Vincent Cordo, sourcing officer for Shell, and Christopher Jeffery, our legal market development lead for the energy industry, sat down with us to talk about pressures facing in-house corporate legal departments and how they’re responding to an ever-changing economic, legal and geopolitical environment. Corporate counsel preach the need to do more with less, drive efficiency and streamline operations. Cordo and Jeffery share how this manifests in today’s business environment.
What is the major focus for corporate legal departments of energy companies regarding the provision of legal services?
Vincent Cordo: The biggest focus in the industry is quantifying overall commercial value while continuously fine tuning the process to positively impact our outcomes with appropriate, value-based pricing. We are looking for efficiencies but not at the sacrifice of quality.
When it comes to process and project management, it is very important to ensure that the right resources are handling the appropriate tasks.
Processes and assignments are not taken lightly. We audit these metrics and report on how our panel firms have embraced processes that enhance the efficiency we’re looking for, whether it is through budget performance, outcomes, utilization of technology, or improving workflow processes. The reporting requirements of external counsel continue to advance, so firms are expected to report on results to internal counsel with assurances of a high-quality work product at a lower cost, and on schedule. Scoring and reporting on the overall account management is also a very important component of the relationship.
Christopher Jeffery: Much of this same approach can and should apply to internal operations as well. I completely agree with the mantra that “the right people doing the right thing in the right way” is a priority. We’re seeing this across many energy corporations as they look to reshape their internal legal function. It translates into using the right tools and services to capture the right data and ultimately be able to make data-driven decisions. In some situations it may even mean the legal group expanding its purview to make risk-controlled, self-service solutions available to the broader business. Dynamic Q&A-led document creation is a prime example.
How is performance measurement tracked in Shell’s legal department?
Cordo: At Shell, we measure performance indicators such as whether a law firm delivered on time and on budget over a set timeframe; where the pricing came in; what the end result of the matter was; and other factors, all of which get put into a performance metric that’s used when evaluating the legal provider’s performance.
If a matter (for example, litigation or with corporate matters) goes beyond expectations, assumptions, and estimates, law firms need to communicate immediately with the in-house lead lawyer and work with his/her pricing person in advance to communicate why the matter is veering off the proposed budget and how the new scope has increased the time keeper effort required. It is imperative as part of the process to look at the previous time entry up to the point where the scope changed, to see if there were any inefficiencies that impacted the budget. That is much easier for a company to deal with and less trouble for the law firm, as opposed to working extra time beyond the budget, billing after the fact and then having uncomfortable billing or write-off discussions months later. This all goes to performance-score-card measurement.
Jeffery: I agree with Vince. Obtaining the best value from external legal service providers and counsel is paramount. This necessitates understanding the key milestones and metrics to be used when measuring the value provided. What we’re seeing in the market is a move toward broader benchmarking and analytics across peer and industry groups.
Communication is also key. As long as a firm is up front about the reason(s) for scope creep, then the expectations are properly set.
Additionally, part of the value equation needs to have a consideration if you have the right mix of internal, external and alternative legal service providers (ALSPs), especially in areas such as document review for litigation.
How does the external environment impact the corporate legal department at Shell?
Cordo: When looking at initiatives, we focus on overall commercial value, efficiency in delivery and overall quality. Staying diligent with operational and process improvement is an ongoing process. You are always looking to gauge any potential impact from external influencers. Paying attention to factors such as economics, industry shifts, technology developments and other influences that may impact our business is key.
Filled oil drums are seen at Royal Dutch Shell Plc’s lubricants blending plant. REUTERS/Sergei Karpukhin
For example, in the regulatory environment, nothing happens overnight. You need to be strategic when planning and not rely on just your internal expertise. We work with external vendors to get their perspective on what they see. We regularly engage our legal panel to gauge the impact of trends and what’s on the horizon in our industry. A unique AFA example that shows how Shell partners with our legal panel is where the panel firm agrees to apply a Market Adjustment Discount of a fixed percent that is tied to the price of crude oil, which further reduces the fees. The discount can be earned back by the firm as the price of crude oil increases, based on standard industry indices.
For example, if the price of crude exceeds 55$ USD in 2017, then we pay the firm ½ of the discounted % of the market adjustment discount during the time that crude remains at this value. If the price of crude goes over 60$ USD in 2017, then we will pay the firm the full market adjustment discount of the full discount % during the time that crude remains at this value.
Our panel of relationship partners communicate regularly with our general counsel and business leaders. They have quarterly meetings to review activities in the industry and key facts in a one-on-one forum to discuss strategy and our relationship.
This, I believe, separates us from the traditional approach of communication with panel firms. The process is continuously monitored and focus on improvements is constant. We are committed to continuing to evolve the program in a true partnership with our panel and vendors.
Jeffery: In an industry facing significant cost challenges such as the energy sector, value can sometimes be confused for the lowest cost. As Vince highlights, this isn’t necessarily the case. Value is much more than cost – it is a combination of price plus efficient delivery and the overall outcome. Vincent gave a specific example of how Shell is trying to align factors impacting its business to the legal fees paid for external counsel.
We’re seeing growth in alternative fee arrangements across the sector. This doesn’t necessarily mean fixed fees – there are a whole host of alternative pricing options being used. What is essential for any fee arrangement or billing rules is that the in house legal function has a way of measuring adherence to the agreement.
How important are strategic partnerships to the success of corporate legal functions?
Cordo: At Shell, we have a strategic focus on operational excellence and ways of working. Our message to law firms is that a true partnering relationship is essential to our success and that our panel needs to continue to help Shell achieve our strategic goals by being proactive and at the top of its game.
The law firms on our panel are continuing to analyze their AFA assignment run rate target of 100% for all their matters, service and processes, and are helping us improve our operations internally. They do a wonderful job of keeping an eye on the impact of external events in the industry, such as being our watchdog on regulatory matters or other considerations that may also result in a competitive advantage.
Jeffery: True partnership is where an external legal service provider acts as an extension of the internal team. The same is true with ALSPs and how they augment the work done by the internal team.
Another shift is for internal teams to ensure they position themselves and are viewed as true partners to the business. Partnership can and should span all areas. Legal functions of energy corporations should look for ways to streamline some of their recurring work to free up time for more strategic matters and increase the value they deliver across the business.
What does diversity mean for Shell?
Cordo: We aim to provide equal opportunities and create a workplace at Shell that supports all our staff and values their differences. Our dedication to diversity and inclusion (D&I)applies across the organization. We embed D&I in our culture, for example through our core values of honesty, integrity and respect for people. It’s seen with our business partners and the companies we hire, our internal culture and the talent we recruit, and with our social investment in our local communities.
With regards to Shell’s legal organization and the expectations from our panel firm partners, we also support firms that promote D&I. We have panel firms that have gone through the requirements set by nationally recognized organizations to become a woman-owned or minority-owned law firm. We also audit and report on the metrics that law firms provide about the diversity of people working on Shell matters and incorporate D&I metrics in our RFP bid analysis during the selection process. Fortunately, a lot of firms today know the value a talented, diverse workforce brings to their organization.
Jeffery: At Thomson Reuters, we have seen a definite shift in power to the buy side across multiple areas. This has benefits across a number of areas, such as with billing. Increasingly the buy side is also influencing their legal service providers in areas such as diversity as well. This illustrates how the buy side can accelerate some of the positive progress legal service providers are making when it comes to diversity and inclusion.