Do you really want to find out? Our survey gets the real opinions of regional in-house counsel when it comes to legal services from law firms, and they’re not pulling any punches. Putro Harnowo reports
Having law firms on your side is a must in today’s business climate. But sometimes in-house counsel feel the relationship is one-sided, the fee structure is lopsided, and their company’s needs have been outsided.
To get the real picture, Asia Business Law Journal conducted a survey of in-house counsel in the region to hear their complaints and expectations. The survey found that not all is well. The majority of in-house counsel surveyed expressed the importance of a harmonious relationship with their law firm counterparts, but most of them have a negative view of traditional pricing practices.
“Understanding our business, what matters to us, and providing us with insights and advice from people with genuine domain expertise, who can ideally point out risks or opportunities that we may not have otherwise fully appreciated, is a great way to add value,” says Christopher Betts, general counsel at Grab in Singapore.
“Some law firms try to be everything to a client, which can result in inconsistent quality. The better firms figure out what they are really good at and focus on doing an outstanding job in those areas,” says Betts. “I also appreciate firms that are prepared to actively work with us to find ways to manage our legal costs effectively.”
For Chae Jooyup, general counsel and vice president of SK Biopharmaceuticals in Seoul, communication is vital when dealing with external counsel. “Law firms need to provide more strategic and practical solutions by having a more integrated understanding of the real interest of the clients through intensive and robust communication and fact-finding efforts,” says Chae.
Jolly Abraham, director of legal at private equity company True North in Mumbai, suggests that law firms “price their output and deliverables that add value to our business, rather than their time to deliver the output”.
“Law firms can adopt smart legal tech to ensure that lawyers are doing high-value legal work,” says Abraham. “They shouldn’t be billing us for the time taken by lawyers to do things that a machine can do much more efficiently.”
Pricing issue and poor service
Among 108 respondents to our survey, 51% cited pricing issues and poor quality as their top complaints. Other issues include slow turnaround time and poor communication, as expressed by 47% and 40% of the respondents, respectively. Most in-house counsel raised at least two complaints in the survey.
“Law firms provide unrealistic, low-ball quotes during the bidding stages and ask for more as the matter or transaction progresses,” says Raymond Goh, group general counsel, international at China Tourism Group in Hong Kong.
“A particular Magic Circle law firm has gained a bad reputation for such practices in recent years, and we have blacklisted all firms that engage in similar practices,” says Goh. “The quality of the law firms in Hong Kong, even Magic Circle and Wall Street law firms, and their lawyers, even junior partners, have gone down dramatically over the years. I’d be willing to pay more for better service quality and pragmatic advice.”
Roger Chae, general counsel, global legal and compliance at automotive air conditioning producer Hanon Systems in Seoul, has a similar observation. “There is a feeling that the matter is being dragged out, or made complicated, to get more fees,” he says. “Law firms should not only identify issues but think holistically and suggest practical and commercially viable solutions. Take a position, not ‘maybe, 50/50’.”
Advice that’s too academic and impractical is a bone of contention for Kezia Pembayun, legal director at L’Oreal Indonesia in Jakarta. “This usually happens because the lawyers do not understand the clients’ business, or the market or industry where the clients are operating,” says Pembayun.
“Nowadays, companies have their in-house counsel, and will only look to external lawyers to get independent advice, or expertise in understanding specific topics, with the expectation to have more visibility to options and solutions,” says Pembayun. “However, in some cases, the external lawyers fail to include market practices, government appetite or directions, etc. Their views sometimes are rigid and strict readings.”
Erika Evasdottir, managing director at consultancy firm Centrium Advisory in Hong Kong, gets upset when law firms are unresponsive. “If we email you [law firms], respond immediately and set a timeframe for response, and then meet that timeframe,” she says. “Even if the timeframe is two weeks from now, it still gives us comfort you are doing something. Too many go silent, leaving us to be wondering, ‘did you receive the email?’”
Derek Chin, general counsel at Malaysian conglomerate Berjaya Corporation in Kuala Lumpur, demands more specialised advice and a more reasonable fee structure, especially for dispute resolution on a contingency basis. “Often in dispute resolution, whether with arbitration or the court process, it can be a very tedious, slow and costly process, especially in certain foreign jurisdictions where the legal system is less well developed,” says Chin.
In Bangkok, a similar issue is expressed by Supagorn Jittimaporn, vice president of legal and compliance at real estate developer Boutique Corporation. “Law firms can add more value with new pricing options, rather than classic capped fees,” he says. “It is hard to track legal bills in litigation matters.”
Time is not money
Talking more about the pricing issue, more than half of the in-house counsel surveyed preferred project-based billing – based on the complexity level – to the traditional pay per hour, which only 6% of respondents chose. The second-most-popular option is a flat rate, where the total legal fee is fixed for some defined legal task.
Retainer fees and mixed types of billing are the choices of 5% and 4%, respectively. Other modes mentioned include the hourly fee with a capped total bill, lumpsum payment, payment depending on the case, and subject to modification for complex matters.
“The traditional billable hour is slowly but surely heading out the door when it comes to most areas of legal practice now, except for some niche or specialist areas like arbitration and new regulatory types of work,” says Sarita Misir, senior vice president of global legal at Fullerton Healthcare in Singapore.
“I believe this has improved slightly in the past 1.5 years, largely driven by the pandemic’s impact on constraining budgets, but being open to flexibility in terms of pricing or billing options is definitely an area of improvement,” she says.
For Misir, balancing an ever-increasing volume of work and delivery expectations with a lean internal legal team and frozen or stagnant budgets is the biggest challenge.
Time-based billing is also a problem for Itok Pramiarto, general manager of corporate legal at coal mining company Baramulti Group in Jakarta. “Most of the time, we involve an external law firm for a project or case, and it is difficult for budgeting if the proposal is hourly based,” says Pramiarto.
Amol Apte, vice president of legal at gaming company Sporta Technologies in Mumbai, agrees and prefers to have dedicated partners and project-based billing. “Regulatory uncertainties are creating existential challenges, and it is hard to find lawyers who understand this market,” he says.
Concluding all the complaints in the survey, Rajiv Malik, head of legal for Noida manufacturing at LG Electronics India, says a good external counsel is the one that offers “competitive price, fast turnaround, sending legal updates, sharing their cases to show what kind of matter they can be given from their track record and, of course, maintaining confidentiality”.
For Malik, those traits are essential. “As a global company, the management wishes to have a person who can understand the global issues and trans-border challenges,” he says.
Searching for the right ones
While these complaints raise some inconvenient truths, law firms surely want to give their clients the best services. Based on our findings, most in-house counsel (58%) took existing relationships into account when looking for external counsel, followed by the law firm’s reputation (26%) and referrals (11%). The old way of “beauty pageants” or “bake-offs”, where one or many firms present to a potential client to fight for the job, has become somewhat of a relic, which only 3% of in-house counsel preferred.
When looking for law firms in overseas jurisdictions, 46% of in-house counsel said they prefer to rely on existing relationships. 24% said they select overseas law firms based on referrals, while 22% base their choice on law firms’ reputation.
When it is time to choose between law firms, more than half of the respondents (57%) emphasised service quality. The firm’s track record (20%) and existing relationships (10%) came second and third in order of significance.
Keeping up with the times is also a selling point. More than half of respondents (54%) said it was either important or very important for law firms to utilise the latest legal tech, compared to only 12% that thought it was not important, or just slightly important.
“An existing relationship with our company is a plus, but a poor prior experience will definitely work against the law firm,” says David Chen, Asia-Pacific deputy general counsel at software company Dassault Systemes in Tokyo. “We have ended a few long-term engagements because of poor service previously received.”
Rajiv Bakshi, former managing director, legal, at investment manager Essar Capital in India, sets his own assessment for selecting a firm. “I take views of other in-house counsel, or those in business who have handled similar issues, and their experience and recommendation for a law firm they have worked with,” says Bakshi. “The cost also plays an important factor in the Indian market because fee ultimately has to be approved by business head or finance head, who question the fee if it is not competitive.”
When deciding on which law firm to go to, Chan Cheng Sim, a Kuala Lumpur-based legal counsel at Pacific & Orient Insurance, says the ability for clients and lawyers to communicate effectively is the crucial point. “The relationship comes from good service and the ability to have meaningful discussions,” she says.
“The person handling the matter must be competent, responsive and capable, apart from being proactive, not reactive,” says Chan. “Equally important is the reassurance of having a lawyer that you know will act and keep the client well apprised of all developments. We do not want to have to supervise and chase matters.”
Evasdottir, of Centrium Advisory in Hong Kong, goes to the firm with more experience when choosing between law firms. “Since fintech is cutting edge, they have to show they can do cutting-edge research,” she says. “If it is in an entirely new jurisdiction, I will look at the rankings [at legal publications or directories] and go from there.”
Although most legal jobs can be done by local lawyers, Betts, of Grab in Singapore, still uses international firms for special matters, “when we need big deal experience, and the manpower and round the clock service required to execute on crazy timelines, or where we require specific expertise that local firms may not have, such as tax or regulatory advice”.
Chin, of Berjaya in Kuala Lumpur, has a different scenario. “I will use international law firms when my company is undertaking a transaction or project in a foreign jurisdiction, as the brand name of international law firms will give a certain assurance that they will provide quality advice.”
Abraham, of True North in Mumbai, agrees. “We use international law firms as opposed to local ones when we have a foreign law-governed document and a foreign counterparty who will need the comfort of an international firm,” she says.
In terms of budgeting, our survey found that in-house counsel, on average, allocated 27% of their legal department budgets for transactions, while dispute resolution matters accounted for 26%. Corporate and commercial matters came third, taking 20% of the budget.
All these considerable demands signal a critical role for law firms in protecting companies in an ever-changing environment. However, it is still important to know what in-house counsel want from their external lawyers.
Sophie Liu, senior legal counsel at GSK in Beijing, sees a need for external counsel to provide practical solutions beyond the explanation of laws and regulations. “For example, companies need to understand the real risks and find the practical solution when new laws or regulations do not provide clear guidance,” says Liu. “Law firms are also needed to provide timely feedback and report in litigation.”
Feng Xiaoju, GC and compliance officer, APAC, at construction materials company Saint-Gobain in Shanghai, agrees. “We have to deal with unlimited tasks and a more stringent regulatory environment with limited resources,” he says. Therefore, external counsel can assist by “developing a set of practical and tailored tools in implementing the new laws or meeting with new regulatory requirements, especially in case of matters of multiple jurisdiction implications, or a cross-border transaction.”
Cao Feixiong, head of legal at LexinFintech Holdings in Beijing, sees a need for external counsel to “frequently share regulatory developments and mistakes made by other clients, in an anonymous way”. Cao also suggests that the firm communicates with customers in the form of regular training. “How do we find a balance between full compliance and business development? How do we break down compliance requirements to all parts of the business?”
New transactions or scenarios that businesses have not encountered often cause uncertainty for Jiang Keyang, chief financial officer at software developer Ming Yuan Cloud Group Holdings in Shenzhen. “Law firms can help us take reasonable precautions and avoid potential compliance risks to navigate through the changing environment safely,” says Jiang.
As legal and compliance risks are increasing in international investment, Zhang Yu, vice president at China National Oil and Gas Exploration and Development in Beijing, needs a law firm that “provides legal analysis and information on international investment, and assists the company in establishing compliance risk prevention and control systems.”
Anna Wong, deputy head of legal and compliance at financial services company BOCOM International Holdings in Hong Kong, sees an increasing demand for new business models, and the legal department having to keep up with this trend.
“International law firms have more exposures and resources to handle and advise on new business structure,” says Wong. “These firms have more knowledge on how our peers are doing with similar kinds of transactions.”
Yong Shao May, director at state-owned investment company Temasek in Singapore, agrees. He urges law firms to “provide more value-added tailored responses, services and updates without being asked”.
Sonal Basu, general counsel at Indian multinational IT company Mindtree in Bengaluru, needs external counsel because laws and regulations are not keeping pace with technological developments, to assess local law compliance and align to cultural factors. “In this volatile industry environment, law firms should become trusted partners of their clients, and should be an extension of the client setup,” says Basu. “They need to second young lawyers in client offices so that they are attuned to business developments or requirements.”
To find out what in-house counsel in the region think about the legal services they have received, and how they select law firms to help with their tasks, Asia Business Law Journal invited them to participate in a survey, carried out in September. The report draws on an analysis of responses from 108 in-house counsel in mainland China (25%), India (17%), Indonesia (14%), Hong Kong (11%), Singapore (10%), Japan (7%), the Philippines (6%), South Korea (3%), Malaysia (2%), Taiwan (2%), and others (4%).
Responses were received from professionals in leading companies in the region including: Agricultural Bank of China, AirTrunk, American Express India, AUO, Auras Technology, Bank CIMB Niaga, Julius Baer, Baramulti Group, Berjaya Corporation Group, BOCOM International Holdings, Bosch, Boutique Corporation, Budweiser, BW Group, Centrium Advisory, China National Aviation Fuel Logistics, China National Oil and Gas Exploration and Development Company, China Orient Asset Management, China Renaissance, China Resources Enterprise, China Tourism Group Corporation Limited, CIT Group, CRRC Zhuzhou Locomotive, CureFit, Dassault Systemes, Essar Capital, Fullerton Healthcare, GapSat, Global Business Power Corporation, Grab, GSK, Hanon Systems, Hyundai Motors, ICICI Securities Primary Dealership, Indonesia Financial Group, Infosys, Jaldhi Overseas, Juniper Networks, KE Holdings, Khaleeji Commercial Bank, KM Dastur, LexinFintech Holdings, LG Electronics India, L’Oreal Indonesia, Lotte International, Mindtree, Ming Yuan Cloud Group Holdings, Nippon Steel Corporation, Oerlikon, Optum Global Solutions, Pacific & Orient Insurance, Perfect World, Philex Mining Corporation, Rohan Rajdeep Tollways, Saint-Gobain, Schaeffler India, Shaanxi Investment Group, Shanghai Zhihe Network Technology, SK Biopharmaceuticals, Sporta Technologies, TCL Capital, Temasek International, Terumo Corporation, the Export Import Bank of China, The Great Eastern Life, Thome Ship Management, Toridoll Holdings, True North, TV Today Network, Tysan Holdings, MP Healthcare, Woolworths, Yum China Holdings, and many more.