Law firm panel

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“Within a couple of millennia, bankers in many parts of the franchise were doing little from dawn to dusk other than taking care of legal advisors. It wasn’t easy. The lawyers demanded a lot. They didn’t like personal responsibility for anything, so the bankers broke their backs, forging them disclaimers and liability caps and waivers. They didn’t like being categorical, so the bankers suffered pages and pages of assumptions, conditions and qualifications. They didn’t like sharing their fees with other firms, so operations teams laboured long days under the scorching sun building impregnable barriers to entry which they called “panels” within which their delicate “captive” law firms could safely conjure up their intricate gossamer figurines without risk to their livelihoods.

The bankers were not evolved for this. They had long adapted to gouging sovereign wealth funds, ploughing customer deposits into casino banking and ripping faces from defenceless end-users: they was not designed to tamely agreeing terms of engagement and carrying water for high-paid dilettantes. Banker spines and brass necks paid the price.

Moreover, their lawyers were so confusing and their work products so baffling that the bankers had to co-opt thousands of extra lawyers to work inside their businesses, who could keep the crops and fields of lawyers happy, throwing out fresh instructions on any matter across which they could contrive to cast doubt. This completely, and permanently, changed the bankers’ way of life.

Banks did not domesticate law firms. Law firms domesticated banks.”

—Noah Yuval Harari, Legio Cadabra: A Brief History of The Magic Circle

“The involvement of S&C, which represents the FTX estate, has been controversial from the start. S&C lawyers had assisted the company in the chaotic days leading up to its bankruptcy filing — including preparing its petition and appointing Ray, a restructuring expert its lawyers knew well, as its new chief executive. A former S&C partner, Ryne Miller, was FTX US’s general counsel.”

Law firm panel
lɔː fɜːm ˈpænᵊl (n.)
Proof that, far from being a seething pit of apex predation, the financial services industry is no more than an extended phenotype — a gruesome, metastasised spandrel illuminating the space between adjacent domes of legal excellence — that exists for the pleasure and enrichment of those saintly white-shoed attorneys who grace the serene frescoes overhead.

Docile ruminating masters of the universe. Yes.

The image of investment banks as docile, harnessed sauropods, munching stupidly away in the unwitting service of a higher caste of pan-dimensional superbeings seems far-fetched. But so does the idea of wheat bending humankind’s staggering intellect to its merest biological ends, and that is what evolutionists would have us believe it does.

Are the Masters of the Universe really in thrall to mere legal eagles?

This would not be the strangest thing. Banking is riven with contradiction: that a calling so devoted to the tenets of laissez-faire should self-organise into lumbering technocratic dictatorships is one thing tells us all is not as it seems.

The overwhelming power of law firm panel, we submit, is another.

What looks like the übermenschen taming, husbanding and cultivating a bunch of mealy draftspeople to their own savage ends — penning them in, fattening them up, maximising their worth and wringing from their tired marrow the essence of a wisdom out of all proportion its paltry cost — is a wishful fiction.

After all, it seems that way for wheat, too. Only no-one ever hired wheat to run the harvesting operation.

Yet this is just what banking corporations have done. Thirty years ago these enterprises barely had a legal department. What started out as a guy in a cardigan filing slavenburgs and punching out powers of attorney grew: one became five became, by the financial crisis, five hundred.

Originally conceived as a means of operational control over these deferential paper-fanciers, bank legal departments began needing operational control themselves. They acted like a fifth column for the firms they were meant to be managing while firms affected dismay at mass defections of their mid ranking “talent” to their clients, but privately regarded it as long-range strategic infiltration.

American firms were more brazen yet, parachuting equity partners directly into general counsel roles assuring their clients’ ongoing loyalty. (The “general counsel” as a meaningful career is a creation of the 1990s).

Turbulent priests

But every now and then an upstart banker would ask an impertinent question:

“We have a legal department numbering twelve hundred. That is about half the size of Herbert Smith. All told, it costs us half a billion a year. Yet we still blow ten figures annually on external lawyers. Could someone walk me through this?”

Now everyone knows an internal legal team is there to organise legal advice, not give it, so the operational industrial complex interpreted this as a challenge to efficiency, not existence.

So was born the law firm “panel”.

It springs from that observation — investment banks spend an awful lot of money of lawyers — and overlays it with that omnipresent trope of modern commerce — scale is everything — and concludes that accommodating a few friends at the expense of a lot of acquaintances can somehow work to the bank’s advantage.

One can, this way, do more with less.

A-ha moment

Picture the scene: an enterprising fellow in the legal COO team pulls 5 years’ of legal spend, totals it, and with the AVERAGE function in Excel generates this no-brainer:

“We spend £750m a year on external legal across 1,500 firms at an average run rate of half a million quid each firm. This is insane. If we concentrated that on say ten firms — even a hundred — we could drastically reduce our administrative costs and goose our scale.

If we guarantee firms £50 million in billings we can push down their hourly rates, commit them to a programme of rolling secondees and have them run our annual training programme. That way we could cut our overall spend by 30% and get more legal value than we get right now.

This logic being unimpeachable, it is actioned without ado. The impulse to shower good money over a myriad of random law firms will be controlled. Order will be restored.

There will follow a colossal, nine-month multilateral negotiation with those ten favoured firms.

We guarantee you a bigger share of the work.

You cut your rates and give us some free stuff.

Once completed the deal will be presented to the management committee as a triumph and to the department as a fait accompli. Any deviation from these arrangements will require GC signoff after a bureaucratic process designed to ward off dissenters.

And there will be dissenters. To desk lawyers, who do not care about emergent economies of scale but will have to ditch their regular lawyers as a result, it will be as welcome as a fart in a lift.

It is no less welcome for “challenger” firms wanting a bit of that chunky IB action. Suddenly, a small cadre of the most expensive firms on the planet by offering a slight discount on eye-watering rates, have shut out

Now, had our fellow used a pivot chart he might have told a different story. For these firms span 150 different jurisdictions, for a start. The mean may have been half a million, but the median spend was £10,000. Five hundred of them billed less than £5,000 each. That third of the group account for just 2m of the total spend.