Shell has reduced the number of firms on its global legal panel from around 250 preferred advisers to just six.
The drastically reduced roster follows the oil giant’s first panel review in three years. The old panel arrangements will expire at the end of April.
The new global panel is made up of Allen & Overy, Baker & McKenzie, Clifford Chance, Eversheds, Norton Rose Fulbright and Reed Smith.
It will sit for four years, though panel rates will be revisited in May 2018.
The panel review process lasted six months and was undertaken by associate general counsel for disputes, strategy and coordination Gordon McCue, based in Canada.
Global panel firms will work across all jurisdictions and practice areas for Shell’s operations around the world, though the majority of the work will take place in the US and the UK.
The global panel will be supported by 12 local panels in a number of jurisdictions, each made up of between three and five firms.
“Based on our experience of the last three years we’ve taken the opportunity to reduce the number of firms we have a formal relationship with,” McCue told The Lawyer. “The goal of the new panel is to align our interests better with our law firms and put in place a partnership with them that adds value both ways.”
McCue added the global panel was determined by finding firms that “have a large footprint globally” and that “cover areas around the world where we have our own Shell hubs”.
The review was managed in a number of stages. The first step saw McCue request information from each of its former preferred list of advisers on “data privacy and cybersecurity programmes”, McCue said, as well as details on the availability of free secondees and “advice hotlines” for Shell lawyers to external counsel “without the clock running”.
“We then asked our in-house team about their experiences with different firms and looked at billings to see how much they were currently used by our lawyers,” he added.
The second stage saw all firms pitch for a spot on the panel through an online rate auction. McCue said the bidding war was “a bit counter-intuitive” as Shell has been moving towards “appropriate fee arrangements” (AFAs) and away from hourly rates for the last year.
“We found consistently the way law firms are compensating their lawyers is still based on hourly rates, so having rates in place at a level we’re satisfied with is still important,” he added. “We’ve set up hourly rates with all the firms but there’s a clear expectation we run all our legal matters on AFAs now.”
The global panel will be managed internally by Shell’s eight divisional general counsel who will each take on the role of “relationship general counsel” for one firm.
“That general counsel will be the firm’s window into Shell legal and the wider business,” McCue said. “The idea behind that is to give law firms a greater understanding of what our priorities are so they can be more efficient and effective.”
Shell is also looking into launching a global panel conference for its external advisers to share best practices.
In-house lawyers at Shell will have the flexibility to go off-panel and invite competitive pitches from non-panel firms on specific pieces of work.
“We want to deepen the relationship with the panel but we’re conscious of not increasing the cost for local operating units around the world,” McCue said. “We want to make sure we’re getting the best value for Shell.”
Completion of the review follows Shell’s successful £47bn takeover of BG Group earlier this year. BG Group will now use Shell’s global and local panels.
Shell has been making moves to take control over fees since its last global panel review in 2013. Most recently it hired pricing analyst Vincent Cordo from Reed Smith last May to manage its external legal spend. Group general counsel Donny Ching also introduced AFAs for all panel firms in June 2014 and now no longer instructs any external counsel without such an arrangement in place.
The new model is understood to have contributed to savings of 20 per cent on external spend on litigation last year compared to 2014. Ching said he estimated savings of around £5m by establishing AFAs globally.