SUSAN RARIDON LAMBRETH: How has your panel program evolved over time?
STEPHANIE HAMON: The Barclays panel program for outside counsel has been in place for decades; it had initially been driven by procurement and the business to institute a level of control and panel rights. However, recent pressures on legal departments, including corporations’ move toward greater value for legal spend, have caused many legal departments to rethink their use of panel programs and outside counsel generally. Barclays began this process in 2012 when we had over 1,000 law firms on our panel; over the past five years, we have reduced that number to approximately 140 by implementing new standards for selection and evaluation of counsel and their performance in line with Barclays’ strategic approach to value for legal services. This group of 140 breaks down into 15 “panel firms,” 15 core specialist firms and the rest as specialist firms. We also have an 800-person legal department. Our legal spend splits as follows: 75% on outside counsel, 25% on internal costs.
The panel program changes we implemented were not driven primarily by a goal to reduce legal spend – as many outside counsel typically think when companies initiate these convergence programs. Instead, our goals were to (1) create better relationships with our panel and better understand them, while ensuring they could meet the data security standards for the bank; and (2) make the relationship valuable to our panel firms by providing a sufficient volume of profitable work to justify participating in the panel processes that can be quite rigorous and time-consuming. As the panel has evolved since 2012, approximately 95% of the bank’s work performed by outside counsel is by the panel firms. The 5% that is not is only for unusual niche expertise or a new jurisdiction where Barclays is not typically operating.
LAMBRETH: How do you evaluate your outside counsel?
HAMON: Barclays created a capability framework we call “Expectations of Law Firms” with objectives under each capability. These are included in a scorecard that is used in ongoing assessments of panel firms with evaluations at the end of each matter and each quarter. The four categories are as follows:
- Legal Advice – offer excellent technical legal advice, quality control, incorporating collective experience across the firm (not just individuals servicing the matter), and bring a strategic approach to legal matters
- Collaboration – operate as an extension of the in-house team, working collaboratively with other Barclays outside firms, capturing knowledge across the firm to provide value to Barclays
- Value for Money – provide accurate cost estimates and understand the cost drivers and most efficient approaches for matters; offer alternative fee arrangements (AFAs)
- Thought Leadership – provide advice based on innovation and changes in the industry to enhance quality of work and service to Barclays and help us deliver to our strategy.
This year, two new categories of Innovation and Technology will be added. In addition, a new part of the Value for Money category will be Effective Fee Arrangements (EFAs) because not every AFA is a good solution for Barclays. We have lots of data about the cost of services so we usually have a ballpark number for each legal area. We are developing a “cost catalog” for common areas like a witness interview in an investigation or due diligence for a simple M&A transaction.
In addition to the current four categories, we also use quantitative metrics including a three-tier rate card where the legal work we need is segmented into strategic, medium complexity and flow. For example, in an M&A transaction, structuring the deal would be strategic; drafting the documents would typically be medium complexity and overseeing the due diligence would be flow. We group all law firms by these levels and by peer group. In addition to the rate card metrics, we are overlaying our information on AFAs and EFAs for the firms and tracking these metrics as well.
Finally, collaboration is one of our key values and law firms who are collaborating with other panel firms to share technologies or bring us Thought Leadership are given “brownie points.”
Currently, our in-house lawyers are evaluated informally on the performance of the outside counsel they select and manage, but this year, we are rolling out a more formal framework for our relationship managers.
Barclays shares a lot of financial data and other metrics, and we also provide a lot of qualitative feedback in a bid to encourage transparency. We want the firms to know where they stand in rankings and ratings. We share a scattergram with each firm that shows their position relative to the other panel firms (though not identifying the other firms). We can tell them where they are, where they fell short and what they need to do to improve. One firm was not performing up to the required standards but met with us and made significant efforts to turn things around by engaging proactively.
Overall, our theme is to get the right work to the right firm at the right price – that is what our panel program is striving for.
LAMBRETH: How do you select a law firm for a particular matter?
HAMON: Barclays developed a Law Firm Selection tool that shows for a particular matter and jurisdiction which panel firms are eligible to be hired. It provides a price point and a rating for the firm. All firms are rated A, B, C or D based on the “expectations” framework described above. The management of the legal department accesses a dashboard of metrics at least monthly and looks at where the work is being allocated. If work is given to a firm rated “D,” they have to justify the lower value for the dollars Barclays is spending. We also have a “check and challenge” where the lawyers run the selection by their relevant Legal Executive Committee member or GC for approval. This is to ensure that they are not simply using the Law Firm Selection tool and being too mechanical in their approach following the algorithm.
As mentioned above, our goal is not to work toward a cost reduction or lower legal spend. Some legal departments have publicly announced they are cutting legal budgets by a certain percentage. Our legal department does not control demand for legal services at Barclays – whether it is the number of acquisitions to be done in a year, the investigations filed or the litigations we are involved in. However, Barclays can try to ensure that our internal legal department and outside counsel are delivering the best value for the legal fees paid. While price matters for the counsel we hire, it is just one of many dimensions used for selection. We can point to many situations where we did not hire the less expensive law firm because they were not the right choice to handle the matter effectively.
LAMBRETH: I have heard about your LPM Consortium. What can you tell us about this?
HAMON: Barclays wanted to create real collaboration with their outside counsel and we see legal project management (LPM) at the core of all service delivery. It means clear understanding of the matter at the outset, clear scoping of the work… it is the foundation of everything. It means having the right stakeholders involved, ensuring the right deliverables and the right fees for the value of the matter. Frankly, we didn’t see a lot of it coming from many firms. So, we organized what we call the LPM Consortium among our top 15 panel firms. We had an initial meeting where we discussed our view of LPM, what it means to us and its importance; the member law firms shared about some of their LPM programs. As a whole group, we then discussed where we could have the greatest impact and decided to focus on LPM around litigation and investigations initially. We saw an opportunity to help law firms improve their business while also showing them how to manage the equation of legal cost and risk for a value-based price. We also wanted to develop common approaches so every firm did it the same way.
Then, the panel firms were put into smaller groups or task forces to work on different projects to enhance the use of LPM on Barclays matters.They worked on their own between meetings of the entire Consortium. For example, there were groups working on templates for certain kinds of work, taxonomy or task codes, e-discovery, etc. This program has put competitor firms in the panel working together to share best practices and thought leadership while developing new approaches for Barclays. A tool we called Activity-Based Budgeting (ABB) came out of the Consortium. It is changing the way our outside firms and our internal team budget and manage matters. The Consortium is raising the level of LPM across the panel firms involved, even those that were not that advanced when we began it. The more that firms adopt LPM, the better it will be for us and for the legal industry.
The Consortium is working on other areas, including a collaboration platform (to be rolled out soon); they are also looking at secondments. These are a very significant investment for the law firms, and Barclays is a heavy user. Our Consortium members are looking at the process and best practices so it can be beneficial to both sides.
At one of our panel firm meetings, general counsel Bob Hoyt gave an example of firms where the quality was comparable but one did well in LPM and use of EFAs. They also proactively completed our ABB without being asked and showed their more effective service delivery. As a result, they won the mandate. Right now, LPM is very much a differentiating factor where proactive firms have an advantage with it… and probably will be for the next two years. Then, I expect others will catch up.
LAMBRETH: How do you encourage thought leadership and collaboration among your panel firms?
HAMON: We hold “panel days” twice a year where we invite the top 30 panel firms. We discuss different topics ranging from LPM, research on “voice of the client,” alternative legal service providers and more. We have small group discussions, in addition to panels or speakers, where they discuss how to make improvements to these areas in their individual firms. We actually did a “speed networking” session where the partners from the panel firms had five minutes with each of our senior executives or lawyers to discuss their expertise, their firm or some other aspect of their delivery. Initially, some of the panel lawyers were uncomfortable with it, but they ended up finding it very valuable. It helped our internal team get to know them better and for some panel firms, it led to follow-up meetings with our lawyers or other executives.
LAMBRETH: What are the keys to success for your panel program?
HAMON: We believe in trust and creating real relationships through dialogue. Before we made changes over the past six years, there was distrust. Law firms thought being on a panel just meant giving us discounts. In-house, people didn’t understand the roles of different firms or why certain firms were on the panel and how to maximize their effectiveness. It was a “vicious,” not virtuous, cycle. By leading all these changes, Barclays is focused on trust, transparency, dialogue and integrity. As a company, one of our values is stewardship and leaving the world a better place. This translates to our legal department as well. We want the best lawyers for a type of work on our matters and want them to want to work for us. It has taken awhile but we feel we have made progress in building trust and better relationships.