“We are on lots of panels and we deal with in-house counsel all the time. That’s just the way the market is.” This bald statement of reality for the big legal firms is from Buddle Findlay national chairman Peter Chemis.

It could have come from any of the other big firms with their big commercially focused clients. Although the trend to in-house legal teams has been apparent for the past decade, the level of acceptance and enthusiasm for the new reality of client power varies.

“Ignore them at your peril,” says DLA Phillip Fox commercial partner Martin Wiseman. And Bell Gully chairman Roger Partridge says all their major clients now have in-house legal teams.

“We see the trend to in-house counsel as a positive development. As large sophisticated organisations, they do need professional management, “ says Russell McVeagh chief executive Gary McDiarmid.

The president of the Corporate Lawyers Association of New Zealand (CLANZ) is Rebecca Holbrook, who is general counsel at Fisher & Paykel Appliances. She came there by the familiar route of major firm – Simpson Grierson – then overseas experience with Gilbert + Tobin in Sydney, a general counsel job in Australia and then to F&P.

“In-house teams are growing and that will continue. I see an oversupply of legal firms in the marketplace. The balance of power has definitely shifted in the clients’ favour.

“Twenty per cent of the legal profession is now in-house from virtually nothing 10 to 15 years ago. That’s a pretty phenomenal change and that percentage will get bigger.”

The rise of in-house teams led by a general counsel and the increasing use of panels where a client engages two or more firms and allocates the work among them are important shifts in the power relationship between the big legal firms and the clients that pay the big legal bills.

“We’ve had a variety of experiences with in-house counsel, none of them unsatisfactory, but it is a more exacting regime, with pre-estimates, scopes of fees, incentives to come in on or under budget and to succeed with our advice and advocacy,” Peter Chemis says.

These practices are less of an issue for the firms not working with the biggest corporates.

Martelli McKegg, for example, reports that most of their clients don’t have in-house counsel, although with “offshore clients we tend to receive instructions through and work alongside such counsel.”

In the South Island Anderson Lloyd says working with in-house legal teams is “a positive experience” provided that there are good team dynamics. Understanding of the legal issues is “more sophisticated …which ensures matters can be moved along more quickly,” says chairman of partners Stephen Christensen.

The practices of in-house counsel vary. Some are running lean teams where almost all the work is briefed out to external providers.

General counsel get involved in the selection of the legal services provider and make the introductions, and leave the internal party and the legal firm to it.

Some general counsel are more like project managers, juggling several streams of activity or projects at the same time and advising upwards and sideways in their organisation.

Chapman Tripp’s Alistair Carruthers notes that in-house counsel can be gatekeepers. “One of the biggest downsides is that in-house counsel can stand between company management and the law firm.”
Rob Fisher, the chairman at Simpson Grierson, says in-house counsel have a positive side. “ We find that when we are dealing with good in house counsel, they’ll see issues that their own management doesn’t see, and then they’ll pick up the phone.”

There is general agreement that in-house counsel can improve the quality of legal work and help clients get better value from external firms. Minter Ellison’s managing partner Mark Weenick: says “they tend to filter out a lot of “noise’ time that pure business instructors generate, and they have a consistent approach to requirements.

Mike Cronin, general counsel at Fonterra, has a team of seven lawyers for whole global operation. He came to Fonterra from Russell McVeagh after a stint in London, having started his career with Chapman Tripp.

“We don’t look for a firm. We look for lawyers and ask is that person well supported by a competent legal team. Being part of a big firm does help. ”

Holbrook agrees. “I want to work with expertise, not with any particular firm.”

Both Cronin and Holbrook are selective about whom they work with and how work is allocated. “There are a small number of good firms and we generally look only at them,” Cronin says.

“Either we know them already or we see them on the other side of a transaction and think, they seem to be good.

A commercial focus and a sound reputation are givens. “You have to have someone you can take to your board and to your senior colleagues believing that they will be ok, says Mike Cronin.
“Personality is important; if you’re doing a big transaction and working long hours in the same room, not getting alone very well is just going to make the transaction harder.

“I like to shop around a little – but also to get synergies. There aren’t the neat divisions into areas like commercial, property, or employment any more. I try to select firms and lawyers to match the culture of our place.

Fonterra spreads its risk. “We use Chapman Tripp and Russell McVeagh for commercial work, Mayne Wetherell for banking and finance, Harkness Henry for property and Simpson Grierson for employment.

“For big transactions we have to use external providers because we don’t have the in house resource. “We do the low level work in house and even then it is systematised.”

At Fisher & Paykel Appliances Holbrook heads a team of three lawyers on the appliances side and one in finance.

She says expertise is mandatory, but it needs to lead to a commercial outcome. The solution being recommended has to work commercially. Getting the deal right is more important than ability at litigation.

“I look for individuals who are solutions focused, who know my business, who have a lot of experience, and not just in knowing the law. We want them to say more than this is the law, we want them to say this is how you can get the outcome you are seeking.

“We aren’t involved in a lot of litigation. We go external for expertise, for verification of our own views, and also if the value of the transaction is high.”

Her advice is to select carefully. “Get referrals from other in-house counsel. Be clear about expectations (mutually). Provide context for the work of the external firms – help them make sense of their input. And treat external counsel with respect. Constant tendering indicates that you don’t value the relationship.”

At Fonterra, Cronin says “we have two majors on the panel and when we allocate work to one we tell the other so there is transparency about what is happening.

“The selection of firms and the allocation of work are all driven centrally. We allocate the work to those we think are the best people for the job.”

By international standards the teams are small – four at F&P and the seven at Fonterra. Mike Cronin says the size of an in-house team is always an issue. “To be small and manage external providers or to approximate a legal firm within the business where you take on the tasks of developing, training and mentoring staff. We are constantly asking whether we are right sized.

“There is a cyclical element to this. Right now the cycle has small teams managing external providers, although Telecom may be an exception to that.”

Rebecca Holbrook is against creating a law firm with a company. “My preference is to have a lean team. If you manage external counsel appropriately, you can get best value from expert input, but we don’t use them for day to day grunt work.”

While routine legal work may be handled in-house and specialist expertise sought as required, litigation is typically briefed out.
However, at Contact Energy, environmental law specialist Rosemary Dixon, one of six lawyers in the in-house team, takes an active role in litigation.

She’s one of the few in-house counsel who appears in court regularlyShe’d handled Contact’s resource management work at Buddle Findlay before coming to Contact in June 2006 “when Contact was in the middle of some very interesting work reconsenting its geothermal power station at Wairakei and hydros on the Clutha River.

“We were actually about to go to hearing of the Wairakei appeals and I was in the middle of protracted mediation of related regional plan matters. I wanted to retain that work (and the continuity obviously made sense for the company) but also to continue to appear in hearings including in court.

It’s a very satisfying aspect of legal practice for me. So that became part of my job description.

“Just at the moment I am involved in the lead up to the hearing of Contact’s new Te Mihi Geothermal Plant which has been called in by the Minister for the Environment and will be heard by a board of inquiry. That is a whole new experience as few projects have been called in to date.

It’s satisfying to be in on a project at the early conceptual stage, working alongside the engineers, and then see it through to being consented.

“What I do myself and what is briefed is down to me. With big projects I work closely with Trevor Robinson (a Wellington barrister specialising in resource management) and with Buddle Findlay and other consultants such as planners and scientists in a team approach
Bell Gully does most of Contact’s commercial work and Buddle Findlay handles the litigation, RMA and property work,
“Bell Gully and Buddle Findlay are excellent business partners because they respect the decisions we make on who does what work.

We know the various personnel within the two firms very well and we instruct individuals directly according to who is most suitable to do particular work,” Ms Dixon said.

The big firms all accept that in-house counsel and panels are here to stay whether they want or welcome those developments.

Minter Ellison’s Mark Weenick says the best panels are those that focus on individuals rather than firms and adopt a “horses for courses” approach.”