European Lawyer Blog

Akzo Nobel’s prize escapes

Antony Collins — Tue, 14 Sep 2010 10:10:51 +0000

There will no doubt be a lot of coverage about the ruling on the Akzo Nobel appeal. The much-followed case has become something of a cause célèbre, with in-house lawyers, professional organisations and even law firms (including one that sent out an embargoed statement on the case commenting on both potential outcomes) getting in on the act.

In a nutshell, the case goes as follows: Akzo Nobel’s offices are raided in 2003 as part of a competition investigation; documents containing advice from the in-house legal team seized; Akzo Nobel claims they are subject to privilege; Court disagrees; Akzo Nobel appeals; Court once again disagrees.

While this summary is rather crude, the process has been dissected and deconstructed from all sides and yet the ruling is probably not that much of a surprise. Firstly it was never like there was a golden era when in-house lawyers were all granted uniform privilege. Secondly the first case had been rejected. Finally, Advocate General Julianne Kokott made a recommendation in May to reject the appeal too and say that legal privilege should not be applied to internal communications between companies and their own corporate counsel.

The GC100, a body that represents the general counsel of the UK’s top companies, has been one of the most vocal opponents. John Davidson, head of legal at drinks company SABMiller and also a former partner at legacy UK firm, pointed out that English courts do not recognise a difference between legal privilege between a client and external or employed lawyers.

But, at the heart of the matter, has been the question: should in-house lawyers be granted privilege? The EC says no. As employees of a business, they are not “independent agents” so can not provide honest and impartial advice, or at least so is the belief. Case closed.

But the real issue is not necessarily the corporate counsel angle that has been pushed. If anything, the practice rights of in-house lawyers per se are a secondary consideration. Of course, if the EU had ruled in favour of Akzo Nobel organisations such as the GC100, ECLA et al would be pointing out the importance of corporate counsel and claiming victory for in-house lawyers.

Arguably the more important legal impact, however, would have been for the companies themselves. If the Court had ruled in favour of Akzo Nobel, it could have meant that client privilege would have applied to any legal document that could be relevant to competition and antitrust investigations. This could have seen potential EU competition and cartel investigations seriously hampered as reams of documents fell under the “confidentiality” banner.

In both instances, in-house lawyers and the companies that employ them will be disappointed by the outcome; even if that disappointment was as predictable as the ruling.

The transparent trap

Antony Collins — Wed, 04 Aug 2010 11:00:08 +0000

In May, The European Lawyer wrote a blog on Orrick Herrington & Sutcliffe’s decision to stop reporting its average profits per equity partner figure to the press. We said at the time: “Historically few [European law firms] have dished out profit figures because of the discrepancy between what top partners earn and what junior partners do. Even so, a move away from profits figures would not have that much of an impact.”

The profits issue cropped up again recently, from another angle, following our story on the UK LLP accounts of Garrigues. The firm was displeased because it does not break down its financial data by office, so focusing on the numbers of just one office does not provide the whole picture.

A fair enough observation but this does not factor in the major aspect of the UK LLP; the detail and disclosure. On a general level, European law firms are not the most open when it comes to financial information. The bulk of them though, including Garrigues, will provide the overall revenue figures for publication in national or Continental law firm turnover tables. When it comes to profits and other more “sensitive” data though, firms get a lot twitchier.

There are even sections of the market that will not provide turnover. A handful of firms will do it begrudgingly or provide “steers” (usually a guesstimate along percentage changes). Practices in Portugal and Austria are notoriously secretive when it comes to such data and stonewall requests for financial information. In Norway, firms are obliged to report their numbers so do so willingly.

The crux of the matter though, and why the London numbers of for Garrigues, Bonelli Erede Pappalardo and Gide Loyrette Nouel are so interesting, is that UK LLPs provide in-depth disclosure of all the juicy information for the first time. It may only be for one office but the fact that it is not just the headline income but a full breakdown is new and interesting.

Yes, turnover is in there but, more importantly, so is profit. Not the profit suggested by the law firm itself but cold, hard gross and operating profits. There is also information on debt obligations, running costs, liabilities and how much the highest paid partner received.

Would European practices provide such firm-wide data willingly? Perhaps some might, although – if experience is anything to go by – most tend to ignore the profit question when quizzed. That is fair enough. They are not obliged to. However, they are if they register their office as a UK LLP.

The scrutiny that a UK LLP leaves law firms open to has become par for the course for the English outfits. They are now comfortable with the transparency that they are obliged to provide and have accepted the change. If a European law firm registers as a UK LLP, it too is open to having the same such inspection of its accounts. Granted, the numbers may only relate to London but it still gives an unprecedented insight into traditionally reserved law firms. English law firms went through exactly the same process from introspective and secretive to full and frank financial disclosure.

While Orrick has decided that profits are no longer the key figure for clients, such information does remain a major factor in recruitment and marketing. Revealing such intimate transparency in public is something new to many Continental firms. Even so, the UK LLP accounts provide an invaluable snapshot into Europe’s premier practices.

Those European law firms thought that have provided a quick glance behind the curtain via their London LLP accounts have shown not only very sturdy figures but proved that they are well-managed, top-quality businesses. And the proof is there in black and white.

Europe still struggling with deal flow

Antony Collins — Fri, 09 Jul 2010 10:17:39 +0000

The news that just two independent law firms – Uria Menendez and Homburger – made it into Thomson Reuters’s H1 European M&A tables is not, on the face of it, disastrous for independent law firms. At least the bigger ones. The real concern is that, in markets that have seen a huge upturn (such as Spain) and huge downturns (such as Italy), the bigger independents have seen market share fall at the expense of smaller rivals.

Indeed, the Spanish economy has seen deal value jump by 73 percent so far in 2010 to hit $60.82bn. This made Spain the second most lucrative European market behind Benelux ($61.46bn). Even so, Garrigues was the best (or should that be least worst?) in terms of market share following a fall of 1.9 percent. Uria slumped by 40.6 percent and Cuatrecasas was down 50.5 percent decline.

Conversely, the Italian market appears in a terrible state. Value crashed by almost 74 percent to a lowly $9.36bn. Despite that the small and mid-sized Italian firms outperformed their bigger rivals. Like in Spain, Italy’s big three firms all saw value drop. Gianni Origoni Grippo & Partners was down 3.1 percent, Bonelli Erede Pappalardo fell by 19.6 percent while Chiomenti was down 35.1 percent.

In the case of the big Italian law firms, their loss has come at the benefit of smaller and mid-sized firms. Pedersoli & Associati and Legance, for example, posted healthly double-digit increases in market share. Carnelutti was up in 12th, Pavesi Gitti Verzoni was 13th, Labruna Mazziotti Segni was 19th and Miacchi di Cellere Gangemi was 24th. All of these firms saw modest growth in market share.

The success could be seen as an indication that the traditional dominance of the ‘big three’ is starting to wane as the recession continues. As is clear, the market is certainly becoming more competitive. With legal departments driving down costs and seeking cheaper but still high-end advice, perhaps it is the start of a new era for those firms outside of the sizeable elite? They are certainly starting to suggest this in the M&A figures.

Mergers: A golden union

Antony Collins — Tue, 29 Jun 2010 15:36:48 +0000

The creation of US-UK giants Hogan Lovells and SNR Denton may have been the biggest mergers of the year so far but, within the slightly more modest European markets, consolidation is also starting to pick up.

The news that Gleiss Lutz had bagged respected Hamburg boutique Rittstieg has been the pick of the 2010 European mergers. Rittstieg has a stellar reputation in the private equity market, with clients including Gardeur, MPC Capital, Kühne Holding and Tomorrow Focus. For Gleiss Lutz, which last year launched in Düsseldorf, the deal provides an invaluable route into Hamburg as the German firm continues its march to become a national giant.

Elsewhere in Europe this week alone four other independent firms have had similar inclinations. In Finland, Merilampi Attorneys has agreed to merge with Helsinki counterpart Veikko Palotie & Co to form a 40-lawyer firm while AMBOS and NBGO Lex announced a combination in Belgium.

Of course, mergers are nothing new but the desire to beef up or create pan-national practices is moving up the agenda for many law firms. From a European perspective, it is a clear indication that the fight for many regional practices is on a national not international level.

The perceived threat is no longer from the marauding international giants. Many international firms have, instead, opted to focus on high-end cross-border M&A and banking deals, leaving local and regional mandates to local and regional firms. Competition within this sector is pretty fierce and having strength-in-depth, and dare I say a full-service offering, can be the main differentiator.

Strength, it would seem, comes in numbers.

Other 2010 European mergers:

Spain – Dutilh Abogados and Vialegis (90 lawyers)
Romania – Popovici Nitu & Asociatii and Danescu & Asociatii (70 lawyers)
Italy – Lega Colucci & Associati and Traverso & Associati (35 lawyers)
Spain – Larrauri Abogados and J Marti Abogados (18 lawyers)

A limited appetite in Italy

Antony Collins — Mon, 14 Jun 2010 14:02:18 +0000

Milan: Italy's financial centre

The news that Simmons & Simmons is pulling out of Padua – after the local team moved to Gianni Origoni Grippo & Partners – all but effectively ends the presence of international firms outside of the core Italian hubs.

Simmons’ Padua office is the latest in a line of closures across Italy’s secondary markets as global firms’ streamline their coverage in the historically troublesome jurisdiction. Clifford Chance’s Padua base closed in 2007, Baker & McKenzie’s Bologna office spun-off two years ago and Allen & Overy’s Turin office also broke away for independence.

It is easy to over-exacerbate these closures and drag up the clichés of Italian tempestuousness and Anglo-Saxon ignorance. In truth, they represent the shift in emphasis of international law firms in Italy (and arguably the world) over the past decade. Whereas once there was the desire to compete on full-service mandates, the Anglo-Saxon firms have scaled back in personnel and practice areas in an attempt to out-boutique the boutiques.

Take the A&O example. When the UK firm merged with Brosio Casati & Associati in 1998 there were close to 200 lawyers in Italy. According to the A&O website, this now stands at 75. Linklaters was courting Gianni Origoni with its 200-plus lawyers but, since the alliance ended and the magic circle firm has acted independently, it has built up a team of just 42 lawyers. The same limited headcounts are found in many international firms (White & Case even pulled out of Italy completely in 2008).

As with the exit from the regions, Anglo-Saxon firms seem to be chasing after a selection of high-end premium mandates rather than bulk work. The prime motive has been trying to leverage off investment banking relationships for financings or niche areas, such as project finance. This has broadly been successful, especially for firms like Latham & Watkins and Linklaters. Indeed, while firms like Bonelli Erede Pappalardo, Chiomenti, Gianni Origoni, NCTM and Pirola Pennuto Zei e Associati have been building up to the 300-lawyer mark, the Anglo-Saxons have been going in the opposite direction.

On the first point about regions, it would suggest an acknowledgement from international firms that a provincial presence is largely peripheral. The lucrative mandates from Padua or Turin are limited. Secondly that the presence in Milan and Rome needs to be lean, mean and focused rather than lower-margin full-service work.

It is worth noting that Italy has the smallest European M&A market by value and Italian businesses has a mainly domestic-focused agenda. Companies just do not have the same international appetite as those in Spain or Germany or The Netherlands. This, coupled with a top-tier of bulky national leaders and a plethora of leading boutiques, has meant that there is a limit to the premium work available and most of the instructions originate from Milan.

The last decade has been an interesting and pivotal one for the Italian legal market. The UK firms may have come and saw but they did not conquer. The Italian firms can take comfort from their quality. In hindsight, and despite the expensive lessons learnt however, perhaps Anglo-Saxons firms are glad they do not have to deal with hundreds of lawyers working on small and medium-sized matters during the downturn.

UK “chasing pack” running out of legs?

Antony Collins — Thu, 27 May 2010 10:52:51 +0000

First Lovells and now Denton Wilde Sapte. Two of the former “chasing pack” London law firms that were, a decade ago, attempting to challenge the magic circle for premium instruction have joined forces with two sprawling US national firms (Hogan & Hartson and Sonnenschein Nath & Rosenthal respectively).

Lovells spread its international network to France and Germany via mergers (with Simeon & Associes and Boesebeck Droste) and stand-alone launched in places such as Italy and Spain as well as Central and Eastern Europe and Asia. There have been teething problems of course. Senior defections, office closures and mixed fortunes in cracking these markets.

Dentons has been more restrained, preferring to focus on the Middle East and Africa. The firm even pulled the plug on its Asia network in 2003 although has previously courted US practices, notably Pillsbury Winthrop.

Both UK firms have their strengths of course, especially in finance, projects and energy. But it would seem the ambition to conquer the world had fizzled out as time went on. Indeed, magic circle firms have also scaled back their international exposure but maintain modest teams that focus on premium M&A and banking transactions.

The decision of Lovells and Dentons to tie-up with US firms shows that both believe big is better. Having a US hub – where litigation remains a major engine and clients are aplenty – provides much needed support and referral opportunities. Neither Hogan nor Sonnenschein are top-tier New York firms so their emphasis is on a wider practice offering, which should also benefit the full-service model of Lovells and Dentons.

Transatlantic consolidation is not a new concept. US firms such as K&L Gates, Jones Day and Reed Smith have picked off smaller London practices in a bid to enhance their UK presence. Mergers between big US and big City firms have been, however, a rarer commodity (DLA Piper is something of a unique beast).

So is this the start of a new wave of transatlantic consolidation? SJ Berwin has been skirting around a US suitor (first Orrick Herrington & Sutcliffe and then Proskauer Rose) and other respected firms that have not quite managed to build the international network they aspired to and face challenges in light of the recession. The main “chasing pack” candidates left are Simmons & Simmons, Norton Rose and Ashurst. All have their strengths and weaknesses but all three could be an attractive target if ambitious US firms, such as Orrick or Bingham McCutchen, decided to take the plunge.

A big part of the chasing pack’s problem has been differentiating themselves from each other. Teaming up with a US firm can help carve out a new identity for these practices. Two of the UK’s top 20 law firms have now teamed up with US firms in 2010 with SJ Berwin also signalling its intent to look stateside. After years of anticipation, the dawn of transatlantic consolidation could finally be on the horizon.

Mind your language

Antony Collins — Wed, 26 May 2010 09:47:41 +0000

If French is the language of love then English is the language of business. This mantra was underscored by the pioneering pilot project to allow German courts to hear commercial litigation cases in the English language (http://www.europeanlawyer.co.uk/page_77.html).

Traditionalists in Germany (not to mention countries such as France and Italy) may curl in horror at the thought of their beloved language being sidelined for English in their own courts but the project taps into the reality of the modern business and legal world. English is now vital in almost all serious international law firms. From the senior partners to the marketing team to the support staff, the ability to at least have a working knowledge of English is almost a pre-requisite.

Indeed, take any partner (even lawyer) in the top 100 European law firms. Few will not have a certain level of fluency in English. This is because multi-national businesses, which operate in multiple languages, resort to English as the default. To win these clients, especially the heavyweight Anglo-Saxon conglomerates and banks, no English may mean no instructions.

Likewise, many international contracts are often governed by US or English law. This is also true of the financings. As such, the German move is not really much of a shock. After all, English in also now the language of international arbitration. Top arbitrators from places likes France and Sweden adapted to this and, as a result, have maintained a strong standing in international arbitration rankings.

The initiative, however, may not spread. Many international law firms have not gone heavily into commercial litigation, which remains the preserve of the local law firms. It would seem unlikely that a country like Spain or Italy – with a strong showing of domestic firms – would ever want to take such a step. In addition, commercial litigation – such as in the German courts – is often domestic disputes. Neither Spain or Italy have professed a desire to become a hub for international litigation.

The German move does highlight the undoubted importance of the English language in international law. Despite the march of the international law firms, however, English has not totally consumed business discourse. If anything – as is the theory in Germany – it is not intended to replace other languages but serve as an alternative option. As has been show in the commercial sector the last decade, clients expect top law firms’ staff to speak fluent English and, in the modern business world, communication is crucial.

Orrick quits the equity benchmark

Antony Collins — Fri, 14 May 2010 08:52:33 +0000

Orrick Herrington & Sutcliffe has never been a shrinking violet when it comes to publicity and this past week has proven no different. First was the news that its proposed merger with UK firm SJ Berwin had, like so many of Orrick’s previous dalliances, failed. Then was the bold announcement that Orrick would no longer report its average profits per equity partner (PPP) figure to the press.

Partner profits figures have long been a divisive issue amongst law firms. On the one side are the Anglo-Saxons, with their more transparent approach to finances, especially in the UK LLP era when all such data is publicly available. On the other are European law firms which have, on the whole, been reluctant to reveal their bottom line profits.

From the first perspective, the decision of a top US firm to close ranks does make some sense. Orrick’s charismatic chairman, Ralph Baxter (pictured), said the move was made because PPP no longer reflected the right way to evaluate the business. Apparently it does not encourage the correct approach for the firm and the priority instead should be grabbing a bigger market share and deepening client relationships.

“The legal profession is at a transformative moment, and now is the time to reconsider all of the metrics we have traditionally used to measure success,” said Baxter. “Our partnership is engaging in a serious dialogue to identify more appropriate metrics to evaluate our firm, to strengthen our client relationships, and to make our lawyers’ careers even more meaningful. Moving away from the profit per equity partner metric is a step toward greater accuracy and transparency about law firm economics, and it will focus us even more on how we deliver value and efficiency to our clients.”

Outside of the legal market the emphasis on – and indeed benchmarking of – average PPP (or profits per director) would seem rather strange. Most other large service professions do not rely so heavily on the system. The idea of judging success on the average profits executives make even seems a little outdated. Would Deloitte be judged better than KPMG if average PPP was €10,000 more per year?

The revolution in the legal services sector over the past decade has also played its part. The traditional all-equity lockstep model is pretty much a thing of the past. Those old structures, when partnerships were smaller and more defined, gave a better indication of profit levels.

Nowadays law firms have hundreds and hundreds of partners. Many firms have two or three levels of partnership, ranging from salaried to fixed-equity to full equity. Firms in the UK have even introduced the concept of part-time equity partners. The geographical spread of big law firms is also a factor.

Of course PPP can give a broad indication of profit levels in an international firm. But Orrick has asked the question; is that really fair when other businesses do not get judged on average levels of profitability from across the globe?

On the flip side, European law firms have also deployed multi-tiered partnerships increasingly in recent years but have not exposed their inner-working so fully. Others have also expanded globally. Historically few haved dished out profit figures because of the discrepancy between what top partners earn and what junior partners do. Even so, a move away from PPP figures would not have that much of an impact.

“Clients and others have made it clear that the metric

actually creates the impression that firms manage to the metric to make themselves look good, rather than managing for their clients, their people, and a sound long-term strategy,” Baxter concluded.

Whether Orrick’s proclamation ends up posturing or a genuine U-turn is still unclear. It does, however, underline the growing commercial approach of the legal profession. The drive for greater transparency has left profit figures as the over-riding benchmark for a law firm’s success. In a global business, this probably is not the most reflective criterion to judge performance. By not letting the cat out of the bag in the first place, European practices must be relieved that profits are not the ultimate yardstick in which they are judged.

Getting lifeblood from Estonia

Antony Collins — Thu, 13 May 2010 14:18:27 +0000

It is easy to underestimate Estonia. The country’s population of just 1.34 million is dwarfed by most major European cities and its location, nestled between Finland, Latvia and Russia, also makes the jurisdiction peripheral, at least geographically.

In reality, and economically, Estonia has certainly punched above its weight however. The country enjoyed double-digit growth in the run up to the recession in 2007. It is practically energy independent, unlike many former Soviet states. Estonia’s average gross domestic product per capita is actually higher than larger economies such as Poland, Russia and Turkey.

As such, the decision this week to allow Estonia to ditch the kroon and replace it with the euro (in January 2011) is being seen as a major advancement in the country’s economic destiny. No surprise that Estonian lawyers are very pleased with the news. Indeed, if there was any doubt over the importance of the region one need not look any further than the legal profession. There are over a dozen recognised commercial practices in Estonia. Not bad for a country with a population roughly the same in size as Milan.

The crucial point is that, where Estonia is set to lead, Latvia and Lithuania (and maybe even Belarus) are set to follow. This is where the intriguing aspect of the Baltic market comes into play. There are few stand-alone Estonian firms. Most are part of a pan-Baltic alliance, such as Lepik & Luhaäär LAWIN, Tark & Co and Sorainen. Others are further enforced by a Nordic network, mainly in Finland (where the euro is the main currency). Examples include Luiga Mody Hääl Borenius (linked with Borenius & Kemppinen) and Raidla Lejins & Norcous (linked with Roschier).

As has been seen with Greece, being a member of the euro comes with a safety net when a crisis arises. For Estonia, being part of the eurozone would provide added protection at time when the public debt is under pressure and there is a threat of devaluation of its own currency. In addition, the euro would make foreign investment in Estonia substantially easier and boost its attractiveness as a business destination.

Those law firms that have not taken much notice of Estonia may well find the country on their radar at the start of next year. Judging from the strength and constitution of the current Baltic legal market, however, it may well be too late to profit.

Only Portugal in a storm?

Antony Collins — Wed, 12 May 2010 10:54:52 +0000

The news that Linklaters asked six lawyers from its Lisbon office to leave the firm seems to have taken some observers by surprise. For others, however, it will reflect one of the prime problems that has been looming as a dark cloud over Portugal for some time; the country’s law firms could well be overstaffed.

Granted, Linklaters was not one of the bulky practices. After the cuts it will have 28 lawyers (six of whom are partners) in its Lisbon office. But the fact the magic circle player has taken the bold step puts more all eyes on substantially weightier Portuguese firms, historically reluctant to trim headcounts, to react to the country’s impending problems.

Indeed, this week saw the Portuguese Government ditch plans for a programme of major infrastructure projects, which was potential rich pickings for legal advisers, in a bid to slash the hefty public deficit. Amongst the projects shelved was the €4.9bn project for a new Lisbon airport.

With top projects in paralysis and the country facing a transactional dearth it is not a shock that Linklaters, with its renowned acute business acumen, should prune its personnel in anticipation. The firm has done it before and will no doubt do it again. Even so, few European law firms have chosen to cut lawyer numbers in the downturn. Instead they have preferred to take a hit on profits and try to maintain headcount.

The big question now is how, or will, the Portuguese firms respond? On paper the larger firms have always been, well, large. Some believe too large for the relatively restricted Portuguese market. The country’s biggest practice, PLMJ, claims to have around 200 lawyers. That makes it roughly the 30th largest firm in Europe. Vieira de Almeida has 150 and MLGTS 130 lawyers. That is almost 500 lawyers between the three of them, although there is no suggestion of any layoffs.

The burning issue for many Portuguese firms is whether the Portuguese economy can sustain such big legal teams. So far it seems to have managed to do so. But many local leaders have been almost complimentary of Linklaters’ move and some are now predicting similar things from bigger firms in the future. With Portugal facing a harder future than most European neighbours, none of this bodes well for Portuguese lawyers’ job security, especially after Linklaters’ rather uncomfortable precedent.