INSURANCE LAW
CAREERS GUIDE
Australasian legal business
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com
ISSUE 11.05 JUNE 2013
june 2013
IN-HOUSE IN NEW ZEALAND: OVERSEAS EXPERIENCE: TIME TO PUT THE OE DREAM ON HOLD?
Scaling new heights
construction law overseas experience new zealand report
CONSTRUCTION LAW: BUILDING A SMARTER PRACTICE
ISSUE 11.05
Bonkers! Hong Kong Employment Lawyer 3-6 PAE
Join this US-born global firm in its strong Hong Kong office and enjoy life smack bang in the heart of the Asian economy. Largely front end employment matters for global clients across Asia.
Project Finance 4-7 PAE
Work with one of the biggest UK firms in a role that offers a variety of work with a range of impressive partners. If you have project finance or structuring experience apply now.
Melbourne Corporate - Partner/Future Leader Our client is a strong national firm that has enjoyed steady and buoyant growth over the last 5 years, recruiting well laterally, building from within, and delivering both top-end growth and a growing profit share. Well situated in the league tables to take spoils from the top-tier and with a significant pricing advantage over those firms, it has been a rare success story in the national legal market. While it does hire laterally it also promotes strongly from within.
BPL2720
It currently seeks to add a capable partner at a senior level to its well established Melbourne legal team. Working closely with other partners locally and as part of the national corporate team, this role will suit a partner who is either already established in equity with another firm, or has aspirations in the short to medium term. On offer is the potential to take up a leadership role in the firm over time, either through assisting with the decision making of the practice or as the local head of corporate. In the short term, strong profit forecasts, reasonable expectations and full marketing and national team support will provide an excellent environment to ensure success.
Com Lit /Insolvency 2-5 PAE
M&A 3-8 PAE
Insolvency 4-8 PAE
Financial Services 5+ PAE
Join this global firm’s strong Hong Kong office as you work in a tight knit insolvency and commercial disputes team for a young and dynamic partner. Blue chip clients and cross border disputes. Great mentoring. Work for an Australian partner at this cutting edge firm, wholly on insolvency matters with a focus on complex disputes, cross-border asset tracing and multiple party actions. Contribute from the get-go.
Perth Corporate- Energy, Resources 1-4 PAE
Join this national firm with a particularly strong energy & resources group. Large transactions & blue-chip corporate client base. Career opportunity. Enjoy working on a range of significant, cutting edge projects. This law firm is enjoying continued and sustained success.
Commercial - Premier Mid-Tier 3-6 PAE EXCLUSIVE to Burgess Paluch
Join this leading mid tier/highly regarded boutique firm in a cutting-edge commercial role. Have an impact. Significant commercial and some property / projects work. Assist a dynamic partner on high level general commercial work, as well as sales and acquisitions, leasing and development work. Play a key role in this close knit team.
In-House 2-4 PAE
Broad commercial role at premier international business for a lawyer with 2-4 PAE. Diverse, interesting and challenging in-house legal role. Our client is a premier player in the commercial, major projects, and infrastructure spaces. Negotiate and advise on a range of commercial contracts. Enjoy applying your commercial acumen.
UK firm with a strong corporate group seeks an M&A/Capital markets lawyer for a challenging role. With a bustling Hong Kong market and plenty of capital freeing up, now is the time to move to Asia. Join this leading global firm in a key senior role acting for a range of brand name clients, including investment banks, and actively assist with regulatory regimes and ushering in new changes.
BD / Marketing Are you looking to take the next step in your BD/ marketing career or are you a lawyer who enjoys winning new work and engaging with clients, but disillusioned by timesheets? Erin Kefalas recently joined Burgess Paluch after spending 15 years in recruitment, BD and marketing roles - predominantly with Australian and international law firms. Contact Erin to discuss the roles below or to have a confidential chat about other opportunities.
HONG KONG Business Development Manager Strategic role in magic circle firm within large practice group. With at least 5 years experience, you will focus on developing new business and strengthening existing client relationships.
PERTH Business Development Consultant
New role in a national firm. Working closely with the Senior BD Manager, you will manage various initiatives including bid management, events and marketing communications.
MELBOURNE Business Development Coordinator New role at progressive national law firm. Opportunity will suit a dynamic BD Coordinator who has generalist BD/marketing skills and strong tender management experience.
www.bplr.com.au Paul Burgess 0414 687 629 Doron Paluch 0438 004 445 Paul Garth 0434 113 355 Erin Kefalas 0413 581 739 paul@bplr.com.au
CONTENTS
Australasian Legal Business ISSUE 11.05
18
1
“We also get regulatory overreactions from the Government, and are seeing compliance on top of compliance in what we are required to do.” John Blair, Air New Zealand
Leaving the nest Private practice is the nursery for in-house talent: but where’s the benefit for firms?
18
cover story New Zealand: In-house perspective
30
We interview some of the leading lights of the NZ in-house profession and find an abundance of commonality with the Australian profession.
features Building and construction
Mid-tier firms are beginning to call this practice area their own. ALB’s Ben Abbott finds out why.
International postings
The world economy is unstable – but does that mean Australian lawyers should stay at home?
22
Private equity
50
america — top firms revealed
54
Business ethics
55
Expert analysis from Gilbert + Tobin
We take a look at this year’s Am Law 100
42
OPINION: Are business ethics the conscience of the modern corporation, or are they fundamentally flawed?
regulars Deals
06
SPONSORED UPDATE
09
Buddle Findlay
NEWS
12
APPOINTMENTS
14
League tableS
16
ACLA perspective
56
Australasian Legal Business ISSUE 11.05
2
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LEGAL BUSINESS
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The ALB Awards are always a big deal for us. Russell McVeagh is honoured to have been nominated in the following categories: NEW ZEALAND DEAL OF THE YEAR NEW ZEALAND DEAL TEAM OF THE YEAR
Corporate Advisory Team NEW ZEALAND DEALMAKER OF THE YEAR
Grame Quigley EQUITY MARKET DEAL OF THE YEAR
We also wish success to all the finalists for the Russell McVeagh New Zealand In-House Team of the Year. Thank you to all our clients and amazing team.
GOLD
Employer of Choice
2012
www.russellmcveagh.com
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EDITORIAL INSURANCE LAW
CAREERS GUIDE
AUStrAlASIAN lEgAl bUSINESS
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com
ISSUE 11.05 JUNE 2013
JUNE 2013
IN-HOUSE IN NEW ZEAlAND: OVErSEAS EXPErIENCE: TIME TO PUT THE OE DREAM ON HOLD?
Scaling new heights
construction law overseas experience new zealand report
Around the Australian business community, there’s a particular line of conversation being played out over and over. It goes something like this: A: Hi there. How’s business? B: Rotten. No one’s doing anything. Did you see that story in the paper today? This is the worst market in living memory. A: Not to mention that circus in Canberra…. B: Absolutely. I reckon the economy won’t pick up till after the election. A: Too right. Lawyers seem to have mixed views on the topic. Some believe they have seen evidence of transactional activity picking up. Others will frankly state that they have never seen a more dire state of affairs in all their years of practice. Even the disputes lawyers are somewhat less exuberant than they were last year. It’s all interesting testimony because these observations are based on actual workflow, not emotion. These are tough times, but some are seeing cause for optimism. One can’t help but wonder whether we’re talking ourselves into a selfimposed economic hiatus until September. On one level, that may not be such a bad thing – compared to the possibility of an extended economic decline, a few months of pain might be a preferable outcome. In the meantime, it is worth acknowledging the few hardy souls who have decided to test the market anyway: Virtus Health’s recent A$300 million raising has been hailed as a sign of the revival of the dormant Australian IPO market. We have, however, heard this prediction before....only time will tell. On another note, last month marked the departure of King & Wood Mallesons managing partner Tony O’Malley from the top role. We’d like to acknowledge his valuable contribution to the industry narrative over his years at KWM and Mallesons and wish him all the best in his future endeavours. Renu Prasad Australasia Editor, Australasian Legal Business, Thomson Reuters
AUSTRALASIAN
LEGAL BUSINESS
ISSUE 11.05
ROSY GLOOM
CONStrUCtION lAW: BUILDING A SMARTER PRACTICE
6
deals
Australasian Legal Business ISSUE 11.05
your month at a glance A$3.4 billion M&A
Archer Daniels
Midland bid for GrainCorp
• GrainCorp is a long standing client of Gilbert + Tobin. G+T advised this client on all legal aspects of this transaction.
A$1.93 billion Resources
CNOOC acquisition
of gas/equity stake in QCLNG assets
• CNOOC is a long standing client of Herbert Smith Freehills. The firm, and its predecessor firms pre-merger, have advised CNOOC on different aspects of the project since it first acquired an initial interest in QCLNG in 2010.
Peter Cook, Gilbert + Tobin
Your month at a glance Deal
Value
Advisor
Client
Lead Lawyer
Archer Daniels Midland bid for GrainCorp
A$3.4 billion
Corrs Chambers Westgarth
Archer Daniels Midland Braddon Jolley, Sandy Mak
Archer Daniels Midland bid for GrainCorp
A$3.4 billion
Gilbert + Tobin
GrainCorp
John WilliamsonNoble, Peter Cook
Murray Goulburn/ Coles milk supply agreement
A$2 billion
Lander & Rogers
Coles
Jackie Solakovski
Murray Goulburn/ Coles milk supply agreement
A$2 billion
Corrs Chambers Westgarth
Murray Goulburn
David Hallam
CNOOC acquisition of gas/equity stake in QCLNG assets
A$1.93 billion Herbert (equity stake) Smith Freehills
CNOOC
Stuart Barrymore
CNOOC acquisition of gas/equity stake in QCLNG assets
A$1.93 billion King & Wood (equity stake) Mallesons
QGC
Craig Rogers
Fitness First Group restructuring
A$910 million Ashurst
Oaktree Capital & Marathon Capital (Majority Senior Lenders)
James Marshall
Fitness First Group restructuring
A$910 million Allens
Majority Senior Lenders
QIC purchase/ lease back of Qld gov’t properties
A$615 million Herbert Smith Freehills
QIC
Phillip McMahon
QIC purchase of Moomba to Adelaide pipeline
A$400 million
Allens
QIC
Chelsey Drake
Compagnie Financiere and ors sale of stake in Bank of Queensland
A$350 million
Herbert Smith Freehills
Merrill Lynch
Philippa Stone
Coalspur senior secured debt facility
US$350 million
Allens
EIG Global Energy Partners
Phillip Cornwell
Coalspur senior secured debt facility
US$350 million
Hardy Bowen
Coalspur
deals
Australasian Legal Business ISSUE 11.05
IMPORTANT – CURRENCY OF DEALS INFORMATION
Owing to space constraints, not all the deals from May 2013 are shown in this month’s section. To view a complete and current list of deals and advisors, please visit www.legalbusinessonline.com, where a consolidated deals table is published as part of the ALB news service. You can also have this information sent to your inbox by subscribing to the free ALB breaking news service. A complete list of May/June deals will be published in an extended section in issue 11.6. Your month at a glance Deal
Value
Advisor
Client
Lead Lawyer
Banksia loan portfolio sale to Deutsche Bank
A$239 million
Ashurst
McGrath Nicol
Jamie Ng, Timothy Sackar, Michael Sloan
Banksia loan portfolio sale to Deutsche Bank
A$239 million
Herbert Smith Deutsche Bank, Freehills One Investment Group
Banksia loan portfolio sale to Deutsche Bank
A$239 million
Clayton Utz
Deutsche Bank
Banksia loan portfolio sale to Deutsche Bank
A$239 million
Henry Davis York
Australian Executor Trustees
Billabong – consortium bid
A$287 million
Gilbert + Tobin Sycamore Partners LLP; Paul Naude
Far East Orchard/ Toga Group JV
A$225 million
King & Wood Mallesons
Far East Orchard
Far East Orchard/ Toga Group JV
A$225 million
Bell Gully
Far East Orchard
Far East Orchard/ Toga Group JV
A$225 million
Clifford Chance
Toga Group
Far East Orchard/ Toga Group JV
A$225 million
Corrs Chambers Westgarth
Toga Group
TA Associates acquisition of Nintex
A$225 million
Gilbert + Tobin TA Associates
John WilliamsonNoble, David Clee James Lewis
Yili acquisition of Oceania Dairy Group
NZD$214 million
Simpson Grierson
Yili
Robert McLean
Yili acquisition of Oceania Dairy Group
NZD$214 million
Buddle Findlay
vendors
Chevalier acquisition of 70 percent stake in Moraitis Group
A$210 million
Gilbert + Tobin Vendor and senior lenders
Charles Bogle
Chevalier acquisition of 70 percent stake in Moraitis Group
A$210 million
Minter Ellison
Michael BarrDavid
Chevalier
A$239 million
M&A Banksia loan portfolio sale to Deutsche Bank
Peter Cook and Rachael Bassil
• Ashurst advised McGrathNicol as receivers of Banksia Securities Limited. Debenture issuer Banksia was placed in receivership in October 2012.
David Friedlander, Stuart DixonSmith
David Friedlander, King & Wood Mallesons
A$210 million
M&A Chevalier acquisition of 70 percent stake in Moraitis Group
• Minter Ellison has been assisting Chevalier evaluate investment opportunities in Australia over the two years preceding this investment.
7
8
deals
Australasian Legal Business ISSUE 11.05
your month at a glance Your month at a glance
NZ$112 million M&A Satara/EastPack merger
• This deal involved the merger of postharvest kiwifruit companies EastPack and Satara to create the largest kiwifruit packing and coolstore operation in New Zealand.
A$85 million M&A Tox Free acquisition of Wanless Enviro Services and ors
• In 2012, Clayton Utz acted for Tox Free on its acquisition of the operations of international waste management company DoloMatrix International Ltd, for a total cash consideration of $58 million.
A$45 million M&A
FlexiGroup’s
acquisition of Once Credit
• Ashurst also advised on the capital raising associated with this acquisition.
Deal
Value
Advisor
Client
Lead Lawyer
Troy Resources takeover of Azimuth Resources
A$188 million
Gilbert + Tobin
Troy Resources
Marcello Cardaci, Sarah Turner
Envestra share placement
A$130 million Johnson Winter & Slattery
Envestra
John Keeves
Envestra share placement
A$130 million Gilbert + Tobin
Goldman Sachs
Rachael Bassil
Satara/EastPack merger
NZ$112 million
Buddle Findlay
Satara Co-operative Group Limited
Grant Dunn
Satara/EastPack merger
NZ$112 million
Simpson Grierson
EastPack
Drillsearch Energy convertible bond offer
US$100 million
Herbert Smith Freehills
Goldman Sachs International
Patrick Lowden, Philippa Stone
Drillsearch Energy convertible bond offer
US$100 million
Ashurst
Drillsearch
Bill Koeck, Steve Smith
Revera disposal of assets to Telecom
A$96.5 million
Simpson Grierson
Revera Limited
Michael Pollard
Tox Free acquisition of Wanless Enviro Services and ors
A$85 million
Clayton Utz
Tox Free
Mark Paganin
Norfolk/RCR Tomlinson scheme of arrangement
A$78 million
Allens
Norfolk
Robert Pick
Norfolk/RCR Tomlinson scheme of arrangement
A$78 million
King & Wood Mallesons
RCR Tomlinson
FlexiGroup's acquisition of Once Credit
A$45 million
Ashurst
FlexiGroup
FlexiGroup's acquisition of Once Credit
A$45 million
Henry Davis York
Once Credit
FlexiGroup capital raising
A$45 million
Baker & McKenzie
UBS, CBA
David McManus
Craig Andrade
Firm Profile
NZ Commentary
NEW ZEALAND’S WORKPLACE LAW REFORM – BILL INTRODUCED The much anticipated Bill to amend New Zealand’s central workplace law, the Employment Relations Act 2000 (‘ERA’), was introduced into Parliament on 26 April 2013. For the most part the changes are as we described in our ALB article in February 2013, though some are more far-reaching than the Government announced originally. The Bill also includes one new change. It proposes that the Employment Relations Authority (the first instance tribunal) be required to deliver an oral decision or indication at the conclusion of the investigation meeting, followed by a written decision within three months. Part 6A - transfers of business Employers with fewer than 20 employees will be exempt from the provisions in Part 6A of the ERA that enable certain employees to transfer their employment when their work is transferred (eg sale of business, outsourcing or change of outsourced provider). Part 6A will also be improved by: • apportioning liability for the costs of transferring employees • requiring employees to make their election within five days • requiring the ‘transferring employer’ to provide better and more specific information to the ‘new employer’ • implying a warranty from the transferring employer to the new employer that it has not changed employees’ terms and conditions so as to adversely affect the new employer. Duty of good faith and disclosure of information Case law in 2010 imposed new disclosure requirements on employers proposing to terminate an employment relationship. This included an obligation to disclose personal information about candidates for contestable positions in a restructuring. The Bill proposes to bring the law into line with mainstream privacy law (the Privacy Act 1993). The changes proposed by the Bill may also permit employers to withhold information that normally would be disclosed in a disciplinary process, such as the identities of a complainant or witness, or opinion material about an employee’s performance. Collective bargaining The proposed changes to collective bargaining are the most significant since those made
by the last Labour Government in 2004, and favour employers. They include the following:
30 minute meal breaks be replaced with more flexible provisions as to duration and timing.
• The Bill removes the requirements to conclude a collective agreement and to continue bargaining where a deadlock has been reached. While the parties’ general good faith obligations will still require some engagement – and some persistence – arguably employers will be able to resist a collective agreement now in principle, and be able to walk away from bargaining more readily. The Bill will also allow the parties to apply to the Authority for a declaration that bargaining has concluded.
Flexible working arrangements The Bill extends the right to request flexible working arrangements to all employees, not just those who are responsible for dependants, shortens the employer’s timeframe for responding to a request from three months to one, enables employees to ask for flexible working arrangements from the start of their employment and removes the limit on the number of requests an employee can make.
• Both unions and employers will be permitted to initiate collective bargaining 60 days before a collective agreement expires. Currently unions have a 20-day head-start. • Employers will have 10 days from receiving a bargaining initiation notice to opt out of multi-employer bargaining. This will assist employers who do not want to be drawn into bargaining with parties such as their competitors or service providers. • The Bill repeals what is known as the ‘30-day rule’, which requires employers currently to apply the terms of the relevant collective agreement (if any) to new employees for the first 30 days of employment, even if they are not union members. Employers will still be required to inform new employees about any relevant collective agreement, and to provide a copy and information about the union. • Advance written notice will be required for all strikes and lockouts, not just those in essential services. Failure to provide notice will render the strike or lockout unlawful. There is no minimum notice period, which will probably lead to very short notice periods in many cases. Primarily, the new notice requirements will give employers greater certainty as to the existence of a strike and the employees who are on strike. • Two options are proposed for reducing the pay of employees on a ‘partial strike’ (eg a go-slow or refusal to do part of the job). Employers may make a proportionate pay deduction by reference to the time on strike or a fixed 10% deduction. Breaks The Bill proposes that the current prescriptive requirements for 10 minute rest breaks and
Timing and next steps The Bill has yet to be debated and to go through the Select Committee process, so is likely to change in some respects. The new law may take effect before Christmas, but we expect that early 2014 is more likely. Buddle Findlay is well placed to assist with any submissions to the Select Committee or advise on the proposed changes. This article was written by Hamish Kynaston, partner (Wellington), Sherridan Cook, partner (Auckland) and Kate Ashcroft, senior associate (Auckland) of Buddle Findlay, a leading New Zealand law firm. Hamish, Sherridan and Kate specialise in all aspects of employment law, civil litigation and dispute resolution. Hamish can be contacted on: +64 4 462 0439 or hamish.kynaston@buddlefindlay.com, Sherridan on: +64 9 357 1858 or sherridan.cook@buddlefindlay.com and Kate on: +64 9 363 1348 or kate.ashcroft@buddlefindlay.com
Hamish Kynaston
Sherridan Cook
Buddle Findlay
Buddle Findlay
Kate Ashcroft
Buddle Findlay
10
deals
Australasian Legal Business ISSUE 11.05
your month at a glance IMPORTANT – CURRENCY OF DEALS INFORMATION
Owing to space constraints, not all the deals from May 2013 are shown in this month’s section. To view a complete and current list of deals and advisors, please visit www.legalbusinessonline.com, where a consolidated deals table is published as part of the ALB news service. You can also have this information sent to your inbox by subscribing to the free ALB breaking news service. A complete list of May/June deals will be published in an extended section in issue 11.6. Your month at a glance
Marcus Best, Minter Ellison
Rachael Bassil, Gilbert + Tobin
Sarah Turner, Gilbert + Tobin
Mark Paganin, Clayton Utz
Deal
Value
Advisor
Client
Lead Lawyer
Galoc oil field phase two financing
A$37 million
Allens
Galoc, Otto Energy
Ben Farnsworth
Zijin Mining Group placement/strategic partnership with NKWE Platinum
A$20 million
Minter Ellison
Zijin Mining Group
Marcus Best
Freedom Foods entitlement offer
A$17 million
Gilbert + Tobin
Freedom Foods
Rachael Bassil
Rum Jungle Resources bid for Central Australian Phosphate Limited
A$16 million
Gilbert + Tobin
Central Australian Phosphate
Sarah Turner
Norton Gold Fields bid for Kalgoorlie Mining Company
HopgoodGanim Norton Gold Fields
Michele Muscillo
SBI Jefferies Asia Fund strategic investment in Panviva
Holding Redlich SBI Jefferies
Darren Pereira
SBI Jefferies Asia Fund strategic investment in Panviva
Arnold Bloch Liebler
East Energy Resources acquisition of stake in Idalia Coal Pty Ltd
Clayton Utz
Noble Group (vendor)
Matthew Johnson
East Energy Resources acquisition of stake in Idalia Coal Pty Ltd
Nova Legal
East Energy Resources
Frank Knezovic
Farmlands/ Combined Rural Traders merger
Buddle FIndlay
Farmlands Trading Society
Grant Dunn, Alistair Hercus
Farmlands/ Combined Rural Traders merger
Anderson Lloyd
Combined Rural Traders
Bank of Queensland acquisition of Virgin Money Australia
Herbert Smith Freehills
Bank of Queensland
Tony Damian
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12
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news
Technology in practice
Q&A with
Damian Huon Damian Huon is a Legal Technology Strategist and CEO of Huon IT. With over 24 years supporting Australian law firms, Huon IT deliver business-wide outcomes with ‘everything technology’.
CUTTING-EDGE OR CONSERVATIVE – Can you trust new technologies in your firm?
Technology can be a major differentiator in the legal marketplace, so it’s important to encourage innovation. But early adoption is always a gamble – how new is ‘too new’? Here, seasoned strategist Damian Huon weighs up the risks of taking on ‘the latest and greatest’ IT. can I stay ahead of the game when it comes to IT Q1 How in our industry? You can’t, and shouldn’t necessarily try. By the time you finish one change, there’s often already something better just around the corner. The true key to being innovative, however, is being selective. If your firm invested in every emerging technology that is introduced to the legal industry, your IT environment would fast become a complex, unmanageable web of systems that is no longer practical for your staff. But it is crucial to understand what’s out there, and what others are doing. By getting independent advice and keeping your eyes on the horizon, when a new technology that suits your particular needs does arise, you will be ready. Then you can position it in your future strategy and make an informed decision. Remember to do your due diligence around its maturity –adoption rates are sometimes ‘embellished’ so be sure to ask for reference sites that you can contact directly.
Q2 Where does Cloud sit on the risk scale?
While Cloud has been a ‘buzz’ word for many years now, uptake among legal firms is still slow as questions around security, loss of control and critical dependency on internet connections are still a major concern for many. So although the jury is still out on whether you should move your entire system to a hosted Cloud, many are opting for more conservative uses of Cloud technology in the meantime. This may be in the form of a private Cloud inside their own office, or even moving selective parts – such as Disaster Recovery, payroll or sales systems – to an external Cloud provider. This allows firms to test the technology, while minimising risks.
Q3 Are firms increasing or decreasing IT spend this year?
Now more than ever, IT spend is under the microscope as many firms tighten their belts as we brace for an uncertain period ahead - but this hasn’t necessarily lead to a reduction. Across most firms I talk to, there are two schools of thought when it comes to IT planning. Of course there are always some firms that take a ‘bare minimum’ approach to spending. Their focus is on simply staying operational, but not considering any new innovations. But then there the big picture thinkers continually questioning IT; “What will help us work smarter, faster and more profitably?” These firms understand that the right technology can actually help your business succeed in the long term. Ultimately, these opposing attitudes reflect the core question each firm must ask: is your IT a cost centre, or an investment into the future? Email your questions to alb@huonit.com.au
Australasian Legal Business ISSUE 11.05
In case you missed it….. The month’s top headlines from www.legalbusinessonline.com
story of the month
O’Malley steps down at KWM, replaced by Kench; UK merger looms It has been an eventful few weeks at King & Wood Mallesons, with a surprise resignation by respected managing partner Tony O’Malley followed by the quick appointment of partner Sue Kench as his successor. The firm did not give any reasons for O’Malley’s departure in a statement announcing the move. Kench has been with KWM and its predecessor firm for 20 years and was most recently head of the firm’s real estate, construction, environment and infrastructure sector. In related news, KWM is reported to be building towards a second global merger. According to UK publication The Lawyer, London firm SJ Berwin is set to vote on a global merger with KWM which would see it become the fourth member of the KWM Swiss Verein structure, which would continue to operate under the KWM brand. The Lawyer also claimed that a planned merger with top Singapore firm WongPartnership was derailed only days before it was due to be officially announced. Resistance from some sections of the WongPartnership group over “aligning financials” was claimed to be the reason for the cancellation.
INDUSTRY
Slaters undertakes capital raising; flags UK expansion Listed firm Slater & Gordon has announced plans for a A$63.9 million equity raising which will fund more acquisitions in the UK. The raising has been structured as a A$58.9 million placement to professional and sophisticated institutional investors which will be fully underwritten and sole lead managed by Macquarie Capital (Australia) Limited. There will also be a non-underwritten share purchase plan to raise up to A$5 million. Slaters also announced that it was in the process of acquiring “three leading UK personal injury litigation firms” and that these acquisitions would “support Slater & Gordon’s strategic goal to become one of the leading independent providers of legal services in consumer law in the UK.”
SYDNEY TressCox moves into Sydney’s MLC Centre tue TressCox Lawyers has moved into new premises at Sydney’s MLC Tower. The firm has taken a nine year lease covering more than three floors of the building. “We are delighted to be moving our Sydney operations into such an iconic and landmark building in the heart of Sydney,” said managing partner Peter Smith. Herbert Smith Freehills will shortly be vacating the MLC tower in order to take up new premises at 161 Castlereagh Street.
news
Australasian Legal Business ISSUE 11.05
>>
VICTORIA Melbourne: Clarendon duo break away for M+K Two of the founding directors of Melbourne-based Clarendon Lawyers have joined M+K Lawyers. Michael Fernon and Craig Finlayson and their teams will head for M+K, while Clarendon Lawyers’ M&A practice will continue under the guidance of Tony Symons and Nick Manuell. “We will continue to provide top tier service in a smaller environment and without the expensive trimmings,” said Symons. “Our key people all still have big firm experience and our vision remains to be recognised as the leading Australian boutique corporate law firm in our core practice areas.” Meanwhile, M+K national managing director Damian Paul welcomed his new recruits. “We have known Craig and Michael for years. They are high quality lawyers who share M+K’s focus on the mid-market. This will be a very good fit,” he said.
QUEENSLAND Major transformation at Hynes Lawyers Brisbane and Sydney based Hynes Lawyers has announced a major shift of direction in a move which also saw three of the existing Hynes partners move to other firms. Founder Rob Hynes thanked the three departing partners for their contribution to the firm: Warren Jiear, Bill Singleton and Warwick Walsh have moved to Piper Alderman, HWL Ebsworth and McCullough Robertson respectively. Hynes announced that his firm would be rebranded as Hynes Legal from 20 May and would adopt a new model which will concentrate on specialised and cost effective legal services. Hynes Legal will provide both traditional legal services and commoditised legal products on a fixed fee basis. Specialist areas will include property, IP and energy/resources. The new firm will also seek to minimise overheads by using cloud computing and backend support based in the Philippines. The firm will offer “off-the-shelf” legal products such as legal forms and templates for high-volume, repeated transactions which can also be tailor-made to an individual client’s needs.
DISPUTES Global litigation firm raids Freehills for Oz start up Top international litigation firm Quinn Emanuel Urquhart & Sullivan has announced that it will open an office in Sydney in June. The new operation will be co-managed by Michael Mills and Michelle Fox, currently of Herbert Smith Freehills. Also joining the firm in Sydney is Quinn Emanuel partner James Webster, an Australian who has spent the previous 20 years in the United States. Quinn Emanuel is headquartered in Los Angeles and the bills itself as the largest firm in the world devoted solely to business litigation. “We are a global law firm,” said Quinn Emanuel managing partner John Quinn. “With the shift of economic power from the Atlantic to the Pacific, Australia has not only become a significant international player but also a critical connection point in the Asia-Pacific. We believe we will fill a niche - a highly sophisticated litigation firm that is not saddled with all the institutional conflicts that large, full service law firms have.”
13
In-house Q&A Kwong Yap General Counsel & Company Secretary
Presented by
Chassis Brakes International
your opinion, why have in-house lawyers become an 1 Inincreasingly indispensable part of an organisation?
Probably because management of organisations have become more sophisticated in their use of legal support. For strategic matters, in-house lawyers’ intimate knowledge of the organisation ensures the right commercial objectives can be achieved in the most efficient and creative way. For certain technical legal work and recurring work, in-house lawyers can be cheaper than using external lawyers provided there is sufficient volume to justify the in-house resource. Indispensable or not is probably a matter of perception. There are some organisations out there which have never had an in-house function and they survived! Those who have an in-house function feel they can’t live without it. recent times, the role of the General Counsel has 2 Indiversified into a multi-faceted role, (where the General
Counsel can wear the ‘hat’ of Lawyer, Legal Manager, Compliance Manager, and Company Secretary). In your opinion, do you believe this has increased your risk profile?
More responsibility perhaps, and definitely more complexity in terms of swapping hats especially from the angle of maintaining legal professional privilege. Overall, I don’t feel my risk profile has increased in terms of risk of being sued by external parties, though I did pause to ponder for a minute on my Company Secretary hat in the wake of the James Hardie matter. your opinion, what do you consider to be the main 3 Inchallenges you and your team will face in 2013?
Being commercial without jeopardising the protection for the organisation, as always. Other than that, the car parts manufacturing industry’s fight for its survival is across all professions involved in it. As the industry is not as highly regulated as in banking, superannuation, insurance etc, one big challenge, which will always remain for all lawyers involved, is the need and willingness to manoeuvre through legal positions and arrangements which can be less than perfect and 100% clear cut. It is just the nature of the beast. JLegal is a global specialist legal recruitment consultancy focused solely on providing recruitment solutions to the legal profession. For a confidential discussion about your career, contact one of our senior consultants today.
www.jlegal.com Melbourne t | +61 3 8102 1900 Sydney t | +61 2 8228 7680
aPPOINTMENTS Lateral partner appointments Name
Practice area
Coming from
Going to
Amanda Turnill
Life sciences
DLA Piper
Baker & McKenzie
Avendra Singh
Construction
Colin Biggers & Paisley
Squire Sanders
David Williamson
Corporate
BHP Billiton
Ashurst
Elizabeth Parkin
(management – COO)
KPMG
Lander & Rogers
Geoff Healy
Disputes
Herbert Smith Freehills
BHP Billiton
Jennifer Caldwell
Environment
(unknown)
Buddle FIndlay
Josh Clarke
Financial services
Watson Farley & Williams
Squire Sanders
Matthew Cridland
Tax
KPMG
DLA Piper
Michael Batch
Construction
Thiess
McInnes Wilson
Peter Megens
Construction
King & Wood Mallesons
King & Spalding
Rebecca Mohr
Commercial
Norton Rose
HWL Ebsworth
partner promotions HERBERT SMITH FREEHILLS Paul Branston
Corporate
Perth
Matthew Bull
Competition
Brisbane
Leon Chung
Disputes
Sydney
Rowen Cross
Finance
Perth
Mark Currell
Corporate
Sydney
Hugh Paynter
Tax/Disputes
Sydney
Daniel Zador
Projects
Perth
TMT
Auckland
HUDSON GAVIN MARTIN Edwin Lim
NORTON ROSE Chris Cruikshank
Banking
Sydney
Nigel Deed
Corporate
Sydney
Andrew Riordan
Dispute Resolution
Melbourne
Alena Titterton
OH&S
Canberra
Dominic Townsend
Corporate
Brisbane
Dan Brown
Projects
Brisbane
Jacques Jacobs
Litigation/regulatory
Sydney
Sharon Rowe
IP
Canberra
David Shaw
Litigation/regulatory
Perth
DLA PIPER
aPPOINTMENTS Squire Sanders continues hiring surge Squire Sanders has made its fourth partner hire of the past six months, bringing the firm to a total of 16 partners in Australia. The latest recruit is Avendra Singh, who joins the construction practice from Colin Biggers & Paisley. Singh has over 27 years of experience in the field of construction and projects law from both a contentious and non-contentious perspective. Projects he has recently provided advice in relation to include the $2 billion upgrade of Sydney Airport, the redevelopment of the Royal Agricultural Showground, Olympic Park, and the creation of the Collins Square Precinct, Docklands in Melbourne. John Poulsen, Squire Sanders’ managing partner in Australia, said that the aggressive expansion would continue. “We have very ambitious plans to build on our existing expertise in core practices such as construction, projects and infrastructure,” he said.
Bakers recruits life sciences partner from DLA Baker & McKenzie has recruited life sciences partner Amanda Turnill, who joins the firm from Amanda Turnill DLA Piper and will co-chair the Australian life sciences group with partner Ben McLaughlin. She will be based in Sydney. Turnill has more than 20 years’ experience as a product liability litigator and regulatory specialist, having advised pharmaceutical, medical technology, biotechnology, and other life sciences companies in Australia, the UK, Europe, U.S. and Asia.
HWL adds commercial partner in Sydney HWL Ebsworth Lawyers has announced the appointment of Rebecca Mohr as a partner in the commercial practice group in Sydney. Mohr advises franchising and retailing clients on a broad range of services including drafting franchise agreements, disclosure documents and associated documentation. Mohr was previously a partner at Norton Rose.
DLA Piper hires tax expert from KPMG DLA Piper has announced that KPMG director Matthew Cridland has joined the firm’s tax practice as a partner in Sydney. Cridland advises clients on a wide range of GST related issues across multiple sectors including
property, energy and resources, PPPs and telecommunications. “With the proposed reform of Australia’s international GST regime and the on-going modernisation of various GST regimes, including in China and India, we expect that Matthew’s joining is timely and that he will be very active across our global GST/VAT practice,” said DLA’s Australian tax head Jock McCormack.
Squire Sanders boosts financial services team Perth: Squire Sanders has announced the appointment of senior financial services lawyer Josh Clarke. Clarke, who has joined the firm as Of Counsel, was previously a partner at the Singapore office of Watson Farley & Williams and is a dual-qualified U.S. and Australian attorney. He specialises in cross-border finance with broad experience in syndicated and secured bank financings. Squire Sanders said in a statement that more senior appointments were in the pipeline in the Australian market.
Australia chairman Mary Padbury. “David’s role has placed him in a unique position to understand the impact of the globalisation of legal services and best practice among top-tier firms seeking to address the needs of multinational clients.” Williamson will remain with BHP Billiton until the end of the current financial year before joining Ashurst later in the year. Meanwhile, Herbert Smith Freehills partner Geoff Healy has been appointed as BHP’s Chief Legal Counsel, taking up his new role from June 2013.
Landers hires new COO, IT director Lander & Rogers has announced that it has appointed Elizabeth Parkin as the firm’s new Chief Operating Officer. Parkin joins Lander & Rogers from KPMG where she was Chief Operating Officer of the advisory business. Sam Sofianos has also joined Lander & Rogers as Director of Technology & Innovation. He joins the firm from K&L Gates where he was Director of IT Operations (Australia).
McInnes Wilson lures senior Thiess talent
NZ: New resources/ environment partner at Buddle Findlay
McInnes Wilson Lawyers has announced that the firm has appointed Michael Batch Michael Batch as principal in the firm’s construction and infrastructure group. This team will now have joint leaders, with Batch to share the leadership with prinicpal Andrew Mewing. “With two expert principals leading the team, the firm will see great expansion within this practice area which will provide great benefit to our clients,” said firm CEO Paul Tully. Batch has a wealth of experience in construction and infrastructure projects and joins the team from Thiess Services, where he held the position of Assistant General Counsel – Operations.
Jennifer Caldwell has re-joined Buddle Findlay’s Auckland office as a partner in the environment and resource management team. Caldwell has recently returned to New Zealand after five years in the United Arab Emirates, where she was the legal director of a listed property development company. She has particular expertise in the local government sector and the consent and regulatory aspects of infrastructure projects.
BHP’s Williamson returns to Ashurst; replaced by Freehills partner Former Blake Dawson/Ashurst partner David Williamson is re-joining the firm after more than three years as a senior executive at BHP Billiton. After 28 years at Blakes, Williamson joined BHP Billiton in April 2010 as Head of Group Legal and for the past 22 months has also served as Chief Compliance Officer. “We are delighted that someone of David’s calibre and experience in the Australian legal profession is re-joining the firm,” said Ashurst
King & Spalding recruits senior Mallesons arbitrator King & Spalding has recruited international arbitration and construction expert Peter Megens as a partner in its Singapore office. Megens will join King & Spalding from King & Wood Mallesons in Melbourne where he is co-head of the arbitration practice and a senior member of the construction team. Megens is expected to arrive at King & Spalding in July. “Our firm has made a strategic decision to invest further in our marquee international arbitration practice, and especially in our international construction disputes capability,” said Reggie Smith, leader of global disputes at King & Spalding. “Peter’s stature as an outstanding construction disputes lawyer fits this bill, and nicely complements our worldclass commercial and investment treaty arbitration practice serving the Asia-Pacific region from Singapore.”
16
LEAGUE TABLES
Australasian Legal Business ISSUE 11.05 Top M&A firms - Completed deals, year to date 2013
Top M&A firms - Announced deals, year to date 2013
1
NO.
1
Herbert Smith Freehills
9,933.72
Deals: 26
NO.
Value ($Mil)
Market Share: 37.1
Rank Legal Advisor
Value ($Mil)
Mkt. Deals Share
king & wood mallesons
4,718.36 Deals: 25
Value ($Mil)
Market Share: 25.9
Rank Legal Advisor
Value ($Mil)
Mkt. Share
Deals
2
Minter Ellison
6,581.54
24.6
21
2
Herbert Smith Freehills
4,530.56
24.8
23
3
Allen & Gledhill
3,657.26
13.7
2
3
Gilbert + Tobin
3,184.90
17.5
8
4
King & Wood Mallesons
3,447.95
12.9
28
4
Corrs Chambers Westgarth
2,682.64
14.7
10
5
Thomsons Lawyers
907.17
3.4
2
5
Paul, Weiss
2,280.19
12.5
1
6
Allen & Overy
810.00
3.0
5
6
Allens
2,019.45
11.1
15
6*
Simpson Grierson
810.00
3.0
1
7
Skadden
1,831.47
10.0
4
8
Allens
687.87
2.6
11
8
Blake Cassels & Graydon
1,771.52
9.7
3
9
Torys
644.90
2.4
1
9
Minter Ellison
1,410.52
7.7
22
10
Linklaters
529.60
2.0
4
10
K&L Gates
1,150.02
6.3
2
11
Johnson Winter & Slattery
487.82
1.8
6
11
Clayton Utz
1,109.28
6.1
9
12
Corrs Chambers Westgarth
471.72
1.8
3
12
Stikeman Elliott
1,099.58
6.0
5
13
Gilbert + Tobin
385.56
1.4
8
13
Dorsey & Whitney LLP
1,078.75
5.9
1
14
Stikeman Elliott
365.27
1.4
2
13*
Gowling Lafleur Henderson LLP
1,078.75
5.9
1
15
Steinepreis Paganin
291.84
1.1
3
13*
Squire Sanders LLP
1,078.75
5.9
1
16
Clayton Utz
288.00
1.1
8
13*
1,078.75
5.9
1
17
Baker & McKenzie
254.91
1.0
5
Lawson Lundell Lawson & McIntosh
18
Mayer Brown LLP
215.00
0.8
1
17
Linklaters
1,056.45
5.8
6
19
Norton Rose
208.29
0.8
10
18
Thomsons Lawyers
904.11
5.0
1
20
Blake Cassels & Graydon
187.58
0.7
2
19
Allen & Overy
810.00
4.4
5
20*
Cassels Brock & Blackwell LLP
187.58
0.7
1
19*
Simpson Grierson
810.00
4.4
1
22
Skadden
157.35
0.6
1
21
Ashurst
641.16
3.5
8
23
Kim & Chang
114.80
0.4
1
22
Johnson Winter & Slattery
556.37
3.1
7
23*
Davies Ward Phillips & Vineberg LLP
114.80
0.4
1
23
Norton Rose
437.14
2.4
12
24
Hardy Bowen Lawyers
235.48
1.3
2
23*
Houthoff Buruma
114.80
0.4
1
25
Baker & McKenzie
199.21
1.1
6
Subtotal with Legal Advisor
18,311.01
68.4
137
Subtotal with Legal Advisor
14,891.13
81.7
132
Subtotal without Legal Advisor
8,470.78
31.6
460
Subtotal without Legal Advisor
3,342.89
18.3
307
Industry Total
26,781.78
100.0
597
Industry Total
18,234.02
100.0
439
Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2013-06-01 08:30:15 EDT
Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2013-06-01 08:16:57 EDT
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18
analysis
Australasian Legal Business ISSUE 11.05
Leaving
THE NEST Firms are the nurseries for in-house talent – but what benefit do they derive? Report: Renu Prasad
W
e’ve always known that many in-house lawyers started their careers in private practice, but a new study has put figures on the phenomenon: 77 percent of in-house lawyers in the private sector and 49 percent of government lawyers started their careers in private practice. Those figures are courtesy of the NSW Law Society study Inside In-house Legal Teams, which was based on a survey completed by 775 of the Society’s members. This sideways transition into in-house roles is recommended by many GCs as a way for young lawyers to take advantage of the training available in firms. Many senior in-house lawyers recommend four or five years in private practice before attempting to make the move into in-house practice. The theory is that firms offer a better exposure to different practice areas and a more thorough approach to training than in-house teams, which are comparatively under-resourced. This state of affairs means that firms are carrying the costs of incubating the next generation of in-house lawyers. The upside is that it’s a chance to expose these lawyers to the firm brand and there are many in-house lawyers who continue to speak highly of their old firm many years after leaving private practice. But are these the same lawyers who will ultimately make those all important purchasing decisions and panel appointments? Possibly not. The Law Society study shows that in-house lawyers are somewhat lukewarm on the career progression prospects in their organisations. Only 39 percent of government respondents rated such opportunities as “very or fairly accessible” while the corresponding figure for the corporates was 45 percent. This is consistent with the perception that the structure of the typical inhouse team does not allow for the same progression opportunities as a firm: firms can appoint multiple partners each year, but an in-house team can only appoint a new GC or assistant GC when the role is vacated. The situation is aggravated by the fact that some larger corporates seem to have a preference for law firm partners rather
than internal candidates when recruiting their GCs. The most recent example is Herbert Smith Freehills partner Geoff Healy’s appointment as BHP’s Chief Legal Counsel and Healy, of course, replaces another ex top tier partner in David Williamson, who is set to return to Ashurst later this year. It cannot be assumed that the associate who leaves a firm as a four year lawyer will come back to haunt the firm as a GC. They might, but the odds are not great. So when we consider the benefit firms are deriving from their unofficial role as an in-house nursery, it may be necessary to turn to some less tangible matters, such as promoting the brand and growing an influential alumni network. Ultimately, this may be an academic exercise because some attrition is inevitable when running a large graduate programme. No doubt the hard pressed graduate lawyers would argue that firms are getting their money’s worth from day one - whatever the benefits thereafter. No easy out The Law Society study also produced some interesting findings in relation to in-house practice and work/life balance. We have been warned for years that moving in-house in order to avoid the long hours and pressures of private practice is a fool’s errand. Still, the perception that in-house roles offer a superior work/life balance appears to be alive and well; work/life balance was named as a reason
Australasian Legal Business ISSUE 11.05
Many senior in-house lawyers recommend four or five years in private practice before attempting to make the move into in-house practice. for moving in-house by nearly half of the respondents, although this figure was notably lower for men in private sector in-house roles. Perhaps the real point is not whether in-house lawyers are working harder, but whether they are working more flexibly. Respondents generally responded favourably when asked to comment on the availability of flexible work arrangements: 91 perecent of government lawyers said that such arrangements were “very or fairly” accessible in their organisation while the corresponding figure was 80 percent for corporate respondents. But work/life balance was not the most dominant reason why lawyers moved inhouse. The quality of work – namely the opportunity to access more varied work and, for corporate lawyers, the opportunity to work closely with the business – was the number one reason given by respondents. Completing the circle Moving from private practice to in-house is a familiar paradigm, but an equally interesting transition is the move in the opposite direction. There have been some prominent examples of late, such as former Lend Lease Australia assistant general counsel Sandra Steele moving to K&L Gates and the aforementioned move by David Williamson to Ashurst. Both of these lawyers were at firms before their time inhouse and have therefore “completed the circle” with their most recent move. These are senior appointments by well known professionals and a question still remains as to whether more junior in-house lawyers could also make a similar move with ease. The profession benefits from a continuing cross-pollination of talent between the two segments and it can only be hoped that firms are as open minded about recruiting in-house talent at the associate and senior associate levels as they are at the partner levels. At long last, it might finally be a chance to recoup all that investment at the graduate stage.
analysis
19
Chart one: Breakdown of private practice experience in in-house profession (government sector)
Source: Law Society of NSW
Chart two: Breakdown of private practice experience in in-house profession (private sector)
Source: Law Society of NSW
Chart three: How many lawyers do in-house teams typically employ? (government sector)
Source: Law Society of NSW
Chart four: How many lawyers do in-house teams typically employ? (private sector)
Source: Law Society of NSW
20
analysis
Australasian Legal Business ISSUE 11.05
THE DAY AFTER TOMORROW It’s easy for a new firm to grow off a small base, but what happens after that initial growth spurt? Report: Renu Prasad
S
Ken Jagger
ee if you can pick which firm we’re describing here: this firm has over 100 lawyers. They have offices in Sydney, Melbourne and Perth and they’ve recently entered the Asia market with offices in Singapore and Hong Kong. A third of their revenue comes from Asia. If none of this sounds recognisable, it might be because the firm we’re describing has been around for less than a year. AdventBalance is the result of a merger between two young secondment-only firms, Advent Lawyers and Balance Legal. Both firms, coincidentally, date back to 2008. By 2011, both firms were recording revenue growth of over 50 percent year on year; in FY2013 that figure is expected to be in the range of 25 to 30 percent thanks to a more sober set of economic conditions. Whether it’s through mergers or through organic means, AdventBalance has a good record for growth – but where to next? Eastward bound The maturity of the Australian legal services market has been a talking point for many years; the solution for top tier firms is to seek growth in the Asian markets. The AdventBalance story demonstrates that this strategy is equally applicable for firms occupying other market segments. AdventBalance first entered the Asia market 18 months ago as a greenfield operation. “We started Asia from scratch – we didn’t inherit a business,” says CEO Ken Jagger. “We’ve been up there 18 months and on the ground for the last nine to 12 months. It’s really started to take off – we’re really pleased with how our Asia business is going. In Singapore alone we’ve got 30 lawyers; most of those have been added in the last nine months or so.”
AdventBalance has replicated its signature secondment-only model in Asia. “The difference in Singapore is that it is a regional hub, so many of our clients have work throughout the region,” says Jagger. “Some of our lawyers work in Singapore and some are based there but do assignments for clients in the broader region.” The success of the Singapore office has prompted the firm to open a Hong Kong office and further offices are not out of the question. “We have no plans for other Asia offices but if [Hong Kong] goes as well as we hope, we don’t see why the business model can’t be used in other locations too if there’s client demand,” observes Jagger. Merger Balance Legal’s primarily Perth based practice was an easy fit for Advent’s primarily Sydney based practice. “We operated in quite distinct locations; the only place with crossover was in Melbourne. So it was an easy merger from that point of view,” says Jagger. The complementary geographical spread also reflected the complementary spread of practice areas enjoyed by the firms. “Balance established itself in Perth with a focus on mining, oil and gas and infrastructure and Advent was in Sydney and had a client base more skewed to financial services and that end. So it was really pleasing to find that we had really strong coverage of all sectors once we put the two together,” says Jagger. The firm uses a corporate structure and has both internal and external shareholders. There are no plans to list. AdventBalance is another example of a young firm that has decided against the traditional partnership model and perhaps further evidence that it is the practical obstacles such as tax issues, rather than any business or cultural objections that are preventing other firms from also adopting the corporate model. “It’s much easier to do what we’ve done and start a new firm with an incorporated structure from day one,” says Jagger. AdventBalance may also provide a solution to the perennial question of the next career step for lawyers who have already attained partnership and are looking for a new challenge. The firm has lawyers at all levels of seniority, including many former firm partners who can be seconded to provide temporary GC cover. “The motivations for these lawyers vary, but there’s an element of wanting to be more involved at the corporate level and traditionally there has only been one way of doing that – getting an in-house role,” says Jagger. “We provide an alternative to that –you can take a temporary in-house role and then move onto another client and another sector. In that respect it’s possibly more interesting for them.”
Australasian Legal Business ISSUE 11.05
analysis
Lawyers, librarians working 100 hour weeks: SURVEY Nearly 10 percent of legal professionals admit to having worked a 100 hour week at least once in the past year, according to a new survey from Thomson Reuters.
T
he survey, which covered senior level solicitors, librarians and barristers, found that nine percent of survey respondents had worked a 100+ hour week in the past year; a further nine percent nominated “80 to 100 hours” as their longest working week of the past year and 24 percent nominated “70 to 80 hours” as their longest working week. The survey also investigated the number of hours worked by professionals outside of the standard contracted working day. 56 percent of professionals estimated that they worked an average of an additional five to 10 hours a week above their contract hours, 21 percent worked an extra 11 to 15 hours a week and 12 percent averaged 16 to 20 hours. A dedicated six percent admitted working an average of 30 extra hours each week, taking their working week to approximately 70 hours. Nearly a third of the respondents predicted that their hours would only increase over the coming year, while only 13 percent predicted that their hours would decrease. Several reasons for this increased pressure were identified: clients’ expectation of more servicing for the same fees (22 percent) and cuts in fee earner headcount (10 percent). For employee level respondents, there was an overwhelming view that their employers were demanding more from their staff (55 percent) and cost cutting (13 percent) was also mentioned as a factor. One positive outcome was that many respondents believed that technology was making the execution of their duties easier. 78 percent said the time they took to conduct legal research was quicker, 54 percent claimed their administrative demands were less and 37 percent said workflow technologies saved them significant time.
21
22
building & construction
we built it...
Australasian Legal Business ISSUE 11.05
Australasian Legal Business ISSUE 11.05
building & construction
AND
... they came
Construction sector headwinds are not slowing the growth of strong mid-tier firms, who are winning work and legal talent from larger firms by offering value and specialisation. BEN ABBOTT reports.
23
24
building & construction
Australasian Legal Business ISSUE 11.05
T Jonathan Stafford, Colin Biggers & Paisely
Ian Gordon, Lander and Rogers
welve months ago, Jonathan Stafford made a decision to depart the special counsel role he had occupied at Clayton Utz, for the prospect of partnership and helping to grow the construction practice at Colin Biggers & Paisley in Sydney. Since then, he hasn’t looked back. “Construction was one of the focus areas of the firm [Colin Biggers & Paisley], and that’s one of the reasons I wanted to join,” he told ALB. Stafford’s lateral move is symptomatic of a number of trends impacting the legal market more broadly in the construction sector. With offices in Sydney and Melbourne, Colin Biggers & Paisley is a respected mid-tier player that ranks construction as a core practice, accounting for 30 percent of its overall capacity. It is specialist mid-tier firms just like it that are attracting talent like Stafford from larger firms, and are benefitting from a construction industry client drive for value when it comes to legal spend as well as the increased specialisation of outsourced front-end work.
Shifting foundations With Clayton Utz’s practice primarily public sector focused, Stafford said this hampered his ability to build a successful contractor and developer client base. However, he says billing rates also played a key part. “Since coming across I’ve been involved in advising some of the big contractors and developers on a number of projects that might otherwise have gone to larger firms. Some clients I brought across, and some were existing clients,” Stafford explains. “At Clayton Utz there was a lot of push-back in terms of charge-out rates; we were getting pretty expensive where the market at the moment is fairly difficult.” While construction sector clients and in particular contractors and suppliers have always pursued value, Stafford is not alone in noting an intensity in this pressure as the construction market enters slower times. “My very strong impression is that even the largest of Australian and international clients are looking for more value in legal services,” says Brisbane-based Mills Oakley Lawyers partner Greg Richards. Price sensitivity in the market is causing foundational shifts. For one, some larger firms are perceived as moving away from bread and butter construction work, due to international mergers. “Certainly with the increase of profitability expectations that are imposed on the mega firms by their multinational parents offshore, the dynamics have changed quite significantly,” says Lander and Rogers partner David Fabian. “It is putting pressure on partners of those firms to
“When clients are looking to send work out, they are looking for value for money in addition to quality.” - Jonathan Stafford, Colin Biggers & Paisley
Construction turnover outlook by sector % CHANGE SECTOR
2011/12
2012/13
2013/14
Infrastructure
13.9
7.6
7.3
Mining
22.7
12.8
8.3
Heavy industrial
35.7
27.7
14.7
Total engineering
18.8
11.7
9.0
3.1
5.0
4.0
Non-residential building (Commercial construction) - Private sector
4.3
4.2
5.6
- Public sector
1.1
6.2
1.6
Apartments
8.7
-8.0
-2.3
Overseas business
1.0
0.0
0.0
Total construction
14.0
10.0
8.0
Source: The Australian Industry Group, October 2012
Australasian Legal Business ISSUE 11.05
David Fabian, Lander and Rogers
St John Frawley, Herbert Geer
building & construction
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deliver high returns. As a result, we are seeing a significant shift in workflows away from those mega firms and towards our firm, and are seeing a shift in participants at the table.” In other cases, larger firms are shifting into competitive gear, and seeking to match mid-tier rates. “We are seeing some of our big firm competitors being really competitive on fees. There is a real interest from big firms to win work, and they are going out of their way to cut fees and offer up things at no cost,” says Maddocks partner Greg Campbell. Stafford suggests market conditions mean that mid-tier firms will continue to win work away from pricey mega firms. “When firms are charging $600-$700 an hour it is just not sustainable. We are seeing clients wanting to agree to fee arrangements in advance of doing the work, and clients are pushing back on rates, negotiating and shopping around as well,” Stafford says. “When clients are looking to send work out, they are looking for value for money in addition to quality.” The construction market is not immune from another trend reshaping the broader market: the growth of in-house teams. With both principals and key construction companies now boasting their own top lawyers and teams in-house - many of whom come from partnership in top tier construction firms - lawyers say more frontend work is now easily handled by them, meaning external firms are engaged more selectively. The in-house lawyer focus on value in the construction market means they are willing to go off panel on a regular basis due to a need for specialist advice or even due to cost pressure. Firms are also finding in-house teams are very actively involved in the entire process of disputes.
“We are seeing a high degree of contentious work but that is not feeding through to an increase in formal fully litigated disputes.” -St John Frawley, Herbert Geer
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building & construction
Australasian Legal Business ISSUE 11.05
“Historically there has been a willingness for clients faced with disputes to hand them over to external lawyers,” says Melbournebased Herbert Geer partner St John Frawley. “The trend we have found is clients want to work with us and have a joint working relationship to deal with issues, rather than handing over a problem and saying ‘see you in three years’.” Construction gets contentious The rate of increase in the total value of engineering and commercial construction work was predicted in October last year to moderate to 10 percent through 2012/2013, and fall off further to eight percent in 2013/14. The forecast, released by the Australian Industry Group in concert with the Australian Constructors Association, suggested that some of the more sluggish sectors would include commercial and mining. Following growth of 3.1 percent in 2011/12, commercial construction turnover was forecast to rise 4-5 percent per annum through to 2013/14, while mining would drop to 12.8 percent. Law firms have been among the first to feel the market slowdown, with developments in the mining and resources sector the most disappointing. “I think the front-end work in mining and resources will slow down now, as some of the projects are either put on hold or delayed,” says Perth-based Jackson McDonald partner Basil Georgiou. He gives the cancellation of Woodside’s gas processing plant at James Price Point as an example of this trend. The same is true in Brisbane. “With the end of the mining boom we saw a very rapid decline in mining infrastructure projects,” says Mills Oakley’s Greg Richards. “Procurement and contract work for mining infrastructure and projects almost disappeared overnight in the last 18 months, and that flowed through to firms very quickly.” The opportunities in the mining sector have shifted quickly to disputes, which Georgiou suggests will keep project-strong practices in Perth at busy at least through into the medium term. “Whether we see an appetite for formal disputes I don’t know, but in the last 12 months, we have seen a lot of adjudication applications and some of them have been quite sizable – over $20 million in some cases.” Firms in the state will be waiting to see how further disputes in this sector crystallize. Herbert Geer’s St John Frawley says
Security of Payment Act draws unexpected guests
Security of Payment legislation in the states of Queensland, New South Wales and Western Australia is designed for one thing: ensuring construction and engineering sub-contractors and suppliers receive timely payments in the event of a dispute with a head group. Designed for smaller value claims, the measures ensure the prodigiously contentious nature of construction does not mean smaller players are put out of business, with odds already stacked against them in contracts. However, expert lawyers in the area say that, while security of payment work is booming, it’s not all for the reasons intended. “We’ve seen claims in NSW and WA over $90 million,” says Holding Redlich’s Brisbane-based partner Stephen Pyman. “In the old days these claims would have gone to court, or through arbitration. Now you are getting high value resource claims heard in 35 days. It’s turned into expert adjudication across the whole breadth of the industry.” For expert firms like Holding Redlich, which has up to 10 lawyers wholly focused only on Security of Payment work in Brisbane, this means a boom in work. However, the practical implications for the system are debatable, with the full gamut of issues covered in large claims now compressed into a mandatory 35-day process. “Imagine how many lawyers you have to throw at that,” Pyman says. Governments are consulting and debating this issue, though Pyman suggests that the Queensland system will probably not be changed. Which is both good – and bad – news for Holding Redlich lawyers. “We had three major ones lodged the day before Christmas,” Pyman says.
building & construction
Australasian Legal Business ISSUE 11.05
that he sees the market overall as “severely constrained” and this is felt most keenly in commercial construction. “That outlook is reflected when you look at the major contractors and engineering services companies who have been downgrading their projections during the [financial] reporting season.” In one brighter spot, Hebert Geer sees residential towers holding up, but Frawley says dispute work is key for the firm’s practice at present. “We are seeing a high degree of contentious work but that is not feeding through to an increase in formal fully litigated disputes. There are more strategic approaches such as mediation and arbitration designed to efficiently deal with a dispute to bring it to a resolution.” Firms differ in their experience of the magnitude of the contentious shift, though all agree it is occurring, and Security for Payments Act work has become an opportunity for firms as large players as well as small rush to take advantage of the adjudication system. (see break-out story)
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Finding a front-end niche Though disputes are on the rise, specialist construction firms by and large are not hurting. In fact, most profess to be growing, seeing a number of opportunities which they are firmly steering practices towards. Holding Redlich’s Stephen Pyman, for one, sees growth in specialist areas where few in-house teams play. One such is energy rated buildings, with the firm having advised the owner of the new Regent Tower office building in Brisbane, which has a six Star Green Star rating. “The race is on for what is called the ‘Holy Grail’- the six star Green Star energy rating. If you aren’t specialised in that, you are going to be left behind on front-end commercial work.” The firm recently recruited in planning and environmental lawyer Kelly Alcorn from Clayton Utz. Cooper Grace Ward partner Sean Henderson names PPPs as an opportunity, having recently advised venue manager AEG Ogden on its successful bid as part of the ‘Darling Harbour Live’ consortium, which will operate the $1 billion International Convention Centre in Sydney. Meanwhile Lander & Rogers, which appears on a large number of key industry panels, nominates a tech-based civil infrastructure trend. “The NBN and related projects has seen work flow not only to the firms involved but others as well,” says partner Ian Gordon.
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building & construction
Australasian Legal Business ISSUE 11.05
Contractors hope to berth ‘Flying Dutchman’
One key report has likened a recent debate in the construction industry in NSW to the ‘Flying Dutchman’ – a legendary ghost ship that can never make port and is doomed to sail the ocean forever. Prepared by Bruce Collins QC, the Collins Report, or the Final Report of the Independent Inquiry into Construction Industry Insolvency, followed a series of contractor collapses, namely Kell & Ribgy Group, the Hastie Group and Reed Constructions among others, and the decision of the state’s government to investigate the issue. However, it hasn’t been the first time, as the Collins Report laments. “Repeated references to the same payment problems in reports and inquiries may be likened to the glowing ghostly
light reported by those who claim to have sighted the vessel [the Flying Dutchman] in the last century,” Collins QC wrote. Apparently, whenever contacted, the ship would eerily try and pass on messages to those already ‘long dead’ – a fate that Collins QC hoped his report would avoid. “Messages of that kind have emanated from inquiries and commissions for too long. Perhaps the time has come to ensure the problems are addressed with more determination than has been the case in the past.” Not recommended reading for anyone outside the construction industry, the detailed report makes a lengthy 44 recommendations in an attempt to end the disproportionately high number of construction insolvencies in the state. Why? Because in 2011 financial year, the industry was worth 8.1 percent of the gross state product, and is a critical driver of investment, employment, as well as the state’s hope for delivering future infrastructure. Recommendations are focused on protecting smaller contractors against head group insolvency or delays in payment.
“The growing technology trend is having a significant impact on our work. There is less of the traditional bricks and mortar work, towards more interesting tech-based and social infrastructure like ‘smart’ hospitals and schools.” David Fabian is also working on a ‘biobanking’ transaction, which allows companies to receive benefits for contributing environmentally positive assets to offset some of their commercial assets that are less so. Though firms are exploiting these niches, most agree that a steady - albeit constrained - flow of front-end work is enough for them to grow.
Heavyweight lifting Stafford, for one, is so far enjoying his partnership at Colin Biggers & Paisely, with its vision to be recognized as a leader in core areas including construction. He thinks there will be more moves like his. “What I hear is that there are a lot of partners looking to move.” This could be 20 percent of the partner market overall, including construction, he says. “Normally people would be appointed as a partner and stay for life, but we are seeing a lot of movement at the moment.” In fact, though the firm was short on detail at the time of going to press, Colin Biggers & Paisely is set to launch into Brisbane, with the addition of at least one new partner. The new office’s focus? Construction. “The initial service offering will be construction-related. It’s been driven by demand, with many of our clients having office there,” says Stafford.
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In-house perspective: new zealand
Australasian Legal Business ISSUE 11.05
IN-HOUSE PERSPECTIVE:
new zealand
Australasian Legal Business ISSUE 11.05
In-house perspective: new zealand
The legal world in New Zealand is changing fast, and the lawyers in the best place to witness it are the nation’s top in-house counsel. BEN ABBOTT asks some of the best in-house lawyers in the country to name their biggest challenges, achievements and predictions for the future.
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In-house perspective: new zealand
Australasian Legal Business ISSUE 11.05
David Matthews
General counsel Fonterra Co-operative Group
C
hange. It’s a word that has risen to top-of-mind for New Zealand’s in-house legal counsel. Despite a global financial crisis and a prolonged period of tight local economic growth, these lawyers are still busy dealing with the challenges presented by the growth of their organisations. Whether it’s the increase in regulation around the world demanding these lawyers stay on top of fast-paced legal developments in multiple jurisdictions, a decline in legal budgets demanding they reprioritize internally and demand more from their external counsel, or even an earthquake – literally – in-house lawyers are having to constantly adapt to new realities to ensure the success of their organisations. “The business world is constantly changing and you can’t sit back and turn the same handles and expect the same outcome,” says general counsel of Fonterra Co-operative Group David Matthews. “No one gets paid for a job to do the same thing as yesterday.” In our In-house Perspective feature, ALB takes the pulse of the New Zealand in-house market through interviews with seven of its best legal minds. And despite the constant change, ALB finds that just about everyone thinks they have the best legal job available in New Zealand.
“There is more pressure on lawyers to find solutions through flexible thinking that allow us to do business while only taking on a level of legal risk we are comfortable with.”
David Matthews, Fonterra Co-operative Group
One of New Zealand’s largest entities, Fonterra is a cooperative of 10,500 dairy farmers producing 16.5 billion litres of milk a year, 95 percent of which is exported to over 100 countries. Accounting for about 30 percent of the entire world’s dairy production, the sheer size and scope of its operations yields plenty of legal challenges for general counsel David Matthews. Originally from Australia, Matthews joined Fonterra in 2001 when the group was formed through the combination of two co-operatives and the nation’s Dairy Board. And he hasn’t regretted the decision. “I often talk to my team or people interested in joining the team, and tell them that as far as I’m concerned, this is basically the most exciting legal work going on anywhere across New Zealand and Australia; it’s as simple as that,” he says. But that doesn’t mean it’s easy. Matthews says the group’s three-plank strategy, which involves boosting volume, value for its farmers, as well as velocity in the distribution of its products, brings challenges in key growth jurisdictions such as Asia where food industry regulation is changing fast as economies develop and renovate their legal regimes. “If there is one thing the economics of business demand today, it is doing things with speed, and one of the challenges we see is that regulation is increasing around the world. There is more pressure on lawyers to find solutions through flexible thinking that allow us to do business while only taking on a level of legal risk we are comfortable with,” he says. Matthews manages a relatively small team of five very experienced senior corporate counsel, and four corporate counsel, in combination with what he calls a “virtual team” of external lawyers who work “very, very” closely with the in-house team in order to stay across legal issues. Matthews has recently been involved in the creation of the Fonterra Shareholders’ Market, which allows trading among its farmers via a private stock market run by the New Zealand stock exchange. Developed over a period of four years and prompted partially by drought conditions, it allows the trading of listed derivative units among members. “We are right in the middle of the implementation process, making sure that it works properly and ensuring that it is as flexible as it can be,” he says. Though in-house teams have grown around the world over the past 15 years, Matthews suggests this overall trend may be levelling out. However, he argues a focus on legal costs will remain, and that for in-house legal teams, this means a constant reprioritisation of where resources should be focused, such as areas of business growth.
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In-house perspective: new zealand Sarah Owen
General counsel New Zealand Superannuation Fund For most investors, the GFC represented a period of fear and uncertainty as markets around the world reacted to the U.S. subprime contagion. However, for New Zealand Superannuation Fund general counsel Sarah Owen, managing the legal function of a fund with the benefit of a 20-year investment horizon resulted in a different outlook. Something like the GFC was extraordinary to go through, and obviously returns were massively affected in the short term, but it is also at times like this when investment opportunities arise. Effectively, things were a lot cheaper,” she says. Owen was the first lawyer to join New Zealand’s sovereign wealth fund six years ago, and has since expanded the in-house legal team to include two experienced senior lawyers. “It’s been great being here through the build phase while the building blocks were being put in place to be this organisation that is doing these really exciting things,” she says. Exciting indeed. In December, the New Zealand Superannuation Fund was named the world’s most innovative sovereign wealth fund at the 2012 aiCIO Industry Innovation Awards in New York. Owen says it is this aspect of its culture that makes it an “amazing” place to work. “We are an innovative investor,” Owen explains. “We look at all the opportunities, and compare them against each other then make an investment. It means our investments are incredibly diverse.” For Owen and her legal team, this means having to be nimble to adapt to a wide range of legal issues thrown up by this vast universe of investments. Owen has embedded her team deep into the transaction process, and she says it certainly helps being seated in an open plan office sitting next to the investment team. “We aim to make sure we are getting into transactions really early, identifying issues early and finding out what we need, and making sure the transaction comes together,” she states.
Craig Mulholland
General counsel and company secretary ANZ After a global financial crisis that put significant pressure on the growth of financial institutions, there is perhaps no one better than Craig Mulholland at New Zealand’s largest banking institution, ANZ, to attest to the increasingly intense New Zealand in-house focus on costs. “Even when there is limited revenue growth, investors expect that they will be rewarded with returns,” Mulholland says. “Cost is one of the biggest levers available, and legal budgets are a part of that.” Mulholland says ANZ’s legal budget has decreased since the GFC, and the in-house team is down to 32 lawyers with the help of natural attrition. He says further reductions are being made via a laser focus on efficiency. “We are looking at everything we do, and we have stopped some of the non-legal things the business should really be doing that we have inherited over time and where we are not adding value,” he says For Mulholland, this environment also creates another challenge: how to develop and continue to interest his legal team. “There are
Australasian Legal Business ISSUE 11.05
“We aim to make sure we are getting into transactions really early.” Owen believes in-house counsel in New Zealand face the challenge of a constantly changing regulatory environment, which requires her legal team to be looking ahead towards upcoming developments and “getting ahead of the curve” rather than reacting to these after the fact. Legal cost is also a big factor. With every dollar of legal spend coming off the sovereign fund’s bottom line, she says that costs are critical, and have to be “well understood” before making any investment. As a result, Owen says that the local and offshore private practice counsel instructed are expected to know the fund’s business intimately, and time is spent with these counsel to keep them abreast of developments. “They need to understand our business, how it is changing, and we expect them to be committed to working with us closely,” she says. Owen says this includes flexibility on fees, with a focus on value rather than billable hours. Owen says that the fund is looking to build its in-house team further, and as a result will continue to do more legal work in-house.
not the jobs there for senior staff who are deserving of promotion, so it’s a question of how you keep them interested, fulfilled and motivated while not necessarily paying any more or presenting promotion opportunities,” he says. The answer comes from offering exposure to new areas: “We are developing the experience and capabilities of the existing team by crossskilling teams and putting them across multiple areas of responsibility.” External firms are feeling ANZ’s pressure on value. “If you look at legal fees from the bank’s perspective, there are those things which the bank pays for, and those customers pay for. In terms of bank costs, we are doing more in-house,” Mulholland says. He adds that ANZ is shopping around a lot more, putting more work out to tender, holding firms to account on fee quotes where the scope of work has not changed,
Australasian Legal Business ISSUE 11.05
In-house perspective: new zealand
Private practice told to adapt to new in-house realities If there is one thing New Zealand’s in-house counsel have in common, it is the rising expectations they are placing on private practice firms. Increasingly, in-house counsel plan to do more work in-house, want to pay less for external firms, and are looking for a high level of value from them that includes an intimate working relationship on legal work. Air New Zealand’s John Blair is just one lawyer that has cut back on external legal spend. “Over probably the past 10 years, our requirement for private practice services has been steadily in decline,” he says. Blair indicates this is largely a result of a growth in the size and quality of his team, which means often only specialist advice is outsourced. Meridian Energy’s Jason Stein also says more significant legal work is being undertaken in-house, and there is a more forensic approach to external legal spend. “The focus is on only getting external legal advice when it is really needed, and questioning if we really need it,” he says. With many boutique law firms in New Zealand formed by erstwhile top tier partners, in-house lawyers including Caroline Quay of Fisher & Paykel Healthcare say in-house teams are engaging boutique and specialist law firms more. “In the New Zealand market we are trending towards specialist and boutique law firms,” she says. “We have started to do a lot in-
house and are only using firms for specialist advice, particularly IT law or construction law or jurisdiction-specific advice.” Blair is one lawyer who is willing to follow individual expertise rather than a particular firm. “When there is an issue, I will ask who is the person to deal with this rather than which firm,” he says. Blair argues that private practice firms need to adapt their model if they are to service their clients effectively. “I don’t think private practice has been good at adapting their businesses to meet the changing needs of clients,” he says. “There is no magic bullet solution, but we are stuck in the situation of hourly rates, where it is bill this and bill that. They are not designing services that are competitive with what you can do in-house, and until they do that they are going to find it harder and harder at a time when the management of legal costs is under scrutiny.” Blair says that the next 10 years are likely to see the private practice profession adapt their business model to this new reality.
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In-house perspective: new zealand and regularly instructs boutique firms with quality partners to save on fees. “While we still use large firms, we are also using boutique firms, who have lower cost structures and overall lower charge-out rates,” he says. This includes instructing lawyers outside major cities, where their overheads are lower. Mulholland says the “regulatory tsunami” hitting the financial services industry is one of the team’s biggest challenges. “We have multiple overlapping regulation both in New Zealand and offshore,” he observes. These include Basel III, APRA oversight from Australia, U.S. anti-money laundering, tax and consumer regulation, as well as a host of local regulatory reforms that are being rolled out across the financial markets in New Zealand. “Keeping on top of that in addition to keeping the machine running is quite a big task,” Mulholland says.
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“While we still use large firms, we are also using boutique firms, who have lower cost structures and overall lower chargeout rates.”
Craig Mulholland, ANZ
Chris Gilbert
Legal services manager Christchurch City Council When Christchurch’s entire CBD was devastated by the earthquake of 2011, Christchurch City Council’s legal services manager Chris Gilbert found that he had to lean on the Council’s panel firms in new ways. “Our panel firms really stepped up; they gave us a lot of help at a time when we didn’t have an office,” Gilbert says. “We were using the basement of one provider that we had a good relationship with, and that has strengthened the relationship and built our faith and trust in them.” The unexpected disaster not only thrust the council’s legal team out of its office, but also into entirely new legal territory. “I would venture to say that no local government in Australia or New Zealand has ever had to manage the detail and extent of changes to legislation that we have had to manage in response to this emergency,” Gilbert says. After the earthquake, it became apparent existing legislation was not equipped to deal with many of the issues raised. Much of Gilbert’s work since has been working with the Crown to reform laws including the Local Government Act and the Building Act to allow the city to deal with a raft of new problems. One example is the Port Hills residential district east of Christchurch, which has been hit by landslips, rock falls and ground movement, forcing many people to abandon their homes. Gilbert has been involved in changes to legislation that will include the ability for counsel to enforce hazardous areas where people may need to leave their properties, possibly permanently. Other issues include the replacement of large sections of the city’s previously horizontal sewage infrastructure, which now needs to run uphill in parts with the aid of pressure pumps, as well as pinpointing financial and legal responsibility for almost 400 retaining walls in the Hills district, many of which need replacing. Gilbert is something of a trailblazer among the local government legal community in New Zealand, having built sophisticated cost recovery systems that ensure every hour of his legal team’s work is charged back to the council’s client units. “The end result is that at the end of the year, if all goes well, my budget is $0, and we have covered the whole cost of operating the team from the client units requesting the business,” he says. Gilbert says this means client units factor the true cost of legal services into their transactions, which avoids the Council having a vague overhead that an internal client never actually needs to pay. The costs associated with
instructing external firms are also charged back to internal clients. Gilbert’s focus on efficiency has helped the council survive the earthquake, and he says this is key to the success of inhouse teams. “I think you need to have the systems and processes in place,” he says. “We would be in deep problems if prior to this we didn’t have a good matter management system and a good document management system for example. Having the benefit of those with new matters is amazing, because you know where to find everything electronically, everything has it’s home and you know exactly who is working on what when.”
“We would be in deep problems if we didn’t have a good matter management system and a good document management system.”
Chris Gilbert, Christchurch City Council
Australasian Legal Business ISSUE 11.05
In-house perspective: new zealand
“It’s challenging being so geographically distant from clients, and also grappling with the laws of so many countries.”
Caroline Quay
General counsel Fisher & Paykel Healthcare When the general counsel of Fisher & Paykel Healthcare Caroline Quay recruits a new member into her legal team, she doesn’t tell them what their future with the business will look like. Instead, she tells them their future will be what they choose it to be. “All I can tell them is our company doubles in size every five years,” Quay explains. “The legal role is not specifically defined, we are basically here to help people solve problems. So I tell them it depends on how they add value to the business; if they can find a place in the business, build trust within the business and add value they will grow with the business.” Quay herself is a case in point. Recruited a decade ago as the business’ first exclusive general counsel following its complete separation from Fisher & Paykel Appliances, she has been responsible for writing the blueprint for what the now five-strong legal department should be in this fast-growing global medical device manufacturer and exporter. “It’s been an exciting journey learning about the business and where the legal function could add value,” she says. During her tenure, the company has grown from 800 to 2,600 employees in 32 countries around the world, and currently distributes products in 120 countries. In fact, it is being one of the few true multinationals based in New Zealand that Quay names as a key challenge. “It’s challenging being so geographically distant from clients, and also grappling with the laws of so many countries,” she says. Quay has tackled this problem through innovation, building a
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tailored global online compliance system in-house as well as making a strict rule of keeping in regular contact with clients. Quay also leans heavily on the strong relationships she has built with local legal counsel in key jurisdictions that include China and India. “The important thing with those relationships is trust; you are dealing in different time zones, languages and legal regimes, so it’s important to have people you trust,” she says. A global footprint comes with an exposure to the fast pace of change, which Quay argues is one of the primary forces impacting on the nature of the in-house legal function. “Change is a reality of the times, and with it comes an increased demand for legal services by the business, with new laws and new regulations,” she says. “Clearly to have an impact in-house teams need to be able to offer solutions to proactively manage this change, instead of reactive management.” Again, Quay says innovation – along with some experimentation – is the answer. For instance, Quay has recently made a decision to send one of her legal team to London, where he visited the company’s European offices to determine where and how he can provide legal service. “That is quite experimental, but we need to be close to our clients. It will be exciting to see what happens,” she says. Quay argues in future, in-house legal counsel have a genuine opportunity to broaden their role to become broader business advisors. “Legal training provides lawyers with really good analytical and problem solving skills. If they can leverage that I think in future there is a big opportunity to gain exposure to non-legal or quasi-legal issues,” she says. Her team is already an example of this evolution, with members assisting business units including the engineering team and investor relations team on a secondment or part-time basis. As manager of her team, Quay admits to being ‘radical’ in encouraging her employees to do at least one thing every year that they are scared of – one even recently swam with sharks in South Africa in order to take up this challenge. However, Quay says lawyers grow through challenging themselves, which goes handin-hand with acceptance of change and growth.
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In-house perspective: new zealand
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Jason Stein
General counsel, Meridian Energy While Meridian Energy general counsel Jason Stein was busy overseeing the Government-owned energy group’s first partial stock exchange listing as well as one of the New Zealand energy sector’s most significant contract discussions, he still managed to keep a healthy work life balance. “I’ve managed to get a good work life balance that allows me to get the most out of my family time, as well as having a great job working with great people. I work for a company that respects that, and I consider that a massive achievement that is very important to me,” he says. For many lawyers, such a balance may still be just a dream. But for Stein, this balance has a bearing on the very role that in-house counsel should play within their organisations. “Senior legal people can be agents for great cultural change,” Stein explains. “Highly engaged teams of lawyers who are viewed as leaders in their organisations can encourage people to understand that work is only one part of their lives, that it’s important to have fun while you’re at work, and that you can get that engagement at the same time as delivering great results internally.” This is tied closely to something he calls “reversing the flow”. Rather than lawyers being sought out by the business when
John Blair General Counsel Air New Zealand
There is something that has been concerning the general counsel of New Zealand’s national carrier for five years now. “I’m seeing that pretty much wherever we operate there is an increase in regulation, as well as an increase in the strictness of enforcement,” John Blair says. For someone who has been at the helm of Air New Zealand’s legal team for the past 17 years, Blair is perhaps a good litmus test. He gives the example of a scenario his own airline has been lucky to escape: carriers flying into the U.S. have at times been fined hundreds of thousands of dollars, for something as mundane as their website terms and conditions not being
“Senior legal people can be agents for great cultural change.” problems need solving, he says in-house teams are putting more emphasis on proactively building better communicative relationships with their internal customers. He says this helps them understand what drives customers, helps reduce baseline speed of legal service delivery, and improves the outcomes of the legal function in relation to the business decision-making process. “I think at a team level what people are looking for more so these days is less academic types, and more people who can understand the finance and business imperatives and quickly apply legal principals to those models,” he says. Stein joined Meridian as assistant general counsel in Wellington five years ago. While he was promoted to the general counsel role only some time later, he has for most of his tenure taken care of the company secretary responsibilities. “In my view, company secretarial responsibilities are an important part of the role, because key to its ongoing success is the interaction between the GC and the board,” he says. Stein’s most recent challenge has been running a listing project for the state-owned renewable energy business, as it prepares to partially sell ownership through the issue of stock in three separate stages. The other recent challenge has been overseeing a major contract negotiation with major significance for New Zealand’s energy market. Stein says a noticeable trend has been a “significant reduction in external legal spend”. “We’ve largely kept the in-house function at a similar level of cost, but we have significantly reduced external expenditure,” he says.
compliant with detailed national compliance rules. Then there’s the EU Emission Trading Scheme, which although on ice for now, would have seen airlines paying for emissions from their takeoff point even though only the last few hours of their flights were in European airspace. He says these measures appear to business to be a means to raise cash. “We also get regulatory overreactions from the Government, and are seeing compliance on top of compliance in what we are required to do. Politicians don’t often stop to think what the cost of regulation is,” he says. Blair is not referring to the airline industry in isolation. He refers to the financial services industry as another key example, and includes areas of law such as health and safety and environmental law, and says all the extra red tape adds up to a drain on business and the economy. Blair has a team of eight lawyers in-house, and names the building and retention of his team as a challenge and achievement. “Whether it’s in private practice or in-house, lawyers aren’t trained in how to manage people; it’s something you have to learn from experience,” he says. He says these lawyers deal with a diversity of issues on “any given
Australasian Legal Business ISSUE 11.05
In-house perspective: new zealand
“I’m seeing that pretty much wherever we operate there is an increase in regulation, as well as an increase in the strictness of enforcement.” day of the week”, that can include the buying and leasing of aircraft, baggage and passenger claims, competition and fair trading issues, and even multi-million dollar claims around aircraft engineering. As a result of his experience, Blair has strong views about the use of private practice counsel [see break-out story], and says he takes some satisfaction in being an early mover when it comes to positioning the in-house function more firmly within commercial and strategic realms. “General counsel have got to be very business minded. That’s not to say we shouldn’t take a legal approach to things, but we also need to understand the business and be viewed as very much part of the risk management of the business, to help avoid the pitfalls but also identify the opportunities,” Blair says. “That mindset has good in-house counsel readily accepted and respected by commercial management within the business.” This will be the ‘inevitable’ direction in future, he says.
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international recruitment
Australasian Legal Business ISSUE 11.05
Australasian Legal Business ISSUE 11.05
international recruitment
IT’S A small
WORLD after all Local lawyers are finding they have to work harder than ever to secure overseas experience, with legal jobs still scarce around the globe, writes BEN ABBOTT.
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O
nce ubiquitous, the overseas experience rite of passage, or ‘OE’ as it is known, has suffered a hit following a downturn in most of the most popular markets for legal professional exchange, including the UK, Middle East, Asia and the U.S. Though pre-GFC demand for Australian lawyers in these markets seemed almost insatiable, the global downturn has forced a complete about-face in fortunes. “I think the desire to move overseas and gain overseas experience, none of that has gone, but the ability to make good on that desire is hugely curtailed, at least in traditional markets for Australians and New Zealanders,” says Andrew Poole, managing partner of top tier firm Chapman Tripp in New Zealand. Poole has witnessed a wild fluctuation between an “almost untenable turnover” in lawyers prior to the GFC, to its extreme opposite. Now, Poole says the market pendulum has swung back towards an equilibrium “somewhere in the middle”. So what does the new normal mean for locals looking for longdreamed of OE? Well, recruiters say it’s still going to be much more difficult to secure. “Globally the volume of jobs has decreased significantly,” says Naiman Clarke managing director Elvira Naiman. “For example, historically we would have been happy to sponsor people from abroad with a skill set we can’t find here in Australia, but that has declined significantly. It’s the same in reverse in overseas markets. If they can find a local candidate, they do prefer that.” With that made clear, recruiters say there are still opportunities, and determined, top quality lawyers are finding abundance in this smaller world. London and the UK Once the undisputed mecca for Australian and New Zealand lawyers in search of overseas experience, the London job market has become a challenge. “Most lawyers find that the opportunities that were there five years ago aren’t there now,” says Mahlab managing director Katherine Sampson. “At the moment, we have more people wanting to come home than [those going] to London.” “The London market is highly competitive and firms are favouring those lawyers with UK experience,” concurs J-Legal’s Sydney director Joseph Germano. These conditions mean candidates no longer see the same lustre in London. “It has become a lot less popular than it traditionally has been,” says Naiman.
“Most lawyers find that the opportunities that were there five years ago aren’t there now.”
- Katherine Sampson, Mahlab
Homeward bound?
Many Australian lawyers overseas who have a wealth of international experience are finding it a tough ask to find the jobs they want back home. “Lawyers would like to come home to a job, but they often can’t do that,” says Mahlab’s Katherine Sampson. “Some lawyers who come home are quite senior, having had many years of experience. From places like London, they also often have quite specialised expertise.” Elvira Naiman says that in current conditions, it seems some of these top-level candidates have “missed the boat”. “Some of the most pedigreed candidates I have seen come back and want to come in as special counsel, or as senior associates with salary expectations north of $230K,” she says. Naiman says firms prefer local candidates, who have experience as well as having been on the ground keeping up to date with legislative changes.
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“The London market is highly competitive and firms are favouring those lawyers with UK experience.”
- Joseph Germano, J-Legal
With a common legal system, deep cultural and historical links, some of the best law firms in the world, and proximity to the cultural diversity of Europe, London has always been on the radar for expatriate lawyers. However, the domicile of the Magic Circle suffered significantly in the wake of the financial crisis. The good news is that although recruitment has turned conservative and UK lawyers are favoured, top Australian lawyers are still valued. “Those lawyers with top tier experience still have a good shot at finding something,” says Germano. One area in particular demand is – surprisingly – litigation. “Traditionally, firms haven’t looked at overseas litigators,” says J-Legal’s Germano. “But now there is high demand for top litigators; there aren’t too many about in London any more, as they’ve been snapped up by all the large and midtier firms,” he said. J-Legal’s UK office indicates that outside litigation, there is demand for junior to mid-level lawyers in areas including non-contentious construction, and asset and project finance in the energy and infrastructure sectors. Financial services regulation and white collar crime are other areas seeing surges in interest. Candidates are advised they will need strong motivation and persistence to find employment, and are better off applying for jobs on the ground in London. “If you are not on the ground over there it is a lot easier for a law firm to say no, because they have lots of local lawyers already there,” says Sampson. There are certainly success stories. New Zealand’s Chapman Tripp, which works to help any of its lawyers who desire overseas experience, recently helped one lawyer secure a job at Slaughter & May, a firm with which it has close ties.
international recruitment
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international recruitment
The worst of the financial sectorinduced downturn has passed in Middle East jurisdictions
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The Middle East The worst of the financial sector-induced downturn has passed in Middle East jurisdictions. Optimism has replaced a time when fleeing expats were reportedly abandoning their debts and cars at the airport. “In the Middle East we’ve seen a lot of things pick up,” says Germano. “By far the busiest area has been energy, followed by construction, dispute resolution corporate and banking.” IT and software opportunities are also on the rise. Lawyers with experience in these practice areas and between three and seven years PQE will be considered, with one catch: they must have top tier law firm experience. “Firms can pick and choose, as they are shown lawyers from the U.S., the UK, and New Zealand. Top tier or top global law firm experience is favoured,” says Germano. If you can handle the blistering heat of a desert summer, the
international recruitment
Australasian Legal Business ISSUE 11.05
Q&A
WITH Ben Coleman, Associate, Linklaters (London)
Ben Coleman
Q: How did you secure a job at Linklaters in London?
Although I had been admitted in NSW before leaving for the UK, I looked for support roles while I went through the process of qualifying in England. Recruiters assisted me with this. I was particularly interested in Linklaters because of its client base, its expertise in the financial services sector and the calibre of its lawyers. The firm’s vision and market position made it an appealing choice. Once I had started working, I grew my network within the firm and, after considering the opportunities available, I accepted a role as an associate within a specialist corporate department.
Q: How has your career progressed?
I specialise in a practice area usually referred to as Employee Incentives. We advise clients such as global banks and energy conglomerates on their all-employee and discretionary cash and share bonus programs. In addition to advising on and drafting the legal documents underlying the programs, I advise companies on global compliance in the countries where they operate. The training and professional support offered by the firm are excellent; I have completed internal technical courses, and spoken at a client seminar on operating international share plans.
Q: What’s been the highlight of your time at Linklaters so far?
People often say that it’s the people you work with that make the difference, and it’s certainly true that I work with interesting, highly intelligent people from a variety of backgrounds. From a professional perspective, perhaps the highlight has been the time I spent on secondment with the litigation department here at Linklaters in 2012 defending the publishers of The Sun and the now-defunct News of the World against multiple civil claims arising out of the phone hacking scandal. On a personal level, joining clients and colleagues for 36 holes at Sunningdale Golf Club will be difficult to forget!
Q: Are there are still opportunities for Australian lawyers in London?
Absolutely. Australians and their work ethic are still highly regarded in London and particularly within the legal profession. Changes to immigration rules are making it more difficult, but it’s still possible to obtain a work permit. It’s also worth bearing in mind the recent spate of alliances between English and Australian law firms, which may provide an alternative route into the market.
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“Hong Kong is bucking the trend as one of the few overseas markets where Australian lawyers are getting some interest.”
- Paul Burgess, Burgess Paluch
Middle East still offers one of the best financial deals on offer, with tax-free salaries. Lawyers sometimes view the Middle East as a stepping stone to the UK, through potential employment with a top global firm there. However, with a drop in demand for London placements, Middle East demand has dropped as well. “Construction and property lawyers are definitely still needed, and while there are Australian lawyers still there, there is not the same huge madness to rush to the Middle East and try and make a fortune in Dubai,” says Sampson. “People are just not as inclined to get on a plane as they were before.” Asia Hong Kong private practice salaries: PQE level
Monthly salary range (HKD)
NQ
57,000 – 77,000
1 year
60,000 – 83,000
2 years
66,000 – 90,000
3 years
73,000 – 97,000
4 years
79,000 – 110,000
5 years
88,000 – 115,000
6 years
95,000 – 128,000
7 years
105,000 – 138,000
8 years
115,000 – 150,000
Source: J-Legal. Results exclude ‘white shoe’ U.S. firms.
Asia remains a beacon of hope for skilled Australian lawyers eager for an international placement. With the Chinese economy on the rise, Hong Kong is the most obvious and accessible opportunity for foreign lawyers. “Hong Kong is bucking the trend as one of the few overseas markets where Australian lawyers are getting some interest,” says Burgess Paluch’s Paul Burgess. With the centre of the world’s economic gravity shifting from West to East and Australian economic fortunes closely tied to the progress of the ‘Asian Century’, it seems
there has never been a more opportune time for exposure to Asia. However, even in Asia, times have changed. Though opportunities abounded for English speaking lawyers in the headlong M&A and IPO rush prior to 2008, particularly in Hong Kong, the global economic slowdown and subsequent interest among lawyers for a move to the region has seen criteria tighten. The key barrier for local Australian lawyers now is language. With cross-border China trade so important to Hong Kong, Mandarin is becoming a prerequisite. “In Asia employer demand has more emphasis on language skills now. There are still jobs up there, but language skills are being pushed much harder,” says Sampson. The move by many foreign firms to bypass Hong Kong for the Mainland cities of Beijing and Shanghai has further weighted this demand. The trend means many locally trained candidates of the Chinese diaspora may be well positioned to capitalise on the current focus of demand. Though designed as an international business hub, Singapore remains a difficult market for foreign lawyers to access, with firms now primarily focusing on hiring local lawyers. International firms were recently granted licences to practice local law are expected to focus their hiring intentions on local candidates. The good news? For the international roles that do exist, language skills are not required. However, there are other regional opportunities. “Indonesia and Malaysia are opening up, with firms opening their doors there,” says Germano. “While language skills are preferred, transactions are done in English, with local lawyers on the ground dealing with any local language components,” he said. Singapore and Hong Kong are both key arbitration hubs, and for those lawyers with arbitration experience, both are good options to make career progress. Those who do end up in Asia are looking at an attractive 15 percent tax rate.
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international recruitment
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The U.S. Ground zero for the deep economic slump that began in 2008, the U.S. market is at present almost completely shut down to Australian lawyers. “There’s just not the opportunities that there were pre-GFC,” says Sampson. M&A and capital markets roles still do exist, and most firms in the U.S. market still say that they will look at non-U.S. lawyers when looking to fill positions. However, Joseph Germano of J-Legal says that these firms are only interested in the absolute crème de la crème – or the top 1-2 percent of our local legal profession. This is because the U.S. has an abundance of lawyers on the ground. “There are enough lawyers in the U.S. out of work at the moment,” Germano says. The situation is beginning to turn, as the U.S. economy drags itself out of recession and firms begin to look at hiring for growth. However, partner level and experienced lawyers rather than junior and mid-level lawyers are in demand. Naiman adds that the U.S. legal system is very different to Australia. “It’s not like Asia or the UK, it’s a different system of law. A move at the best of times is tricky, and I think this has been made more so by the GFC,” she says. The offshore world Offshore jurisdictions including the Cayman Islands and the British Virgin Islands in the Caribbean, and Europe’s Channel Islands have always struggled to fill roles with locally sourced lawyers. As a result, offshore firms regularly recruit from international markets, and their growth has continued in tandem with the ballooning amount of assets being held in these offshore jurisdictions. This recruitment interest often finds its way to Australia. “We have recently had some decent interest from offshore markets such as the Caymans, with one firm even seeking a relatively junior corporate and commercial lawyer,” says Burgess. Roles in offshore jurisdictions usually require skills in funds, banking and finance, corporate, disputes and trusts. Firms often tout the lifestyle benefits of a stint in one of the offshore jurisdictions as one of their key advantages.
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private equity
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SPOTLIGHT on private equity Gilbert + Tobin’s Andrew Bullock provides an overview of some key trends in the private equity space and the challenges facing PE fund managers.
M
Andrew Bullock, Partner, Gilbert + Tobin
any people think private equity firms are somewhat removed from the challenges that Australian corporates face. After all, a private equity fund manager’s job is to invest other people’s money in (mainly) private businesses with the aim of selling those businesses a few years later. That seems a bit ‘one-out and one-back’ from the daily toil of managing customers and suppliers; fighting for market share and trying to guess what change an Australian government may impose on your business in the next quarter (and whether it will be reversed promptly thereafter). But in reality, their business challenges are the same or similar. Even ignoring succession and pricing pressures, private equity funds own portfolio businesses that are struggling in the same environment as public and family owned businesses. Their portfolio businesses are facing the same massive structural changes in certain sectors, a high dollar and, in some cases, a resources sector that is cresting. Some have had the wrong capital structure to be able to survive these challenges and have undergone radical restructuring (which is a way of saying the private equity owner has lost the vast bulk of their money and some of their reputation). However, many others have thoughtfully and strategically executed on plans that have allowed them to almost double their earnings in a pretty flat environment. But finding buyers for even their best assets at the moment is not straightforward and raising new funds in an environment where returns on current funds are weak and slow is even more difficult. In this context, what trends and issues are we seeing that are particular to private equity clients but of interest to others? • Companies owned by private equity typically have higher borrowings than others and are therefore squarely affected by the changes announced in the recent budget to ‘thin capitalisation’ thresholds. • (Ironically), at the same time, the U.S. high-yield markets are currently very willing to provide debt funding for refinancing and recapitalising Australian portfolio companies – in some cases to higher debt levels than Australian commercial banks will provide. • New strategies are required to IPO assets in capital markets that, whilst open, remain flukey and uncertain for private equity exits. • Global distressed and ‘special-situations’ funds are hovering around any business struggling with high levels of debt. • Secondaries (sales to other private equity funds) are clearly an important and desirable source of liquidity and will be for many years to come.
Tax changes At present, the Australian thin capitalisation statutory safe harbour entitles Australian taxpayers to claim interest deductions on debt that does not exceed 75 percent (in the case of non-financial entities) of the accounting value of the entity’s assets (less non-debt liabilities). In the most recent Federal budget, the statutory safe harbour for general entities has been reduced from 75 percent to 60 percent of assets (less non-debt liabilities) - effectively reducing the permissible debt to equity ratio from 3:1 to 1.5:1. The measures are proposed to take effect for income years commencing on or after 1 July 2014. Many portfolio companies of private equity funds have higher levels of financial debt than public and family owned companies do. Assuming a business maintains strong earnings levels, funding an acquisition with debt offers a lower blended cost of capital that can materially enhance a private equity funds’ returns. The reduced safe harbour threshold may require some portfolio investments of private equity funds to de-lever over the next year in order to ensure that interest paid on their debt remains tax deductible. This could have an adverse impact on fund returns. Some companies who breach the safe harbour ratio rely instead on another thin capitalisation threshold referred to as the ‘arm’s length debt test’ (ALDT). This broadly allows for a level of gearing that corresponds to the amount of debt the Australian operations of a business could source from third-party banks and may in some cases be higher than the safe
Australasian Legal Business ISSUE 11.05
harbour threshold. However, hidden in the announcements around the recent Federal budget was the message that the Australian Government will task the Board of Taxation with undertaking a review of the effectiveness of the arm’s length debt test to make it easier to administer, to reduce compliance costs, as well as the overall targeting of the arm’s length debt test. The terms of reference for the review are expected to be released in coming weeks. While there is nothing explicitly stated in the Government’s announcement regarding changes to the ALDT (and Assistant Treasurer David Bradbury was in the press emphasising the availability of the ALDT, despite the changes to the safe harbour), there are concerns in the market that Treasury has considered abolishing it entirely. As such, taxpayers who rely (or will rely after 1 July 2014) on the ALDT are advised that the abolition, or significant curtailing, of the ALDT following the Board of Taxation’s recommendations may be a possibility. This will put further pressure returns reliant on heavily geared financial structures. U.S. high-yield debt Over the last year, a number of resources companies and corporates have found that the U.S. high yield market has been willing to lend them more money than Australian banks on more favourable terms (even taking into account hedging costs). FMG and NINE are examples. Private equity firms are now exploring whether this “Term Loan B or ‘TLB’” market may be open to leveraged transactions. Current signs are positive for companies with the right cashflows, offering a new form of partial liquidity for private equity firms having trouble selling assets at a competitive price. The question is whether the thin capitalisation thresholds may limit the utility of this new form of funding. IPOs There is a view that a number of the assets currently owned by private equity firms naturally ‘belong’ on (ie need to be ‘exited’ onto) the ASX (or other exchanges). This is particularly the case in relation to a few of those companies worth more than $1 billion. Unfortunately, many of the companies private equity firms have recently sold through IPOs have traded down or proven quite volatile from a value perspective post listing. This has left many public markets investors sceptical of taking up future offerings. Australia remains fairly unique in relation to IPO “exits” in that typically the private equity fund does not retain a stake in the listed company post IPO. Ostensibly this is done to remove any price concerns around ‘overhang’ post listing but it is very different to the position in the U.S. (and historically the UK) where PE sellers have needed to keep some skin in the game to convince the public markets to buy. With some notable exceptions (including the next anticipated large IPO exit), we expect this model to change such that private equity owners will need to roll some part of their interest into the listed company in order to build trust around sale value. So-called ‘Vulture’ funds Funds that acquire distressed debt at a discount under a strategy of ‘loan-to-own’ are the most dynamic part of the fund investment market at the moment. These investors (together with follower funds that invest alongside them) typically acquire a controlling (normally >66.67 percent) stake in an over geared company’s syndicated debt with a view to forcing it into a restructure. Through that restructure,
private equity
they acquire a controlling equity stake. Their strategy is heavily informed by legal matters: the terms of the debt interests and syndication arrangements they are buying into – in particular the voting thresholds for enforcement decisions – and the potential terms of a scheme of arrangement. They are very experienced in using creditors’ schemes of arrangements in the UK and elsewhere to restructure debt-laden companies and have imported some of that technology into this market through the Alinta, NINE and Fitness First restructurings. Conventional receiverships are now a less common dénouement for private equity investments with debt levels that cannot be serviced or refinanced. Restructures directed by consortiums comprising ‘Oaktree’, ‘Apollo’ and ’Sankaty’ are the new normal. Secondaries A number of years ago, it was relatively rare that private equity funds bought assets from other private equity funds. Whether because of an overlap of investors or a perception that they could not add more value than the selling fund, it happened fairly infrequently. Today, other private equity funds are an integral part of the ‘buyer universe’ in most PE exits. The current paucity of investment opportunities for most buy-out funds in Australasia has only made them more important. It does mean, however, that selling funds need to ‘leave something on the table’ for the next owner – a different selling story to offering trade buyers the benefits of synergies and product diversification. This affects timing and transaction size: many funds have insufficient committed capital to acquire the more valuable assets in their competitors’ stable which can leave the large assets somewhat stranded. Importantly, even if they are unsuccessful, ‘secondary’ PE buyers provide important and real competitive tension in sale processes, making them very important to fund returns. Conclusion The trends identified above do not point to things being particularly easy for private equity firms in Australia. They do, however, represent transactional activity of which there is relatively little in general corporate M&A. So selfishly, from the advisory community’s perspective, that is a net good given the anaemic transaction flow emerging from most Australian corporates at the moment. As to new trends, one we would like to see is a more certain political and regulatory environment for investment. That would help everyone, not only private equity funds. Let’s hope one emerges post September. Gilbert + Tobin’s private equity practice is ranked in Band 1 by Chambers and 4 of its partners are ranked in the top 3 bands for private equity, with 1 rising star. Recent transactions we have led include Sycamore’s bid for Billabong, the NINE restructure and Pacific Equity Partners acquisition of Spotless as well as a number of “Term Loan B” refinancings.
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HEALTHY
investment
Private equity interest in the healthcare sector is on a growth trajectory – and over in the United States, it’s hard to miss the impact of PE on this sensitive area.
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alk-in clinics are popping up in shopping malls and main streets across the U.S. and private equity is helping fund the expansion. At least a dozen private equity firms have in the last few years plowed millions of dollars into urgent care clinics, which have become popular with people who do not have regular doctors or who like the convenience of their extended hours of operation. Several private equity executives told the reporter that they are eager for more acquisitions in this sector because they expect profits to grow as healthcare reforms boost the number of Americans with health insurance by more than 30 million over the next decade. “If you think about where healthcare is headed, urgent care is very clearly part of the solution, said Stan Blaylock, a former executive at drug store chain Walgreen Co, who left to invest in and head the urgent care chain Physicians Immediate Care. The number of such clinics in the U.S. climbed almost 20 percent to 9,400 in the last four years, according to the Urgent Care Association of America. Almost 40 percent of clinics surveyed by the trade group expect to expand their facilities or add new clinics this year, up from 18 percent in 2010. After poor management caused many walk-in health centers to close in the 1970s and 1980s, today’s clinics are much improved, thanks to investor money and customer demand. They are in more convenient locations, open earlier and close later, and offer online billing. Some also sell snacks and dispense medicine to boost profits. “We borrow a lot from the restaurant industry,” said Zach Wooldridge, co-founder of Elm Creek Partners, a Dallas-based equity firm, which in 2011 bought a majority stake in Millennium Healthcare Management, an urgent care chain with clinics in Louisiana and Mississippi. “We have to be good, fast and kind to be successful.” Wooldridge declined to say how much Elm Creek paid for Millennium Healthcare. The firm - like others - plans to remain invested for several years, before selling the company or taking it public. He expected that his chain and others would generate
Australasian Legal Business ISSUE 11.05
EBITDA (earnings before interest, taxes, depreciation and amortization) margins of about 20 percent when fully operational. Private equity firms invested $4 billion in 2012 in health and medical services, which include urgent care, up from $3.5 billion in 2011, according to Thomson Reuters data. One of the first in the recent wave of investments was in 2010, when venture capital firm Sequoia Capital and private equity firm General Atlantic bought MedExpress, the country’s No. 3 urgent care chain. They did not disclose the size of their investment. In the same year, health insurer Humana Inc bought the largest U.S. walk-in chain, Concentra, with 330-clinics, for $805 million. And LLR Partners and health insurer WellPoint Inc invested last summer in 12th ranked Physicians Immediate Care, a chain of 20 urgent care clinics based in Chicago for an undisclosed sum. INVESTOR INTEREST Most urgent care chains are privately run and investing in them is not risk free. Too many clinics in close proximity can saturate a market, and low insurance reimbursements can cut into the bottom line. Consumer advocates also say they worry investors will drive clinics to focus more on profits than on quality of care. Private equity firms say they help clinics standardise procedures and consolidate overhead costs like billing. Scott Perricelli of LLR Partners said his firm also spends a lot of time helping clinics look for new branch locations and recruit doctors - two tasks physicians are usually too busy to tackle. When Aaron Money, an executive at FFL, a San Franciscobased private equity firm, saw the potential in urgent care, he teamed up with physician Lee Resnick to start WellStreet, a chain of walk-in health clinics in Georgia. FFL owns 70 percent of the business. WellStreet’s clientele are mostly privately insured, said Money, who expects business to grow as health reforms under the U.S. Affordable Care Act kick in. “We thought it would be mostly people who would otherwise go to the emergency room. But it’s equal parts E.R. and primary care physician-type appointments,” he said. Health industry experts say urgent care centers should keep their services simple to maximize profitability. They are better equipped to treat a kid with an ear infection, than a diabetes patient who needs ongoing, complex care, for instance. The clinics could lose money if they spend time with patients or take on complicated health problems because insurance companies generally reimburse at a flat rate for each visit, said Franz Ritucci, president of the industry group American Academy of Urgent Care. Mike Williams, who heads the Abaris Group, a consulting firm that advises urgent and ambulatory care clinics, said, “It’s not complex, critical-care medicine. It’s a low-tech, hightouch business.” Reporting By Atossa Araxia Abrahamian; Editing by Jilian Mincer, Tiffany Wu and Leslie Gevirtz - Reuters.
private equity
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54
america
Australasian Legal Business ISSUE 11.05
DLA PIPER TOPS
AMLAW 100
Baker & McKenzie has been nudged off the top spot by DLA Piper in the latest Am Law 100 rankings, writes Kandy Hopkins of the Hildebrandt Institute.
T
he numbers are in—and this year we have a new No 1 top-grossing law firm. With $2.4 billion in earnings, DLA Piper nudged out last year’s top-spot holder Baker & McKenzie, which came in second on the 2012 list with $2.3 billion in gross revenue. This is the first time DLA topped the list, becoming not only the top-earning firm but also the world’s largest with 4,036 lawyers.
The FIVE FIRMS WITH the largest year-over-year gains 1.
McKenna
($3.5 million, 23.4 percent)
2.
Fragomen
($3.5 million, 19.7 percent)
3.
Bracewell
($3.3 million, 19.7 percent)
4.
Quinn Emanuel
($8.5 million, 17.8 percent)
5.
Ogletree
($3.2 million, 16.9 percent)
The top 10 of the 2013 Am Law 100
by revenue (with gross revenue and percent gain or loss in parentheses) are:
1.
DLA Piper
($2.4 billion, 8.6 percent)
2.
Baker & McKenzie
($2.3 billion, 2.1 percent)
3.
Latham
($2.2 billion, 3.4 percent)
4.
Skadden
($2.2 billion, 2.1 percent)
5.
Kirkland
($1.9 billion, 10.7 percent)
6.
Jones Day
($1.7 billion, 3.9 percent)
7.
Hogan Lovells
($1.6 billion, -1.9 percent)
8.
Sidley
($1.5 billion, 5.2 percent)
9.
White & Case
($1.4 billion, 3.9 percent)
10. Gibson Dunn
($1.3 billion, 10.7 percent)
Gibson Dunn was the only newcomer to the top 10; last year it was ranked as No. 12. And only it and Kirkland had gains of more than 10 percent. Most firms had modest, single-digit gains over 2011 for gross revenue, revenue per lawyer, and profits per partners. Yet McKenna, which rose from No. 104 last year to 86, had a stunning 23.4 percent increase in gross revenue.
Other highlights: The FIVE FIRMS WITH the largest percent loss
• Three of the top 10 firms—DLA Piper, Baker & McKenzie, and Hogan Lovells—are structured as Swiss vereins.
1.
Shook Hardy & Bacon
($3.2 million, -7.2 percent)
• Twenty firms had gross revenue of $1 billion or more this year, compared to 17 in 2011.
2.
Patton Boggs
($3.2 million, -6.5 percent)
3.
Fried Frank
($4.4 million, -6.3 percent)
• Only 76 firms reported gross revenue increases in 2011, compared to 80 this year.
4.
Hunton
($5.6 million, -5.6 percent)
5.
Kaye Scholer
($4 million, -4.8 percent)
• Five firms were new to the list: Bracewell & Guiliani; Faegre Baker Daniels; Fragomen, Del Rey, Bernsen and Loewy; McKenna Long & Aldridge; and Ogletree, Deakins, Nash, Smoak & Stewart.
Australasian Legal Business ISSUE 11.05
ethics
55
making business ethics
less boring Business ethics as a practical discipline reaches far deeper than it is commonly perceived, writes Edward Hadas OF REUTERS.
B
usiness ethics is too bland. That thought crossed my mind during a quite good speech on the topic by Vincent Nichols recently at St Paul’s Cathedral in London. The Catholic Archbishop of Westminster said many things, but his main idea of how to improve businesses can be summed up in one sentence: “All businesses big or small should be able to demonstrate how they are making the world a better place through providing goods that are truly good, or services that truly serve people, and, by doing so, create employment and fair returns to investors, whilst minimising harm”. A few moral relativists or free-market ideologues might argue with that, but most business people think they are already behaving as the archbishop thinks they should. They usually see themselves as wellmeaning cogs in a basically benign economic machine which provides people with a remarkable array of desired goods and services, and does so efficiently, safely and in a way that is fair to workers and the world. That self-image is fair. Most businesses in developed economies do work to a quite high ethical standard. Still, Nichols is hardly alone – and not wrong – in worrying that some businesses have ethical problems. The concern explains why business ethics has become a standard part of the curriculum in MBA programmes, and the existence of numerous initiatives to promote corporate social responsibility and other virtues. The main problem with these worthy efforts is blandness: it’s not clear what business ethics classes are supposed to teach or what, for example, should be the aim of the Westminster archdiocese’s programme “A Blueprint for Better Business”. One possibility is that ethical instruction should induce qualms. Moral training might have restrained the captains of finance from excessive bets and pay demands before and after the 2009 crisis, but I doubt it. Lloyd Blankfein of Goldman Sachs may have been only half-joking when he said the company he headed was doing “God’s work”. He sees high pay as an appropriate reward for doing a good job in Goldman’s basically good businesses. If finance is to be made more ethical, Nichols and other crusaders will have to offer something more substantial and detailed than eloquent but vague calls for virtue. They will need to offer fairly sophisticated economic and sociological analyses. It is much the same for most other ethical issues in business. The obvious vices – dishonesty, deception, wilful damage, cruel treatment – are already considered unacceptable. Simple condemnations of greed and calls for solidarity are not enough to deal with problems such as excessive consumerism, irresponsible investing and manipulative advertising. Still, I see one widespread error: the dangerous belief that people want what is good for them. This belief leads companies to strive
for immediate profitability, because that’s what shareholders want. It leads managers to trust that sales and profit, which do indicate what customers want, also show whether customers are being well served. It leads advertisers to decide that any advertising which is effective must be good. In fact, judgments are so distorted by ignorance, greed, envy and hedonism that people often crave things that are bad for them, their neighbours or their society. Crusaders for ethical business should challenge this false belief – and then provide a coherent objective vision of the relevant economic goods. Right now, finance belongs at the top of the business ethics agenda. The trade is lost in a frenzy of greedy desires – of savers and investors seeking high returns and absolute safety, of borrowers looking for bargains, of finance professionals lusting after unjustifiably high incomes. The clear and clearly virtuous economic purposes of finance – gathering savings, allocating investments and providing reasonable returns to savers – are often ignored. In a more ethical financial system, customers who ask for things which are objectively unjust would not get their way. Rather, the industry would band together, perhaps guided by the government, to say no. The industry and its regulators would subject all products and activities to severe tests for genuine merit. A similar determination not to pander to low desires could improve ethics in other economic activities. For example, little advertising qualifies as one of Nichols’s “services that truly serve people”. Rather, advertisers all too frequently raise unrealistic expectations and appeal to greed and gluttony. This is much less “truth well told”, an old slogan of the McCann Erickson agency, than a powerful tool for encouraging bad behaviour. The moral case against much advertising is strong, but few business school ethics professors will make it, because advertising is too well entrenched in the modern economy. As an outsider, Nichols could take up the cause. He is unlikely to get very far, but at least he would not be bland. He would be calling for something like an ethical – and a cultural – revolution.
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acla
Australasian Legal Business ISSUE 11.05
CORPORATE CONSCIENCE – Who should be responsible?
By Tony de Govrik, Legal Affairs & Communications Director, Australian Corporate Lawyers Association, the professional body for in-house lawyers.
C
Tony de Govrik
orporations are strange beasts indeed! Like you and me they are recognised as legal entities but are really a legal fiction created by statute. As far back as the 18th century English jurist and Lord Chancellor, Edward Thurlow said “Corporations have neither bodies to be punished nor souls to be condemned, they therefore do as they like.” In similar vein, in 1844 English lawyer and theologian, John Poynder, posed the rhetorical question: “Did you ever expect a corporation to have a conscience when it has no soul to be damned and no body to be kicked?” Nowadays the regulators and other authorities of corporate Australia are finding bodies to be kicked and they invariably belong to the officers and senior executives of corporations. We see this nearly every day in both civil and criminal actions taken against these corporate agents. But the question remains – can an inanimate object such as a corporation possess a conscience and, if so, who is responsible for it? A vigorous debate over the role of an in-house lawyer and the conscience of a company is currently being played out in the United States. On one hand IBM’s General Counsel, Robert Weber, argues why he believes in-house counsel aren’t (and shouldn’t be) the conscience of their companies. On the other hand former General Electric Company Senior Vice President – General Counsel and currently Senior Fellow at Harvard’s Law and Government Schools Ben Heineman Jr. challenges this argument. Weber started the debate in a speech he gave at a convocation on lawyer independence jointly sponsored by the New York State Institute on Professionalism in the Law and the New York State Judicial Institute in November last year. His take on the role of in-house counsel might seem at first blush to be counterintuitive and even provocative. Weber argues that the general counsel’s role is to be independent, not to be the “conscience of the corporation”. He says that “few concepts could be as destructive to the lawyer’s right to sit at the senior table as to place around the lawyer’s neck the millstone of being the company’s ‘conscience’. And even more debilitating would be the senior team’s perception that a general counsel actually believed it, or even worse, acted like it.” Weber goes on to say that “despite appearing to be the product of modern thinking about the lawyer’s role, it actually reflects the long-rejected thinking of lawyers
as some elite group of illuminati or philosopher kings, dispensing rules and prescriptions to the benighted. It reflects a lawyer-centric view that assumes we have special insight into, or perhaps even a monopoly on, ethical rights and wrongs. They need me to be many things for many reasons, but serving as their conscience is most definitely not one of them.” Weber maintains that he is no way eschewing a lawyer’s ethical responsibility or ignoring the fact that legal ethics are often wholly consistent with broader ethical principles. He says he is merely recognising that when it comes to business or societal ethics, a lawyer is but one voice, and not necessarily the authoritative voice. His somewhat utopian argument is that the company’s ethos, its moral compass, should be ingrained in every person and every function, as part of the corporate DNA. “Everyone is part of the institution’s moral construct, and everyone is responsible for the execution of the company’s values.” In a very forceful rebuttal of Weber’s point of view, Heineman strongly disagrees with what he says is the “odd mischaracterisation” by Weber of the inside lawyer’s role relating to corporate integrity – to law, ethics and values. Heineman argues that the right kind of legal training and real practice experience don’t privilege the place of lawyers, but they can give lawyers a strong sense of ethical—not just legal—issues that should be discussed inside a company. “Every general counsel knows that on most hard questions of law and ethics, the CEO and business leaders—or the CEO, business leaders, and the board—will make the substantive decision: will choose among the options generated by the GC and other senior leaders. The general counsel may, in addition to analysis of options, make a recommendation about the desired course of action. But, on major issues, the CEO or board decides. And as substantive deciders, they are the ‘conscience’ of the company.” The practical ideal to which Heineman believes all inhouse lawyers should aspire is one of lawyer/statesman - “one who is an invaluable advisor and officer to the CEO and the board in playing a key role - not the role in helping the company achieve its fundamental goals.” While this somewhat subjective debate rages on in the U.S., chief legal officers in Australia ought to push their deserved claim to be part of the business leadership in any major organisation.
fri 25th
Financial
OctOber
2013
& MEDia MarkEts
Location
Middle Harbour Yacht Club Mosman
charity rEgatta
cost of entry
yacht entry: $2,000 (plus GST) per yacht Price per Guest: $150 (plus GST) ViP spectator Guest: $300 (plus GST)
free with entry All competitors will receive: • a polo shirt • a cap • gourmet lunch pack • entry to beach after party including BBQ, complimentary drinks, auction and raffle draws.
This fun sailing event is a great way to help support worthwhile charities whilst entertaining your clients, networking or even thanking your staff!
ViP Boat A spectator boat will follow the race. This is an alternative to racing. Guests are able to view the regatta whilst enjoying a seafood buffet served with fine wines.
For entry Forms or sponsorship applications please contact: david.brocklehurst@thomsonreuters.com or call 02 9373 1984 or 0412 411 366
All class of boats are welcome. Race operated on a handicap basis. Current cup holder: Deutsche Bank Yacht name: Sputnik
visit www.asxreutersregatta.com.au
on illi m $1 han help raise more t
ity ar h rc fo
ab
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