GENE LANDOE: What is the organizational structure at Marsh & McLennan, what roles do you play and what background do you bring to those roles?
LUCY FATO: I’m deputy general counsel and corporate secretary at Marsh & McLennan and have been with the company for six years. Prior to that, I spent 14 years at Davis Polk & Wardwell’s offices in New York City, including five years as a partner in the capital markets department.
MICHAEL CAPLAN: I’m the chief operating officer for the legal department at Marsh & McLennan, which I joined in March of 2011. But I started working with Lucy and folks in the legal department in 2007, while I was running a corporate legal consultancy for BusinessEdge Solutions, which is part of the EMC Corporation. And before that, I’d spent five years as the chief financial officer for Goldman Sachs’ legal department.
LUCY FATO: In terms of organization, ours is a global legal department, with 200 or so people in more than 20 countries. Our general counsel, Peter Beshar, oversees the entire legal department. Overall, Marsh & McLennan has more than 50,000 employees in more than 100 countries. So it’s a pretty large-scale company with varied businesses divided amongst four major operations: Marsh, an insurance broker; Guy Carpenter, a re-insurance broker; Mercer, a human resources consultancy; and Oliver Wyman Group, which is also in consulting.
The legal department includes a core group at the parent company, Marsh & McLennan, where I’m the deputy general counsel. My team oversees all of our New York Stock Exchange and Securities and Exchange Commission compliance, and our overall compliance with regulations applicable to a large U.S. public company. My group also supports the company globally on employment law matters, benefits and compensation, and large commercial contracts with third-party vendors, among other areas. We also provide support to the company’s board of directors.
Then, we have groups of lawyers, paralegals and other staff who are dedicated to the four main operating companies, and each of the four operating companies have their own general counsel with staffs of corporate and litigation attorneys. Everyone reports, ultimately, to Peter Beshar. So, it is a centralized, global department. On the finance and IT side, Mike’s team provides support globally.
Mike, please expand on the support you provide regarding IT and finance.
MICHAEL CAPLAN: Being COO of a legal department requires me to wear many different hats, whether it’s finance, technology, operations or administration. I set my calendar every morning but that schedule changes probably 20 times during the day based on the needs of the department, vendors, the technology solutions that the department supports.
I support all of the companies in Marsh & McLennan, including the four general counsels assigned to the four main operations. I report directly to Lucy, but I also work very closely with finance, controllers, technology, administration, HR, et cetera.
For example, we’re currently implementing PassportTM for matter management, the roll-out of which is very complicated and entails migrating about 60,000 matters that support our risk management business.
I’m also helping with the global legal department’s 2012 budget process. Given this very trying economy, needless to say, a lot of time is being spent on that. I also work on various other projects, including ones with vendors that provide temporary headcount, different solutions or opportunities, delivering request-for-proposals. We manage all that as well.
For Lucy and me, the ultimate goal is to be viewed as the most innovative corporate legal department on the street, which demands looking at the entire organization to find efficiencies, benchmarks, key metrics from an industry-wide perspective.
LUCY FATO: Yes, there’s a dual purpose here. We’ve really pushed forward to consolidate the department. What we found a few years ago, particularly in jurisdictions where there’s only one or two lawyers, was a real need for them to be able to communicate with other people in the department in order to coordinate on precedents and contract terms, ensuring consistency across the various businesses.
In addition to being able to track costs, track matters, track the law firms that we use, we also want to be able to negotiate better rates with them. These streamlined, global systems are providing tools for our lawyers to be able to get this data, communicate with each other, and understand what’s going on in other parts of the company. So these changes help us in a number of different ways.
MICHAEL CAPLAN: If I might add to that: Besides tech, operations and finance, I’m very focused also on how we can better manage outside counsel, not just in terms of costs, but in terms of partnering and building relationships and having specialty areas for outside counsel. That drives our planning for the next year.
And Lucy brought up an excellent point: It can be hard to engage lawyers in a lot of the work that we do. But, in our organization, everyone is fully involved in the work on the technology and operations level as well as in managing outside counsel.
Management of outside counsel has certainly been on the front burner over the last decade, if not longer. But that focus on fee-structure and relationships also has increased in recent years. How do you approach expense management and your interactions with the law firms?
LUCY FATO: Being as large and as global as we are, there were a number of firms that we were using across the globe but without much coordination or consistency. And that was an issue even within New York and the United Kingdom where we’ve got a critical mass of lawyers.
A few years ago, we started examining all the firms that we were using to come up with a preferred provider list in the U.S. and then we rolled it out in the U.K. We’ve now narrowed that list to the top 10 to 15 firms that we’re using on a more regular basis to see if we can drive more business to them, eliminating other firms that we were using on a more costly one-off basis. Now, with e-billing and the new matter management system, we will really be able to start tying all these things together and to whittle that preferred list down even further. These systems allow us to look at the firms more closely and analyze the value we’re getting from them.
When Mike came on board, he started putting an even bigger emphasis on that part of the equation.
Has this resulted in a significant consolidation of the number of firms you use, or shifted the emphasis on which firms are contracted to do certain kinds of work?
LUCY FATO: It’s still a work-in-progress but we’re definitely getting a better handle on the firms and we’re doing a better job of trying to apply billing guidelines and rules in a more consistent way. The technology obviously helps facilitate that.
MICHAEL CAPLAN: Back in June, we ran a request-for-information on what were the best-in-class outside counsel billing guidelines and how to utilize technology to align to our billing guidelines. We put 48 firms—large, medium and small—in the RFI. And they represented about 85% to 90% of our spend. We put some rules in place that were not previously standardized at Marsh & McLennan, such as stating that we will no longer pay for first-year associates to work on our matters. It doesn’t mean they can’t work on our matters, we just don’t think we should be paying to train new lawyers; the firms should be covering that cost. This is an extension of our position on summer interns. But we also looked at blended rate analysis, and when we would accept rate increases, and what you need to do to get a rate increase in the system. In those ways, we let the law firms know that not only is Marsh & McLennan standardizing its usage of law firms but that our business partners should be focused on these standardizations as well. If you’re going to do X-dollars of business with us, you must give us a 10% fee discount. We are keeping firms at 2010 rates. And we are absolutely partnering with the firms, so instead of just pushing them on rates, we’re saying, “You’ve traditionally worked with us in these specific areas and if you’d like to work with us in other areas, let’s hear your pitch.” So, we’re doing more competitive bidding and possible reverse auctions in certain matter types.
Did the RFI specify certain kinds of rate structures for certain kinds of work that the community was responding to?
MICHAEL CAPLAN: We didn’t go out there and say, “We’re looking for rate structures by matter type.” But what we did say is “Keep the 2010 rates and we’ll lock your firm in the system.” We also started to talk a lot about alternative fee arrangements as part of the RFI and the key message there was, “You’re always going to bill at an hourly rate. We’re not saying we want to move away from that 100%, but there are different types of transactions for which we will accept competitive bids and contract at a fixed price.”
In addition to more creatively agreed upon rates, what are some other ways in which your changing expectations are shaping your relationships with outside counsel?
MICHAEL CAPLAN: It’s always good to have new technology and it’s great to have the reporting. But if your law department internally just starts to blanketly approve every bill they have—partly because they start looking at bills at five o’clock on a Friday evening—you lose the value of the built-in review of e-billing. So, we’re rejecting more bills; we’re pushing back when folks break the billing rules. I probably reject about two to three bills a week. It’s the first time we’ve done this volume of review of actual line items, of the detail within the invoice.
And our law firms are becoming much more attentive to what’s in the bill before it’s submitted to us. Our law firms are submitting all their bills within 15 days of the deal. So we’re not getting bills anymore that are tied to matters that are 90 days old or 100 days old because we just won’t pay them.
Is there also more scrutiny of law firm staffing, and of which attorneys a law firm assigns to work on each matter? Is the staffing appropriate?
LUCY FATO: There isn’t a one-size-fits-all answer on this. We’ve made it clear in our engagement letters and with discussions with firms that we do want them to be efficient, especially regarding matters that can go on for months and years at a time and can easily accumulate tons of additional time-keepers. We find that firms are very good about adding time-keepers but not about deleting time-keepers. As a general rule, we’ll have firms remove from their list anyone who hasn’t billed in a certain amount of time.
We are also very strict on the litigation front in terms of the number of people who attend depositions, go to court and so forth. For many firms, that’s a great way to train and we’re not opposed to that; we just don’t want to pay for people who are just there to listen and learn. It’s a little easier to track that sort of thing because our in-house litigators are usually pretty involved in that process.
Corporate matters, though, are dealt with on a more case-by-case basis. Sometimes, you’ve got M&A deals that have to get done very quickly and require a lot of lawyers. We obviously want to get the best people and the best service but, at the same time, we want to make sure that we’re not paying for all of the extra people who are really just there observing.
Mike, why do you place such a high premium on managing across divisions, whether it’s HR, finance, technology etc.?
MICHAEL CAPLAN: It’s critical for me to understand finance, to understand budgets, to know the importance of Excel and PowerPoint. There are so many spreadsheets and presentations to give. The finance people and I spend a lot of time together, going through budgets and making sure we line up with the firm’s general direction. What are the key messages that need to trickle up to management? Being a CPA has helped me tremendously in this role. I think in terms of numbers and when I speak with finance, I’m speaking with people who are focused on numbers.
Still, I try to get information from them that relates to my management. But, also, I am the voice of the legal department to a lot of the finance folks; I must convey to finance the full objectives of our operating companies, whether we’re eyeing outside counsel expenditures in Latin America or South Africa or Russia or our emerging markets. It’s not enough for the finance people to ask why outside counsel spending is going up in a certain location where we have no attorneys. We may also be doing M&A there. At the same time, I take their financial views to my management teams. These things together are critical.
In addition to the technologies on managing expenses that you’ve already referred to, which other technologies have you found to be the most effective? And what, if any, processes and solutions are you still looking to perfect and implement?
MICHAEL CAPLAN: Technology to manage un-billed fee estimate accruals from law firms is critical and we put a process in place to capture un-billed fees monthly from our top 50 firms. We also have a report that lets us know what invoices remain with which lawyers for 30, 60, 90 days. In the last three months, we haven’t had anything sitting there for more than 60 days. How we manage spending for our business partners ties very much to what’s in the system but also what is not in the system. And it’s not just a dollar amount that’s important; the matter categories are also important. Our new e-billing solution will have the law firm submit directly into the system.
We have to calculate our internal spending as well. Besides what it costs to hire a lawyer, we have travel, meetings, communications, technology spending and other internal allocations that are billed from departments throughout the company. Our internal allocations can be as expensive as what we would go out and hire vendors to do. I need to be able to break it down into all those components.
To manage outside counsel, we have the e-billing system, but I’m very focused on accruals and trend reporting. I’m also very focused on looking at PassportTM, our future system for matter management. I want to get total costs of ownership around a matter. Besides the early case assessment costs, what are the costs of depositions? What are costs of subpoenas?
What about visibility? Call it a dashboard or call it key indicators, in what ways are you giving the various executives the best appropriate view of what’s happening?
MICHAEL CAPLAN: Information is very important to our general counsel, including benchmarking information. Where we were this year, last year and the year before is part of it, but these benchmarks also are very much focused on how current headcount aligns to expenses as a percentage of revenue. If I want to grow my legal department internationally, what metrics are determining best practices elsewhere on the street and will help in our decision-making? We spend a lot of time trending our data but also partnering to understand what key benchmarks in the industry can be key for us.
So, what are the biggest challenges to your current implementation of this new technology?
MICHAEL CAPLAN: I had to go to full-sales script to get people on board with international e-billing. I think we’re finally there, in terms of the full buy-in to that system.
The other technological challenge is rooted in the reality that we have different operating companies. The technology infrastructure is different from operating company to operating company, region to region. For example, if we need to upgrade to Outlook or Internet Explorer, we have to understand what that custom package is for Asia-Pac, for Oliver Wyman, for Marsh, for Latin America. The tree has 75 different branches, if you will. The other challenge is staffing, being able to choose from a pool of people who understand this technology and who are fully dedicated to signing up for this work at our companies over the long haul.
And, then, after you’ve run all the necessary tests and built all the key processes, how do you capture feedback? And how do you make sure that the feedback is utilized so that, when we do roll out the new solution, it doesn’t blow up on us?
Do you have a post-mortem or annual review with a firm to ensure a better alignment with your goals for rates, process, philosophy, new expectations, et cetera?
LUCY FATO: The request-for-information was a first step in that direction. Based on the responses, you can see which firms are being more aggressive or more creative, and are willing to build relationships. And you can see which firms are feeling like they’ve got very established relationships, and are comfortable and don’t feel the need to be as aggressive in making adjustments. And that’s dangerous in this environment when everyone’s under significant cost pressure. It’s very hard to justify why you’re paying more for one firm in particular when there are so many other firms with very good lawyers who are willing to be user-friendly when it comes to fees.
MICHAEL CAPLAN: The RFI is not just about money. We really want the best lawyers. A big part of the challenge for us is to make firms that traditionally have not received a lot of revenue from Marsh & McLennan aware that they’re a part of the RFI, and that there’s an opportunity.
On the flip side, those who’ve gotten used to getting paid by Marsh & McLennan can’t ignore the RFI. They must abide by that, strategically, if they want to move forward with us. We’re aware of the challenges. Our spending and our budgets for the next six to 12 months are going to focus on how we manage and operate as a department with external vendors and outside counsel. And we’re just looking for the right partners that are in this with us for the long term.
Lucy Fato is Vice President, Deputy General Counsel & Corporate Secretary for Marsh & McLennan Companies. Prior to joining Marsh & McLennan Companies in September 2005, Lucy was with the law firm Davis Polk & Wardwell in New York City. Fato joined Davis Polk in 1991 and was elected a corporate partner in the capital markets department in 2000. At Davis Polk, Fato represented a number of domestic and international corporations and financial institutions, advising on corporate governance matters, NYSE and Securities and Exchange Commission compliance, and public and private capital raising transactions. Fato is a member of the State Bar Associations of New York and California. She graduated Phi Beta Kappa from the University of Pittsburgh in 1988, with a B.A. in business and economics, and received her J.D. from the University of Pittsburgh School of Law in 1991.
Michael Caplan is the Director of Operations for the Office of the General Counsel at Marsh & McLennan Companies. He has been with the organization since March 2011. Michael manages global operations, administration, finance and technology projects supporting Legal, Risk Management and Government Relations.
Michael’s background includes roles in both corporate and consulting management positions where has worked with over 30 General Counsels in managing data analytics, technology project implementation, law firm relationship management and financial management. In consulting, he focused on managing engagements related to Intelligent Cost Reduction for non-compensation expenses, Program Management, Compliance, Risk Management and Legal Spend Management. These practice areas focus on building relationships with corporate legal, sourcing and finance departments. With Legal, he focuses on teaching attorneys to use technology solutions to drive optimal return on investment for the business through the use of metrics, reports and trend analysis. Additionally, Mr. Caplan has worked with General Counsels, Legal CAOs and CIOs to develop reporting metrics and dashboards to focus on key spend areas such as Litigation, eDiscovery, Outside Counsel Accruals and Alternative Fee Savings. Finally, Mr. Caplan hosts a quarterly Legal Advisory Roundtable where industry executives come to discuss best practices, technology solutions and current issues facing the office of the General Counsel.
Mr. Caplan is a former Vice President and director of finance for the Legal Department at Goldman Sachs in New York. He has extensive experience with outside counsel, vendor relationships with technology providers for billing and matter management, program management, and financial reporting. Mr. Caplan has nearly ten years of experience in the accounting, financial, investment and consulting businesses and ten years of corporate legal experience. He holds a Master of Science in Accounting from American University and Bachelors of Finance from George Washington University in Washington, D.C.
Gene Landoe is currently an Executive Advisor for Datacert, Inc. and was formerly president and CEO of Wolters Kluwer Corporate Legal Services (CLS). In his capacity at CLS, Gene had executive oversight of CLS’s day-to-day operations, which included running its five business units. Under Gene’s direction, CLS built on its renowned service foundation to transform into a legal technology solution and service leader. Gene led CLS through a reorganization in early 2006 to further focus the company’s business on customer workflows. In his seven years as president and CEO, Gene has overseen CLS’s evolution and growth into an end-to-end provider of legal workflow solutions spanning corporate compliance, corporate governance, lien management, litigation management and trademark and brand life cycle practice areas.
In his 37-year career with Wolters Kluwer companies, Gene held many senior-level positions. His most recent prior to assuming the helm of CLS in 2001 was as president and CEO of CCH Tax Compliance, Torrance, Calif., the market-leading provider of tax and accounting software. Gene holds a bachelor’s degree from Vanguard University, Costa Mesa, Calif.; an MBA from Chapman University, Orange, Calif.; and a doctorate from Golden Gate University, San Francisco.