Achieving Better Legal Outcomes and Client Service While Lowering Costs
ACEA is a public utility that, among other things, distributes electricity to the City of Rome. It is the largest Italian operator in the water sector, and also converts waste to energy. ACEA operates in tightly regulated businesses. As there is scant opportunity to increase revenues, margins must be widened by lowering costs. The call for increased efficiency and cost management in the company is continuous, says General Counsel Renato Conti.
But he also found that his department suffered from a public image problem. “There were two approaches to the legal department, those of top management and those of operational departments,” Conti explains. “Although executives were very sensitive to the legal aspects of the business and involved the legal department early, legal services were perceived as burdensome infrastructure by the operational departments. They wanted to do things themselves and only involved us when things broke down.”
In late 2012, the company formalized a two-pronged project first piloted in 2008. The project’s goals are to enhance working relationships between the legal department and the lines of business so that legal team members are involved in decision making earlier; and to increase alignment with while reducing spending on outside counsel.
“Although we liked to be perceived as paratroopers or characters in a Rambo movie, we truly wanted to improve our reputation and status with internal customers, and to bridge the gap between quality offered and quality perceived,” Conti says.
First, to identify the gaps and proactively understand operational departments’ needs, the legal department issued a formal questionnaire. Armed with the results, they leveraged technology, customer service, and knowledge sharing to improve communication and to participate actively in value creation.
A new legal department software suite enables the management of files, bills, timesheets, costs, risk, and all other file elements. Lawyers receive reporting data that they now share with internal clients for process and management analysis.
Conti adopted a strict communication policy that mandates responses to requests for legal advice by the next business day and specifies that the responses contain substantive information. The receiving lawyer must take ownership of the issue, provide any requested information, and commit to a timely resolution.
The department also began sharing legal knowledge throughout the organization via learning roundtables, conferences, and published guidelines.
“We’re trying to establish a closer link with the business by creating a partnership, showing that we have the same focus and cost-conscious approach,” Conti says.
The other prong of the project focuses on external counsel, and implementing alternative fees that feature bonuses to align incentives.
Under the new structure, firms representing ACEA’s cases in court are remunerated proportionally to the goal achieved via their defense (the judgment rendered by courts in each grade of trial): a success fee remuneration structure tempered by a series of factors, including effort provided by the in-house Legal Department, number/value of files assigned to the specific firm, and so forth. Firms retained for advice on contract and extra-ordinary matters (capital markets, M&A, etc.) get paid on a flat fee plus satisfaction fee basis. A dozen participating firms were on the front lines in creating the program.
“We were scared we would get no answer at all from the external firms,” Conti admits. “It’s a tough line: If you want money, you bring me results. If you don’t win the case, I don’t pay you.”
ACEA’s results have been impressive. Conti enjoys total budget predictability on cases handled by outside firms, and costs that have declined by 31 percent. Further, he reports that the closer partnership has resulted in a 35 percent improvement in outcomes.