Head of Legal and Company Secretary for General Nuclear International (CGN UK), I managed panels of between 20 to 30 law firms. The huge challenge there was in keeping track of the cost of all the outsourced legal work going on at any one time. Boards require their head of legal to have a grip on every matter, and on spend at all times – as they do of other departments dealing with suppliers. For a large organisation, operating in a complex and international market, there are likely to be multiple matters ongoing, often across different firms and jurisdictions.  Being able to reach for a snapshot on costs at any point in time can be a significant challenge.  Software, such as Apperio, is almost now a vital tool for the GC in being able to track and report on this information. Some firms are alive to this as an area where they can help their GC client by either bringing a solution or working with the client to identify and implement a solution.

MDC: How do you think the client/lawyer purchasing relationship and approach to growing existing relationships will change in the future? 

Jason: A big change that I see for traditional law firms is the model where partners have had clients for generations, loyal to one law firm or even loyal to just one or a small number of partners within a firm. Those days are gone and for a GC reporting to the board or procurement team, it just doesn’t wash.

There was a time when legal wasn’t subject to the same scrutiny on costs as other departments, but this has changed. Procurement used to be there to manage the purchase of big-ticket items from photocopiers to office cleaning services. But it is more and more common for procurement teams to be involved, or indeed lead legal tendering processes. A lot of firms haven’t woken up to this yet, and while law is still a people business, they need to remember that the GC may no longer have the final say in hiring or retaining legal advisers. On the GC side, there is work to do here too. Buying specialist legal services can’t be compared to bulk purchasing of pens and paper. It has to be done in conjunction with the head of legal. Again, this is an area where savvy firms can work with their in-house clients to inform the process.

MDC: Turning to legal directories, where do you see their value in the context of the challenges and opportunities GCs face?

Jason: The value of directory rankings depends on the experience of the GC. For a less experienced GC, the directories are a very useful resource to get a picture of the legal marketplace. They won’t yet have built up the working knowledge of who and what is available or tapped into GC networks and hubs where information on law firms is often shared.

That said, longer serving GCs will still use the directories to cross-validate the experience of firms and individuals, particularly if there is a need to instruct their regular firm in a new area of work. For example, if you regularly use a firm for corporate work but a matter becomes litigious, a GC may well check the rankings and feedback for their firm’s disputes team to qualify if they stay with the same firm or source a completely different firm.

Equally, for international clients looking to instruct within the UK, or a UK entity operating in international jurisdictions the directories are a useful starting point.

In my experience hobbies and interests are also important in building a complete picture and the editorial can be especially helpful for GCs, giving well-informed views of firms and individuals. You might have the world’s best lawyer in their field, but a GC has to know that they can put them in front of their board.  If they can’t articulate themselves, or there is no rapport, the board won’t care what band they are.

This is where it comes back to law being a people business. How do you differentiate between a group of firms, equally technically competent and all with good rankings? It will come down to the people and who you want to work with.

Jason is a General Counsel providing expert, strategic legal support and advice to business across all sectors. He has vast experience working on projects from the very large to small-scale within the Energy, Nuclear, Construction, Engineering and Building Materials industries. He has a proven track record in consultancy and legal operations and has been appointed at Board level as a director in the UK and Ireland for over 200 companies. He has previously been a Pension Trustee and FCA accredited.

The Legal Director is a legal consultancy that provides businesses with high-calibre experienced lawyers on a part-time or flexible basis.