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All change at Shell – legal head pushes through shake-up and puts final touches to global panel review

While the trend of in-house departments bolstering their internal capability and cutting reliance on external counsel is well established, Royal Dutch Shell’s legal head Peter Rees QC has taken the logic to the extreme.

Since replacing Beat Hess as the global energy group’s legal director in January 2011 Rees has pushed through major changes, restructuring Shell’s around 750-lawyer department and kicking off a far-reaching global panel review.

Rees, who joined from Debevoise & Plimpton’s City arm, hired 112 new lawyers globally last year alone. The restructuring has contributed to a dramatic fall in external legal spend, with Shell’s legal budget running at roughly half its level in 2007. However, the company remains one of the world’s largest corporate users of legal services with a budget of well over £100m annually.

The hires – which came in the US, UK, Netherlands, Canada and China – have seen Rees move to shift the composition of a team that was extremely top-heavy, with an average PQE of 18.9 years. Faced with succession challenges, older departing lawyers have been succeeded by younger, home-grown talent and external hires have been made at the very junior end, with the idea of re-introducing an attractive long-term career structure. ‘The whole purpose of in-house legal is to know the business of the company inside out,’ comments Rees.

Further restructuring has seen Rees form a global litigation group – with many new recruits coming in disputes – after discovering (somewhat to Rees’ horror as a former litigator) there was no dedicated contentious capability outside of the US. The formation of the litigation group saw Shell appoint Fulbright & Jaworski UK disputes partner Richard Hill as associate general counsel.

Incoming general counsel often talk of a small window of opportunity to push through change after they arrive. However, Rees says that the shake-up last year came only after a painstaking attempt to rethink what the legal team of Shell should look like as if rebuilding it from scratch.

Similar thought has been given to the panel review that saw a request for proposal sent to 357 law firms globally in March, with the aim of finding between two and five law firms for each practice area in each major jurisdiction. Firms will be notified of the results this week.

In order to achieve predictability, underlying terms and rates will be agreed for a three-year period. Under the new model, Shell lawyers will seek a price for each transaction from a number of firms. Rees said: ‘If all three firms come back with roughly the same price we will pick the best not the cheapest. If one comes back as £1m and one as £5m we will talk to both to find out why they are so far apart.’

Rees says the current model of the panel should function as part of a long-term evolving relationship that will give advisers a chance to build their links with the bluechip. Rees comments: ‘Based on my experience as outside counsel you do the best work for the clients you have the best relationship with.’

Rees has deliberately not scheduled a full three-year review of the incoming panel but Shell aims to discuss rates with a slimmed down group of firms that it has built stronger ties with under the current framework. If not a marriage, this is something of an ever-decreasing harem.

The approach is in contrast with the panel review conducted by Shell in 2010, which one insider critically described as ‘buying legal services like you would buy hammers’. Major Shell advisers under the 2010 panel include Clifford Chance, Allen & Overy and Hogan Lovells. A handful of firms’ shortly to be unveiled as Shell’s advisers will have a chance if the new arrangements prove to be more evolved.