Corporate law firm partners must live in fear of Dan Troy. Ever since he assumed the role of global general counsel at British pharmaceutical giant GlaxoSmithKline in autumn 2008, Mr Troy has been shaking up conventional thinking in private practice, effectively pushing partners into virtual sensory deprivation tanks where they are forced to shed old skin and adopt innovative new ways of winning instructions.
But let’s face it – being in global business is not about being loved by everyone. And as much as he is feared by law firms, Mr Troy is revered by the in-house fraternity.
The Association of Corporate Counsel has just dubbed him and his team ‘value champions’ for the techniques they have developed in driving down outside adviser costs.
Mr Troy runs a legal department of more than 300 lawyers – a figure that would rival many mid-sized commercial law firms. He acknowledges that it is a lot of lawyers ‘but not too many lawyers’. It is also a far-flung department, with legal staff spread over 40 global offices. However, most are concentrated in three centres: greater London, the wider Philadelphia area and Research Triangle Park in North Carolina.
‘The structure of our legal department is very aligned to the business,’ explains Mr Troy. ‘For example, we have a consumer division and there is a general counsel for it who has lawyers under him. But ultimately, every lawyer in the company rolls up into me as overall head of legal.’

Your approach to external law firms has recently been lauded by the Association of Corporate Counsel, which has described your department as a ‘value champion’. Relations with external lawyers are top of most in-house agendas – what are the key elements to your strategy?

When I joined the company in late 2008, we had massive amounts of litigation and we were paying our external counsel on a conventional hourly basis. We would try to manage it by scrutinising the bills, but there was no strategy in place to move away from the billable hour.
During my practice life, I have come to loathe the billable hour because I don’t think it aligns the incentives of outside counsel with the priorities of the company. Sometimes the result is the client over-pays and sometimes it under-pays. So when I was in private practice, sometimes I would feel under-rewarded, while other times I would spin my wheels, but still get a great result and paradoxically get paid more.
Time is not a great measure. So on joining GSK I immediately demanded that we negotiate alternative billing arrangements (ABAs) with the major law firms that we had providing services – there were about 15. This was the first round of our reforms – ABAs that provided some measure of predictability and included incentives for the firms to be efficient.
They were individually negotiated with each firm, so there were various permutations, but essentially there was a ceiling and a floor – so if they went over the former then there were implications for them, but if they came in lower than the latter then there would be a benefit for the firm.
We also started to move various cases to a bonus-based structure – if firms got great outcomes for us then they would be rewarded. If somebody can eliminate a case for us on a motion to dismiss – then I’m willing to reward them for not having taken the case all the way to trial.
But it was still a model based for the most part on the billable hour.

You took a fairly quick decision to move to a technology-based evolution…

Yes, the next phase was developed by our former head of litigation, Bob Harchut, and it involved working with our procurement department to develop an outside counsel selection initiative (OCSI), which we launched around the end of 2010 and so far we’ve run close to 60 events.
It is a reverse electronic auction. In relation to major new matters, we invite a few firms to submit a proposal. We score the proposal based on the strategy, the experience of the team, and a range of other factors. Then we invite them into an electronic bidding room for 24 hours – and all they see is the lowest bid
so far.
They don’t know who else is bidding; they know what their bid is and they know what the lowest bid is. Different firms adopt different bidding strategies – some come in high and then drop lower; while others will start out with their lowest bid.
There are normally four or five firms in the bidding room; sometimes it has been as few as three and as high as seven. And so far we’ve had around 80 firms from the AmLaw 100 participating, plus we’ve had magic circle firms.

The process must be a bit of a shock for élite law firms with established methods of pitching. How have they reacted?

They don’t love it as a process, but they recognise it is the way of the future. Initially there was some shock, but then they got used to it. There have been individual matters where firms will decline even to pitch, but in general, we’ve had all the best firms participating at some stage.
In my view, I’d rather go through the OCSI process than have to negotiate rates separately – at least this way it is fair.
We went on to create our global legal external relations team; the sole job of that unit is to try and drive down our outside counsel spend, while maintaining quality. Because, while it is important for me to drive down the outside counsel spend, it is more important for me to win.

There’s a temptation to assume that the process is all about the fees with low-bidders winning. How important is price?

We don’t always chose the lowest bidder – we try to use the process to set the price, but sometimes when we are scoring we’ll take the view that even though a particular firm was more expensive, it came down from its original bid, and we feel it is the right firm, given the strategy proposed and the team put forward.
We also talk about – but we don’t always implement – a bonus for early success. The other key point is that the firm mustn’t be put in a position where it thinks that we are just out to take advantage of it on a one-off basis. And we are not out to do that. We see these firms as our partners and we are not out to extract the last penny from them.
So we state certain assumptions – say a case is going to involve something like 20 depositions. And the firms bid on that basis. They have to trust that if it turns into a much bigger case – say, 40 depositions – that we are going
to revisit the fee that they bid. And we do.
The key point is that we are looking for a long-term relationship with these firms; and they are looking for a long-term relationship with us. It’s not transactional in the same was as eBay, where that’s it – you are never going to have anything to do with that person again once the deal is finished. Our process is a way of beginning a relationship, but we also very much make the point that things can change, and that if circumstances around a matter do change then we’ll talk about it.
I want the best firms to provide the best service with the best lawyers on the matter. And I want them motivated and incentivised to win for me. But that doesn’t mean that I’m going to pay their top rate and for as many hours as they decide they want to bill.

What level of flexibility has your department in working outside the bidding room structure?

I am the only person who can get us out of doing the OCSI process. If there is a matter anywhere in the company above a certain threshold, then we have to use OCSI – and that threshold is low enough to catch most of our legal matters.
But for some matters there is just one lawyer that I want for the case. An example of a matter where we didn’t use the process is a case in which we were just successful in the Supreme Court. The case had multi-million dollar implications for us, relating to the question of whether we are obliged to pay sales representatives overtime, including retrospectively. No-one in the industry has ever paid their reps overtime – we all operate on the basis that they are exempted under the outside sales exemption.
And for this case I wanted to hire former US solicitor general Paul Clement, who argued the healthcare reform case. While there are many other fine Supreme Court advocates, this was not a matter I wanted to put up
for bidding.
Sometimes you want the right lawyer. But one of the things I’ve learnt from this process is that there are a lot of good lawyers out there. For most matters – even major litigation – there are two, three, four firms that are essentially equally good.
There may not be 100 firms that are equally good, but I don’t need 100 firms to set up this competition. We put four or five firms into this process and they show us how much they want the matter.

You mention the involvement of the company’s procurement department. Has that created tensions?

This isn’t a process that you can just turn over completely to procurement because you can’t buy legal services in the same way you buy paperclips. However, a partnership with procurement is absolutely essential.
The procurement department was absolutely thrilled that we were open to working with them; they hold us up as a model within the company
as a function that is willing to apply their tools.
So I have a fantastic relationship with procurement and there is no way that we could achieve what we have done without their help. We have a couple of staff from procurement who are assigned to us full time. We’ve also had great support from other parts of the company – our mean-sigma experts have been crucial.

How much savings has the process generated for the department’s bottom line?

My annual outside counsel spend is unfortunately in the hundreds of millions of dollars – and this has saved us many tens of millions.

Outsourcing is another subject that occupies a lot of general counsel thinking time. Is GSK looking to shift some legal processes to developing world jurisdictions?

We have piloted the outsourcing of patent and information searches and we have found the quality is not where we would like it to be. So we continue to do those searches ourselves. And in relation to some patent work, we are in-sourcing – we are taking work back that has been done in the past by outside counsel.
We did the same thing with document discovery – we piloted an outsourcing programme for that as well. But we’ve found that we are able to control the process better ourselves and that the costs are not significantly higher than what we would pay by outsourcing to somewhere like India.

Big pharma is up there with big oil in terms of general public perception. Is that fair and what risks trouble your sleep?

We are not as well loved as we should be given the good we do for patients, to put it mildly – we should have a much better reputation than we have. Some of the reasons why we don’t have the reputation that we should were in the past self-inflicted.
As for the risks that keep me awake at night – sales and marketing in the US is a substantial one that we focus on a lot.
Corruption risk is an issue we spend a lot of time on, given the Foreign Corrupt Practices Act in the US and the Bribery Act in the UK.
And we do what we can in respect of product liability risk in the US, but sometimes that risk is very difficult to control. If a medicine is approved and later a safety signal emerges – that is almost an inherent risk in doing business in the pharmaceutical sector.

CV -- Dan Troy

Based in Philadelphia, he is the global general counsel at British pharmaceutical multi-national corporation GlaxoSmithKline. Mr Troy joined the company in September 2008, having spent the preceding two years in private practice as a partner at law firm Sidley Austin.
Prior to that, he was a chief counsel for the US Food and Drug Administration, having moved there from the partnership of Washington DC firm Wiley Rein & Fielding, where he practised constitutional law, including arguing a case to the Supreme Court.