Corporate Counsel Limelight: Pierre Gentin of Credit Suisse

Photo Courtesy of Pierre Gentin.

For the first in a new series of Conversations with Corporate Counsel, Lawdragon’s Catherine McGregor talked with Pierre Gentin, the New York-based managing director and global head of litigation at Credit Suisse. This far-reaching interview covers a range of timely topics, including efforts to reduce the amount of money spent on outside counsel, the new realities for in-house lawyers and the implications of these trends for law firms.

Gentin is responsible for the worldwide management of the firm's legal disputes, government investigations, regulatory enforcement and employment matters. He joined Credit Suisse in 1998 from the U.S. Department of Justice, where he served as an assistant U.S. attorney for the Southern District of New York. Prior to that he was an associate at LeBoeuf Lamb Greene & MacRae.

Recently, faced with increasing litigation costs in the United States without an increased budget, Gentin decided drastic action was needed. He undertook a wholesale inventory of the bank’s litigation docket to try to maximize cost savings without minimizing quality. Here he explains the process and the results. Gentin believes that this process can be undertaken by any in-house lawyers regardless of the size of their department, and that the outcomes certainly prove the lie to the notion that litigation spend can’t be controlled.

Lawdragon: If we could start by talking about how your reassessment of Credit Suisse's litigation mandates came about. This was after you received predictions on legal spend increasing, and it seemed to be spiraling out of control, so you decided to do a detailed inventory of what was on your docket?

Pierre Gentin: Yes, that's basically right. For many years our firm has had a focus on cost control. What I noticed over the last year or so is that we were seeing a disconnect develop. On the one hand, cost control and cost reduction in our firm is an absolutely critical strategic priority; it's one that our management has spoken about publicly in detail over the last number of years with very defined cost reduction goals. On the other hand, if you look at the litigation and regulatory enforcement activity facing our industry, what you see is a meaningful increase worldwide and particularly in the United States. That activity without question was going to lead to a meaningful increase in litigation spend, so I saw a real problem developing.

We have had over the years an ongoing effort to manage the cost of our outside counsel, but my view was that the more traditional methods of controlling outside counsel costs were simply not going to achieve the kind of reductions and outcomes that we needed to reach. We had to come up with a more radical approach to addressing the issue. The goal was to reduce litigation spend without taking on unacceptable risk because the nature of the litigation and regulatory investigations we are facing is such that we cannot be represented by counsel who are not top quality. We have to have faith in them, we have to have faith in their firms and have to know that they are responsibly resourced. That was the challenge – how to stop the increase in spend, and even move it backwards while maintaining quality.

LD: How did you get started with this process?

PG: What we did was to take a step back and look at the entire global litigation spend -- the civil litigation, regulatory enforcement and employment spend worldwide – and we focused on the United States, which is where the vast bulk of the spend is generated. We implemented a several step process; the first was that we took a very detailed look at the docket itself. We looked at the docket as a whole, we looked at groups of cases and we looked at individual cases. We tried to segment the U.S. litigation docket in various different ways to try to capture it and understand it, down to the level of individual cases. Then we thought about the future and thought about trends: What cases or grouping of cases are phasing out, shutting down, which ones are starting out, what's the anatomy, and what’s the life cycle of these cases?

Then we looked at law firms and we did, again, a similar analysis of counsel as we had done with the docket: Which counsel historically and out there in the market do we think have the skill, the resources and the depth to handle with excellence as many different kinds of cases, or groups of cases in our docket. Again it was a very detailed analysis. It was not relying on names of firms or reputations; it was specific people that have done specific work, who are their teams and who is now at what law firms – a very close analysis.

The third step was really to tailor and to match which lawyer and teams at which law firms could handle effectively what cases or groups of cases. The idea was to have as much of the docket as possible covered by a small group of trusted counsel. In the final step we went out to a fairly large group of lawyers that we had identified as contenders.

LD: Were they all lawyers currently working for you or who had worked for you?

PG: Yes. I felt that was important. Not to suggest that there aren't other very good lawyers out there but my feeling was that for the first time around, it really made sense to start with known quantities. We went out to a meaningful number of firms and discussed with them our goals, and what we were trying to achieve. Then we asked them to come to us with proposals where the economics became very critical. We were looking for a way to make sure that as much of the existing and anticipated docket as possible would be handled by quality law firms in a way where our overall goal would be achieved – to stabilize and ideally reduce our litigation spend. That was basically the process.

The innovation, the thing that was different, was not simply defaulting to the normal discounts or hard caps or something like that; some of our structures have those elements, but this is really about tailoring the docket in a very granular way to specific counsel. This is really, “Who specifically can handle what extremely well?” and then structuring the deal accordingly.

How do we tailor the economics of this so the law firm shares the concept and shares the risk with us? We have credits, we have givebacks, we have tranches of discounts, and we have blocks of free work. For this to work, the deals have to be very highly structured. This can't be a generalized, generic approach with standard discounts or rate reductions or caps where you end up leaving money on the table – it can't be anything like that. It has to be much, much more closely aligned with the actual needs of the docket. We got a lot of feedback from the law firms involved that they'd never really seen something like this.

LD: What did you do after the initial agreement was reached?

PG: The final piece is the ongoing management because as soon as you put in place a deal of any kind, for a year, if you think that's the end, it's a real mistake. We put in place as part of this a different way of managing counsel where there is very, very close attention paid to what is happening, almost like a mark-to-market as a trader. What is the ongoing spend? How are you as counsel controlling spend? What are the things you are doing? What is your team doing? The key to this effort is that you need in-house lawyers who are capable of making the risk judgement both in terms of structuring the deals themselves, and the risk judgement in terms of ongoing management of counsel.

Counsel typically, in most cases, will err on the side of doing the work to be safe, or doing the work because they feel that's what a professional does. But it's not always clear that's what needs to be done and that's what needs to be prioritized. You need in-house counsel who have the experience, the willingness and the capacity to make risk judgements on where you can push, how far you can push and where the red lines are in terms of management of these cases. Fortunately we have a team like that at Credit Suisse. I have three other lawyers working with me who, collectively, have 50 years of experience at Credit Suisse – it gave me a lot of confidence that this could be done in an aggressive but responsible way.

LD: Do you think that some in-house teams might be hampered in a similar approach if they don't have enough depth or enough experience? Does it need a certain size of in-house team and a certain quota of experience to be able to pull something like this off?

PG: I don't think it needs a certain size of in-house team. I do think the experience point is critical. You have to start with the threshold question: What is the role of the in-house lawyer? My position is the role of the in-house lawyer is to authorize risk and to take risk. Outside counsel make recommendations, they lay out options, but ultimately somebody has to take the risk and somebody has to accept responsibility for the risk. Great things are not accomplished in litigation outcomes unless you are prepared to take meaningful risk, and that’s the role of in-house counsel: to assess and authorize risk. When it comes to managing cost, you also have to have in-house counsel who have both the experience and the temperament where they're prepared to view this entire process of managing litigation spend as another case they’re trying to win. The win is the reduction in spend without losing quality or taking on unacceptable risk.

LD: At the first stage, did you find that there was a certain amount of self-selection among some of the outside counsel? Were some people taken out of the running immediately because they wouldn't really consider some of the options you were proposing in terms of sharing risk, or were there some difficult conversations with some outside counsel?

PG: There were counsel that were taken out of the running at the beginning, the middle and at the end of the process. There was some incredulity on the part of some counsel as to whether we were serious. I think they've heard similar expressions of exasperation and frustration from other clients about legal expenses and their goal might have been, “How do we just manage through this and then end up in the same place that we started out?” There was some number of counsel who may have thought this was just client whining and it would end up not really having much of an impact; they figured out that the opposite was true.  A clear consequence of this process is that we have reduced our roster of outside counsel.

But the analytical breaking down of the docket is not as simple as it sounds. We don't have a commoditized caseload, so what we did was we ended up with pieces of the employment docket, we ended up with pieces of the regulatory docket, running the gamut from more significant regulatory matters all the way down to much more what we call “flow” inquiries in the civil or regulatory context. On the civil side, you have many different types of mortgage cases in that docket alone, and other very differentiated civil matters arising from different businesses.

So this is not a simple exercise. It's also not an exercise where it was realistic in the first instance to try to capture the entire docket because there are some one-offs; there are some legacy cases where it didn't make sense to change counsel or to include them in these kinds of arrangements. We captured as much of the docket as we could but it's a nuanced exercise – it took us six months to do this analysis – but the short answer to your question is there were some counsel who either didn't think we were serious, or who simply weren't prepared to participate economically at these levels. These firms felt it wasn't worth their while and that's entirely their choice, we have no issue with that.

The other thing I would say is it wasn't just an issue of counsel spend. If you break down the spend in a very detailed way what you see is there are a lot of vendors involved that are not counsel but the aggregate spend is considerable – discovery vendors, other experts, and so on.  We went beyond the law firms and we renegotiated with vendors, Many vendors in litigation matters have contracted directly with the law firms. You have to get behind that if you want to ensure the right economics.

LD: Getting back to the docket did you find that, in terms of what cases people were getting, it was more complex than people might initially have thought? Were people getting an employment matter and something that was more on the mortgage-backed securities side – it wasn't necessarily, “We're giving all our employment stuff to this firm”?

PG: No. It wasn't a blunt instrument approach. Your example is accurate. We have one situation where we have the same counsel handling some employment work as well as a civil set of cases. In that instance, we had previously had good experiences with different lawyers at the same firm so those different matters got folded into the same deal.

LD: Obviously this wasn't a panel review, but it’s interesting because when you think about panel reviews a lot of the time you imagine it being from the firm down. However, this seems the opposite way around, from the individual counsel up – more about the individuals and their capacities – obviously there's an element of where they're sitting, too.

PG: That’s right. It was about the individuals and their capacities. It was also about the willingness of the individuals and their law firms to partner with us from an economic standpoint, and that's a function of a whole array of factors that we considered that are softer factors. Different law firms are in different economic positions, different law firms are more or less willing to enter into creative commercial arrangements. I would make a strong argument that the arrangements we reached are enormously accretive and favorable for the law firms. If you are in this group, it means that a client like us, which is a significant financial services firm, has made a determination that a meaningful piece of the docket is in your hands and all we're asking is that you manage it very, very tightly to cost targets that are critical to us. We also ask that you monitor with us, on an ongoing basis, those targets to make sure that we're adhering to what we need to do. So if you're in that group, I would argue that's a very good place to be.

LD: Were there any broad similarities between the types of law firms that were more receptive and had the abilities and ended up in the group? Or was it a very mixed bag in terms of the firms that came around to this approach and had the ability to also cope with your docket?

PG: It was a mixed bag. I don’t believe that by hiring a marquee law firm by definition you’re going to get consistently excellent work. I don't think you can simply rely on the brand or the name. On the other hand, there are some really excellent lawyers at those firms, and excellent teams at those firms, so our goal was on the marquee law firms: Who is it there that we know that we're comfortable with and we know their teams, and we define their teams.

LD: Even down to the senior associate level?

PG: Yes, so we're not going to have a situation where we make the deal and then the A-team gets put on somebody else's case.

LD: The deal is predicated on “it has to be this team”?

PG: In a number of cases, yes.  Equally we found that there are some really excellent lawyers and excellent teams at firms that would probably not be considered marquee firms – they're excellent firms, large firms but they're not the old-line firms. A lot of these lawyers are people who have worked at those firms so they have that training or that approach, but they're much more commercial and frankly the attitude is a little different. They recognize that this is a business and that part of being a business is compromise. With the older line law firms, that sometimes goes a little more against the grain. Having said that, I think that many of the older line law firms have come to recognize that if your clients are going through periods of economic pressure, you simply cannot live in a bubble and say, “Well, that's terrific, I think we're immune to that and we don't care about that” because a client like ourselves just can't tolerate that.

LD: It's interesting because these debates have been going it seems for many years on the billing issue and yet there has been, in many cases, no substantial change in the major law firms in how their business models are predicated and how they bill. What do you think it might take for this to change?

PG: From my standpoint, I'm working in a company where our management has articulated cost reduction to the tune of multibillions of francs as a critical objective of the firm. For myself, as an officer of the firm to look at a spend that is going to increase and not try to do some thing very meaningful, to not try to stop that trajectory and try to move it in the other direction, I think that would be an abdication of my own obligations. If law firms want to represent us this is what they are going to have to get comfortable doing.

LD: It's often a big myth, isn't it, that you can't introduce fee caps, you can't predict litigation, whereas you seem to be saying that's blatantly untrue, you can. Obviously you can never completely predict anything but your deals seem to be predicated on, at least, intelligent guesses on what's going to happen?

PG: It is clearly untrue that you cannot have an intelligent prediction on future litigation costs. I think a sensible approach in structuring these types of arrangements is if you try to be too rigid that's foolish because litigation is not a rigid process. On the other hand, you clearly can make reasonable projections and predictions, which both you and the law firm can agree on which serve as the basis for a structure. Then you can say, “Well, if this happens we are going to handle it like that, and if that happens then we'll handle it like this; if we don't end up going to the limits of this deal then there'll be a give-back, if we go beyond the limits of the deal then it will default into some other structure.” You're making a prediction, both of you that this is likely how it's going to shake out but you have also planned for the other potential contingencies that could arise.

The outcome of all of this is that we are on track to have a lower litigation spend in the U.S. in 2013 than in 2012. It has been a difficult process, it has not been a simple process, it has not been an easy process – you talked about difficult conversations – I have had many difficult conversations, but ultimately we have to do this.

LD: It's the new reality.

PG: Yes, it's the new reality.

LD: Thus far, obviously only a year into the process, but how have the results been in terms of the new firms you've been working with on this new approach?

PG: It's been more successful than I had anticipated both in terms of the dynamic with the law firms and the savings we’ve achieved. What has happened is the law firms have had to go through the same process of managing resources tightly that we have had to deal with internally for years. That’s a process that we go though every single day, and it involves making judgements about risk and priorities. We have asked the law firms to engage in a process of rigor and discipline in terms of defining what is truly essential versus what is some sort of ideal professional approach.

That is a nuanced process because you have to be flexible and you have to be open to the fact that things can happen that may require a discussion and may require an adjustment. Again, you have to have people in-house and at the law firm that are really handling this in a mature way.  At the end of the day, I'm absolutely convinced that with the right people on both sides, this is a win-win and this works well and it has worked well.

LD: There's been a lot of talk about alternative business structures for law firms. Do you think some law firms are hampered by the old-fashioned partnership structure and the focus, overwhelming focus for many of them, on profits per equity partner? Do you think that's potentially, in this economic climate, hampering the way that they can effectively work with some of their clients?

PG: I think the traditional law firm structure can sometimes hamper the ability of lawyers to actually service clients in a more commercial and effective way. What I hear from the discussions I have with partners and chairmen of law firms is there is a very active discussion going on inside the law firms about balancing the way they're historically structured, on the one hand, and the realities of the market today. There's no question, and it's obvious from an in-house perspective, that the law firm sector is in a meaningful state of transition and flux.

LD: You had some interesting thoughts last time we spoke about the whole issue of firm profits and profits per equity partner and it got me thinking about why is there so much focus on this. I’m thinking of rankings like the AmLaw 200 that talk about how much money the law firms are making, and how much money the partners are making. Until you mentioned that I'd never thought that it does seem glaringly insensitive given that so many of their clients are facing huge economic issues.

PG: Well, there is open competition of various kinds among law firms, and I think from a client perspective, it's fine as long as we don't have to pay for it. It does enhance the credibility of law firms if they're sensitive to our financial objectives and needs and that they're partnering with us. These are very valued professionals working for us on obviously significant matters, so they're very important people in our professional lives and the life of our firm, but they have to be sensitive to and work with us in terms of our overall strategic financial goals. That is the principle that has to guide this and if that doesn’t work, we won't be able to work together, that's it.

LD: I read something recently that said that in-house departments are becoming more like mini-law firms, but actually you seem to suggest that law firms really need to become more like in-house departments, working with the business?

PG: In-house legal departments can look like law firms, but it can be deceptive. So, for example, if you have a litigation department in a law firm, that department will run the gamut from senior lawyers, doing what they're doing – strategy, arguing cases, and so on – all the way down to a managing clerk's office which is actually docketing deadlines and filing papers and making sure that these clerical things are being done on time, which is very important. There are in-house legal departments on the litigation side that replicate that; those tend to be places that have companies that have a commoditized docket where it actually makes sense for substantive and for economic reasons to essentially have that done by in-house resources.

But the mere fact that you have a meaningfully-sized legal department does not mean that it's like a law firm. I have lawyer teams in New York, London, Zurich, different parts of Switzerland and Hong Kong, but they are not generally doing what the law firm lawyers are doing. Each one of our lawyers has dozens of active cases or more that they're managing. They’re not writing briefs, they're not filing papers, they're not arguing cases. The in-house lawyers’ role is actually very different; the role is principally that of a decision maker, and an authorizer of risk. But I think the point you are making that the law firms need to take a page out of the book of the in-house lawyers in terms of sensitivity and respecting the actual financial goals of the client that you're serving, I absolutely agree.

LD: Finally, were the Credit Suisse management completely behind you in this enterprise?

PG: They were supportive and enthusiastic. I think they were intellectually interested in it.  Again to your point about the law firms – because at least in this first go around we were working with firms that really were proven quantities – these were sensible choices from their perspective. They were I think interested in how it would play out this year. It’s a bit counterintuitive, the idea that you would try to reduce your spend in the most active jurisdiction in the current litigation environment. I was very much of the view that it was achievable. At the very least we had to try, and it's worked. We have to keep at it. It's very much an ongoing, day-by-day process, but I think it's another way in which as an in-house lawyer you can try to achieve success for your client, and ultimately that's what we're trying to do.