DHL General Counsel Mark Smolik Improves Legal Department Performance with a Business Mindset (Part 1 of 2)

DHL General Counsel Mark Smolik Improves Legal Department Performance with a Business Mindset (Part 1 of 2)

By William (Bill) Henderson – Guest interviewer

This month Qualmet is honored to present the first part of a very special Value Drivers interview. The interview was conducted by Bill Henderson, Editor of Legal Evolution and Professor of Law at Indiana University Maurer School of Law where he holds the Stephen F. Burns Chair on the Legal Profession.

Bill is a prolific author and lecturer on the legal market. His industry accolades include ABA Journal Legal Rebel (2009), National Law Journal 100 most influential lawyers in America (2013), and National Jurist most influential person in legal education (2014 and 2015). Bill is also a Fellow of the College of Law Practice Management.

In this interview, Bill speaks with Mark Smolik, the General Counsel and Chief Compliance Officer with DHL Supply Chain of Americas, who launched a continuous evaluation platform from scratch after he and his team reduced their outside counsel numbers from hundreds to a select panel. In part one of this series, Bill explores why Mark decided to create his own law firm performance management program and how it helped him improve his department’s contribution to the corporation and share the business story of his legal department with company leadership. In part two, coming soon, Mark takes Bill through the sharing of the results of the performance evaluations with outside law firms. By making performance management a priority, Mark was able to increase overall business value and improve the legal department’s efficiency.

Henderson:
Mark, thank you for joining me for this discussion. Let’s begin with some background on your role as General Counsel at DHL. Can you share with us why you were the candidate they hired and what problems they specifically looked to you to solve?

Smolik:
I had a one-on-one with the CEO at that time and I asked him that very same question, “why did you hire me?” He said that I was the first interviewee who came through our interview process that spoke the language of business. He said that he had no idea that I even had a law degree because there was nothing in our conversation about the law. But he went on to say that he trusted that I had a J.D., and appreciated that I think like a business person first. To me, that was a pretty big compliment.

Henderson:
When you took the helm at DHL, you had a seven-person legal department, plus more than 300 outside counsel firms. How did you speak with your CEO about the business need for a disciplined approach to law firm performance management?

Smolik:
Within my first 100 days as general counsel, I had discussions about the need for improved law firm performance management with my CEO during our one-on-ones. I was candid in my analysis that there could be a more functional process introduced into the legal department. I also set the tone for how we were going to change things, and I explained a three-year journey to the board.

One of things that I explained was the business approach to the practice of law. I talked about the fixed cost of the legal department, which involves the employees and overhead, and I also talked about the variable cost, or the outside counsel spend. I went on to explain that we are going to hold outside counsel accountable to the same key performance indicators as the in-house team, and that we will begin to evaluate outside counsel based on their performance to make sure that we are investing with the right firms.

I shared that the process would uncover whether or not we had high-performing firms with an appropriate balance of the spend. The evaluation process would also uncover any low-performing firms, based on feedback from my team and others within the organization.

Henderson:
And how did the evaluation process unfold?

Smolik:
Before we could implement an effective process to evaluate and manage law firm performance it was critical to reduce the number of relationships to a manageable level. The in-house team and I sat down and the first conversation we had was around what work we could perform in-house, and what we expected outside counsel to handle. From there we identified where our significant spend was and we found that we were spending quite a bit of money on what I call commodity work. This includes our real estate work, our procurement related contracts, and even some of our economic development work. We moved to insource that work and to migrate away from those law firms that were handling that work. At this point in the process, there really wasn’t any detailed, objective analysis that went into the performance evaluation of the firms, since we knew that our team could handle the insourcing.

Once we identified the in-house work, we then went through a process of evaluating how much work was going to what firm. At the time, the evaluation was all done manually, and from there we began to weed out the firms. We eliminated those where we had very low spent.

This was the first step on our path toward effective performance management. At that point, we were able to get the quantity of firms down to a much more manageable amount. During that time we were also evaluating electronic billing systems, so we began to put one in place. Through that tool, we got a little bit better hold on our spending. Importantly, at the same time, we were running a parallel project to evaluate the external team the same way we evaluate the internal team. We knew that simply reducing the number of law firms we managed and leveraging basic matter management tools for cost cutting would not significantly move the needle on performance. We had to figure out how to use objective and subjective metrics to evaluate our outside counsel, so that we could have impactful conversations with them about continuous performance improvement.

Henderson:
When you first saw the aggregated data from the evaluations, what insights did you have?

Smolik:
Honestly, I was surprised when I first got the results of the evaluation. I was amazed at what we had uncovered.

We summarized all the data in a single Powerpoint slide. It was presented as a four-square box, and the quadrants represented high-performing, low-performing, high-spend, and low-spend. All of the firms with whom we were working, and that we had evaluated, were plotted with a little dot on the square.

I ended up with far more firms in the low-performing high-spend category than I was anticipating. I also knew that I had told my board exactly what I was going to do and when I was going to be reporting the results to them. Even though this spending didn’t all happen under my watch, I called it out and made clear to the board where we were spending the money and ultimately shared a second graphic to show how we would move our spend to high-performing, low-spend firms and get away from the low-performing firms entirely.

The second part of Bill Henderson’s Value Drivers interview with Mark Smolik will cover how Mark shared his evaluations with outside counsel, and how the successful firms took those conversations as opportunities to improve service and solidify their relationships with DHL. Look for Part 2 of Bill’s conversation with Mark coming soon.

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