The idea that an in-house legal team can and should function like an internal law firm has given way to a new vision of the legal department; one that can not only act as a guardian for the company, but one that can also generate added commercial value. The shift in the perception of the legal function from that of a cost centre to that of a strategic business unit has also meant the best in-house teams are proactive in coming up with ideas that generate greater efficiency and strategic value for their companies.

Given that external counsel spend is often the biggest burden for GCs under pressure to cut costs, many are having to rethink their tactics when it comes to engaging with law firms, and while there is plenty of evidence suggesting the migration of work from law firms to corporate legal departments, in-house teams continue to rely heavily on the advice of expert legal assistance when it comes to doing business. What is less often considered is exactly how in-house teams are increasingly taking the reins of the profession to drive change in the delivery of legal services from their external counsel.

Many of the legal departments at Latin America’s biggest companies reflect their organisations, so they can often vary greatly in structure and different company cultures will drive different working practices, but there are number of observable trends when it comes to the ways in which legal teams are choosing to work with their law firms. Indeed, LACCA’s research into “Who Represents Latin America’s biggest companies” reveals that GCs across the region have continued to boost in-house expertise and be more strategic with the work they outsource, while forcing local firms to become ever more specialised in providing a better, cheaper and more efficient service.  

Growing sophistication of in-house teams

One method to cut external counsel spend being employed by GCs across the region is to focus on increasing expertise within corporate teams. However, since recruiting a highly specialised lawyer, who would demand a competitive salary, is often the most expensive option, LACCA’s research suggests more and more companies are concentrating on developing their internal talent instead of recruiting new staff. “We have been raising the level of our specialists’ knowledge in-house,” says Javier Oroz Coppel, general secretary and GC for insurance provider AXA in Mexico. “We are training them in the area of law where they feel strongest and overall, we have been raising the level of expertise.” In their efforts to continuously increase the level of specialism in-house, Oroz Coppel says he has been able to become much more efficient and cost-effective with the work his department outsources to law firms, reducing the overall number of firms they use. “We used less external counsel in 2018 than we did in 2017 and will continue to make improvements.” 

Adviel Centeno, GC for energy company AES in Panama, has also focused on expanding in-house capabilities at the company. As a result, more and more projects relating to the energy sector specifically, corporate governance, environmental and antitrust issues are being looked after in-house. “We have developed our local in-house team for the purpose of keeping more work internally – we have developed their knowledge and their experience,” he says. On the other hand, Centeno says the more complex matters, such as those involving large financial institutions, are being outsourced to firms with the relevant expertise. “For big financial projects like project finance or bond issuances, they are very complicated and the banks often demand we use international firms as they themselves are governed under US law,” he says.

Many GCs agree that in-house teams are much better positioned to handle more strategic matters such as contracts, which require a more in-depth knowledge of the business. Litigation, however, requires a comprehensive understanding of local and international legal systems and regulatory environments, and often means lawyers have to go to court. “Litigation makes up around 90% of my budget,” says Luis Radulov, legal and integrity officer for technology company ABB in South America. “We don’t have a big legal department in Brazil, 10 lawyers and then four other people that support that team, so it’s more strategic to do things like contracts, because if they relate to products, for example, our in-house team have an inside knowledge of the business and an understanding of the risks associated with our company operations.” Many in-house departments will often do as much of the litigation work as they can in-house, while giving the more time-consuming and specialist aspects to external firms. “I would say we outsource around 95% or our litigation,” says Mary Carmen Ordóñez, vice president and associate general counsel for Latin America and Canada. “We manage the case and define the strategy in-house, but we outsource the actual court side of litigating.”

For the legal team at pharmaceuticals and agribusiness company Bayer, bringing-in external counsel for issues such as litigation is a more cost-effective and efficient way of handling workload, even with litigation specialists in-house such as himself. “It just isn’t feasible for in-house counsel to handle all litigation cases due to our size as a department, especially if we are trying to be a valuable partner to the business at the same time. You just can’t do both,” says corporate and litigation director Rafael Dantas. “In-house counsel are in more and more demand to be at the centre of decision-making processes in companies, so you need to be available to manage high-level information and steer the litigation cases in a more strategic way.” Dantas recently implemented a radical legal spend management programme that led to a massive reduction of the number of litigation firms regularly retained by Bayer.

Instead of outsourcing work related to litigation, Pedro Darhem Mafud, legal manager at Banco Votorantim, says his team is moving away from using firms for things such as restructuring and litigation, and are now working on a more business-oriented agenda with law firms. “We are only giving them more work that requires independent counselling or some sort of external validation, such as capital markets issuances,” he says.  

In smaller jurisdictions such as in Central America, where legal departments often manage with less resources than those in larger jurisdictions, GCs have to prioritise the tasks that are more efficiently handled in-house to make the best use of resources. For Regina Ramos, in-house counsel at agricultural services company Cargill, the issues which her department outsource are different to those outsourced in Cargill’s larger jurisdictions. Her team usually hire external counsel when it comes to local labour, commercial and judicial issues, whereas roles that require a specialised knowledge of the business and its specific needs are conducted in-house. “We have internal policies that ensure we have the expertise to execute paperwork and to facilitate projects. We don’t have the capacity for massive cases, so we work with law firms to ensure we get the best outcome each time.”  

The best bidder

While our research suggests in-house teams’ are becoming more strategic in the way they outsource work, they are also demanding greater efficiency and flexibility when it comes to external counsel fees and implementing strategies to help them achieve this.

For Fabiola Azofeifa Alvarez, assistant legal manager at Walmart in Costa Rica, allowing firms to bid for work has been a big part of her department’s ability to cut costs. “Last year, Walmart launched a bidding process for five firms that we considered to have a good level of experience and services in IP,” she says. “When we select law firms, we often choose them because of their experience with international companies, competitive prices and presence in Central America,” she says. The same holds true for GCs in larger jurisdictions such as Dantas in Brazil, who sees bidding processes as a way of getting the best counsel at the right price. “By having the right people to perform a given service you automatically cut costs,” he says. “When the criteria between bidding firms are extremely equal, our company has pushed on prices by means of an e-auction initiative with very interesting results.”

Others employ slightly different tactics. AES’ Centeno says his team often rely on requests for proposals (RFPs): “RFPs are part of our strategy – we issue them before choosing law firms on big projects to try and work with fixed fees or caps to avoid hourly rates wherever possible.”  Oroz Coppel’s legal department in Mexico conducts an intensive selection process for law firms. They put together a panel of pre-selected law firms chosen by an internal team made up of the legal, compliance, internal controls and Oroz Coppel himself. When a legal issue requires external counsel, Oroz Coppel negotiates with the law firms on the list to achieve the best possible deal for AXA. “I will ask a number of firms that are a part of the panel to give me a budget proposal, and I will go with the best option taking into consideration the price and quality of the firm, and the services they have provided to us in the past - it’s like a bid,” he says. The firms, in turn, can then offer their own alternative fee arrangements, all of which will then be reviewed by the internal team at AXA. “When I go to the team, they review the panel to see our joint history, to see if they have won a lot of cases for us in the past, or how prestigious they are,” says Oroz Coppel.

Instead of relying on bidding processes, Ramos’ process at Cargill is similar, but relies slightly more on the company’s relationship with firms. “We usually ask for quotes beforehand to see if it will be expensive or less expensive with someone else, but more or less we have worked with four of five firms on a long-term basis and we know their prices now,” she says. A solid relationship between companies and their firms, she says, allows for easier negotiation in terms of prices. 

Tomas Jimenez, head of regulatory and legal sustainability at pulp and paper company Arauco, takes a similar approach and says his legal department does all it can to retain good working relationships with their external counsel to maintain similar costs and not have to form new links with other unfamiliar firms. “We try to prioritise long-term relationships. As a result, the number of law firms we use has not changed drastically from year to year,” he says. “Instead, we try to strengthen the relationship with our main consultants. If they give us a good and timely service, we keep them,” he says.  

Beyond cost cutting

In addition to demanding more competitive billing structures from their firms, many GCs are also more focused on ensuring they retain firms with the best reputation for integrity and are conducting more due diligence before hiring firms as a result. One legal director from a big energy player in Brazil employs a screening strategy when choosing firms to work with and explains that if a firm is ever involved in a political or criminal investigation, they are always disregarded by the company. “We have a compliance department that analyses each law firm and their situation before we contract them,” he says. Law firms used by Cargill’s team in Central America must also pass a screening process, but this is conducted by a specific team from the company’s headquarters in Minneapolis. “We have someone specialised to pick the firms, then the firm has to present their anti-bribery certification, and then we have to send off the paperwork,” says Ramos. In most cases, she explains, the firm doesn’t have any problems with bribery or corruption, but it is always prudent to check. “Central America is highly corrupt, this is why we do a screening before hiring firms. We never want to doubt the legal advice given to us just because an external counsel has been known to be influenced by a corrupt government.” 

Similar screenings take place at tobacco company Philip Morris International, which obliges firms to fill out due diligence questionnaires which, Ordóñez says, is to assess the firm’s reputation and its partners, and whether there are any risks associated with hiring them. “It is Latin America so it’s important to make sure the firm hasn’t been involved in anything unethical or illegal,” she says. “Our due diligence questionnaire goes directly to partners, and then from this we get a quote for their services and reach some sort of agreement. Once this is reached, we send them our retention letter.”

With so many strategies in place to select the right external counsel at the best price, it is unsurprising that legal teams are adding more commercial value to their businesses and many local law firms are having to adapt and do so quickly. Greater sophistication in-house alongside more budget-focused resourcing has created an increasingly competitive environment and law firms that don’t differentiate themselves are beginning to feel the heat. “What we are seeing is that a lot of firms are spending a lot of money on how they advertise themselves to clients – they’re constantly trying to differentiate themselves to companies,” says Radulov. “One thing is clear though, the only way is up for Latin America’s in-house counsel …We at ABB have a view to handle everything internally at some point.”