Honeywell International Inc. is mostly bypassing the largest law firms for its day-to-day legal issues, often in favor of more medium-sized shops that offer lower costs and closer business relationships, the company’s top lawyer said.
“Overall, it’s about improving performance and improving the value of the legal relationship versus just being all about driving costs down,” Honeywell senior vice president and general counsel Anne Madden told Bloomberg Law.
Bloomberg Law is conducting a Q&A series highlighting some of the legal industry’s most important relationships: the often fruitful but sometimes complicated connections between general counsel and their outside law firms. We’re talking with general counsel across industries about how they select outside lawyers and handle issues like billing, fees, and tracking performance.
Madden has been with the Charlotte, North Carolina-based aerospace and technology company since 1996. She was also Honeywell’s global head of mergers and acquisitions, making around 100 acquisitions during that time.
Madden spoke with Bloomberg Law about why Honeywell has largely cut AmLaw 50 firms from its standard rotation and other ways the business engages with outside counsel, including cost-cutting and performance-boosting measures like creating a strategic panel of outside firms and borrowing outside lawyers to work in-house during the pandemic.
This conversation has been edited for clarity and length.
Bloomberg Law: More than a year ago, Honeywell adopted a “strategic panel” of 13 law firms for everyday legal matters. Almost all are outside of the AmLaw 50, and this final list was pared down from around 100 former outside firms. How did you and your team decide on this strategy?
Anne Madden: A few years ago in the United States, we embarked upon what we call ‘Project Zipcode.’ We found that if we could avoid always going to a big New York City white shoe law firm—or a big L.A. law firm, or big San Francisco law firm, or big Chicago law firm—and we went deeper into the country into, quote-unquote, different ZIP codes, we found that we could get super high quality work from our outside counsel at a significantly reduced spend.
We use alternative legal service providers for very repetitive, more commoditized work. For the strategic partner panel, what we’re trying to do is find a fit with one of our strategic partner panel firms for all new matters that require a specialty.
BL: What’s the benefit of primarily working with a smaller group of firms?
AM: With a small cadre of go-to firms for our regular, everyday work, they get the benefit of repeat business over and over again. That enables their economics to work. It also enables them to develop an intimacy with Honeywell and a deep understanding of what our business needs are, what our business challenges are, what our opportunities are. The more intimately and the deeper they can understand our business, the better they will perform. And our average strategic partner rate is over 40% lower than the top 10 or legacy law firms’ rates. That’s pretty dramatic.
Obviously, we can’t easily migrate existing matters that are with other firms away from those firms because they’re in process, and that would be disruptive and inefficient. We have unusual matters, enterprise level matters, complex litigation, M&A matters, and matters that don’t fit in the panel firm’s wheelhouse. And we will continue to leverage our close relationships with the more elite, New York white shoe firms.
Those relationships are incredibly important to us, and those will always continue to exist, but our commitment to our panel firms is to give all new matters that emerge to our strategic panel firms in the U.S. and that only by operation of exception will we assign a matter to a non-panel firm.
BL: How did having these existing relationships with firms on your strategic panel benefit Honeywell once the pandemic began?
AM: For our law department, our outside counsel spend is our biggest category of third party spend. When it became clear that austerity measures were required, we went to all of our law firms to negotiate lower hourly rates, discounted rates, alternative fees, capped fees, incentives based on outcomes so that they see some upside too based on outcome and based on performance.
We’ve worked with one of our firms on an intellectual property matter, for example, and the firm agreed to do sort of a hybrid fixed fee and then a portion of it contingent on the results.
We were already on a really important path in terms of being able to be uber smart with our spend. When Covid hit, it became really clear how important it was to put in the right austerity measures to deal with the crisis and look to our partner firms and our other firms and say, ‘Wow, we’re going to need to do some things differently.’
BL: How do you maintain your close relationships with strategic panel firms, especially during this pandemic?
AM: Across those 13 firms, each firm is assigned a Honeywell relationship partner. It’s a mixture of either one of my direct reports, or it’s a direct report of one of my direct reports, who becomes that firm’s go-to individual dealing with anything that could come up, whether it’s an issue with performance, an issue with spend or invoicing, or if they need help to better understand how to create value in the relationship.
We do a newsletter to our partner firms and to ourselves that recognizes good behavior and good performance.
BL: You worked with lawyer collective AdvanceLaw to develop a way to measure and rank your outside firms to help determine which would be on your strategic partner panel. What was that process like, and what were the criteria you used?
AM: The AdvanceLaw team really did the hard work on the front end to pre-screen a panel of firms that were exactly where we needed the most outside counsel support. Then we rank them on important criteria to us, such as rates, diversity and innovation, geographic coverage, and expertise in key areas, and then rack and stack them and do agreements with those firms and invest in those firms that could actually drive our spend away from the uber high cost into the lower cost category without losing quality.
The framework we used was so good. It did make it more scientific than just emotions and ad hoc likes and dislikes. We had a whole series of criteria down the left hand side of the page, and then across the top side of the page we scored the categories where they had strengths and weaknesses, whether it was M&A, or antitrust, or labor and employment, or commercial litigation. We filled out this “placement,” as I call it, with scores from one to five in each category, and that way we could begin to observe who really was the best fit for us and our needs.
BL: Work has slowed down at many law firms since the pandemic. Have you been bringing in secondees?
AM: There has been an increased willingness to provide secondees to the in-house experience, oftentimes on a gratis basis. Rather than terminating lawyers during a slow period, law firms can redeploy them into an in-house role, where they can be developed, and then come back to the firm at the right time.
We’ve done it on the M&A side, we’ve done it on the litigation side. It’s usually a one-off thing, depending upon the need, so it’s only one or two at any given time. And I can see the need for that continuing as the pandemic continues.
It no doubt helps us too. For instance, Honeywell has been a big innovator in terms of Covid-related products and solutions. As we innovate these new products that protect human health and safety, we’ve had the need to get additional law firm help in the area of FDA regulations and et cetera. There are new categories where we don’t necessarily have the expertise in-house and need that outside counsel look, and that’s a great opportunity for a secondee to come on board.