Adam Brzezinski of MoneyGram, Andrzej Klimek of Idea Getin Leasing, Clementina Canel of Fepra, Eleni Stathaki of Upstream Systems, Dora Szebeni of the Vanguards Fashion Group, Ingo Steinwender of CA Immobilien, Ioana Regenbogen of ING, Iwona Gajek of BNP Paribas, Judit Miskolci of Teva, Mark Erdelyi of Yettel Hungary, Mary Chaidou of AIG, Nadia Matusikova of RWS Moravia, Radu Culic of Roche, Stefan Orosi of Prima Bank Slovensko, Sylvia Nanovska of Telelink, Tiina Pukk of Kou Mobility, Viktor Fonth of HB Reavis, Zeynep Derman Kucukonder of Coca-Cola, Zita Toth of Primaenergia, Zsuzsanna Lippai of Mercedes-Benz, Zuzanna Kopaczynska-Grabiec of Wonga.pl, and others talk about how they manage their companies' legal functions' budgets.
It’s Simply the Norm
While 44% of General Counsel report there is pressure on their team to decrease legal costs, the percentage of those who say they feel no pressure to look at their budgets is significantly lower, at only 9%.
Judit Miskolci of Teva agrees that “yes, there is strong pressure to decrease legal costs,” echoed by Mary Chaidou of AIG, who says that this is “regularly” the case. Deniz Sanli of American Gaming Systems reports this is “always the case” because, “as legal does not generate income, companies see legal costs as ‘extra’.” And this seems to especially be the case with teams covering multiple jurisdictions, with Eleni Stathaki of Upstream Systems explaining that, “because the company is active mostly in markets outside Greece, we tend to rely very much on local [external] counsel. So, the legal costs can run up pretty high, relative to other departments of the same size.”
But for some, like Zuzanna Kopaczynska-Grabiec of Wonga.pl, it is not necessarily a matter of having to cut costs, but simply doing more with the same resources. “The budget for legal services has not changed, while the challenges faced by the company (both regulatory and economic) require the team to rationally manage that budget.”
For 47% of General Counsel, budget consciousness has been the norm for long enough that it is part of their team’s and organization’s culture. “I do not sense pressure, but we are quite careful with our costs and there is no culture to overspend,” says Tiina Pukk of Kou Mobility. Similarly, Mark Erdelyi of Yettel Hungary reports that he has “been living with cost consciousness and with this pressure continuously, since becoming a GC in 2009 – I do not see a really significant change in that.” He is echoed by Zita Toth of Primaenergia, adding: “not for the moment, however, optimizing legal costs is a basic requirement.” For Stefan Orosi of Prima Bank Slovensko, this is simply a matter of a standing order: “There has always been, and it also continues to be, the standing order to spend only for those legal costs that are necessary using common sense. Following that order causes legal costs to be at their minimum level, therefore no additional pressure is necessary.” Ultimately, “no, there is no pressure,” argues Adam Brzezinski of MoneyGram, because “this is simply the right thing to do, and I consider this as a part of my job as an in-house lawyer.”
And, where budget consciousness has been the norm, the most common denominator of who got the axe was external counsel. Zeynep Derman Kucukonder of Coca-Cola says that, “although there is no pressure to decrease, we are expected to be very sensitive and responsible when spending on outside counsel and travel budgets, to invest our resources in the right priorities.” Sylvia Nanovska of Telelink says she feels no pressure, “but [they] have always strived to minimize the use of outside counsel,” similarly to Nadia Matusikova of RWS Moravia: “Not much pressure. Our costs are very low, and we have always been very economic with the external expenses.” And this is not difficult to achieve, according to Brzezinski: “I do not want this to sound the wrong way, but I have around eight years of professional experience as a lawyer working for big international law firms such as Allen & Overy and Dentons. I do know how they operate. This gives me a unique perspective of being a lawyer and being a lawyer’s client. We have made a significant effort to decrease the cost of the outside counsel involved, and even issued a guide for the organization on managing the cost related to the cooperation with external counsel.”
The business case or potential risks involved is often a qualifier – both for those saying they feel the pressure to cut costs as well as for those reporting less of it. Ingo Steinwender of CA Immobilien says he feels no pressure because, in his view, CA Immobilien “first has low external legal costs in relation to the business volume and cases and, second, successes in litigation, with no material cases lost unexpectedly in the last couple of years.”
In fact, disputes were the most often cited variable impacting this pressure, with Radu Culic of Roche saying “yes, there is some pressure to decrease the costs, however, there is an understanding that litigation should be conducted by external lawyers. As a consequence, the great majority of the consultancy work is done in-house.” At the same time, Iwona Gajek of BNP Paribas explains that while “proper cost management has always been and is our priority, the problem of lawsuits relating to CHF-denominated loans (currently over 2,000 lawsuits) has, however, resulted in a significant increase in these costs recently. From my perspective, costs cannot be the only factor in the choice – it should always be the result of an assessment of cost but, above all, quality.”
And, with many of the teams increasing in line with their businesses growing, Ioana Regenbogen of ING says that “at a global/function level, all GCs looked for opportunities for further cost efficiency. Of course, local circumstances are always taken into consideration. There is no specific pressure at the local level, especially as we, in ING Romania, have further growth ambitions.”
If We Must
When cost-cutting was needed, “the first solution was to internalize a large part of activities,” according to Clementina Canel of Fepra. Indeed, 46% of General Counsel point to this as their primary solution. Dora Szebeni of the Vanguards Fashion Group, too, says they “solve as many legal tasks in-house as possible,” and Radu Culic of Roche notes that “the great majority of the consultancy part is done in-house, while only litigation is externalized.”
That, of course, is not without its own costs. Mary Chaidou of AIG says “a solution is the recruitment of more in-house lawyers (instead of outsourcing work to external law firms),” but Andrzej Klimek of Idea Getin Leasing says they “are not allowed to increase the number of lawyers,” while, at the same time, “there are limits for external services.”
Eleni Stathaki of Upstream Systems touches on this tension by saying that, for them, “one way of keeping costs down is bringing on more work in-house, but where we can afford to do so.” Since that is not always the case, what she finds “most efficient in managing costs is building long-standing, trusting relationships with outside counsel who appreciate my budget concerns and are flexible. When there is a long-term partnership with outside counsel, my previous experience with them makes it easier for me to predict costs. Similarly, outside counsel know the company much better and can thus give more accurate quotes.” And this leads to the second approach – tweaking how GCs work with external counsel.
Asked how he reduces costs, Deniz Sanli of American Gaming Systems says he “reduces the fee of external counsel” – an approach mentioned by 36% of respondents.
“From outside counsel, I generally expect that they leverage the legal costs effectively,” explains Zsuzsanna Lippai of Mercedes-Benz. “For me, it is always important to be cost and time efficient but, simultaneously, provide consistently high-quality work. It requires continuous balancing between increasing efficiency in the rapidly developing business environment, controlling legal spending, and the tight deadlines.”
Using capped fees is almost universally pointed to as the main approach. Viktor Fonth of HB Reavis says that, for transactions, they “always use caps.” Toth explains this has other screening benefits too: “My general approach with external lawyers is that I agree with them on a fee cap in advance. In case this cap is reached, then we should renegotiate the tasks and a new cap if needed. Another solution is to ask for a fee proposal regarding the complete legal work well in advance with the external lawyers. This is also a good way to check and test their expertise, as to how they would be able to solve the issue within a certain type of timeframe.” And Erdelyi prefers asking “external lawyers to estimate their work for an activity and for a cap,” during the selection of external counsel, to “limit the maximum exposure” for each.
“For our major transactions that are subject to outsourcing, the acting legal firm is always selected by tender, from our law firm panel of three to four, updated regularly,” explains Fonth. Miskolci, too, has “optimized the number of external advisors, by working with law firms that can provide business-as-usual support in many areas and, at the same time, can provide subject matter expertise at affordable fees. On top of that, there are selected law firms with whom we work at group and local levels, on specific areas of expertise.”
For Adam Brzezinski of MoneyGram, it is critical to “work with business-oriented lawyers based on fixed fees” – but it is also a question of accepting that “not all matters need consulting because, as an in-house lawyer, you should learn to accept the risk associated with the business profile of your organization. Do not accept memos, but rather quick yes or no answers from your trusted advisors that know the business you are in. This saves time, and time is money in this business.”
“We track external costs and think very carefully when and for what we spend,” says Tiina Pukk of Kou Mobility, who emphasizes a need to constantly be looking at the operations of her team. “For example, if a license to dedicated software has not proven worthy, we cancel. We are not afraid to change processes. If there is room to optimize, we do that.”
For some, like Zeynep Derman Kucukonder of Coca-Cola, that means building a knowledge bank: “We collaborate more and share knowledge as well as best practices. We implemented new routines, aligned on team values and principles, and identified common goals that we all aim to achieve together – we all win or lose. We started to work on shared folders, created a repository in order to back each other up, and benefit from being one team.”
For others, like Ioana Regenbogen of ING, it was a matter of streamlining their team’s work: “We didn’t simply let people go – we started by focusing first on decluttering, with a view of increasing the efficiency of existing staff, to be able to absorb the increasing volume of business demands and the increasing legal complexities, which traditionally would also have had an impact on the supply of legal services. Some of the efficiency ideas and the implementation measures also brought the benefit of releasing pressure in other functions. But the most valuable gain was that we further improved the quality of our services, improved our internal and external customers’ experience, and, in the end, came to the result that we now focus on truly risky / high-business-impact topics.
This Article was originally published in Issue 9.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.