Lessons from fashion maverick Yvon Chouinard of Patagonia about the sustainability of long-term partnerships.
I was recently discussing with a client how concepts around sustainability in the clothing and retail sector relate to legal spend, and how lessons from Patagonia can be adopted successfully by legal teams.
The pressure to cut external legal spend is greater than ever. Corporates have for years sought to claw back cash from the wheelbarrows full that are carted off to their panel law firms each year. A wealth of solutions have been thrown at the problem, most with limited success and often with long-term damaging effects to the business. Savings are often achieved in the short term, but at what cost?
General counsel talk of the trade-off between cost, quality and increasing the risk profile to the business, and yet there still doesn’t seem to be a happy medium for anyone. Expensive spend reduction consultations are repeated yearly as costs inevitably increase as a result of poor internal financial hygiene habits. (Does no one read David Maister anymore?)
To break the inevitable cycle, corporate legal teams should look at principles from other industries. The principle that might help end this cycle is the concept of sustainability.
Recently we have seen the clothing industry come under intense scrutiny and demands to become more sustainable. Supply chains have been picked apart to ensure that companies are having a minimal impact on the environment and eradicating modern slavery – all with an eye on the bottom line.
Globally, Patagonia is considered the leading clothing label with respect to sustainability. Founder Yvon Chouinard has famously always insisted that the future of his people and the planet is put before the success of the company. In his seminal book “Let My People Go Surfing,” Chouinard lays out his philosophy for creating a sustainable ecosystem.
Chouinard passionately believes that any decision made by Patagonia that may offer appealing short-term gains will actually only harm the business and its surrounding ecosystem for much longer and in a much more severe manner (much like many corporate legal departments implementation of “spend management” solutions to achieve short-term savings).
As a company, Patagonia ultimately doesn’t just talk the talk; it offers an ironclad lifetime guarantee for its products. The concept would likely make the CEO of any fast-fashion chain physically ill, but it is perhaps the greatest secret to Patagonia’s longevity.
It seems ironic to adopt principles from an industry famous for enacting brutal efficiencies in its supply chains. But there are two primary principles of Chouinard’s philosophy that corporate legal teams should begin to explore if they want to escape the seemingly never-ending cycle of using tired, old solutions.
Don’t buy this jacket
In 2011, Patagonia ran a campaign in The New York Times called “Don’t buy this jacket.” The advert was a frank and honest letter explaining the environmental cost to produce the jacket, encouraging shoppers on Black Friday to really consider whether they needed to purchase another jacket, or whether a jacket they already owned might instead do the job.
Whilst undoubtedly an incredibly smart marketing campaign (sales rose 30 percent as a result), the messaging and concept behind the advert remains true for corporate legal departments trying to cut costs. Corporates continually buy new jackets every year in the form of legal opinions for almost identical transactions, yet the old jackets stuffed in the back of the filing cupboard will often do the job perfectly well. Now this analogy may be a little far-fetched for legal, but stay with me here.
Experienced general counsel are well aware of a wealth of useful precedent opinion material sitting in their internal legal departments. Yet repeatedly corporates have given up the ghost in trying to create an accurate and reliable precedent bank in favor of solutions that promise an instant 20 percent savings on annual external spend.
Whilst perhaps effective in the short term, most of these solutions will probably damage your carefully cared for and maintained relationships with long-term advisors. Sitting down and working out how to store, tag and find those old (and often still functional) legal opinions probably will actually help you achieve those savings over the long term.
Building long-term sustainable solutions will ultimately help you truly understand whether you do need to go out and buy that new coat.
Chouinard’s philosophy may also offer lessons for private practice law firms as well. Why not offer an advisory service where the corporate’s in-house knowledge repository is regularly updated by your own lawyers? Whilst this might potentially reduce your opportunity to obtain similar work next year, it might just open up that productized knowledge revenue stream that the board has been looking to identify for the past five years.
Don’t undervalue your relationships
The relationships between external counsel and the in-house teams are complex and fragile. They are susceptible to price and quality more than any other supply chain relationship. But they are made more complex due to the intrinsic emphasis that is placed on values.
External counsel selection has historically been based on experience, expertise and trust. By rapidly reducing costs, parties risk damaging these careful relationships that have been built up over time. By now, both parties will have developed an intrinsic understanding of each other’s businesses. They will be well versed in what makes them tick – and what conditions enable their own success.
Just ask any law firm partner which team their client supports. The good ones will know.
Many corporates have sought to achieve cost savings by demanding alternative pricing models, lower rates, lower cost resources to undertake the work (whilst insisting that the quality is partner-level), bundling of services, and by squeezing firm margins almost to a loss.
Due to increased competition, firms are being forced to agree with these new terms, but what most corporates are ultimately failing to do is control the true cost drivers of external legal work.
Focusing on who does the work, how much time it takes to do the work, and what work should be done will ultimately help achieve more sustainable savings – and crucially will not harm your long-standing relationships with external firms.
Corporates have now realized the benefits of working with a few trusted suppliers, forming stronger business relationships, and understanding each other more. Historically, larger panels were preferred due to the supposed pricing competition. At Morae, we are yet to see a corporate with a larger panel that has better rates than a corporate with a smaller panel.
Chouinard talks of the risk of becoming highly dependent on the success of another company’s performance. However, to become dependent, a mutual commitment to success must arise, as the dependency requires trust and transparency. Where corporates better align their business interests, sustainable savings are significantly more likely to be achieved.
What sustainable, supply chain–led businesses have achieved so well is viewing their world as an ecosystem, where all parties must thrive. Corporate legal teams should look to do the same in their quest to achieve truly transformational long-term savings.
Published October 2, 2020.