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Study shows ascendancy of Brazilian in-house counsel

Steven Andersem


A lot of ink has been spilled over the years, describing and dissecting the relationship between corporate legal departments and outside law firms. But until now, none of that research focused exclusively on the largest economy in Latin America.

A groundbreaking new study by LexisNexis Martindale-Hubbell plumbs the legal market in Brazil. Of the so-called BRIC countries—the four most significant emerging economies in the world: Brazil, Russia, India and China—Brazil remains, in some ways, the least understood in North America.

With an economy that outweighs those of each of the other South American countries, Brazil has evolved radically in the last decade, building foreign reserves, reducing debt and stabilizing its economy on all fronts. Brazilian law departments have undergone a similar transformation.

“Legal departments are increasingly becoming more autonomous, getting noticed and developing a more strategic position in their companies,” says Alessandra Machado Gonçalves, a principal in Gonçalves & Gonçalves Marketing Jurídico, the firm that conducted the survey. “That, in part, is corroborated by the fact that 75 percent of the survey respondents indicated that legal departments have authority to hire law firms. Although there are no previous surveys, that was quite different in the past.”

It’s as if Brazilian law departments underwent the same maturation that took place in North America over the last three decades, but in a fraction of the time. Today, the survey shows, the concerns and priorities of Brazilian corporate counsel look very much like their counterparts in the United States and Europe.


AFAs Desired

Hourly billing is still the norm in Brazil, but alternative fee arrangements (AFAs) are catching on, and for the same reason they are gaining popularity in the United States.“The high percentage of corporate counsel who want fixed fees is mostly because law departments are looking for ways to control the budget,” says Maurício Camargo, head of legal affairs Sara Lee Cafés do Brasil Ltda.

Asked for their preferred fee structure, 46 percent of survey respondents chose fixed fees or other previously agreed price methods. Only 12 percent of respondents favored hourly billing—9 percent with some sort of cap, and just 3 percent chose an unlimited price per hour structure.

José Nilton Cardoso de Alcântara, president and director of Fórum de Departamentos Jurídicos, a Brazilian corporate counsel association, says the preference for alternative billing is part cultural and part practical. “Here in Brazil, entrepreneurs don’t rely on payments using working hours as reference,” he says. “I’ve seen some law department directors saying they don’t use time sheets—at all—but, in general, they use them for specifc purposes, such as contract analysis, due diligence, etc.”

Still, the biggest driver for AFAs is cost certainty. Although Brazil bounced back from the global economic crisis faster than most countries—it experienced just two quarters of recession—law departments are under pressure to rein in fees and impact the bottom line. “If you can control fees you can foresee the total expense,” Camargo says, “and that’s how we are measured.”

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Fewer Firms

Although Brazilian law departments tend to be smaller than those in North America—among respondents, fully 63 percent have five lawyers or less—most are growing or holding the line. In the next 12 months, 38 percent of responding companies said they will add to their number of full-time in-house lawyers; 52 percent plan to remain the same size; and just 4 percent think they will reduce size.

When it comes to outside counsel, the trend is clear. Brazilian companies are consolidating the number of firms they work with in an attempt to better manage outside counsel, improve communication and, ultimately, improve effciency.

“I believe that companies are looking to have closer contact with law firms,” Camargo says. “If we work with a small number of law firms, we can have a much more personal contact and interaction. You can also better manage the budget for special cases.”

The survey shows that 28 percent of respondent companies plan to reduce the number of hired firms while only 10 percent plan to hire more firms in the next 12 months. The survey report authors take pains to point out that there is not a direct correlation between the reduction in number of outside firms and those companies that plan to increase the number of in-house lawyers.

The real impetus to consolidate outside counsel is strategic and straightforward. The fewer law firms in-house counsel have to deal with, the easier they are to manage.

“You have a more open channel to deal with expenses, with the budget,” Camargo says, “and you are also in a much better position to align the culture of the company with the law firm.”


New Power

The criteria Brazilian in-house counsel rely upon in hiring law firms are familiar as well. Survey participants were asked to cite the most important things law firms can do to improve relationships with law departments. At the top of the list are quality of legal service (98 percent), better knowledge of client’s business and market sector (97 percent), regular communication about ongoing matters (96 percent) and better availability/client service (96 percent). Firms that don’t step up in these key areas may soon fnd themselves on the outs. “It is interesting to notice that many companies are leaving larger firms in favor of smaller firms so that they can match these exact criteria,” Machado Gonçalves says.

As their authority and status within companies has grown in recent years, Brazilian corporate counsel have taken on additional responsibility. Seventy-five percent of Brazilian law departments now have authority to hire outside firms. That goes up to 82 percent in companies with revenues greater than R$1 billion. With that authority comes an expectation of improved performance. “I think we have improved a lot,” Camargo says. “The influence is increasing and legal departments are quickly moving forward from a service area to a business partner in the looping of the decision-making process. On this route we will always be challenged to really show results.”

 

About the Study

The study was carried out between August and October 2009 and completed by representatives of the legal departments of 112 companies operating in Brazil. Forty-six percent of the responding companies to the online questionnaire are subsidiaries of foreign multinationals.

Sobre o artigo

Veiculada na publicação:
  • Counsel to Counsel [2010]

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