Global Business Magazine - September 2012

HONEYMOON DESTINATIONS, HOTELS & RESORTS

TRIP ADVISOR

TRAVELLERS’ FAVOURITE RESTAURANTS

gbm September 2012

global business magazine

Strong as BRICS and Mortar

ISLE OF MAN FOCUS

INTERNATIONAL EMPLOYMENT LAW

GLOBAL OUTSOURCING

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INSIDE This Month:

INTERNATIONAL EMPLOYMENT LAW

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ISLAMIC FINANCE

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Business Talk As attention shifts away from the G7 countries and towards the developing world, this month’s cover story looks at the economic power of the BRICS nations – the leading fast growing economies comprising of Brazil, Russia, India, China and (as of this year) South Africa.

While on the subject of powerful nations, we find out about the remarkable rise of Korea – the ‘Asian Miracle’ that has become the world’s 12th largest economy.

With the spotlight firmly on Employment Law, we consider deregulation in the UK; employment changes in Spain; labour laws in Japan; the dual dismissal system in the Netherlands; labour rights in Venezuela; and the reality of downsizing a business in Finland.

Delving deeper into managing employment on a global scale, we get practical tips for achieving mobility ambitions; how to manage international bonus arrangements; and debate whether multinationals can efficiently audit HR compliance across borders. We also evaluate the risks and rewards of social media in the workplace.

Staying focused on technology, our Introduction to Data Privacy evaluates the potential impact of the new cookies changes on your business.

COVER STORY

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Outsourcing takes a closer look at two countries that are leading players in the global software development space – Ukraine and Russia. We also examine topical issues in this sector and what they mean for businesses.

INTERNATIONAL EMPLOYMENT LAW

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ISLE OF MAN FUND SERVICES REPORT

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Health & Safety uncovers the possible implications for parent companies; the authority of magistrates in handling offences; regulations in the current economic climate; and how to cut across the traditional divide between common law and civil law systems.

ISLAMIC FINANCE

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With the honeymoon considered as important as the wedding itself, Luxury Brand Series goes in search of those hotels that promise a fitting launch to an exciting new chapter. When it comes to the important things in life, we say start as you mean to go on.

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LUXURY BRAND SERIES - HONEYMOON HOTELS 42 GLOBAL OUTSOURCING

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SPOTLIGHT ON SOUTH KOREA

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UK HEALTH & SAFETY

76

INTERNATIONAL DATA PRIVACY

82

DEAL DIRECTORY

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UK HEALTH & SAFETY

The opinions expressed in GBM do not necessarily reflect those of the editors, publishers or their agents. The information provided in GBM is general and may not be applied to a specific situation. GBM does not purport to provide legal or other professional advice and takes no responsibility for actions taken on the basis of information provided herein. Legal advice should always be sought before taking any such action. Laws and government policies are constantly changing and accordingly GBM takes no responsibility for the accuracy or currency of the information provided herein. If you require particular information you are advised to consult with the article’s author or seek legal advice.

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INTERNATIONAL DATA PRIVACY

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September 2012 • Global Business Magazine • 3

STRONG AS BRICS AND MORTAR

Strong as BRICS and Mortar?

Despite the financial crisis in Europe and the US, the world economy has managed to avoid an entirely worldwide slump. The global economic downturn would have been far worse, if not for the stabilising effect of the emerging economies of Brazil, Russia, India and China (BRIC). As the United States and Europe struggled with the most turbulent economic weather since the Great Depression, these emerging economies basked in unprecedentedly-high growth rates between 2008 and 2010.

“There was talk of a changing of the guard, of a shift in economic power from west to east and from north to south,” said the Guardian’s economics editor, Larry Elliot. “It was certainly the case that without the strong growth in the big emerging markets, the downturn that followed the financial crisis of 2008 would have been significantly worse.”

a political counterweight to the dominant EU and US blocs on the world stage; and closer trade relations would encourage the member nations to thrive. Between 2008 and 2010 the combined economies grew 25% and in 2011 they invited South Africa to join the bloc, becoming BRICS.

Growth in the BRICS came from several sources. China and Brazil were still exporting But now the BRICs are crumbling. Despite large volumes to the United States and adding South Africa to their number last Europe, India was building an emerging year, and despite accounting for almost technology sector, and Russia was supplying half of the world’s population and US$13.7 the seemingly endless raw material needs trillion in combined GDP according to the of China and India. Tourism, too, was IMF, the bloc has yet to create the political responsible for some of this borrowed and economic union that they hoped would buoyancy: India, counterbalance the Brazil, South Africa, EU and the US. and Russia saw And now, as these marked growth in economies lose their “We are united in our inbound tourism rising star status, they desire to promote sustained and China is set to could be eclipsed and balanced global leapfrog Germany by another wave of and the United States developing countries. economic growth,” as the source of most More worrying international tourists still from a global in 2014 according to prospective, without the U.N. World Tourism Organization. the BRICs to stabilise us the global economic collapse could be about to get much worse.

On the face of it the bloc should have been well-placed to develop as an economic and Building BRICS policy union. Together the countries lobbied In 2001, Goldman Sachs analyst Jim O’Niell the IMF for reform of its voting practices identified Brazil, Russia, India and China to recognise the strength of these emerging as growing economic powers. They should, economies, finally receiving these concessions he argued, have a larger role to play in when they agreed to collectively contribute international policy making and suggested $70bn to the Eurozone bailout fund at the that they join the G7. Russia, India and China G20 summit in Mexico this summer. had already been working on forming closer In the BRICS summit in March this year the ties since the 1990s but in 2006 they began joint leaders even took the opportunity to preliminary talks with Brazil with the aim upbraid the previously dominant economies of founding a closer political and economic for their role in the current global crisis. union between the countries.

The idea was twofold: the group would act as 4 • Global Business Magazine • September 2012

“We are united in our desire to promote

sustained and balanced global economic growth,” said Indian Prime Minister, Manmohan Singh, during the conference keynote session, and a joint communique demanded faster and more decisive action from the rest of the world.

“We are concerned over the current global economic situation. While the BRICS recovered relatively quickly from the global crisis, growth prospects worldwide have again got dampened by market instability especially in the euro zone,” the joint communique read. “The buildup of sovereign debt and concerns over medium to long-term fiscal adjustment in advanced countries are creating an uncertain environment for global growth. Further, excessive liquidity from the aggressive policy

actions taken by central banks to stabilize their domestic economies have been spilling over into emerging market economies, fostering excessive volatility in capital flows and commodity prices. The immediate priority at hand is to restore market confidence and get global growth back on track. We will work with the international community to ensure international policy coordination to maintain macroeconomic stability conducive to the healthy recovery of the global economy.”

This could have been the BRICS’ moment of maturity: lecturing the US and Europe on their economic woes, contributing to financial stability, but some BRICS watchers say that

by March this year the opportunity to create a meaningful union had already passed.

September 2012 • Global Business Magazine • 5

STRONG AS BRICS AND MORTAR

Cementing the BRICS Together

aim, too, may never be achieved.

Russia Joins the WTO

The summit in March 2012 was expected to result in a rival to the World Bank: the leaders of the five economies had intended to draw up plans for an economic development vehicle that would service the BRICS nations and other developing economies. However, the summit fell short of these aims and, while the organisation set up a working group to examine the options for a closer financial unity, and signed an agreement to use their local currencies rather than the dollar in trade between the members, the opportunity to create a BRICS-bank may have passed.

In policy terms, there is deep disagreement between China and India over the future of Tibet and Pakistan. Russia is increasingly isolating itself from the pro-democracy stance of the other four members, and China is displaying nothing but reticence when it comes to endorsing Brazil, India and South Africa for full UN Security council membership.

When China joined the WTO in 2001 after a 15 year engagement it began a decade of stratospheric growth: the value of its exports quintupled and it rose from sixth to second place in the rankings of the global economies.

After 19 years of courting WTO status can Russia expect similar heady growth?

Partly this is due to the imbalance between China and the other economies in the group.

China’s GDP is estimated by the IMF to stand at almost 8tn USD, compared to 2.4tn for Brazil, 1.8tn for India, 2.5tn for Russia and 0.4tn for South Africa. Hesitation over the formation of a development bank stems from the concern that any economic union would be dominated by China.

The group was also intended to become a diplomatic counterweight to the western economies when it was founded in 2009; but it has become riven by division over matters of international policy that mean that this

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International affairs analyst from the Jindal School of International Affairs in Sonipat, India, Sreeram Chaulia, warned that developing countries with smaller economies are watching closely to see if the BRICS club can deliver for a wider set of interests on the world stage, or whether it will become another platform for an emerging dominant elite.

“At the end of the day, they will have to get into coordinating their positions on international security and global political issues,” Mr Chaulia, told the New York Times. That coordination seems farther away than ever.

Not according to Reuters’ analyst Sujata Rao: China’s situation then was very different to Russia’s position now.

China had a vast pool of cheap labour and a booming global economy eager to pick up its exports. Russia has relatively expensive labour costs and with even China’s exports suffering from a reversal in the current international climate, there is little chance that Russia will experience a similar export boost. Furthermore, some Russian sectors – the car manufacturing industry in particular – have been shielded by high import tariffs. With these tariffs set to be lifted as a condition of WTO membership

the auto sector is likely to face a catastrophic decline. And while sectors such as banking and telecommunications might attract foreign direct investment (FDI) there is concern that Russia’s reputation for “crony capitalism” could deter potential investors.

Perhaps the most worrying aspect of Russia’s economic outlook at present is its reliance on the commodities sector. Russia’s economy has been propped up by high oil prices and by a growing demand from China for raw materials. But as that demand slows Russia will find itself contaminated by the same economic malaise that has swept through Europe and the US. "Most companies are not filling their existing quotas due to low demand," said Chris Weafer, an analyst at Moscow brokerage Troika Dialog. "The positive tariff removal effect will not be seen until there is a broad economic recovery leading to higher steel usage."

The BRICS Begin to Crumble?

India, too, is facing serious economic problems. With stalled growth, a rising fiscal

deficit and huge challenges precipitated by the failed monsoon season, the Indian economy is due to receive a disappointing report card. Currently rated at BBB- (the lowest possible investment-grade) by S&P and Fitch ratings, the next review of India’s credit rating will likely see it downgraded to junk status.

Although it will be a severe blow to India’s pride, the move is likely to have very little real effect on trading. “As India faces the prospect of being the first BRICS country to lose its investment-grade credit rating, investors have already delivered their verdict: to them, the country already trades at "junk", which should temper any ensuing market reaction,” said Swati Bhat of the Reuters Mumbai desk.

The Brazilian stock market has also suffered heavy shocks in the last quarter. Of the 58 companies listed on the Sao Paolo stock exchange that are tracked by the Bloomberg group, 36 missed their earnings forecasts for q2 2012. Banco do Brasil S.A. is leading a dozen companies who are collectively buying back over $1.2 billion of their stocks in order to prevent a meltdown.

And finally China, the former motor of the BRICS bloc, has just seen its exports to the US and Europe fall 8% month on month. With growth over the last 12 months at just 1%, has the biggest of the Asian tigers lost its teeth?

From BRICS to dominos Jim O’Neil, inventor of the BRIC nomenclature, stands by his predictions, forecasting a doubling of the group’s combined economic force over the next decade, leading it to surpass the EU and the USA by the end of the 2020s. What we are seeing, he says, is the effect of the global recession. When recovery begins it is the BRICS countries who will emerge strongest.

This is partly due to the development in these economies over the last decade. “No longer just exporters of raw materials and cheap commoditised goods, emerging market companies are moving up the value chain, developing innovative and increasingly sophisticated, higher-margin products,” said Stephen Burrows of FundWeb. “These efforts have helped emerging market firms to establish themselves as technological pioneers in some high-tech industries to the point where they have been able to displace their developed market peers and become market leaders.”

That development has seen companies from emerging economies displace their older siblings. Millward Brown Optimor carries out an annual survey of brands and their ability to generate demand. Five years ago the survey featured only two emerging market companies in its top 100 list, whereas last year’s report shows BRICS brands making up 20% of the top 100 brands worldwide.

Some of this is down to organic growth: for example, China’s Baidu has a brand diversification strategy to rival Google’s, with activities in the search, marketing, travel, e-commerce and social networking sectors.

Other brands have been acquired from their Old World owners: India’s Tata motors owns jaguar-Land Rover and UK fashion labels Acquascutum and Gieves & Hawkes are now owned by Chinese investors

Where next? The next 11 While the BRICS may be wobbling, they’re still a valuable part of any portfolio according to senior strategist Katie Koch at Goldman Sachs. She forecasts growth of 6.5% for the BRICS economies vs. 5.5% for the rest of the developing world and around 2.5% for the developed economies.

However she also suggests diversification into the Next Eleven countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea and Vietnam.

"Together in one portfolio, you get great diversification across geography, industries and stage of economic development," Koch said. She also pointed out that the emerging middle classes in the Next Eleven countries, the very low valuations of their stocks and their as-yet under-developed profit margins make them an ideal investment.

Goldman Sachs launched its N-11 Equity Fund in February 2011. In June this year the fund had amassed over $100 million in assets invested over 73 stocks. This compares with BRICs stocks which attracted $67 billion of investment between 2001 and 2010, beating the S&P 500-stock index by 281 percentage points. However, research firm EPFR Global estimates that around $15 billion were withdrawn in 2011 as the BRICS economies began to soften.

“So far this year, N-11 has outperformed Goldman Sachs’s $410 million [BRIC] fund, climbing 12 percent, compared with a 3.2 percent gain for the BRICs,” reports Eric Martin of Bloomberg Businessweek.

Does this mean that the days of the BRICS are coming to an end? Probably not. While it’s unlikely that the BRICS will ever experience the same sort of dominance that the United States and the European Union have achieved in the past, the BRICS nations are well placed to be among the major players in a much more diverse global economy. Whether their economic and policy differences will prevent them from ever forming a closer union remains to be seen.

September 2012 • Global Business Magazine • 7

INTERNATIONAL EMPLOYMENT LAW

International Employment Law INTRODUCED BY IUS LABORIS Sam Everatt Executive Director Ius Laboris Global Human Resources Lawyers

For further information on this article or on Ius Laboris’s services please contact: Sam Everatt at Ius Laboris in Brussels on +32 2 761 4617 or exdi@iuslaboris.com

An Overview Of Recent Changes To European Employment Law A new European curiosity for “Flexicurity”

There is more than one example to illustrate this development.

Olivier Wouters, partner at leading Brussels based employment law firm Claeys & Engels, and a founding member of the Ius Laboris alliance, looks at the response of European governments and the EU itself to the Eurozone crisis and their attempts to change employment legislation to combine job security for employees and provide employment incentives and flexibility for employers, whilst Sam Everatt, executive director of Ius Laboris, the world’s largest labour, employment and pensions law firm alliance looks at how the alliance has grown to meet the challenges of this fast growing area of international law.

Italian Labor Law, for example, recently underwent extensive changes in order to reform the Italian labor market. These reforms introduce a relatively wide variety of changes to the current Italian employment rules from the hiring to the firing, including new regulations to deal with flexible contracts.

Although some rules on fixedterm contracts are tightened up, it is now possible for an Italian employer to enter into a first time fixed-term employment contract with an employee for a period no longer than 12 months, without having to specify the reasons of the fixed term.

The persistent financial crisis is still causing havoc in Europe.

As unemployment hits record levels and there are still forecasts of a grim economic outlook for many months to come, European governments are more than ever compelled to reconsider and amend their employment legislation and policies.

These amendments are dictated by the recurring objective to combine job security for workers with more employment flexibility for employers. That way, the current financial crisis is certainly creating a new momentum for “flexicurity”.

In Hungary, local labor law is overhauled by a new labor code that is intended to improve competitiveness and to increase employment in the face of the current crisis.

New forms of atypical and flexible employment are introduced, as well as significant changes in employment rules from hiring to termination.

Severance pay for unlawfully terminated employees is capped at 12 months’ salary. In some circumstances, employers will be allowed to end fixed-term contracts before the term expires.

Although the new Hungarian labor code retains the general

8 • Global Business Magazine • September 2012

principle that individual employment agreements may only deviate from the code’s rules in favor of employees, the same does no longer apply for collective bargaining agreements. According to the new code, collective bargaining agreements may deviate from the code’s rules to the employees’ detriment. This eye-catching measure is intended to stimulate the conclusion of collective agreements.

In the beginning of 2012, Spanish labor law underwent a historic reform to enable the country to try to manage its mass unemployment problem.

The new measures are intended to improve the employability and the stability of workers, and represent an attempt to transform Spain’s employment model by creating a new and different work culture adapted to modern business reality.

At the one hand, employability is addressed through various modifications to Spain’s labor legislation. Professional training is now considered a personal right: all employees who have been with a company for at least one year are granted 20 hours of paid leave for jobrelated training activities. In addition, a more flexible human resources management is also required, which should allow for professional progression being based on the employee’s

efforts and abilities, instead of professional classification.

At the other hand, the issue of stability is addressed by giving particular importance to the specific regime for Small and Medium-sized Enterprises (SMEs) entitling them to tax deductions for hiring employees under the age of 30 with indefinite term contracts.

In the Netherlands, the new inclination for “flexicurity” as well as the increasing importance of professional training (and retraining), can also be described in the Dutch government’s announcement on new legislation on dismissal. In future, it would be possible for Dutch employers to terminate an employee’s employment contract without the prior judicial review of the cantonal court (“Kantonrechter”), although the employers will have to bear the costs of the first period of unemployment (for a maximum of six months). This would allow employers to reduce the cost of dismissal and to motivate them to help employees to find a new job. Moreover, the existing severance indemnity would be replaced by a financial compensation package (a “transition budget”) that must be used for training or for finding a new job. Although it appears that these plans will not be effective before 2014, the intention of the Dutch government is apparent -

strengthening the functioning of the labor market by increasing workers’ mobility and training.

In July 2012 the Belgian government announced its plans for a “recovery strategy” aiming at an enduring revival of this country’s economy, supporting its population’s purchasing power, a reinforcement of its companies’ competitiveness and a creation of more “high-quality” jobs. Although the Belgian “recovery strategy” encompasses a wide variety of measures, the tendency for “flexicurity” is less evident here as it appears that the intended measures are less sweeping: an increase in the workers’ net salary to expand the gap with unemployment benefit, and the creation of more trainee posts for low-level schoolleavers linked to the reduction of the employer’s social security contributions for employerstutors, etc.

One can however assume that more fundamental reforms will follow shortly as the Belgian government has been forced by the Belgian Constitutional Court to cancel the difference in treatment between bluecollar workers and white-collar workers no later than 8 July 2013. A profound reform of Belgian employment law seems inevitable when creating a single and unified legal framework for employees in Belgium.

Of course, the necessary urge to reform employment rules and policies can also be clearly perceived at EU level. Although social and employment policy is mainly in the hands of the EU Member States, it cannot be denied that the different European institutions have a long-standing commitment to increase employment levels in Europe. Through the so-called “Europe 2020-strategy”, the EU is striving for a competitive, social and resource-efficient economy.

This implies, for example, that 75% of the European working population must be at work by 2020.

In the context of this “Europe 2020-strategy”, the heads of state or governments of the EU Member States decided on a so-called “Compact for Growth and Jobs” on 29 June

2012. This compact encompasses action to be taken at the level of the EU Member States as well at EU level itself, with the aim of relaunching growth, investment and employment as well as making Europe more competitive. Countryspecific recommendations to guide Member States’ policies and budgets are endorsed. EU Member States are expected to translate these recommendations into their forthcoming national decisions and budgets, structural reforms and employment policies. In this framework the Member States are expected to put a particular emphasis on a variety of aspects, including clear-cut social and employment measures, whilst at the EU level, measures to combat high youth unemployment must be enforced by increasing traineeship opportunities.

As the result of these new European measures remain to be seen and as it appears that the end current crisis is not yet in sight, the winds of change will still be blowing through European employment legislation, for some time to come. A second breath for “flexicurity”.

The Role Of An International Employment Alliance As in many parts of the legal sector, the beginning of the 2000s brought big changes for the labour and employment field. The creation of large international, full service firms brought with it the development of integrated international legal services and the expectation from multinational corporate clients that this integrated approach could be achieved across many areas of legal practice.

This increasing demand for international services prompted five European specialist and Employment law firms to come together in 2001 to form Ius Laboris, an Alliance that would provide the full range of HR legal services to multinational companies.

The initial idea of leading independent law firms creating a specialist Alliance soon took off. For many firms, the possibility of being able to

formally ally themselves with other leading independent HR law practitioners across multiple jurisdictions and to offer their clients an integrated, international service was compelling. The Alliance grew quickly to over 40 firms by 2008.

However the growth pattern was highly controlled with Ius Laboris carefully selecting only those firms whose strategic vision aligned with the Alliance and who were present in the countries that were strategically important to Ius Laboris clients.

Laboris operates. Employment law differs from other forms of corporate advisory work in that local expertise is key. Unlike major construction or investment projects for example, what really matters when advising multinational companies on HR and people related issues, is a thorough knowledge of the local laws and processes. This depth of knowledge can only really be provided by local experts, and cannot be achieved if dispensed from one of the world’s major financial centres.

The founders of Ius Laboris could have chosen other routes to achieve similar aims, such as joint ventures or referral networks. However, whilst each had their pros and cons, time has proved that the formal Alliance structure has been very successful at bringing benefits to both clients and the member firms.

The business rationale for the Ius Laboris alliance is clear. Clients benefit from the close collaboration and the development of project management and workflow skills between the member firms who know each other well and whose culture is aligned.

Putting the right governance and organizational structures in place is important, but it is the strong cultural element that binds the members together and it is this element that has been crucial to the growth of the Alliance since the beginning. We believe that it is this element which sets Ius Laboris apart from other groupings and that we do very well.

The first and most obvious benefit for members and their clients is that the Alliance has a low administrative and management overhead. This comparatively light support structure means that members are not investing heavily in a corporate headquarters and all of the support structure that comes with it and allows them to be much more flexible with their pricing and, allows Ius Laboris to be more responsive and proactive in reacting to the changing client needs, than more rigidly controlled structures.

Secondly, the independence of the members allows them to adapt to the needs of the local market. If there are certain areas that are more important in one particular country, then naturally firms are free and indeed encouraged, to develop their expertise and capabilities in that particular area, whether it is social security, tax or discrimination. Each jurisdiction country throws up its own hot issues, and what is important in one country may not need the same focus in another.

Thirdly, the specialisation and focus of the member has been crucial in allowing them to guarantee that consistently high quality and breadth of service can be provided in each jurisdiction in which Ius

About the authors Olivier Wouters is a partner at Claeys & Engels, a member of Ius Laboris. Olivier Wouters practices employment law, law and social security law.

Sam Everatt is the executive director at Ius Laboris, the world’s largest human resources law firm alliance. He is responsible for the general management and oversight of all business areas of Ius Laboris.

About Ius Laboris Ius Laboris is the world’s largest alliance of employment & pension’s law firms providing companies employing an international workforce with first-class legal advice and support on all human resources issues. The alliance has over 2,500 attorneys worldwide with 41 members in 39 countries and 141 cities. Please see www.iuslaboris.com

September 2012 • Global Business Magazine • 9

INTERNATIONAL EMPLOYMENT LAW Millicent Sanchez, Esq. President, Worklaw Network Swerdlow Florence Sanchez Swerdlow & Wimmer 9401 Wilshire Boulevard, Suite 828 Beverly Hills, CA 90212

310.288.3980 x8203 msanchez@swerdlowlaw.com Worklaw Network 24-hour Toll-free Number: 1-866-9152339

Worklaw® Network: Representing Employers is All We Do Today’s global economy presents businesses with myriad legal issues but, for many, none are more troubling than those related to employees. While the range of potential problems is vast – from union negotiations and complex trade-secret protections – to immigration issues and discrimination lawsuits – the challenges are multiplied because every jurisdiction has its own set of laws and regulations.

As a result, whether operating locally, regionally, nationally or internationally, when employment matters arise, employers need lawyers who are well established in the territory. Worklaw® Network is the answer. Worklaw Network is the network of law firms representing management exclusively in all areas of labour and employment law.

Benefits to Employers Case in Point: A multi-billion dollar U.S-based company with international operations has spread its relationship throughout Worklaw Network.

After a positive experience with a member firm in the Northwest U.S., the company began to tap into more network firms, finding them to be experienced, ultra responsive and of great value.

The relationship expanded to California, Nevada, Texas, Missouri, Hawaii, Florida, Illinois, New York and Massachusetts. Then it spread to Canada and, most recently,

10 • Global Business Magazine • September 2012

Australia.

Worklaw Network offers employers a collective resource of labour and employment expertise that is unmatched.

Collectively, Worklaw Network operates 35 offices in 27 U.S. states and Canada. The U.S. and Canadian firms are all labour and employment boutiques, limiting their practices to representing management in labour and employment matters.

As a result, Worklaw Network member firms and their clients can utilise the resources of more than 350 lawyers, all of whom practice exclusively in this area. The network also includes affiliate members in Australia, China, India, Europe and Mexico, offering employment and labour expertise in 35 additional countries.

Every Worklaw Network member firm is a local firm with strong ties to the local legal community, providing knowledge of the local landscape where employers have operations. Worklaw Network lawyers are familiar with the labour unions and officials; federal and state judges and court practices; national, state and provincial boards and commissions; the plaintiffs’ bar; and lawmakers in their locales, and they have the resources to obtain similar firsthand information about other geographic areas. In addition to this, Worklaw Network attorneys are linked by a technology infrastructure that gives them access to redacted research memos, briefs, campaign materials etc, and allows them to share substantive work product, creative strategies and other information, to add value in solving problems or handling cases.

While the resources of Worklaw Network are large and impressive, what makes the network firms different are the nature of the contacts and relationships. Working with our members, companies can expect: Partner-level expertise and attention – clients deal directly with owners of the Worklaw Network firms who bring years of experience to the matter at hand: Efficient staffing – member firms do not overstaff matters but

assign as few or as many people as are needed to effectively resolve the issue: Industry experience – our members have specialised knowledge of the business conditions and labour problems of virtually every industry: Local connections – the client relationships are local and customised.

Putting Clients First Worklaw Network firms share a simple philosophy on client service: Take a ‘partnership’ approach to each client’s business, and provide prompt, knowledgeable service in a cost-effective manner. As an organisation, we take an active role to ensure that our members follow through on this philosophy.

That is why each of our member firms has committed to ‘Best Practices,’ including: responding to all client telephone calls, faxes and e-mails by the next business day at the latest; keeping clients informed on a timely basis as to the status of their pending matters, and providing them with copies of significant case documents; evaluating all matters early so clients can make informed business decisions, as their interest always comes first; working with clients to develop acceptable or alternative billing arrangements, including electronic billing; updating clients on a regular basis about significant legal developments; preventing employment law problems rather than simply litigating them; utilising cuttingedge technology; and lastly, adopting a team approach to ensure clients’ needs are met, with member firms routinely referring clients to each other to handle local matters and monitor the quality of service provided.

Broad Capabilities in Employment-related Legal Matters Of course, the expertise and experience of Worklaw Network lawyers are what allow them to achieve such impressive results for their clients. Worklaw Network member firms offer representation in the following areas: Employment Law: Employment Litigation; Workplace Contracts;

Workplace Screening and Hiring; Sale or Acquisition of Union; Non-union Businesses and Related Employment Standards Issues.

Labour Relations: NLRB; Unfair Labour Practices; Strikes and Picketing; Negotiations; Grievances and Arbitrations; Preventive Advice and Counselling; Wage and Hour / FLSA; OSHA; Employee Compensation and Benefit Plans; Workers Compensation; Immigration; Advising the Multinational Employer.

A Seal of Excellence Focusing their practices exclusively in the area of labour and employment law, Worklaw Network law firms offer management high-quality, cost-effective representation.

Membership in Worklaw Network is by invitation only, and the organisation employs rigorous recruiting standards.

The result: Member firms and their lawyers that enjoy the finest reputations, credentials and experience.

information, resources, legal advice and legal representation.

Worklaw Network law firms are autonomous and are separately managed labour and employment law firms that practice independently on behalf of their firm clients. Furthermore, they do not share confidential client information with one another, except in those cases in which a specific referral is made or a specific joint representation is entered into as to a specific matter, with the express prior agreement of the client or clients involved.

Put Worklaw Network to Work for You If you are looking for experienced labour and employment lawyers who know the local landscape, Worklaw Network is for you. To learn more about Worklaw Network, or any of our member firms, please visit our website at www.worklaw.com.

Every U.S. Worklaw firm is AV Rated by Martindale-Hubbell – the premier legal directory and rating firm in the country. Furthermore, the most recent Chambers and Partners survey ranked 65% of the Worklaw Network firms/offices, 23% of the Worklaw firms/offices and 4% of the Worklaw attorneys Category 1 – more than any labour and employment boutique. Worklaw Network also collectively boasts 67 of the ‘Best Lawyers in America’, with members that are recognised panel counsel for every major insurance company in America (more than 50).

About Worklaw® Network Worklaw® Network law firms are members of Worklaw Network for the professional exchange of information about the local and global practice and development of labour and employment law, for educational and peer support purposes, and for potential assistance and support of our respective firms’ clients through September 2012 • Global Business Magazine • 11

INTERNATIONAL EMPLOYMENT LAW

Carlos A. Felce* Partner carlos.felce@bakermckenzie.com Tel: (+58212) 276-5133 Manuel Díaz Mujica

Partner manuel.diaz@bakermckenzie.com Tel: (+58212) 276-5131

* Carlos A. Felce is also serving as Coordinator of Baker & McKenzie’s Latin American Employment and Labour Practice Group.

The Evolution and Impact of Employment and Labour Law in Venezuela In general, since its inception at the beginning of the 20th century (particularly with the Labour Law of 1936 and its subsequent amendments), the Venezuelan labour legislation has generally been protective of the employee, establishing certain basic rights and principles designed to obtain a reasonable balance in the employment relations at individual and collective levels. However, at the same time, the labour legislation in Venezuela contains provisions allowing employers in general to adequately manage the workplace. Therefore, the key for the employer to succeed in this area is to become familiar with the labour provisions in advance and to take proactive and preventive measures, to make sure the company is in compliance with such provisions while securing and adequately exercising its managerial rights.

Of course, a key element is for the employer to also develop an atmosphere of mutual respect and trust in the workplace, conducive to the timely attention and resolution of individual (and, where applicable, collective) labour concerns or grievances in an adequate manner.

The amendments that have been enacted and implemented over the years, generally, have had the objective of including improvements to the existing platform of labour rights.

However, in some cases, they have introduced certain flexibility for the employer to manage the workplace.

Currently, some of the main principles included in the Venezuelan labour legislation are, among others that are not mentioned in this article, the principle of prevalence of reality over form, the nonwaiver principle, the protection 12 • Global Business Magazine • September 2012

principle and the non-arbitrary discrimination principle. Labour rights included in the legislation are, among others that are not mentioned in this article, payment of a salary; rest days and holidays; remuneration and surcharges for work during rest days, holidays, overtime and work at night; and lastly, vacations, vacation bonus, profit sharing, seniority benefits and indemnities in the event of unjustified dismissal.

In addition, certain workers are specially protected against dismissal, deterioration of conditions and transfers, without just cause previously proven before and authorised by the competent Labour Office. Just to mention some examples, there is a Presidential Decree containing this protection for several workers in the private sector, with certain exceptions.

The Decree is supposed to be effective until 31 December 2012, but it could be extended through a similar Decree as it has been happening in recent years. Pregnant workers and the respective fathers are also protected during pregnancy and the two years following childbirth, as are Prevention Delegates elected under the Organic Law on Occupational Prevention, Health and Safety.

On 7 May 2012, the new Organic Labour and Workers' Law (the ‘OLWL’) was published in the Official Gazette, replacing the previous Organic Labour Law (the ‘OLL’) originally published on 20 December 1990 and entirely in effect since 1 May 1991, with partial amendments effective on 19 June 1997 and later on 6 May 2011. The OLWL introduced several changes to the labour legislation in Venezuela, and while it is not the objective of this article to describe all the changes included, the following

is a general summary of some of the main ones.

The OLWL introduced a new seniority benefits system, which is similar to the one set in the former OLL, but with certain changes. Among these changes are that there is a final seniority benefits calculation to be made at the end of the employment relationship and on the basis of the employee's last salary, which is to be compared with the seniority benefits that were earned during the employment relationship. If the final calculation is higher than the seniority benefits earned during the employment relationship, the employee receives the benefits earned during the relationship plus the difference between the latter and the final calculation.

The Labour Stability System The OLWL introduced a new labour stability system. Unlike the former labour stability system set forth in the former OLL which allowed the employer to dismiss without cause by paying certain additional indemnities, under the new system the employee who is dismissed without cause, elects whether to be reinstated with back pay or finalise the employment relationship and receive payment of the additional indemnity(ies) that may apply.

Outsourcing The OLWL prohibits certain forms of outsourcing, which were not prohibited under the former OLL. It also establishes a transition period of three years for employers that had hired companies in cases of prohibited outsourcing, to hire the corresponding employees involved in the prohibited outsourcing. During the transition period, the employees involved are protected against dismissal, deterioration of conditions and transfers without just cause previously proven before and authorised by the Labour Office. They are also entitled to receive the same benefits as if the employer had already hired them.

The Working Week The OLWL reduces the

Detailed Receipts The OLWL provides that if the employer does not comply with the obligation to issue detailed receipts to its workers each time it pays salaries and benefits, the allegations of the workers regarding the salary will be presumed truthful in the absence of evidence to the contrary.

Written Employment Agreements Similarly, if the existence of the employment relationship has been demonstrated but there is not a written employment agreement executed with the employee, the OLWL provides that the allegations of the employee concerning the contents of the employment agreement will be presumed true unless there is evidence to the contrary. The employer must also record the date and hour when the worker was provided with a copy of the employment contract, in a book that the employer must keep for this purpose.

Sanctions for Violations The OLWL increases the sanctions applicable for violations of certain labour obligations, and creates criminal liability for certain infractions, e.g., contempt of an order to reinstate a protected worker, violation of the right to strike, failing to comply with or hindering the enforcement of decisions issued by labour administrative authorities, and for illegally and unjustifiably

closing the source of work.

The Workers’ Councils Although the OLWL has introduced the Workers' Councils, with functions different from those of trade unions, these Councils will not be in effect until a special law is enacted for this purpose.

Filing Claims The OLWL creates a new administrative procedure for the filing of claims against the employer concerning questions of fact.

Mandatory Benefits and Collective Relations Finally, the OLWL increases some of the mandatory labour benefits and introduces many changes in the area of collective relations. Among these, the creation of a National Registry of Workers' Unions starting in January, 2013; the obligation by trade unions to adjust their by-laws to the OLWL prior to 31 December 2012; and the provision allowing a sole workers' union in a company to obligate the employer to negotiate a collective bargaining agreement, even though the union does not represent the majority of the interested workers.

There are many more changes introduced by the OLWL, and the changes highlighted in the preceding paragraphs contain additional details and points of interest, which are not included in this article.

In general, employers must familiarise themselves with the new legislation and adopt effective measures to make sure they comply. Failure to comply with the labour legislation may result not only in specific liabilities and sanctions but also in the impossibility to obtain the (or in very serious cases, even the revocation of the existing) Labour Solvency. The Labour Solvency is required, among other purposes, to participate in bids and enter into contracts with the public sector, and to purchase foreign currency from the competent exchange control authorities at the official exchange rate. Consequently, it is advisable for employers to obtain

legal advice in order to not only properly implement the changes introduced by the OLWL, but to ensure compliance with the Venezuelan labour legislation in general.

About our Venezuelan Employment and Labour Practice Group Our Venezuelan Labour and Employment Law Practice Group is comprised of a team of 21 lawyers and various law clerks practicing in Caracas, Maturín, Puerto La Cruz and Valencia, Venezuela. In Venezuelan cities where labour lawsuits or claims are likely to occur but where we do not have offices, we have professional relationships with local law firms that help us handle cases.

Chambers Latin America has rated our Venezuelan labour and employment practice in Band 1 for the past three years (20102012). The PLC Which Lawyer?

Yearbook has rated our labour and employee benefits practice as leading for the past five years (2008-2012).

Our team has vast experience advising and representing employers in the most relevant employment and labour law issues in Venezuela, including without limitation: compensation and benefit plans and structures; calculation of severance pay and other labour benefits, drafting of employment contracts and settlement agreements; negotiation, drafting and interpretation of collective bargaining agreements; provision of legal advice, representation or assistance in connection with individual and collective labour negotiations, conflicts and litigation; provision of legal advice with respect to the hiring, transfer and termination of international and local employees; labour audits and labour-related compliance issues; codes of conduct, internal labour policies, rules and regulations; re-organisations; personnel reductions and outsourcing; occupational health and safety issues; social security and other mandatory social contributions; proceedings before the administrative and judicial labour authorities; and in-house seminars and training courses.

September 2012 • Global Business Magazine • 13

VENEZUELA

The Seniority Benefits System

maximum duration of the daytime working week to 40 hours and of the mixed time working week to 37.5 hours (from 44 and 42, respectively, under the former OLL). It also grants an additional mandatory weekly rest day that must be enjoyed consecutively with the traditional mandatory weekly rest day. However, these provisions are not yet in effect and will become effective as of 7 May 2013. In the meantime, companies affected must adjust their work hours with the participation of the affected employees, and file the corresponding new work schedules before the competent Labour Office.

INTERNATIONAL EMPLOYMENT LAW

USA

Baker & McKenzie LLP 300 E. Randolph Street Suite 5000 Chicago, IL 60601, USA

Taking the Good with the Bad – How Social Media Can Be an Employer's Best Friend or Worst Nightmare Social media has changed the way individuals and businesses communicate with each other, by allowing them to share and exchange information with the click of a button. Social media also provides an easily accessible portfolio of information about its users. Indeed, we cannot deny that the impact of social media is profound – both good and bad.

This constantly morphing world of instant information sharing can be felt in every aspect of employment, from hiring to terminating – promoting to demoting – rewarding to disciplining employees.

Taking the Good with the Bad Modern employers must grapple with how to tap into the positive impact social media may have in the workplace, both with employees and consumers, while balancing the risk and inevitability that an employee could easily adversely impact his employer. Facebook and Twitter posts are easily shared to spread information about a new and exciting product offered by a business. However, they are also simultaneously used to post disparaging messages about individuals and even employers.

Social media can be useful in not only the recruiting and hiring process, but in building an employer’s brand and communicating with consumers.

According to a March 2012 survey by Harris Interactive for CareerBuilder.com, 37% of surveyed hiring managers in the United States reported screening job candidates via social networking sites and another 11% plan to start such screening. Indeed, numerous employers are leveraging the use of social media in the workplace, to communicate with customers

regarding press releases, other marketing material and customer complaints.

On the flip side, social media use in the workplace can negatively impact the employer and result in potential loss of goodwill from damaging posts or other employee behaviour on social networking sites. Furthermore, employees can inadvertently turn social media into conduits for viruses, or provide access to privileged, confidential and sensitive data. This compromise of security could result in significant legal exposure and cripple a employer's internal IT systems.

What Should Employers Do About Social Media?

Many employers opt to create a social media policy, to set the boundaries and expectation of social media use in the workplace. Indeed, a solid social media policy will incorporate rules and requirements that allow for beneficial social media use, while further reducing business, technological and legal threats. However, when first establishing a social media policy, global employers must first determine whether to establish a truly global policy that applies across all jurisdictions and employees, or to implement a more general policy with jurisdiction specific guidelines. Based on widely varying laws and regulations regarding privacy, discrimination and other concerns, many global employers eventually opt to create jurisdiction specific social media policies or addenda to a broader global policy.

Generally, a strong social media policy will include guidelines

14 • Global Business Magazine • September 2012

regarding the use of social media both on and off the employer's equipment, taking into account both data privacy and discrimination concerns, to stay within the confines of applicable local law.

New technologies allow employers virtually unlimited access to their employees’ activities at work. In particular, employers can monitor communications on computers, employer telephones, smart phones, employer email and employee activity on the Internet.

In many jurisdictions, employers may legally monitor employees’ activities and communications while the employees are using equipment provided by the employer for use in the course of employment. However, many jurisdictions have adopted broad privacy protections, which prohibit or substantially limit an employer's right to monitor employee activities, even on company equipment. Therefore, employers must ensure that all monitoring of employees is appropriately noticed and limited to avoid pitfalls that could result in liability for the employer, while tailored to comply with applicable law.

Likewise, employees should consider creating privacy settings on their social networking sites to limit access, and carefully assess whether to allow supervisors and coworkers access to the sites.

Employers may also wish to limit employee use of social media on the employee's personal equipment, or discipline employees for activities on social media that adversely affect the employer. Though employers may be able to limit adverse activity on social

media in some jurisdictions, the employer's power to do so is not unfettered. For example, in the United States, under the National Labor Relations Act, employers are prohibited from punishing workers for engaging in ‘concerted activities for the purpose of . . . other mutual aid or protection’ or discussion of working conditions.

Employers should also be aware of possible discrimination claims which can arise from the use of social media in the hiring process, when employers stumble upon information that is an inherent part of a candidate's identity (such as age, race and religion) and use the information in favour or against the candidate.

Tips for a Successful Employer Equipment/Social Media Policy Both local and global employers should obtain employee consent to a social media policy, that expressly states that the employer may monitor any employee communications and activities on employer equipment, where permitted by local law. The consent should be narrowly tailored to conform to the laws of the relevant jurisdiction. To ensure effective implementation of the policy, employers should consider training for both management and employees, regarding appropriate social media use at work and about work.

Together with its counsel and legal experts, global employers can tackle the social media albatross and effectively harness its power and reach, through a properly drafted social media policy.

Maisa Nikkola, Partner Leena Pohjola, Associate Bird & Bird Attorneys Ltd maisa.nikkola@twobirds.com

The global economic crisis of 2008 has clearly had an impact on labour related matters in Finland. While collective redundancies have been the most relevant consequence of the financial turmoil, there have also been plenty of employment related disputes. Many of these disputes are still ongoing. Win or lose – in general, disputes cost time and money. As these uncertain times have not yet passed, it is important that employers are aware of the legal requirements regarding reorganisation of business.

Background and Collision of Interests Traditionally in Finland, employees are protected against termination of their employment relationships. This may be true regarding termination on grounds related to the employees’ person. However, this is not true when it comes to termination of an employment relationship on reorganisation grounds. While employees are protected against termination of their employment relationship, the employers have a right to make changes to their business operation and reorganise their business. In this collision of interests, the employers have broad power to make business decisions.

What has Practice and Experience Shown Us? The law stipulates that the employer may terminate the employment contract if the work to be offered has diminished substantially and permanently for financial or production-related reasons, or for reasons arising from reorganisation of the employer's operations. However, the

employment contract may not be terminated if the employee could be placed in for other duties within the company (or in some cases group company).

In addition, if the company has more than 20 employees, the employer must fulfil the co-operation negotiations and negotiate with employees or their representatives before any decision on termination of employment relation or reorganisation are made.

The recent challenges have highlighted two things: Firstly, employers must be proactive.

Most of the disputes regarding reorganisation circle around claims that no actual reduction of work has taken place because the employer has recruited new employees to similar tasks before termination or thereafter.

If an employer can foresee a possible need for reorganisation and collective redundancies, it is important that before any new recruitments are made, it carefully considers how much that recruitment would overlap with the existent personnel’s abilities and professional skills.

Another common claim is that the co-operation procedure was not fulfilled, and that final decisions have been made before any consultation with the employee representatives.

In the recent case law, minutes of the meeting of the board or a simple press release may have hinted that the employer has already finally decided to cease a certain operation and terminate employment relations. Therefore, subsequent co-operation negotiations were only fictitious. The lesson here is that if the employer doesn’t act anticipatory, strict co-operation regulations may leave them liable to pay indemnification

to all the employees who were made redundant due to the reorganisation.

Secondly, the redeployment and also the re-employment of employees are important issues in which employers also may face difficulties. An employee under the threat of redundancy has a preliminary right to all other suitable job openings and opportunities. Employers also have a re-employment obligation of nine months after the employment relationship has terminated. This means if an employer needs new employees within the said nine months period from the termination for similar work that the relevant been engaged in, the employer must generally offer that work to this former employee. It requires great diligence from the business management and HR of a company to analyse whether an employee could be placed in other duties.

In all matters, the importance of documentation has to be emphasised as the employer should be able to show what measures it has taken to examine redeployment opportunities and re-employment obligations; what duties have been offered to terminated employee and how the employee has responded; and possibly why the employee was considered unqualified for certain openings.

What to Keep in Mind

avoided by merely thinking ahead.

As experience helps to take all relevant things into account, a good relationship and consultation with a specialist is essential in order to follow all mandatory steps in reorganisation of a business.

Through our experience we have noticed, as the Finnish employment legislation is in many parts mandatory and stipulates mandatory procedure to be followed, consulting a specialist is helpful in order to avoid future unnecessary and costly disputes.

The Top 3 Need to Know Facts About Finnish Labour Law 1. Legislation is mandatory in many parts and these sections of law cannot be set aside even with an agreement with an employee.

2. Collective bargaining agreement may even apply to a company that is not a member of a trade union. Therefore, the influence collective bargaining agreement is significant.

3. In many parts procedures and timelines are strictly stipulated. In order to avoid risks procedures, mandatory steps need to be followed.

Firm of the Year, Finland

In conclusion, in order to resolve the collision of interest between the protection of employees and the right of an employer to make business decisions, the employer should always be looking ahead and acting diligently in advance.

Considerable amount of disputes arising afterwards could be

September 2012 • Global Business Magazine • 15

FINLAND

Reorganisation and Downsizing a Business in Finland – the Risks and What to Avoid

UK

INTERNATIONAL EMPLOYMENT LAW

Tim Marshall Partner Employment, Pensions & Benefits Direct Dial: +44 207 796 6617 Mobile: +44 7971 142248 tim.marshall@dlapiper.com

Turbulent Times Ahead: Employment Law in 2012 and Beyond When the UK Coalition Government came into power in 2010, one of its key pledges was to reduce the burden of ‘red tape’ on businesses, including a substantial review of employment law. Until recently, the pace of change has been slow: In April this year, the qualifying period for the right to claim unfair dismissal was raised from one year to two years for new employees, and there were minor changes to the employment tribunal rules. However, the pace of change is set to pick up, with significant reforms due to come into effect from 2013 onwards. The Government has taken steps towards making deregulation a reality, with the publication of the Enterprise and Regulatory Reform Bill, and a response to consultation on the implementation of fees in the employment tribunals.

The Bill gives effect to a number of proposals, including the introduction of compulsory pre-claim ACAS conciliation, the determination of straightforward low value claims by legal officers rather than employment judges, the imposition of financial penalties on employers who breach employees’ employment rights, and the potential for reduction in the maximum compensation awarded for a successful unfair dismissal claim.

The most controversial provision provides that an employment tribunal would not be able to take into account any offer made or discussions held, before the termination of employment, with a view to it being terminated on terms agreed between the employer and the employee.

This would only apply to unfair dismissal claims. However, if something ‘improper’ arises

in the discussion, the tribunal would be permitted to take it into account.

It is not entirely clear how the proposed change will extend the current ‘without prejudice’ rules, which allow an employer to make an offer of settlement which cannot be referred to in subsequent tribunal proceedings, provided there is an existing dispute between the parties. The likelihood is that the protection will simply apply even where there is no existing dispute.

This appears to be a watereddown version of the concept of a ‘protected conversation’, which arose from the controversial Beecroft report on employment regulation commissioned by David Cameron.

Although the current proposal avoids many of the difficulties associated with the protected conversation idea, there are significant limitations, which make it very risky for employers.

When initiating settlement discussions with an employee, the employer will not know what types of claim the employee will subsequently bring if the settlement negotiations are unsuccessful. As a result, many employees will seek to bring a discrimination or whistle-blowing claim in these circumstances, claiming that the real reason that the employer wanted to terminate employment was a protected characteristic such as their age or sex, or that they had raised a concern about possible wrongdoing by the employer. In such claims, the evidence that the offer of settlement had been made would be admissible, and without objective evidence it may be difficult for the employer. This is also likely to lead to satellite

16 • Global Business Magazine • September 2012

litigation, with parties litigating whether evidence regarding settlement offers is admissible or inadmissible. This could potentially increase the costs of tribunal proceedings.

In July, the Ministry of Justice published details of proposals to introduce fees in the employment tribunal from summer 2013.

Any level 1 claims (the very straightforward ones such as unlawful deductions) will carry a £160 issue fee and a further £230 hearing fee. For level 2 claims (including unfair dismissal and discrimination), the employee will pay a £250 issue fee and a £950 hearing fee. There will also be fees for an appeal to the Employment Appeal Tribunal and miscellaneous other fees, £60 for an application to dismiss following settlement, and £600 for judicial mediation.

In the same month, Mr Justice Underhill delivered recommendations, following his extensive review of the current tribunal rules. If his recommendations are accepted, the current prescribed claim form (ET1) and response form (ET3) will be replaced; there will be non-binding guidance on matters of practice to address (1) concerns that parties do not know what to expect, or what is expected of them, at various procedural stages; and (2) a perception that there are wide variations between how different judges, particularly at different tribunals, deal with the same kinds of hearings.

There will also be an initial sift stage at which every case will be reviewed by an Employment Judge on the papers after the claim form and response have been received, with a view to (a) considering what directions are

required to get the case ready for a final hearing, and (b) striking out at an early stage claims or responses which have no reasonable prospect of success.

The current distinction between case management discussions and pre-hearing reviews will be removed, giving judges more flexibility to manage cases more aggressively.

Looking forward to 2013 and beyond, further change is predicted as the Government plans to extend the right to request flexible working to all employees, and to introduce a more flexible system of shared parental leave. There are also plans to amend the Working Time Regulations to clarify the law on annual leave. The Government has issued ‘calls for evidence’ on the laws on collective redundancy and business transfers, which are also likely to lead to changes.

The UK already has one of the most deregulated labour markets in the world, but it is to be hoped that further deregulation will make this an even more attractive place for employers to do business.

How do we cope with

employment law issues in

multiple jurisdictions

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Every jurisdiction has its own particular characteristics and rules, especially in HR law. Ius Laboris is the only alliance to provide you with local legal expertise to solve your HR issues on a global scale.

Project management Ius Laboris offers a single point of contact to coordinate your multinational project. Through our training program, we equip our international team of lawyers to manage complex multi-jurisdictional projects regionally or globally.

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NETHERLANDS

INTERNATIONAL EMPLOYMENT LAW

Clifford Chance LLP Amsterdam Sara Schermerhorn Counsel Tel: + 31 20 7119 332 e.com sara.schermerhorn@cliffordchanc e.com www.cliffordchanc

The Changing Employment Landscape – the Dual Dismissal System Internationally, the Netherlands is known for its deviating dismissal system, which means that unless for cause, employees cannot be dismissed unilaterally. In order to serve a legally valid notice, a dismissal permit is required from a governmental institute ‘UWV’. A severance is not awarded in this procedure, but may be claimed afterwards.

Alternatively, the Court can be requested to terminate the employment relationship, and may then award financial compensation in a procedure that does not provide for appeal.

In both instances, the test of whether a valid reason for the dismissal is present takes place prior to the dismissal itself.

No dismissal permit is required for statutory directors (statutair directeur) who, apart from an employment contract, may have a corporate relationship with the company that employs them. Their dismissal as board member shall automatically result in the termination (after lapse of the notice period) of their employment.

For a long time, this dual dismissal system has been under discussion. Having the existence of two dismissal routes, with major differences with regard to process, the possibility of appeal, the turnaround time and the compensation, has been hard to justify. Furthermore, there is discussion regarding the differences in protection between the so-called insiders and outsiders (permanent employees as opposed to flexible workers), and the low workers mobility in the Netherlands, which is said to be caused by the existing system.

The fall of 2011 resulted in a legislative proposal on abolishment of the preventive dismissal test and the dual dismissal system. In the spring of 2012 after the fall of the Dutch government, a budgetary arrangement was reached and confirmed by the departing government, aimed at additional cost-saving measures. Part of this arrangement provides for a revision of the Dutch dismissal system – again, stepping away from the preventive dismissal test and the dual dismissal system, with the intended start date of the – yet to be drafted – legislation being 1 January 2014.

Although the plans are severely criticised and may undergo changes further to comments of advisory bodies and the new government, there is a firm belief amongst the various stakeholders (trade unions, employer’s organisations, academics etc) that a change to the Dutch employment landscape is inevitable.

Cantonal Court Formula Currently, Courts when granting compensation in dismissal cases, apply a non-statutory severance

18 • Global Business Magazine • September 2012

payment calculation based on the ‘Cantonal Court Formula’ – a formula used by the Dutch Courts to determine the financial compensation in cases presented to the Court. As a result, this formula is used for settlements outside the Court, and takes account of the age and years of service. After a retrenchment of the (outcome of the) formula in 2009, a committee representing the joint Courts has announced that it is once again taking a close look at the formula. The background for taking this decision is that the differences in outcome, depending on the dismissal route applied, cannot be justified. The committee has said to work on a new formula for calculating the compensation that should apply indifferent to the dismissal route. Furthermore, it has indicated that the element of someone’s (missing) job opportunities will gain weight.

In the formula, this may impact the severance that is payable to less educated employees with possibly poorer job opportunities, thereby indirectly sanctioning employers who do not invest in the employability of their employees. The relevant committee has indicated that it expects to be able to present the revised formula during this year’s fall with direct effect.

Public Debate A further revision and downward adjustment of the Cantonal Court Formula fits into the ongoing debate on a long-term basis. Exorbitant remuneration and severance fees have become a topic of increasing interest and are – especially when failing performance is rewarded – publicly rejected.

Many initiatives have already addressed this topic. Apart

from codes that are setting best practice provisions for maximum severance fees for listed companies’ management, or management board members in the financial or banking industry, legislation is also pending with regard to setting a statutory maximum to severance fees for a wider group of employees. The most recent plans regarding the revision of the Dutch dismissal system, also refer to the idea of a strongly economised statutory severance. In addition, a statutory bonus prohibition has been enacted for selected employees of entities receiving state aid. The regulatory required remuneration policies that promote sound and effective risk management, are also becoming more and more common in many sectors of industry.

What goes for the dismissal system, also applies here.

However, not all proposals regarding employee remuneration and, more specifically, severance payments, may in the end be enacted – or not at least in its current form, changes to severance payments are likely to be there. It is good to keep this in mind when negotiating on a contractual severance with an individual, or discussing a new social plan with the trade unions or works council.

Be aware that good timing of planned actions may be worthwhile in view of the above developments.

Linklaters LLP Nicola Rabson Tel: 0207 456 5284 nicola.rabson@linklaters.com www.linklaters.com

UK

Managing International Bonus Arrangements Bonuses are a fundamental component of remuneration for directors and senior employees, especially those in the financial services sector. Understandably, global organisations often seek to implement a bonus structure applying across a wide geographical area and in several jurisdictions.

In practice, this approach is not without legal complications, as the regulation of bonuses across the world varies widely.

For example, the EU Capital Requirements Directive (CRD3) regulates remuneration within financial institutions in EU member countries including prohibitions on guaranteed bonuses (except in limited circumstances), deferral of at least 40-60% of variable remuneration for 3-5 years, as well as stipulating requirements in respect of bonus performance conditions. In the United States, even under new rules, there are no prohibitions on guaranteed bonuses and the requirements in respect of performance conditions are less stringent, although rules on the percentage and timeframe for deferred remuneration are comparable. The regulatory regime in China is also relatively lenient compared to CRD3, save that unlike under CRD3 caps on variable remuneration are imposed.

It is not just the regulatory regime that varies widely.

The interpretation of bonus entitlements, including the distinction between discretionary arrangements and binding contractual entitlements, and the scope for varying these is not consistent across jurisdictions.

This is demonstrated clearly in the recent high profile UK case

of Attrill & Others v (1) Dresdner Kleinwort Ltd, (2) Commerzbank AG, in which Linklaters’ Employment and Incentives Partner, Nicola Rabson, acted for the defendants.

In this case the key issue to be determined was whether an announcement made at a town hall meeting by the Chief Executive Officer of Dresdner Kleinwort Investment Bank (DKIB) – that a guaranteed minimum bonus pool of €400 million would be allocated to DKIB staff on a discretionary basis according to individual performance – gave rise to a contractually binding obligation to distribute the €400 million pool, or whether the defendants were entitled to exercise their discretion to reduce the pool subsequently. The town hall meeting at which the bonus pool was announced, was held in Frankfurt and simultaneously broadcast live to DKIB staff globally, including in London and throughout Europe. A recording was subsequently replayed once (before being destroyed) for DKIB staff in Asia.

Due to the global nature of the announcement the bank faced employee litigation arising from the same facts in a number of jurisdictions, including Germany, Italy, Japan, Singapore, USA and the UK. In the UK high court, the judge upheld the claimants’ claims to unpaid bonuses, finding that the oral announcement of a guaranteed minimum bonus pool at a ‘town hall’ meeting amounted to a contractually binding promise (although this decision is currently the subject of an appeal application by the defendants). In stark contrast to the UK court’s decision, the

German Federal Labour court dismissed the bankers’ claims, finding that the defendants could justifiably exercise discretion to reduce bonuses. The case highlights the importance of seeking local advice regarding the potential legal impact of statements made to employees about bonuses before making a global announcement to employees.

One bonus issue on which there is more consistency globally is the considerable pressure on organisations from Government and the public to restrict the level of bonus payments and tighten the links between performance and pay. In the UK this has culminated in the proposals in the Enterprise and Regulatory Reform Bill that are likely to become law. Amongst other things, these proposals would restrict payments of remuneration and payments for loss of office to directors of UK incorporated quoted companies to payments, made in accordance with a remuneration policy periodically approved by shareholders. Obligations which contravene the policy would have “no effect” and individual directors authorising payments by the company which are in contravention of the remuneration policy, would be required to indemnity the company for losses. Companies will therefore need to pay closer attention to their relationship with shareholders if they want to honour bonus arrangements and avoid ill will from directors.

In order to implement legally compliant schemes and minimise disputes in this environment, managers need to have access to up-to-date information on the varying global regimes, both from a regulatory and contractual perspective, and including future developments and market trends.

Nicola Rabson is a Partner in the Employment and Incentives team at Linklaters. Nicola tackles the most complex of employment litigation and advice and has extensive experience of High Court and Tribunal litigation, in particular in the area of bonus litigation. She acted for the defendant bank in the case of Commerzbank AG v Keen. For more information on the issues highlighted above, including access to our International remuneration guide, microsite on UK executive compensation, and/or further details of the practical impact of the Commerzbank litigation, please call Nicola on 020 7456 5284, or email her at nicola.rabson@ linklaters.com.

The law around bonuses is constantly evolving at a time when bonus payments and entitlements – particularly those that are excessive – are never far from the news headlines.

September 2012 • Global Business Magazine • 19

ASIA PACIFIC

INTERNATIONAL EMPLOYMENT LAW

Pattie Walsh DLA Piper Pattie.Walsh@dlapiper.com www.dlapiper.com

Moving Your People Around Asia-Pacific – Practical Tips To Address Employment Law Issues For many businesses, it is essential to be able to move talent in and out of key locations including between countries as and when needed. The particular needs vary but often include: a need for a swift influx of resource to deliver a short-term project; the implementation of a strategy of expansion in a lower cost or growing market; or a need to move senior leaders around the business for multiple business reasons.

When it comes to people mobility, the amount of time required to achieve the transfer is often underestimated. A lack of upfront planning can often mean the timetable is unduly extended.

What should be an exciting move for the individual becomes fraught with frustration, and undermines the needs of the business to have the right people in place at the right time.

While it sounds trite to say that each country has different rules and laws, one of the biggest challenges is ensuring everyone in the process understands that home and host rules may differ significantly. In addition, there are likely to be a myriad of cultural issues at play, which cannot be ignored. These can range from working out the appropriate job title to ensure that the transferee is afforded the relevant status (without undermining the existing structure and sensitivities), to managing expectations about how quickly certain matters progress in particular countries.

To ensure that your mobility ambitions are achieved as smoothly as possible, we recommend that you think about the following employment law challenges:

Immigration and Work In some countries, immigration and work approvals take several months to process. The timeline should be identified very early on in the process to manage everyone’s expectations. It is also important to identify clearly any dependants and what they may need in terms of immigration approval. For example, in some countries in Asia (including Hong Kong), de facto relationships are not recognised and bringing non-married dependants into Hong Kong is a challenging process and should not be underestimated.

Employment Structure As part of the employment structure (and often as part of the immigration process) the individual’s changing contractual arrangements will need to be considered and documented. In some situations the preferred approach may be a simple secondment, but sometimes this is not possible and it is necessary (usually for regulatory and immigration approval reasons) to set up a new direct employment relationship with the host country. In both cases, some consideration should be given to what happens if the relationship sours during the assignment, or if the individual’s role ceases to exist back home.

Failing to consider these fundamental issues upfront can create significant problems later on in the relationship. However the contractual arrangements are structured, there are likely to be legal obligations for the employer in the host country, and also possibly on-going obligations in the home country.

20 • Global Business Magazine • September 2012

Dual Employment Law Obligations These can be complex and requires an understanding of the prevailing laws in each relevant location. Once again, a failure to fully understand the situation at the outset is often a key reason for subsequent disputes.

Tax Implications It is also fundamental to look at mobility from a broad perspective. While tax implications for the moving individuals are often appreciated, it is just as important to have an awareness of potential tax and regulatory issues at a corporate level.

Individuals may inadvertently create a tax presence for the home country entity, and this risk needs to be fully explored before any arrangements are entered into.

Working Obligations Any transfer of staff between associated entities also creates a need to be clear about where obligations lie. These obligations range from working who will be responsible for assessing the individual’s performance – to determining who should take a termination decision in a serious case of misconduct or poor performance. It is important to remember that just because the entities are related does not necessarily reduce the complexity of the employment law considerations.

Confidentiality, Obligations & Agreements In addition, the individual’s existing confidentiality and non-competition/non-solicitation obligations will need to be

considered and expanded, to ensure that all parties are fully protected and the individual is fully aware of his or her obligations. While inter-company agreements often have a very clear purpose for tax and transfer pricing, equally they can clearly record broader aspects of the agreement. Sometimes a tripartite agreement between the individual and both the host and the home entities can be an effective way of managing the situation.

Moving people around is, of course, not simply about getting documents in order and making sure processes are fulfilled.

However, the process will only be assisted if there is a clear structure and a known timetable.

Getting the legal part of the jigsaw in place is a fundamental element of delivering an effective mobility strategy.

Author: Pattie Walsh, Partner and Head of Employment Pensions and Benefits, Asia-Pacific at global business law firm DLA Piper.

Enterprise)

JAPAN

Baker & McKenzie (Gaikokuho Joint Yasuhiro Fujii Partner Tel: +81 3 5157 2778 (Until 9/14) Tel: +81 3 6271 9460 (After 9/18) m yasuhiro.fujii@bakermckenzie.co .jp ie.co kenz ermc .bak www

Upcoming Change in Employment Laws In this article, we highlight the upcoming amendments to two Acts in 2012 that will have a serious impact on employers: The Labour Contract Act (‘Labour Contract Act’) and the Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers (‘Worker Dispatching Act’).

The Labour Contract Act The bill to amend the Labour Contract Act was passed on 3 August 2012, and the amendments has come into effect on 10 August 2012 upon promulgation (and partially within one year from 10 August 2012). These amendments seek to secure employment of contract employees, namely employees hired for a fixed period.

However, the amendment that has come into effect is only to enshrine into law the doctrine established by case law that applies to employer’s refusal of renewal – that, under certain circumstances, an employer may not legitimately refuse to renew a fixed period employment contract without justifiable causes (i.e. an employer may not terminate a contract employee only for the reason of expiration).

Although this amendment appears serious to employers, it does not require they take any immediate action, because it does not change the existing case law. The more important amendments (that are supposed to come into effect early in 2013) are firstly, to grant contract employees a right of conversion to a permanent employee; and secondly to prohibit employers to set employment terms and conditions of contract employees

unreasonably as compared to those of permanent employees.

The former amendment would seriously impact employers using contract employees.

When a contract employee, after completion of five-year service with renewal(s) with the employer, may offer to the employer an employment contract without a fixed period commencing from the date following the expiration of the then-current employment contract, the employer is automatically deemed to have accepted such offer, as a result of which the offered employment contract without a fixed period will be formed.

The Worker Dispatching Act The amendments to the Worker Dispatching Act has already been enacted earlier in 2012 and will come into effect on 1 October 2012 (and partially on 1 October 2015). These amendments seek to tighten regulation of both labour hire agencies and host employers that use labour hire workers.

Although the amendments mainly affect labour hire agencies, there are three changes that will impact host employers.

Firstly, the amendment imposes an obligation on the host employer to take ‘measures necessary for stabilising the employment’ of the labour hire worker when it terminates the relevant worker dispatch agreement with the labour hire agency for its own reasons (i.e. not for cause). These measures could include, for example, introducing a new job or a new host employer to the labour hire worker, or paying compensation to the labour hire agency for putting the labour hire worker on paid leave of absence.

Secondly, the amendment prohibits host employers from engaging their ex-employees as labour hire workers for one year after termination of employment.

Finally, the amendment imposes a sanction against host employers that breach the Act, by granting labour hire workers a right to convert to employees of the host employer.

This amendment will come into effect in 1 October 2015 but will most impact host employers.

Under the amended Act, a host employer will be deemed to have offered the labour hire worker a direct employment contract when it accepts him/her under an arrangement that is in breach of the Act. As a result, a direct employment contract will be formed with the host employer when the labour hire worker indicates his/her intention to accept the deemed offer.

However, a situation could arise where the host employer either uses a labour hire worker for prohibited work; receives labour hire services from an unlicensed labour hire agency; engages a labour hire workers for a period exceeding the statutory limit; or engages a labour hire worker without executing a worker dispatch agreement with the aim of avoiding the application of the Act. Among other things, companies using labour hire workers should – with consulting lawyers – firstly, review current labour hire arrangements to confirm that they are compliant with the laws, including a review of the categories of work that labour hire workers engage in; secondly, review the length of current labour hire arrangements, and determine if they are subject to

any statutory limitation period; thirdly, review existing contracts with labour hire agencies, and ensure that they include appropriate representations and warranties regarding the agency’s compliance with the Act; and lastly, review existing contracts with independent contractors and secondment arrangement, to confirm that they are implemented in an appropriate manner and legitimate manner so as not to be considered the bogus consignment or secondment practice.

Although some of the above amendments are not coming into effect straightaway, it is important that companies immediately consult with lawyers that have the necessary expertise to not only review the risk inherent in the existing contracts for employees and labour hire workers, but determine how to manage them in the future.

September 2012 • Global Business Magazine • 21

INTERNATIONAL EMPLOYMENT LAW

Latham & Watkins LLP Catherine Drinnan Partner Tel: 44 207 710 1116 catherine.drinnan@lw.com

UK

www.lw.com

All Change Please – UK Employment Law Overhaul in Process Despite the fact that the Government has stated its intention to reduce red tape in legislation, organisations that employ UK employees could be forgiven for thinking precisely the opposite effect is being achieved.

Over the last year, there have been numerous consultations and calls for evidence organised

by BIS, as well as the Beecroft Report, the Enterprise and Regulatory Reform Bill, a commissioned review of tribunal practice and procedure, and the debate on ‘say on pay’ in the wake of the shareholder spring. In addition, the autoenrolment regime for workplace pensions gets off the ground this October. However, it is becoming increasingly difficult for employers to keep up and legal advice should be sought to ensure they are aware of changes to their rights and responsibilities.

A number of the reforms (and proposed reforms) are, ostensibly at least, designed to make things easier for employers in a time of global recession. For example, new hires from 1 April 2012 have to be employed for two years, as opposed to one, before they acquire the right to claim unfair dismissal. The idea is that employers are more likely to hire new staff if they perceive it will be less complicated to dismiss them if the relationship does not work out. However in practice, it might be the case that we merely see a rise in claims where there is no service requirement, such as discrimination or dismissal on the grounds of being a ‘whistleblower’. Similarly the idea of introducing compensated

‘no fault’ dismissals, as mentioned in the Beecroft Report, for small businesses, would potentially reduce the regulatory burden for those least able to bear it. However the most recent indications from the Government suggest that this change is not being actively considered at the moment.

The proposal that many types of employment claims will need to undergo a mandatory period of conciliation with ACAS (the Advisory, Conciliation and Arbitration Service) likewise should simplify the claims resolution process, and lead to fewer cases progressing to tribunal (with the legal fees and management time that entails). However, questions are being raised about how ACAS will cope with the increased workload, particularly from those who have had mixed experiences of ACAS under the current regime. Furthermore, the concept of introducing a financial penalty on employers, in addition to damages awarded to the employee, which are found by a tribunal to have breached employment rights has caused consternation among employers, and may act as a deterrent to hiring more UK staff.

The concept of ‘protected conversations’, where employers can have off the record discussions with employees without the employee being able to raise the contents of those discussions in a subsequent unfair dismissal claim, may seem a useful extension of the ‘without prejudice rule’ (by removing the need for there to be a dispute between the parties for the protection to apply).

22 • Global Business Magazine • September 2012

However, it is unlikely to be simple to determine whether a conversation is protected, and whether anything the employer says is improper, meaning the protection will fall away. As to whether renaming ‘compromise agreements’ as ‘settlement agreements’ will have any practical effect, remains to be seen. The proposal to introduce standard form settlement agreements for parties to use may on the face of it be a welcome simplification, but in practice these are unlikely to be workable for any but the simplest of dismissals.

While employers are grappling with these issues and their applicability to their workforce as a whole, UK listed companies will also need to consider the Government’s proposals regarding executive pay, expected to come in to force in October 2013. The existing regime, whereby shareholders have a non-binding vote on the company’s remuneration policy, would be replaced by a binding vote to be held every year, or every three years, if the company’s remuneration policy has not changed. In addition, the structure of the remuneration report would change to provide maximum transparency, including a forward-looking element dealing with the policy and proposed payments, and a backwards-looking element covering the way in which the policy was applied in the previous year.

There are also changes to come in the pensions arena. In order to address the issue of UK employees failing to save enough for their retirement, the

Government has introduced a requirement on all UK employers to auto-enrol ‘eligible jobholders’ into a qualifying pension plan. This can be the employer’s own plan, provided it meets the qualifying criteria, or a plan offered by a specialist provider, such as the National Employment Savings Trust (NEST). The date from which an employer must comply with the new regime will depend on the number of its employees, with the largest employers required to comply from October 2012.

Employers will also ultimately be required to contribute 3% of the employee’s qualifying earnings (this being earnings between the lower earnings limit and the upper earnings limited - £5,564 and £42,475 for 2012/2013), with employees contributing 5%, although this contribution requirement will be phased in over five years. Employees can opt-out (but the employer cannot encourage them to do so), and must be re-enrolled every three years.

The UK employment and benefits landscape is changing, and employers need to ensure they remain compliant to avoid potential pitfalls and maintain a harmonious workforce.

Spain: Changes to Employment Law in Favour of Flexibility, Facilitation & Cutting Costs With a current unemployment rate of 24.6% and a projected unemployment for 2012 of up to 26%, the Spanish government has passed legislation that aims to release companies from traditional Spanish employment law rules, that it considers have proven to be outdated, inflexible and, ultimately, a hindrance to employment in Spain. The amendments, which the government had promised would be substantial, indeed as a whole, constitute the most significant amendments to employment law in Spain in decades.

The amendments are numerous and substantially modify very different areas of employment law. Primarily, the amendments entail less costly dismissals and substantially reduce severance costs for unfair dismissal, both for current and future contracts (the 33 days salary per year worked as opposed to the traditional 45 days and interim salary, is eliminated in almost all cases of termination).

In addition, the definition of what constitutes sufficient financial cause for redundancies has been significantly broadened, increasing the chance of fair redundancy and reduced severance costs.

This means, without prejudice to other possible causes for redundancies, employees may be made redundant when the company’s ordinary income in three consecutive quarters is less than the ordinary income in the same period of the previous year.

Accordingly, redundancies are significantly facilitated – even in profit making companies – limiting their costs to the 20 days salary per year worked,

capped at 12 months of salary established for fair redundancies.

Similarly, the definition of financial cause to suspend employees’ contracts, or to opt out of substantial provisions of industry level collective bargaining agreements, have also been defined in more detail, and ease the implementation of such measures by companies (when the company’s ordinary income in two consecutive quarters is less than the ordinary income in the same period of the previous year).

Collective dismissal and suspension of employment contracts procedures are also no longer subject to prior administrative approval. As such, while consultation with the works council is still required, if no agreement is reached, companies can directly proceed with the collective dismissal or suspension, thus limiting the negotiation power of works councils.

Moreover, the new law’s more notable changes include: (i) the increased right to change work conditions, location and duties; (ii) the expanded company right to distribute work time irregularly without employee representatives’ agreement (10 % of employees’ work hours to be distributed irregularly throughout the year); (iii) more flexibility in part-time contracts (overtime to be permitted); (iv) companies with less than 50 employees being permitted to hire employees, subject to a one year probationary period, and enjoy tax deductions and social security discounts; (v) less binding industry level CBAs so that local company level CBAs can prevail over industry level

CBAs in a long list of matters, with possibility to opt out of and substitute key aspects, and renegotiate reduced expiration dates for CBAs; (vi) forced retirement provisions under current CBAs being legally invalidated, and companies no longer being entitled to rely on them to terminate employees who reach retirement age unilaterally (such employees would either need to resign or be dismissed by the company); and lastly, (vii) various changes to certain basic employment rights, such as family care reduction in work hours, paid time off for training and recuperation of vacation due to sick leave.

While some provisions of the new law are not entirely clear, and we will need to wait to see how courts interpret them over time, what is clear is that the law has in many respects changed to favour employer flexibility, facilitate contracting employees, decrease company costs and curtail collective bargaining agreement restrictions.

Baker & McKenzie – Employment Law The Employment Law Department is one of Baker & McKenzie’s most specialised areas in Spain and throughout the world. Our practice covers a wide range of employment matters – from basic regulations regarding labour relations – to major restructuring projects, redundancy plans and collective bargaining agreements. Our extensive experience in legal proceedings and with union representatives in collective bargaining negotiations, has given us a global perspective of all legal employment issues.

With more than 450 lawyers in 70 offices around the world, we offer the perfect combination of local practical knowledge and highly specialised experience at a global level.

Our mission is to assist companies in efficiently managing their human resources, providing practical advice designed to avoid unnecessary disputes, as well as the experience and top quality technical support necessary to solve specific problems when they arise.

Our philosophy is to try to be an extension of our client’s team, putting our technical expertise to its service in order to solve its problems. We provide a totally commercial approach, as opposed to less operational, theoretical or doctrinal approaches. We also offer full availability of our teams as and when required by the client.

We are able to provide quality service, because of our ability to manage multidisciplinary projects, our specialisation in each particular sector, and our extensive know-how in crossborder transactions and problem solving.

In short, our aim is to provide high-quality comprehensive legal advice to companies, ensure efficiency in execution, and reduce management risks and burdens for our clients.

September 2012 • Global Business Magazine • 23

SPAIN

Baker & McKenzie Fermin Guardiola Partner – Employment Department Tel: +34 91 230 4500 e.com fermin.guardiola@bakermckenzi m ie.co kenz ermc www.bak

USA

INTERNATIONAL EMPLOYMENT LAW Donald C. Dowling, Jr. Law Partner, International Employment LLP White & Case 1155 Avenue of the Americas New York, New York 10036 T: + 1 212 819 8665 ddowling@whitecase.com

Auditing Human Resources Compliance Globally The globalising economy has pushed multinationals to align more and more aspects of human resources on a global scale. As a result, multinationals now routinely globalise HR programmes, policies, benefits and other ‘offerings’ that, back in the old days, used to be purely local. As headquarters watch over their new cross-border HR offerings, compliance initiatives go global as well. Headquarters also have strong incentives to oversee compliance, with the growing list of ‘extra territorial’ laws that reach workforces internationally (see ‘The Return of the Global Employment Audit,’ Law 360, 12/21/09).

But how can a multinational efficiently audit, assess, check or review HR compliance across borders? The first step is to assemble a project team.

The team needs representation from headquarters, foreign-local human resources staff and the in-house legal and compliance functions. Consider tapping outside counsel with attorney/ client privilege or an outside international HR consultant.

Team in place, the question becomes: How can a multinational project manage a cross-border HR audit costeffectively and efficiently? The temptation here always seems to be the quick-and-dirty approach –grab a ‘global HR audit checklist’ off the shelf, dive in and just do the audit. However, this never works because no one-size-fits-all ‘global HR audit checklist’ exists that can do the job. Each global HR audit project spins off in its own direction, with its own particular goals, its own pool of affected countries, focused on its own particular industry. Therefore, a global HR compliance audit requires an organic, holistic approach in five steps.

Step 1 – Articulate Context and Scope Begin by isolating the context and then delineate the scope of this particular global HR audit

project. HR audits/assessments arise in very different contexts, whether implementing a new corporate structure, preparing for a restructuring, doing a merger or acquisition, or responding to a lawsuit/ government investigation. Some global HR audits focus externally on outside supplier compliance, while others focus internally on specific legal challenges such as health/safety, wage/hour, data privacy, bribery, whistleblower hotlines, or – increasingly – corporate social responsibility and ethics (see ‘How to Conduct an Ethics Audit,’ SHRM HR Mag., 4/10). Isolating the context of your particular audit is vital because it lets you put aside all irrelevant issues not in play here. After setting the context, delineate project scope – the focus; the legal compliance; whether the project should confined to local employees; go beyond employment laws and policies; and what industryspecific issues require special focus.

Step 2 – Create a Master Template ‘Compliance’ means following mandates. Because employment law mandates differ significantly by jurisdiction, localised HR compliance audit checklists (or questionnaires) are essential, and should align to allow for ‘apples-to-apples’ comparisons across jurisdictions. Align local HR audit checklists by spinning each one off of a single master template (or outline). Create that master template organically –tailor it to fit this unique audit project. Include all topics consistent with the project scope (step 1), but exclude all other topics. Depending on context, HR compliance audit topics might include: Internal Policies and Collective (Union/Works ‘Council’) Agreements These include: local HR policies, global code of conduct, industry codes, bribery/corruption policy, globally applicable HR

24 • Global Business Magazine • September 2012

policies issued by headquarters, ‘framework’/union neutrality agreement, collective agreements to which the organisation is a party, and ‘sectoral’ agreements that apply by force of law.

Benefits and Compensation Issues These include: employee benefits, equity plans, statutory and mandatory benefits laws, and mandatory profit sharing and payroll compliance (deductions, withholding and reporting).

Individual Employment Contract Issues These include: contact/offer letter templates, restrictive covenants, employee acknowledgements/ consents/waivers and computerclick intranet assents (‘electronic signatures’).

Contingent and Irregular Employment Issues These include: contractor/ consultant misclassification, fixed-term/part-time employees, secondees/leased/agency employees, non-employee directors and expatriates.

Headquarters – Country Employment Laws that Reach Overseas These include: ‘extraterritorial’ US laws on accounting, ‘alien torts,’ bribery/foreign corruption, discrimination, Sarbanes-Oxley whistleblower ‘procedures’, securities, terrorism watch list and trade sanctions.

Corporate and Tax Issues Reaching Employment These include: employer entity, employer registrations/corporate forms, dual-employer exposure, ‘permanent establishment’ exposure from ‘floating employees’ and employee powers of attorney.

Data Privacy Laws Reaching Employee Data, Personnel Files and Global Human Resources Information Systems These include: employee notification/consents,

registrations with data protection authorities, ‘sensitive’ employee data, data security, HR data retention/purging practices and cross-border data transmissions.

Step 3 – Align Local-Country Checklists off the Master ‘Localise’ the master project template into a set of aligned audit checklists (or questionnaires) – one per jurisdiction – and then spin off a local checklist for each jurisdiction and localise each point with the applicable local standard.

Step 4 – Conduct the Audit Take the local checklists into the field and conduct the global audit. Gather data in each jurisdiction applying appropriate ‘metrics’. Decide how deep to go in and how the audit process works. Will the headquarters auditors travel on-site or remotely? Will inspections be announced? How to handle local HR staff that fail to respond adequately? What translations will be needed? Will auditors look only at policies/ protocols/agreements? Will auditors interview employees?

What will be the role of local outside providers such as payroll agencies and benefits administrators? How will the audit process itself comply with local data laws?

Step 5 - Report and Implement Remedial Measures This is in order to summarise audit findings and implement ‘remedial measures’/fixes. Any summary report should avoid identifying specific employees (to minimise data protection and defamation exposure), and should account for privilege and evidentiary ‘admissions’ issues. Finally, propose specific remedial measures – and then ensure the fixes actually get implemented locally. © 2012 by Donald C. Dowling, Jr., International Employment Partner, White & Case LLC, New York City

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ISLE OF MAN FUND SERVICES REPORT

Isle Of Man Fund Services Report The Small Island Playing a Significant Role as an International Financial Centre The Isle of Man Fund Management Association (‘IOMFA’) continues to add incalculable value to its members who are wholly representative of the Finance Sector of the Isle of Man (or ‘the Island’).

Notwithstanding the continuing turmoil of economic crisis that is affecting the world today, the Isle of Man and its finance sector continues to benefit from the economic and political stability that has been established throughout the last 20 years of continuous growth. This is not to say that the Isle of Man is unaffected or complacent about the swirling winds of change around it – quite the opposite. However, the vision of the Treasury Minister and now Chief Minister Alan Bell and his able colleagues in Government, have placed the Isle of Man in a strong position to respond to challenge.

The populace is nimble and energised to recognise that the economic footprint of the world as we know it has changed and continues to be in a state of flux. Within this context – and indeed because of it – the IOMFA has increased its marketing efforts to ensure that the benefits of this highly reputable well-managed financial centre are publicised within international funds circles.

The Isle of Man offers an AA+ (S&P) stable political environment, within a European time zone, and is internationally regarded as a well-regulated jurisdiction. For the uninitiated, the Isle of Man is a self-governing dependent territory of the British Crown (a ‘Crown Dependency’). The Isle of Man is not part of the UK – it is a part of the British Isles and a member of the Commonwealth.

Tynwald, the Isle of Man Parliament, is the Island’s 1,000 year-old parliament, and legislates for the Island, together with overseeing all internal administration, fiscal and social policies. However, some functions are administered by the UK Government on behalf of the Island, namely defence and certain international representation.

Whilst not a member of the EU, due to the nature of its international business model the effects of EU legislation is keenly felt on sectors of the community. Particular challenges to the Funds’ industry are AIFMD from the EU and FATCA from the US – just some of the examples that the professionals

26 • Global Business Magazine • September 2012

on the Isle of Man are well versed and ready to deal with. In particular, the IOMFA and the Financial Supervision Commission (FSC) have worked extensively with AIMA and thus ESMA, to ensure that as a non-European domicile of choice the local Fund industry has been influential, and is fully conversant with the opportunities that this piece of legislation provides. It is fair to say that it is seen outside Europe as a misdirected effort

by Europe to regulate what it thinks was the cause of economic strife, but is likely to be ultimately regarded as the most destructive blow that Europe has yet to inflict on itself.

FATCA – a massive piece of extra territorial legislation from the US – has been amazing in terms of how many hours of CPD points the endless presentations on it have earned people, but also the fact that it has passed many people by – predominately the US residents who it was designed to hunt down and tax wherever they were found. Again, the local Isle of Man professionals, as well as the FSC and Government in the Isle of Man, have been assiduous in following its progress, and ensuring that everyone affected will be ready to deal with it in January 2013 as the roll out starts.

The Isle of Man’s responsible and flexible regulatory approach reflects the needs of new and growing managers, particularly in the specialist asset arena. The fund and investment management sector is a key part of the Island’s financial services industry, with a pragmatic approach to the new and existing managers in the fund sector.

Regulated by the FSC, it recognises the need for more flexible arrangements for newly establishing managers. The options are designed to suit all business models and include: Manager Managers – newly establishing managers have the opportunity to contract with a licensed investment manager to provide infrastructure and operational support, enabling a low-cost start up for newly establishing assets managers; Graduated Manager Licence – this recognises that the operational resources required can be built up as the business seeks to attract investors, and is normally granted for an initial 12-month period after which, as funds are accepted for investment, a full licence can

be granted; Licensed Investment Managers – enabled to act as managers of CIS and closed ended companies, having their business based on the Isle of Man, with supporting operations centred there as well; and lastly, Licensing Policy and Fund Management – specific policies are published on the FSC website.

The Island offers a unique support programme for newly establishing managers, based on a comprehensive system of support grants of up to 40% for relevant expenses.

This is payable during the initial years of operation to help support them.

The Isle of Man can provide for all the needs of relocating a newly established asset manager. Regardless of the fund’s domicile, our fund administration and support infrastructure have a wealth of experience and will provide dedicated cost-effective service, whether you are a billion dollar hedge fund or a US$5 million fund just about to launch.

Despite the commitment to the specific pieces of legislation mentioned above – and all the other legislation that has to be assimilated, commented on and responded to – the Government and FSC have continued to lead the way in terms of the international business centres as the jurisdiction of choice, when the issues of probity and stability are at the forefront of investors’ minds. The OECD continues to endorse this position. The statement and practice by the Isle of Man that it supports international tax transparency, together with a recent independent review

by E&Y which confirms that the City of London is the IOM’s largest client (and both are mutually appreciative of the other), establishes the role of the Isle of Man as an international business centre where tax transparency is obligatory, with its natural partner of tax neutrality for non Isle of Man residents.

The Isle of Man has a well-founded reputation as a premier jurisdiction in terms of regulation, achieving a balance between providing a business-friendly environment, and meeting international standards of financial supervision. The Island continues to have the capacity to attract and accommodate

Ita McArdle Chairwoman Isle of Man Funds Association

real business operations, welcoming physical operations and personnel with no quota type restrictions on employment or accommodation. With one of the lowest crime rates in Europe and virtually no commute time, the Isle of Man is also an ideal centre for fund managers looking to relocate who want to optimise work and leisure time. Such easy international access, supported by an excellent communications network, means you can enjoy both your work and social life.

With its products and services in both the alternative space as well as listed vehicles, the Isle of Man Fund Industry continues to provide a stable, superbly regulated domicile for funds.

Ita McArdle is an Isle of Man Advocate and became a partner of Simcocks Advocates.

She practiced in corporate commercial law including financial services for both private and corporate clients before retiring to set up her own consultancy. She sits on the

c/o 6 Goldie Terrace Upper Church Street Douglas Isle of Man IM1 1EB 01624 625632 marnie@itamcardle.com

boards of a number of public companies and collective investment schemes together with some private companies in conjunction with clients. She is a member of the Isle of Man Law Society, the Law Society of England and Wales and the International Bar Association.

Ms McArdle resides in the Isle of Man. Ms McArdle holds a Class 4 –corporate services – sub-class (6) and Class 5 – trust services – sub-classes (2) and (5) Financial Services Licence and is regulated by the Financial Supervision Commission of the Isle of Man.

September 2012 • Global Business Magazine • 27

ISLE OF MAN FUND SERVICES REPORT

Quocunque Jeceris Stabit (Wheresoever I Fall I Stand) In the Isle of Man (‘the Island’) expect to be made to feel welcome. Whether you are a company looking to raise new capital or organise activities efficiently in an international setting, or an individual seeking to preserve wealth and accumulate capital under expert management, the Island has the necessary expertise to structure and arrange your affairs in the best way possible.

The Isle of Man occupies a premier position in the provision of financial services to corporate and individual clients around the world. The Island is widely recognised as a professional and efficient place in which to do business, in a tax neutral environment.

With the Island’s client base drawn all over the globe, the geographic diversity of the Isle of Man continues to increase. The Island has particular appeal to those looking for a safe haven for their wealth in these turbulent times.

The Isle of Man has had a stable and sustainable taxation base since the early 1960s and complies with current EU Tax requirements. The Zero/Ten rates of corporation tax assist to stimulate activity and diversify the economy. The Isle of Man has the capacity for sustaining growth and has space to grow. It provides a low operating cost environment augmented by a world class telecoms network. Relatively few recruitment constraints, means business can bring in the people and expertise it needs, with minimum fuss. Banks on the Island not only support the growth and diversification of other sectors in the Island, they ultimately benefit from their success as additional service needs are generated.

The Secret to Finance Sector Success Island legislation in respect of the various types of bodies corporate and unincorporated is, of course, continually reviewed and

updated if required. Nonetheless, the advantages to selecting the Isle of Man as a place to do business in are numerous.

Firstly, the Isle of Man has a first class reputation as a well regulated international finance centre. Its geographical location places it within easy access of London, the United Kingdom and Europe (it is in the same time zone as the UK). It is responsible for its own independent tax regime, including a corporate taxation rate of zero per cent, no capital gains tax and inheritance tax or stamp duty. The similarity of the underlying principles of the Isle of Man’s law to English law ensures that advisors in other countries are comfortable dealing with Isle of Man companies, trusts and partnerships.

Furthermore, the Island’s small, close-knit community ensures that the Island is able to respond quickly in order to make any needed changes to legislation. The Island

Located in the centre of the British Isles, the Island sits in the middle of the Irish Sea and enjoys a cultural heritage drawn from Celtic, Norse and Anglo-Saxon influences. The Island is 32.5 miles long and 13.5 miles wide and for decades has been a tourist destination, with visitors from the UK and Ireland attracted to its mountains, valleys and stunning coastline.

John Spellman, Special Advisor, Department of Economic Development

is replete with knowledgeable and expert professional advisers, able to service the needs of sophisticated investment entities and financial institutions.

Man’s national income and employing 23% of the working population. Indeed, the Isle of Man is consistently recognised as a leading international finance centre.

The Isle of Man is also a leading listings jurisdiction of origin for international companies admitted to trading on the London Stock Exchange Alternative Investment Market (AIM), on the basis of both the number of companies incorporated and their combined market capitalisation. It provides a dynamic and flexible regulatory regime for the establishment and operation of open-ended and closed-ended property funds. VAT registration is available on an expedited basis, allowing Isle of Man companies to VAT group with other Isle of Man and UK companies. Overseas companies that meet the required standards can also apply for VAT registration. It should also be noted that Isle of Man companies have the ability to denominate its shares in any currency.

As a well-developed jurisdiction with a stable political and economic base, the Island enjoys the key assets of trust and reputation. It provides a secure base from which to operate, and its regulatory regime is designed and enforced to the highest of international standards, ensuring inclusion on the OECD’s ‘white list’. Regulation is key and this is recognised in the Island’s AA+ rating.

Banking: Platform for Success The Isle of Man has had tremendous success over recent years, with the economy repeatedly outperforming others during very challenging economic times. The banks in the Isle of Man have played a very important part in this success but they are equally determined to ensure that this success continues in the future. The Isle of Man Bankers Association has recently completed a strategy plan which, through the newly approved public and private partnership initiative, will ensure a focus on supporting and preserving existing Island banks with new products and markets.

The Island also intends to attract further banking operations to the Island through inward investment opportunities, and the highlighting of the benefits of banking on the Island. By working closely with all trade bodies and finance professionals, and leveraging the benefit of global parentage, the aim is to continuously diversify in line with the rest of the economy.

Despite significant diversification in the Isle of Man’s economy in recent years, financial services remains the leading sector, accounting for around 35% of the Isle of

Banks in the Isle of Man offer a comprehensive range of banking services, products and expertise both nationally and internationally. Their services to a global client base cover all areas of investment strategy and money management, including the core business areas of wealth management, investment management services, deposits, and lending and trust solutions.

In addition, banks on the Island are ideally placed to understand and respond to changing needs. They firmly believe that focusing on quality of service is fundamental to good relationships and ensuring that standards of service are as high as possible.

Regulation The global financial crisis has affected us all.

For a jurisdiction like the Island the principal effect has been a decline in the international wealth and economic activity on which many of its businesses thrive. Inevitably, this has had some local impact, but one which has proven manageable and should provide a solid foundation for the next phase of growth.

Sound regulation is a prerequisite for a successful finance sector to thrive. This means a level of regulation that meets international standards, but one that at the same time is commercially sensitive and suitably adapted for the local environment. The right balance is always difficult to achieve, especially in a highly competitive market, but experience shows that good regulation encourages confidence and consistently leads to new business development.

The Financial Supervision Commission (‘the Commission’) is the regulator for all financial activities – except for insurance and pensions, which are supervised by the Insurance & Pensions Authority. Both are independent, statutory boards with powers to license, supervise and require action in the interests of protecting consumers of financial services and insurance products.

Good communication and positive interaction with licence-holders is key to regulatory success. They are set as priorities for the two primary regulators and fully supported by Government. The licensing process for new businesses on the Island is easy to follow (full information can be found on the Commission’s website www. fsc.gov.im and the IPA’s website at www. ipa.gov.im ). The officers are happy to help and provide guidance in the preparation of applications, which will ensure that they can be determined promptly.

A litmus test for any regulatory regime – especially in a situation like ours where we rely on reciprocity with other markets – is how international standard-setters and assessors judge its effectiveness. Following independent assessments, the Island has achieved very positive recognition from the Financial Stability Board, IMF and FATF with regard to the standards that it has adopted.

The global financial turbulence has caused governments and regulators around the world to consider how their regimes might be further strengthened to cope with future strains. Of course, it is not the job of the regulator to prevent failure, and the regulator does not take the place of management in running the business. As a last resort that is why compensation schemes with varying levels of coverage are typically established to provide a degree of protection for depositors, investors and policyholders (such as in the Isle of Man).

The aim of revised regulatory frameworks and new measures will seek to limit the scale and impact of future crises should they occur.

The Regulatory authorities keep in close touch with developments to ensure that the Island remains an attractive, competitive and safe place in which to do business.

September 2012 • Global Business Magazine • 29

ISLE OF MAN FUND SERVICES REPORT

Real Estate – Real Opportunities

Anne Couper Woods Executive Director IQE Limited 14 Athol Street, Douglas, Isle of Man, IM1 1JA

Real estate has long been a source of business for the Isle of Man corporate service industry. The Isle of Man’s proximity to the vibrant London market, familiarity with UK requirements and the added advantage of an efficient and central Customs & Excise office makes it the jurisdiction of choice.

Registering for VAT in the Isle of Man has many benefits from a development or redevelopment aspect. For the purposes of VAT, the Isle of Man and the UK effectively operate as one within the same VAT system, and the island has a dedicated central point of VAT registration in the Isle of Man Customs & Excise division (handling all/ any UK elements thereof). The division has a successful track record in providing ‘private sector’ service levels and co-operation in relation to commercial ventures. Often VAT registrations and the provision of a GB VAT number can be completed within days.

The Island also has a Double Taxation Agreement with the UK, which states that the commercial profits of an Isle of Man vehicle will not be subject to taxation in the UK, unless it is deemed to be conducting a trade or business there through a

‘permanent establishment’. Isle of Man companies are therefore often used for short-term commercial UK developments/ redevelopments, where the management and control of a company (and all strategic decisions in respect thereto) are being exercised outside of the UK. The directors may delegate certain project functions to an unconnected party in the UK and will maintain a careful oversight of the project.

Professional advice in this area is considered essential to ensure that all parties are aware of their responsibilities and obligations, but the Isle of Man remains a very attractive solution for such ventures.

UK source rental income is subject to UK tax in the usual manner. However, an Isle of Man vehicle can register as a Non Resident Landlord, which permits rental income to be paid gross of deductions/withholding taxes.

The vehicle is obligated to register for UK Tax and file UK Tax returns annually, however it should be noted that certain allowable expenses incurred can be offset against the gross rental income and reduce the net liability to UK Tax payable, thus providing improved cash flow.

Anne Couper Woods, Executive Director of IQE commented; “The underlying benefits of utilising Isle of Man companies to support planning and tax advice for certain real estate structures is well recognised by the leading tax advisers.

This remains evident from the new business

DDI: +44 1624 689596 Tel: +44 1624 689589 Fax: +44 1624 619989 acouperwoods@iqe.im www.iqe.im

being referred to IQE during 2012.

Whilst markets remain difficult, we are involved in a number of development projects in London and the southeast, predominantly working with the leading accountancy firms who are advising international clients investing into the UK. As a corporate and trust fiduciary services provider, licensed by the Isle of Man Financial Supervision Commission, our role is often to incorporate and manage the administration of offshore companies and provide sector experienced directors, who have knowledge of the many challenges that the likes of the planning process through to building and ultimately sales or leasing, pose for the development company.”

Anne commented further; “We continue to see international investors coming into London in particular, and we also work with our global client base who have capital and specific real estate investment appetite, together with sector professionals, to ensure that wherever possible appropriate introductions are effected and market opportunities get due consideration. Whilst we do not give investment advice, we think this approach will remain important, particularly in the absence of readily available traditional bank debt.”

IQE has established itself as a leader in corporate and trust fiduciary services, with significant experience dealing with real estate matters. These range from working with one of the leading global developers on residential towers such as Strata London SE1, to substantial shopping centres, commercial property, centrally located rental properties, hotels and apartments, in prime locations, including London, New York, Monaco and Barbados, with single asset values of up to £300 million.

Anne said, “Our reputation is based on our integrity, quality of staff and professional expertise. With over 90% of our staff industry qualified from the disciplines of accountancy, law, chartered secretariat, trusts and estate practice, compliance and banking, IQE is able to provide comprehensive knowledge and expertise to deal with the diverse and often complex matters, which arise with real estate.”

30 • Global Business Magazine • September 2012

With over a decade of experience and an outstanding track record in establishing and managing financial structures for our real estate clients, IQE is a formidable business partner.

Our real estate services include: • Establishment and management of appropriate structures • Provision of qualified directors and company officers • Dealing with the acquisition, transfer or sale and financing of real estate • Liaise with property managers, rental agents, developers and consultants • Engage with legal, tax and banking advisors and financial institutions • UK Non Resident Landlord Scheme registration • UK tax return preparation and filing • Liaison with VAT office re opt to tax properties • Management of distressed property portfolios

Our wealth of real estate expertise spans the Globe but our proximity to the London market creates real opportunities for our clients.

For further information about IQE's real estate services please contact Anne Couper Woods DDI: 01624 689596 T: 01624 689589 E: acouperwoods@iqe.im W: iqe.im/real-estate

International Fiduciary Services IQE Limited 14 Athol Street, Douglas, Isle of Man IM1 1JA Licensed by the Isle of Man Financial Supervision Commission.

September 2012 • Global Business Magazine • 31

ISLE OF MAN FUND SERVICES REPORT

Crowdfunding – Creative Fundraising the Social Way Peter C Craig PwC | Partner Phone: +44 (0) 1624 689689 Dir: +44 (0) 1624 689693 Email: peter.c.craig@iom.pwc.com PricewaterhouseCoopers LLC Sixty Circular Road, Douglas, Isle of Man, IM1 1SA The Isle of Man’s economic achievements as a small country show that we have a very enterprising population, which has built a diverse economy. We are also a charitable population, with levels of annual charitable giving per capita close to the highest in the world.

Crowdfunding is a relatively recent development, which aims to harness the power of social media to publicise opportunities and help people to finance the things that they want to get done. Some of these things are charitable, including arts, educational or environment related, and some are entrepreneurial either for profit and/or for a socially beneficial outcome. It’s about raising small amounts of money from large numbers of people to enable specific objectives to be achieved, opportunities to be exploited and needs to be addressed.

Websites have recently sprung up to facilitate crowdfunding, offering a platform for publicity and the money raising. However, there is a gap between small value charitable crowdfunding initiatives and larger scale for profit opportunities. The Isle of Man may just have a suitable pooled investment vehicle to fill that gap.

Locally, it is anticipated that many crowdfunding opportunities will arise out of the present fiscally constrained circumstances that affect governments, including the government in the Isle of Man, and which have given rise to doubts about the ongoing provision of certain public services. For those projects that are seen as having the highest social value, and where the funding needs are more substantial, the Isle of Man exempt fund offers a vehicle in which investment capital from up to 49 off-island investors can be pooled and managed in a controlled, tax efficient manner.

The exempt fund is cost-effective and meets the needs of organisers who recognise that as the scale of opportunity increases, so there is a need to increase the level of formality and governance over any venture, particularly if the amount required for investment is large or if services are to be provided on an ongoing basis. These governance formalities are familiar to, and well within the capabilities of, the fund-servicing sector of the Isle of Man to deal with. The key to making things happen is the mobilisation of capital, because once the finance is available, the opportunities can be addressed.

The winning proposal in this year’s Manx Executive Challenge presents us with a unique crowdfunding opportunity. The winning team proposed a bond to finance

the installation of wood chip powered boilers into some of our public buildings.

The fuel for the boilers is to be harvested on a sustainable basis by our Department of the Environment, from existing publicly owned plantations in the Isle of Man. The proposal showed how a return, based on future savings in fossil fuel costs, could be generated for the investors in the bond.

Getting their idea off the ground is a priority, and a number of options are being considered, including crowdfunding.

If you have a project that requires the pooling of capital, whether for commercial or charitable purposes, then the Isle of Man exempt fund offers a possible solution, which brings a level of formal governance without official regulation. If you think that this might meet your needs, or are interested in finding out more, then please give us a call.

Peter Craig is Asset Management Partner and Gordon Wilson is Advisory Director with PwC in the Isle of Man. Peter Craig is an audit partner in PwC Isle of Man and leads the Asset Management Practice. He specialises in the alternatives area and has worked in the industry for over 20 years. His client base is concentrated in offshore funds, many of whom have complex structures and who utilise international financial reporting standards. He also acts as audit engagement leader on private equity clients and on a growing portfolio of family office structures. Peter is a member of the PwC Global IFRS Asset Management Industry Accounting Network and is responsible for the delivery of IFRS advice to asset management clients and service providers. He is a Fellow of the Institute of Chartered Accountants in England and Wales, a committee member of the Isle of Man Fund Management Association and regularly represents the Isle of Man fund industry at international conferences. The views expressed in this article are his own.

PwC is the largest accounting practice in the Isle of Man, with over 100 professional staff across the assurance, tax and advisory lines of service. The firm is a full member of the PwC global network of firms, comprising over 160,000 members of staff in over 100 countries.

32 • Global Business Magazine • September 2012

Islamic Finance

ISLAMIC FINANCE

An Overview of Islamic Finance Why Islamic Finance?

From its humble beginnings in the 1970’s, Islamic finance is now a trillion-dollar industry, and is proving to be a viable financial system that is practiced globally as an alternative to the interestbased conventional financial system. Leading conventional banks are buying into Islamic bonds (Sukuk), and also offering Islamic financial products and services to expand their business base in Muslim communities with rising incomes and savings. Many western countries such as the United Kingdom, Ireland, France, Germany and USA are competing to become leading centres for Islamic finance.

Islamic finance in its widest sense extends to Islamic banking and Islamic insurance (Takaful) operations, but is usually viewed as a banking activity undertaken by financial institutions referred to as Islamic banks, and conducted according to Islamic legal rules applicable to commercial transactions (Fiqh al Muamalat). These legal rules are an integral part of the Shari’ah (Islamic law), derived principally from the indispensable role of the Qur’an and the sayings and the conduct of Prophet Muhammad (Sunnah) in defining their meaning and contents.

The Qur’an Views Mankind as One Family and Justice as the Essence of Peoples’ Welfare While all great religions have a common regard for the human dimension of the economy, the unregulated free-market model has grown out of control and allowed conventional banks to move away from the ideals of banking, which require banks to also perform a social service and function for the public benefit. Islamic economic concepts embodied in the Shari’ah, aspire to achieve socioeconomic justice for all in society, and offer a balance between irresponsible capitalism and communism.

It provides the individual with the freedom to create wealth through free enterprise within a moral framework, along with the institution of private property rights and acknowledgment of the profit motive.

Islamic economic concepts emphasise that the

34 • Global Business Magazine • September 2012

individual operates within an environment governed, not by human rules alone, but by Divine guidance, which provides essential moral rules and norms (the rights and wrongs) of human behaviour. These require that individuals as well as businesses should conduct their dealings with the spirit of selflessness and sacrifice and the utmost purity of intention in dealings with one another. Only when these moral rules and norms are internalised and acted upon by people, can peace and prosperity result in the wider society.

In reality, the fundamental concepts advanced in Islamic economics are not exclusive to Islam. These strike the cords of justice, equality and peace, which have always existed in the mindset of all moral and compassionate people around the world, regardless of their ethnicity, gender or religious affiliation or no affiliation, with any religion or faith.

Many people are frustrated beyond measure at what they see as the disastrous effects of extreme capitalism. The Vatican’s official newspaper Osservatore Romano, in an article published as early as 3 March 2004, said that banks would do well to look at the rules of Islamic finance, to restore confidence amongst their clients at a time of global economic crisis. Luxembourg's Minister of Finance, Luc Frieden, in a keynote speech at the IFN 2011 (Issuers & Investors Asia Forum) in Kuala Lumpur, said that despite the credit crunch that has impacted Europe's banks, Islamic financial institutions had weathered the global crisis and emerged to be the most well-managed. He added; “The key elements in Islamic finance that we need in the world today, particularly in Europe, are stability, financial partnership, provision of excessive risk and speculation as well as ethical principles. The provision against speculation and gambling, which is prohibited in Islamic finance, is what we can concentrate on.”

The Shari’ah (Islamic law) The Shari’ah encompasses the whole life, individual and society, and its noble objectives require a deep commitment of every member of society and

Strict rules of Islamic finance The main rules of Islamic finance are concerned with eliminating exploitation in commercial transactions and prohibiting all sources of unjustified enrichment or unlawful gain in dealings that involve interest, excessive uncertainty, undue risk-taking and speculation. In general, the Qur'an explicitly forbids all business and actions that can cause injustice and harm to others and to the community. The prohibitions are intended to also protect the interest of all parties. This has led to Islamic finance’s appeal to non-Muslim ethical investors.

Charging and paying interest is prohibited Riba, commonly now viewed as interest, is vehemently opposed and prohibited in the Islamic tradition as it can lead to inequality and excessive injustice. The actual definition of the term ‘Riba’, an Arabic word, refers to any stipulated increase over and above the principal amount, as in a loan, debt or investment transaction. Basically, making money from money is not allowed, hence the blanket ban on all forms of interest – simple and compound.

The Qur’an encourages businesses to increase their wealth through trade and dealing in goods and real assets, not from simple and ordinary lending, borrowing and investment practices. For believers the Qur'an (4:29) says, ‘… let there be among you traffic and trade by mutual goodwill.’ This concept plays out in different profit-and-loss sharing modes applied in Islamic finance, and represent forms of partnership arrangements in financing and investment operations. The fundamental rule here is that there should be no reward for any party without the party taking risk.

“The instrument of interest has a constant tendency in favour of the rich and against the interests of the common people. Rich industrialists, by borrowing huge amounts from the bank, utilise the money of

the depositors in their huge profitable projects. After earning profits, which can be substantial, they do not let the depositors share these profits except for a meagre rate of interest, which is also taken back by them by adding it to the cost of their products.

Therefore, from a macro level, they pay nothing to the depositors while in extreme cases of loss, which leads to their bankruptcy and the consequent bankruptcy of the bank itself. The whole loss is then suffered by the depositors. This is how interest creates inequity and imbalance in the distribution of wealth.” (Sheikh Taqi Usmani, An Introduction to Islamic Finance 2002: p113). Even Aristotle (384322 BC) in his opposition to money-making and accumulation of wealth observed that, “The most hated sort (of wealth getting) and with the greatest reason is usury, which makes a gain out of money itself and not from the natural object of it.” (Aristotle, The Politics 352: 1258b).

Islamic Finance

organisation to the ideals of justice, brotherhood and social welfare. “Shari’ah is usually referred to as law, but is very different to national precepts in terms of its aims and practices. Indeed in some respects it may be a more accurate English interpretation to refer to Shari’ah principles or Shari’ah teachings rather than law. In particular, respect for Shari’ah is concerned with determining the right way or ways for financial dealings where right is interpreted in a moral sense and distinguished from wrong or sinful.

Citizens can abide by national laws, yet behave in an immoral way, including in financial dealings where laws are unable to cub speculative behaviour or exploitation of the gullible.” (Rodney Wilson, Legal Regulatory and Governance Issues in Islamic Finance 2012: p20-21). Over time the Shari’ah rules have been expanded and new rulings given by a consensus or analogical reasoning of knowledgeable Islamic scholars and jurists to take account of specific legal and changing economic conditions. However, it is incumbent on each that when they do so they do not alter or deviate from the obligatory rules and norms of behavioural conduct decreed in the Qur’an and the Sunnah.

The current financial crisis bears out the all-present and pervasive presence of charging interest with increasing levels of misery and poverty levels, where most people have to pay as much as 30% to 40% ‘interest’ on their credit cards each year. In 2011 a credit card company was reported to have charged 79% interest to a customer and despite such high interest rates there is still a huge and growing market for predatory card companies to offer cards to vulnerable people with poor credit ratings. The regulatory position is that as long as credit card companies disclose what interest rates they are charging, they can set whatever interest rate they want. If this practice continues and there is a failure to implement strict code to ensure a fair pricing by the industry, it is likely to do much greater damage to society and the real economy and this may not be easily reversible for many decades to come.

Commercial transactions should involve a fair sharing of profit and business risk between transacting parties In an Islamic context it is desirable that in lieu of charging or paying interest, the transacting parties, e.g. an Islamic bank and a customer, should pool their resources and share the profit and risk that includes the sharing of loss. By contrast, under the conventional framework, the bank is always assured a predetermined rate of interest, irrespective of whether a customer makes a profit or loss, and any loss is borne only by the customer in addition to the loss of time and labour that will have already been invested by the customer. On the other side, there are the ‘greedy bankers’ who utilise the monies entrusted to the banks by customers to earn huge profits through extending loans without sharing the risk, but rather than sharing the gains with the customers they take huge bonus payments for themselves. The Shari’ah views such conventional banking practice as unjust and the worst form of exploitation.

Transactions involving excessive uncertainties or ambiguities that implies deceit and gambling, excessive risk and speculation are prohibited.

September 2012 • Global Business Magazine • 35

ISLAMIC FINANCE Extreme uncertainty (Bayu al-Gharar) in dealings where there is lack of transparency or full disclosure by any party on the subject matter of a financial transaction can be motivated by deceit and lead to future dispute and wrongfully devour the wealth of others. On the other hand, speculation (Maysir) and gambling and other games of chance (Qimar) commonly associated with undue risk-taking in trading and investment practices are driven by unbridled greed and self-interests of individuals and businesses for quick and easy profits. The gains are often enjoyed by a small group of unscrupulous speculators, while losses are simply passed on to society and borne by the real economy. Crucially, in the present financial crisis much of the financial activities were detached from the real economy.

About such practices the Qur’an says, ‘In them is great harm and a benefit for mankind, but their harm is greater than their benefit.’ (2:219).

ensure that these comply with the Shari'ah rules and guidance. In a sense the Shari’ah Board of an Islamic bank can be viewed as the guardian of morality.

A Shari'ah Board can reject a transaction that has already been approved by the Board of Directors or management, if in the view of the Shari’ah Board the transaction, however profitable it might be, does not fulfil the Shari’ah requirements.

Transactions without the backing of real assets are prohibited

Main financing modes adopted by Islamic banks

One key requirement in Islamic finance is that transactions must be backed by real assets that have tangible value. This may be seen as the rationale for curbing transactions that involve undue risk-taking and speculation and encouraging transactions that require productive effort and contribute to the development of the real economy .

Islamic Finance

Transactions that involve a prohibited activity are prohibited The Shari’ah prohibits financial transactions involving investment in businesses activities that are contrary to its rules and guidance. The rationale for this rule is that profits must be earned from investment in legitimate and lawful activities. It also has a much wider connotation, as the prohibition extends to all activities that are deemed immoral and likely to cause harm to human beings, society and the environment. Prohibited transactions in Islamic finance include businesses and activities associated with the manufacture of alcohol or related products, gambling establishments such as casinos, pornography and interest-based financial services – all of which are viewed as activities capable of causing more harm than benefit. In conventional finance, the banks are not too concerned with the consequences of their financial dealings with their customer on others and in society.

All transactions must follow the Shari’ahdisciplined approach that upholds moral standards for all parties Shari’ah compliance is the defining character of institutions engaged in providing Islamic financial products and services. All Islamic financial institutions must establish an independent Shari’ah Supervisory Board, comprising knowledgeable scholars and advisors also qualified in Islamic jurisprudence (that compliments the Shari’ah by evolving rulings and interpretations by Islamic jurists). The Shari’ah Board is tasked with approving financial transactions and supervising operations to

36 • Global Business Magazine • September 2012

Furthermore, in order to prevent the hoarding of wealth, and ensure a contribution to social regeneration, the Shari’ah rules require that Islamic banks, as well as Muslim customers, should pay Zakat every year over above normal income tax payments. Zakat which simply means ‘purification’ represents a small percentage of what is deemed to be excess wealth; the amount has to be paid yearly and distributed in the community essentially for the welfare of the poor and needy.

The main modes adopted in Islamic finance are Musharakah, Mudarabah, Murabaha and Ijarah.

While these modes are used to generate income for banks from their financing and investment activities, these can also be used for paying returns on customer deposits and investments with the banks.

These modes are based on interest-free operations, with banks acting as financial intermediaries, accepting deposits from the public and investing the funds principally with borrowing customers with profit sharing incentives.

Understanding Musharakah Financing Musharakah has similarities to a joint venture arrangement. It is a profit and loss sharing partnership where all parties contribute an amount towards the capital required to finance a business transaction. Thus in Musharakah used as a financing mode by an Islamic bank, both the bank and the customer contribute funds for funding a customer’s business transaction, on the basis of profit and risk sharing – the risk sharing being the sharing of financial loss by the bank and the customer.

The profits are shared in any ratio that is agreed in advance by the bank and the customer while the financial loss is shared in the ratio of the funds contributed by each party.

Understanding Murdarabah Financing Mudarabah is also a partnership arrangement with profit and loss sharing, but unlike Musharakah, only one party invests the capital and the other is the working partner investing labour and business expertise. Thus in Mudarabah used as a financing mode by an Islamic bank, it is only the bank that provides the funds for a customer’s business transaction. In conventional finance it equates to a bank providing 100% financing. The profits are shared between the bank and the customer in the ratio mutually agreed between them in advance however any financial loss is borne by the Islamic bank alone. The customer merely acts as a workingpartner responsible for managing the business

Understanding Murabaha Financing Murabaha is an acceptable form of credit sale where payment is deferred; one party may purchase goods or an asset required by another party, and then sell it on credit with a mutually agreed profit mark-up on the purchase cost, the profit mark-up represents a share of the customer’s anticipated profit. Thus in Murabaha used as financing mode by an Islamic bank, the bank will first purchase goods or an asset with its own funds and then sell it on to the customer at the purchase cost incurred by the bank plus a mutually agreed profit mark-up for the bank, with deferred payment of the total amount to the bank in instalments.

Understanding Ijarah Financing Ijarah is an Islamic leasing arrangement that has strong parallels to a conventional operating lease involving leasing of an asset. It is, therefore, an easily understood concept that is also relatively simple to implement as a financing mode abiding by Islamic principles. Thus in Ijarah used as a financing mode by an Islamic bank, the bank will first purchase a fixed asset with its own funds and, rather than sell it on as a credit sale on deferred payment basis as in Murabaha, the bank will lease the asset to the customer for payment of agreed rentals over an agreed period to cover repayment of the bank’s purchase cost and a profit for the bank.

Conclusion In the present financial crisis, the moral failures of banks and individuals have become an important dilemma facing regulators in financial services industry and there is increasing calls for moral and ethical practices in the banking industry. Lord Myners, former UK Financial Services Secretary, speaking at the Financial Times Global Finance Forum on 18 September 2009, referred to the behaviour of bankers as “reckless and self-serving” and called for moral reform in financial institutions.

Against the backdrop of irresponsible capitalism with its reckless lending and investment practices, lack of transparency, absent regulatory-supervisory oversight on fair pricing and moral conduct, a review of the concepts of profit and risk sharing under the rules and guidance of a moral framework could be seen as a progressive one. In Islamic finance the depositors’ monies entrusted to banks must be utilised by the banks to also serve a social and just

Mohammad A Qayyum Director General Institute of Islamic Banking and Insurance 7 Hampstead Gate 1A Frognal

purpose beyond the banks’ and individuals’ selfinterests and their unbridled greed for maximising profits by any means and at any cost. The concept of sharing loss by the banks should deter banks from funding transactions that involve a high degree of uncertainty, undue risk-taking and speculation likely to cause irreversible harm to society. However, such moral consciousness cannot be achieved without re-introducing education on the rules and norms of moral behaviour as an essential way of life and also as part of regular learning and training initiatives at all levels in the financial sector.

The current global financial crisis has already tested the resilience of the Islamic finance industry and its potential to present itself as a reliable alternative financial system. Bailouts by governments and regulators in the existing financial system do not give much assurance that similar crises will not happen in the future. As we know well now financial crises are generally linked to excessive debt, speculation and greed as well as fraudulent and deceitful practices; all of these emanate directly from the immoral and unethical behaviour and practices of individuals and businesses. While the Shari’ah rules and guidance may not be able to solve all the economic and social ills of the world, these can offer to revive a moral framework in conventional finance to deliver better safeguards against the excesses of banks and individuals and offering greater stability in the financial system, domestically and internationally.

Islamic Finance

transaction, and in the event there is no profit to be shared, the customer’s loss is the time and labour invested into the transaction by the customer.

Author: Mohammad A Qayyum, Director General, Institute of Islamic Banking and Insurance, London, UK. Institute of Islamic Banking and Insurance (IIBI) The Institute of Islamic Banking and Insurance (IIBI), a Registered Charity in United Kingdom) provides Islamic finance qualifications and training for new entrants and professionals. The IIBI also acts as a conduit to higher education institutions in the UK, such as Durham University and the Markfield Institute of Higher Education (MIHE) UK, which is affiliated with the University of Gloucestershire.

The IIBI promotes a holistic approach to its education, learning, development and research initiatives and aspires to bring together people from all faiths, beliefs and religions as well as people with no belief or faith in order to advance awareness of a viable alternative financial system based on a framework of rules and norms that have universal appeal of socio-economic justice and emphasise moral and ethical behaviour among individuals and in financial practices.

London NW3 6AL United Kingdom Telephone: +44 (0) 20 7245 0404 Fax: +44 (0) 20 245 9769 iibi@islamic-banking.com (general) www.islamic-banking.com

September 2012 • Global Business Magazine • 37

QUALIFICATIONS, TRAINING, RESEARCH, PUBLICATIONS, MEMBERSHIP

“Deal not unjustly, And ye shall not be dealt with unjustly” [2:279 The Holy Qur’an]

Over 20 years service to the Islamic finance industry IIBI education and training programmes have helped thousands across the world to develop their knowledge of the guiding moral principles and ethics on which Islamic banking and insurance is based as well as providing the essential skills needed for professional practice.

Available Qualifications

POST GRADUATE DIPLOMA IN ISLAMIC BANKING AND INSURANCE

DIPLOMA IN ISLAMIC BANKING

CERTIFICATE IN ISLAMIC BANKING

CERTIFICATE IN TAKAFUL

Qualifications Under Development

PROFESSIONAL DIPLOMA IN FINANCING OPERATIONS AND CONTRACTS FOR ISLAMIC BANKS

PROFESSIONAL DIPLOMA IN SHARI’AH COMPLIANCE AND AUDIT FOR ISLAMIC BANKS

“There would have been no career in Islamic financial services, for me and many of my friends, without IIBI.” Mr Richard Thomas OBE CEO, Gatehouse Bank, UK

“The IIBI has played a major role in Islamic finance in London through its lectures, seminars and courses. Its diplomas are internationally recognised and taken by hundreds of Muslims and non-Muslims interested in Islamic finance.”

Professor Rodney Wilson School of Government and International Affairs, Durham University, UK

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PROFESSIONAL DIPLOMA IN FINANCIAL ACCOUNTING AND REPORTING FOR ISLAMIC BANKS

PROFESSIONAL DIPLOMA IN RISK MANAGEMENT FOR ISLAMIC BANKS

The Mission of the IIBI is to be a centre of excellence for education, training, research and related activities, to build a wider knowledge base and deeper understanding of the world of finance promoting the moral and ethical principles of equity, socio-economic justice and inclusiveness.

ILM – KNOWLEDGE

PROFESSIONAL DIPLOMA IN ISLAMIC SECURITISATION AND SUKUK

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EDUCATION, LEARNING AND DEVELOPMENT IIBI Courses

IIBI Training

POST GRADUATE DIPLOMA IN ISLAMIC BANKING AND INSURANCE

PRODUCT DEVELOPMENT AND INNOVATION

The flagship course of IIBI provides an in-depth understanding of Islamic banking and insurance applications with six modules covering Islamic economics, shariah contracts, banking operations, capital markets, regulation, accounting and takaful.

DIPLOMA IN ISLAMIC BANKING

This course provides advanced knowledge of the Islamic economic system and its applications to Islamic banking operations.

CERTIFICATE IN ISLAMIC BANKING

This course provides an introduction to the principles of Islamic economics and Islamic banking.

CERTIFICATE IN TAKAFUL

This course provides an introduction to takaful an acceptable alternative form of insurance.

The flagship training workshop of IIBI provides an in-depth discussion on Structuring Innovative Islamic Financial Products taught over three days at Cambridge University.

SUKUK

The Sukuk workshop covers the applications of Sukuk including discussions on legal and tax issues as well as case studies.

RISK MANAGEMENT

The Risk Management workshop covers the risks faced by Islamic financial institutions and the techniques used to mitigate them.

SHARIAH AUDIT AND COMPLIANCE

This Shariah Audit and Compliance workshop covers the processes of audit and review that are required to ensure compliance with shariah.

“IIBI in London comes to mind as the original thought leadership platform from which This course provides advanced knowledge of the financing operations in Islamic banks and the use of many of the products, services and ideas appropriate Shari’ah compliant contracts. have come to the Islamic finance industry.”

PROFESSIONAL DIPLOMA IN FINANCING OPERATIONS AND CONTRACTS FOR ISLAMIC BANKS

PROFESSIONAL DIPLOMA IN SHARI’AH COMPLIANCE AND AUDIT FOR ISLAMIC BANKS

This course provides advanced knowledge of the rules and processes for internal and external Shari’ah audit and review of Islamic banking transactions and operations.

PROFESSIONAL DIPLOMA IN FINANCIAL ACCOUNTING AND REPORTING FOR ISLAMIC BANKS

This course provides advanced knowledge of financial accounting and financial statements of Islamic banks.

PROFESSIONAL DIPLOMA IN ISLAMIC SECURITISATION AND SUKUK

This course provides advanced knowledge of securitisation permissible under Shari’ah rules and the structuring of Sukuk.

PROFESSIONAL DIPLOMA IN RISK MANAGEMENT FOR ISLAMIC BANKS

This course provides an advanced knowledge of risks faced by Islamic banks, these include risks similar to those faced by conventional banks and risks that are unique due the requirement to comply with the Shari’ah.

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Mr Iqbal Khan CEO, Fajr Capital and Former-CEO, HSBC Amanah

The Institute of Islamic Banking and Insurance (IIBI), a UK-registered Charity, was founded in 1990 to help develop an economic system based upon justice and fair dealings. For over 20 years, the Institute has worked towards the advancement of the Islamic finance industry with qualifications, training, events, research and publications. With members and students across the globe, IIBI brings together practitioners and interested parties to develop and create awareness of a financial system that is true to the spirit which should mark every financial service.

INSTITUTE OF ISLAMIC BANKING AND INSURANCE 7 Hampstead Gate | 1A Frognal | London NW3 6AL | United Kingdom UK Registered Charity no. 1139098 Company Limited by Guarantee no. 2981339

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ISLAMIC FINANCE

KPMG London Samer Hijazi Financial Services Audit Director Phone: +44 207 694 2807 Mobile: +44 7810 404 077 samer.hijazi@kpmg.co.uk Rukaiya Rashid Financial Services Auditor Phone: +44 207 311 1000 RukaiyaZara.Rashid@KPMG.co.uk

KPMG in the UK – Taking Account of Islamic Finance Despite the recent global economic downturn, Islamic finance has continued to grow at unprecedented levels, with growth estimated at between 10-20% annually since 2006 (TheCityUK, 2012). This once-niche sector is fast moving into the mainstream, and as it does, it becomes clear that Islamic finance is not just about investing – reporting its performance is just as important.

Currently, there is a lack of comparability in the financial reporting of Islamic transactions. Islamic financial institutions (IFIs) are spread around the world, operating mainly from the Gulf, Malaysia and increasingly the UK. In most countries, IFIs prepare their financial reports in the global accounting language of choice, IFRS. However, this raises the concern that Islamic finance entails unique accounting issues, which the current IFRS framework does not encapsulate.

Because of this, many other countries require their IFIs to apply specific local reporting standards. This often means that institutions can report and disclose similar transactions in different ways, making it complicated for investors to compare IFIs one-on-one.

Paton Boggs LLP John Vogel Tel: 202-457-6460 jvogel@pattonboggs.com| www.pattonboggs.com

Islamic Structured Finance Although uncertainty continues to affect the world’s markets, the international sukuk market continues to grow exponentially and is having an excellent year.

Sukuk, one of the most popular Islamic finance structures, are financial certificates backed by tangible assets, where the sukuk purchaser has a proportional ownership interest in the assets underlying the transaction. Sukuk are issued in connection with tangible asset classes, utilising ijara (lease contracts), salam (futures), murabaha (receivables), musharaka (an ongoing business) or istisn’a (construction). Although they do not pay interest, sukuk are similar to conventional bonds: a purchaser seeks to generate a profit, the sukuk mature at a set date and are backed by one or more classes of assets.

Investors are not, however, guaranteed to make a profit, but rather share profit and loss by reason of the ownership and operation of the underlying asset.

The most common form of Islamic-securitised transactions are sukukijara transactions, where, similar to conventional securitisations, sponsors purchase loans from loan originators, pool these loans, divide them into tranches, and sell them to investors. A key difference between a conventional financed lease and a sukuk-ijara is the identity of the risk-taker. While in a conventional financed lease the lessee assumes the risks and benefits of ownership, in an ijara the lessor bears the risk of property damage. The sukuk holders, directly or indirectly, acquire ownership rights in either existing or future assets, and structure anticipated cash flows from these assets into payment obligations.

Going forward, the harmonisation of financial reporting of Islamic finance is key to its continued development. It would not only enable IFIs to compete for the same sources of finance; it would enable analysts to benchmark and rate them against conventional financial institutions. The question that then arises is of how best to account for Islamic finance. However, whether reporting should be within the IFRS framework, or through a set of globally accepted accounting standards for the Islamic finance industry, will depend on the needs of all stakeholders in the industry.

Islamic securitisation confers upon investors clearly identifiable rights in religiously acceptable tangible assets. Underlying assets may not be indebtedness, cash or a shariah-prohibited activity, and may not be associated with excessive speculation or uncertainty. Sukuk investors must hold an unconditional and unsecured payment obligation, and not a guaranteed promissory note. Any form of credit enhancement and/or liquidity support and any limitations on prepayment risk must be in a shariah-compliant form. Sukuk also convey an equity interest to investors in the form of a call option on partial or complete ownership of the underlying assets, including the right to a calculable rate of return as a share of profit and the repayment of principal.

KPMG in the UK, auditors and/or advisors to all UK Islamic banks, are driving forward the international debate over the financial reporting of Islamic finance. Together with the ACCA, KPMG have engaged with leading experts and stakeholders internationally and directly, through a series of round tables in three major hubs of Islamic finance – Kuala Lumpur, Dubai and London. Here, participants have shared their experiences and views on all aspects of reporting practices pertaining to Islamic finance, including specific areas of conflict between IFRS and Sharia’a principles, such as the substance over form principle, and what they felt would be the optimal approach to financial reporting within the industry.

As the global economy improves, we are seeing a dramatic increase in the issuance of sukuk. Structural innovation will continue to contribute to the further development and refinement of sukuk-ijara and similar Islamic structured finance products that will be offered at a level competitive with conventional investments. The work of sharia regulatory authorities adds consistency to sharia interpretations by religious boards and enhances market practices which, together with the development of Islamic finance documentation standards and the continued evolution of banking and corporation law, should lead to the further worldwide growth of Islamic structured finance transactions.

These findings from the round table conferences have enabled KPMG and the ACCA to outline a set of recommendations, to further aid the development of the financial reporting of Islamic financial, and to ultimately encourage the global development of this important way of accessing finance. The paper is due to be released in autumn this year.

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Patton Boggs LLP John Vogel is a partner in the Washington, D.C. office of Patton Boggs LLP, where he is a member of the International Business and Structured Finance Groups. For more information, you may contact him at 1-202-457-6460 or at jvogel@pattonboggs.com.

The Curaçao financial services industry originates from the beginning of World War II, when Dutch companies sought refuge in the islands of the Netherlands Antilles by transferring their seat. From the early 1950’s, the Netherlands Antilles (which no longer exists), and in particular Curaçao (which is now a separate jurisdiction within the Kingdom of the Netherlands), has developed into an international financial services jurisdiction, often used for international structuring. By introducing favourable tax legislation, Curaçao has been able to attract some of the biggest international companies.

In addition to the legal and tax advantages, Curaçao in itself is an interesting international tax-planning jurisdiction, with a solid and experienced infrastructure of financial services companies, such as trust companies, banks and advisory firms.

Curaçao is also an interesting jurisdiction for the shipping industry. Aruba (also a separate jurisdiction within the Kingdom of the Netherlands) on the other hand is an interesting jurisdiction for the aircraft industry.

Tonnage Tax Regime

Islamic Finance

Aruba boasts high regulatory standards in compliance with safety standards and recommended practices of the International Civil Aviation Organisation (ICAO) and is rated Category 1 by ICAO and the US-FAA International Aviation Safety Assessments.

The Department of Civil Aviation has an excellent reputation for efficiency and safety oversight. In addition to this, Aruba is a signatory to the Cape Town Convention on International Interests in Mobile Equipment and the Aircraft Equipment Protocol. This establishes a framework for international interests on aircraft and aircraft engines, and provides for reciprocal recognition of legal (security) interests and remedies of enforcement, which facilitates the acquisition and financing of aircraft and aircraft engines.

This is a very important factor, which distinguishes Aruba from other offshore aircraft registration jurisdictions.

Due to the combination of its religious, social and ethical attributes, Islamic Finance has seen a tremendous market growth in the past decade, and investors are tapping into this alternative financing venue – the effects of which are visible in Islamic and non-Islamic nations around the world.

Islamic Finance practitioners may take advantage of Curaçao’s solid reputation in the financial services industry by structuring, for example, shipping and aircraft transactions. Structures that could be used to support a Sukuk issuance by shipping and aircraft companies are the Sukuk-al-Ijara structure, the Sukuk-al-Mudabara structure and the Sukuk-al-Wakala structure.

Curaçao and Aruba law provide for a great deal of flexibility when structuring finance transactions. There is freedom in choice of law, jurisdiction and arbitration, making it quite easy to structure Islamic Finance products.

Islamic Finance

Sharia’a Compliant Shipping and Aircraft Activities in the Dutch Caribbean

Curaçao positions itself as an interesting jurisdiction for the shipping industry. The tonnage tax regime has been modernised recently, making it more attractive and suitable for use. Curaçao’s geographical location makes it an excellent location for shipping activities. It also has one of the largest dry dock facilities in the Caribbean and is situated outside the hurricane belt.

Aircraft

Spigt Dutch Caribbean Maike Bergervoet Partner Tel: +5999 461 8700 maike.bergervoet@spigtdc.com www.spigtdc.com

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TRIP ADVISOR

Travellers’ Favourite Restaurants in Europe With the endless choice of superb quality restaurants in destinations around the world, the decision of where to dine can be a difficult one.

With over 56 million users, TripAdvisor travellers have visited and reviewed thousands of restaurants in the Europe, and have recognised these dining establishments as travellers’ favourite restaurants in Europe.

“These are world-class restaurants according to those who really matter – diners,” commented TripAdvisor spokesperson Emma Shaw. “With their superior service, exceptional menu and enviable location, these restaurants are at the top of their game for remarkable dining experiences.”

Travellers’ Favourite Restaurants in Europe: 1. Le Gavroche – London, United Kingdom A family-run business since 1967, Le Gavroche was pasted down from father, Albert Roux to son, Michel Roux Jr in 1991.

Serving classical French food with a modern twist, the restaurant has maintained the utmost reputation, boasting 2 Michelin-stars.

As one TripAdvisor traveller said, “Amazing experience, the service was great and the signature soufflé is a must try.”

2. La Pergola – Rome, Italy With a menu featuring the finest ingredients sourced in the Mediterranean, La Pergola offers culinary excellence. With panoramic views of the Eternal City and a room adorned with treasures such as oriental paintings and imperial furniture, diners can enjoy the sights and art whilst sampling the cuisine.

As one TripAdvisor traveller said, “With its stunning views, amazing food, and fantastic service I don’t think there is a better restaurant.”

3. Ciya Sofrasi – Istanbul, Turkey Following the success of its predecessor, Ciya, the founder, Musa Daðdeviren formed Ciya Sofrasi, home to traditional Anatolian cuisine. Serving long lost recipes from old cultures, the restaurant is popular with diverse nationalities across Asia.

leather décor, diners can enjoy a warm and comforting atmosphere.

As one TripAdvisor traveller said, “I have eaten at several Michelin-starred restaurants - and this is the best so far.

Incredible food with a perfect balance of flavours and textures.”

5. El Club Allard – Madrid, Spain Located in the splendid Modernist-style building – Casa Gallardo, EL Club Allard features a sophisticated style and serves superb gourmet cuisine by the brilliant young chef, Diego Guerrero.

As one TripAdvisor traveller said, “I do not normally describe food as beautiful, but in this case it was like art (delicious art). It is must in Madrid.”

6. Tantris – Munich, Germany

As one TripAdvisor traveller said, “Fifteen courses of beautifully presented, immaculate food that tasted amazing.

It left me speechless.”

9. Barrafina – London, United Kingdom Set in stylish surroundings in the heart of London’s West End, Barrafina is a delightful restaurant serving the finest quality Spanish tapas. From the octopus served with capers, the prawn and pepper tortilla to the chocolate tart, there is something to excite your palate.

As one TripAdvisor traveller said, “This restaurant is the best - great atmosphere, great food and excellent staff.”

As one TripAdvisor traveller said, “Cool retro look, very attentive staff and food quality that would be hard to top.”

Serving food with strong roots in regional cooking of the South and South West of France, La Trompette is a comfortable yet vibrant dining experience, which has been showered with accolades from the industry.

7. Chez Bruce – London, United Kingdom

4. Guy Savoy – Paris, France With a menu featuring top quality, fresh produce, Guy Savoy uses ingredients from all over the world. Styled with wood, stone and

As one TripAdvisor traveller said, “The food is beautifully presented and cooked, and the location is just lovely.”

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Often called an ‘adventure’ for diners, Pierre Gagnaire is famous for blending three of four unexpected tastes and textures in a single dish. Offering ‘The Grand Dessert’, sweet lovers will be in awe at the seven-dessert dish on the menu.

Featuring four individually designed rooms, each with its own style, tone and beauty, Tantris is a sight to behold. Four decades after its opening, the restaurant is still a gastronomic delight for diners who visit it from around the world.

Set in a relaxed and informal environment, serving high quality food influenced by regional French/Mediterranean cuisine, Chez Bruce is an acclaimed restaurant praised by diners and the industry alike.

As one TripAdvisor traveller said, “Ciya Sofrasi is the best restaurant in Istanbul.

You just have to try all the food.”

8. Pierre Gagnaire – Paris, France

10. La Trompette – London, United Kingdom

As one TripAdvisor traveller said, “The food and service are second to none, and the menu is always inspiring and different.”

For more information on these restaurants, including reviews and travellers photos, visit www. tripadvisor.co.uk/TravelersChoiceRestaurants-cRestaurants-g4

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LUXURY BRAND SERIES – HONEYMOON HOTELS AND RESORTS

honeymoon hotels and resort s LUXURY BRAND SERIES

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Taj Cape Town South Africa Taj Cape Town is a luxury hotel offering guests a combination of refined luxury and sophisticated ambience located in the centre of historical Cape Town. An innovatively designed property housed in two iconic and gracious buildings restored to their exceptional colonial glory; these are the Reserve Bank (1932) and the Board of Executors building (1896), now linked by a gleaming modern state-of-the-art glass tower that boasts magnificent Table Mountain and city centre views.

With 176 rooms across 7 room types, including superior rooms, Luxury Heritage rooms which are in the Heritage Buildings and Luxury Towers rooms which are in the new state-of-the-art glass tower all with walk out balconies, one- and two-bed apartments, and Taj Club rooms with a dedicated floor with lounge and butler service, and a splitlevel Presidential Suite; each offers a muted elegance reflecting both the historic and contemporary elements of the buildings’ design. The stylish facilities include an impressive marble lobby and grand staircase located in the former bank building, where original features such as stucco pressed ceilings, brass clocks and fluted marble pillars have been retained, and now features a comfortable 24-hour bar and cigar lounge decorated with wing-back leather chairs and black-and-white photographs of historic Cape Town. Elsewhere, the state-of-theart fitness centre offers a refreshing indoor heated lap-pool; while the Taj’s unique Jiva Grande Spa offers, steam rooms, Jacuzzi and Indian traditional holistic pampering and relaxation. The Taj Cape Town presents an eclectic variety of cuisine and culinary experiences including Bombay Brasserie, a gourmet Indian specialty restaurant open 7 days a week for dinner; Mint, a relaxed all-

day dining restaurant with its show-kitchen; and Twankey Bar, our seafood, champagne, oyster and Guinness bar.

Activities include exploring the heart of the city’s historical quarter, and the hotel not only represents the growth of the city in its magnificently resorted buildings, but is surrounded by the city’s most significant landmarks and attractions such as museums including the Slave Lodge and South African Museum, St. George’s Cathedral, the leafy Company’s Garden, Government Walk where many fine legislative buildings are located, and cobbled Greenmarket Square with its old 19th century townhouses and lively souvenir market. Adjacent to the hotel are various vibrant shopping precincts including St. George’s Mall, while Long Street with its Victorian buildings, quirky boutiques, book and antique shops, and lively bars and clubs

is just a short stroll away. For the more curios explorer the Taj Cape Town also provides the Footsteps to Freedom Walk (Tuesdays to Saturdays 10:30 – 12:00), experience the history of the Inner City with a guided tour.

Taj Cape Town Cnr Wale & St Georges Mall Cape Town, 8001 Tel: +2721 819 2000, Fax +27 21 819 2000 sales.capetown@tajhotels.com

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LUXURY BRAND SERIES – HONEYMOON HOTELS AND RESORTS

Sofitel So Mauritius A TIMELESS LUXURIOUS EXPERIENCE In the heart of the Indian Ocean, imagine a fragrant Eden on the shores of the Indian Ocean.

Mauritius has preserved its natural treasures and offers an unforgettable experience at a cultural crossroads.

A prime destination for scuba diving, the island is also a golfer’s paradise, with superb golf courses framed by purple mountains and overlooking the crystalline waters of the Indian Ocean.

A luxuriant garden of flowering hibiscus, paradise of exotic colorful birds.

On the south coast of Mauritius, Bel Ombre is a tranquil haven exemplifying the island’s natural character. Sophisticated and sincere, with brilliant green sugarcane fields, lengthy white beaches, and turquoise water offering striking panoramas.

Delicate flavors, typical warmhearted Mauritian welcome and elegant service, heady fragrances of plants fresh from the garden in this exceptional environment, in the heart of a 34-acre landscaped park, Sofitel So Mauritius welcomes you into a fragrant, luminous tropical paradise highlighted by modern architecture and fine materials.

AN EXTRAORDINARY ENCOUNTER BETWEEN TWO CREATORS Imagined by Thai architect Lek Bunnag, the 92 Suites and Villas are intimately nestled within luxuriant Eden-like gardens.

Architect Lek Bunnag has designed a radiant venue that celebrates the magnificence of nature and brilliantly blurs barriers between indoors and out. Exclusive creations and collections by Kenzo Takada superbly highlight the purity of Lek Bunnag’s modern décor.

Inspired textiles, decorative objects, tableware, and beach accessories contribute vibrant touches of color to this immaculate paradise.

Discover the incomparable tropical delight of outdoor bathtubs and showers. Savor the tranquility of a private patio and indulge in the luxury of contemplation, drawing energy from the sight of flourishing vegetation and brilliant tropical flora.

Designed on a human scale, totally original in style, this is more than a new concept; it’s a unique sensory experience.

Thai architect Lek Bunnag and fashion designer Kenzo Takada; two talents concerted creativity and “savoir faire” to conceive a hotel that is fundamentally different and unique.

A NEW VISION OF CONTEMPORARY LUXURY IN THE HEART OF NATURE Exoticism, relaxation, wellbeing, comfort and 5-star service in incomparable surroundings are assured at Sofitel So Mauritius, a hotel that personifies a new vision of contemporary luxury set in a lush natural landscape. This new SO address comes to meet the demands of a sophisticated clientele who appreciate authenticity and refinement. Advancing and confirming brand values symbolizing the French art de vivre.

In the most protected region of Mauritius, bordering a 520-metre white sand beach, this eco chic resort offers 84 Suites Prestige - 60 square meters in size, 6 100 square meter Beach Villas and 2 230 square meter Beaulieu Villas, hidden away in the luxuriant tropical vegetation.

Suites and Villas are all detached and single storey to ensure complete seclusion, with individual gardens, outdoor bath tub (and private pools for the villas), patios with open air showers, and superlative comfort with highest quality amenities (Sofitel “MyBed” concept with king-size bed, dressing room, separate toilets, mini-bar, Espresso machine, Complimentary Wifi, LCD TV as well as 24-hour personal butler service) and much more.

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ENTER A WORLD OF REFINEMENT SET BESIDE THE LANGUID WATERS OF THE INDIAN OCEAN La Plage Making sublime use of local ingredients, the inspired chef has created imaginative tapas and aromatic main dishes. Chic, relaxed, and facing the lagoon, La Plage is the ideal place for memorable meals.

Flamboyant In the center of the hotel grounds, overlooking the infinity pool, Le Flamboyant celebrates contrasts: French dishes and Mauritian spices, an intimate atmosphere in a wide open space, modern shapes using traditional wood and stone. Striking décor is enhanced with exclusive Sofitel So Mauritius tableware by Kenzo TAKADA.

with local fruits and spices.

Organic beauty products and harmony-inspiring pleasures by Clé des Champs, French organic cosmetology innovator.

Revitalizing hibiscus flower treatments and unique Céline Claret-Coquet gold needle antiage acupuncture. Come to So SPA for natural pleasures and deep benefits.

At So Fit, work out with state-ofthe-art fitness equipment in lush tropical surroundings. Enjoy the alluring infinity pool, snorkeling, golf, tennis, and scuba-diving.

To ensure your kids also have the time of their lives, So Kids offers creative and fun-filled activities designed just for them.

Discover or rediscover Mauritius in a new way, at a resort where modern design enhances natural paradise.

Le Takamaka Trendy and chic, Le Takamaka is the perfect place to indulge in sweet or signature and molecular cocktails and other fantastic drinks. Sleek design and a laidback atmosphere.

The fine art of French-style living has been subtly enhanced by the rich local culture, resulting in a unique and intense celebration of all the senses.

Sofitel So Mauritius Bastien Blanc Sofitel So Mauritius Tel +230 605 5800 Fax +230 615 1049 Mail: H6707@sofitel.com Royal Road, Beau Champ, Bel Ombre, Mauritius

Sofitel So Spa offers poetic, naturally rejuvenating treatments enriched September 2012 • Global Business Magazine • 47

LUXURY BRAND SERIES – HONEYMOON HOTELS AND RESORTS

Hotel Principe Di Savoia Dorchester Collection Milan This is the true spirit of Milan, an exceptional experience of hospitality and ease.

Dominating the Piazza della Repubblica, the landmark neo-classical building has been the natural home for international travellers and cosmopolitan society since the 1920s. Always with service and facilities of the highest order and style Guests can choose from a wide range of rooms and suites. Each room at the Hotel Principe di Savoia has been designed with meticulous care and attention to detail, achieving a level of comfort and luxury that our guests have come to expect. Spoil yourself with the impeccable, classic Italian cuisine created for the five-star Acanto by our talented head chef, Fabrizio Cadei, who combines a lightness of touch with innovative cooking techniques to present dishes of exceptional quality. The restaurant veranda overlooks a tranquil Italian garden with a delightful 18th century fountain - a visual delight to complement the culinary pleasures experienced at Acanto. Bathed in natural light throughout the day, the atmosphere of the restaurant is magically transformed in the evening as the garden is illuminated.

The new lobby lounge by Thierry Despont is now a more welcoming entrance to this prestigious palace hotel and a crucial meeting point for the well-heeled Milanese and 48 • Global Business Magazine • September 2012

guests alike to enjoy an aperitif surrounded by sumptuous Italian furniture, classical paintings by famous artists such as Luca Giordano and a spectacular custom made Murano glass chandelier created by Barovier and Toso.

showers, complimentary soft drinks, light cuisine served on the terrace, chaises longues and solarium.

With its trendy and innovative approach, which offers the best cocktails and music from 6.00pm till late, the Principe Bar is “light, sparkle, life, sensuous, glittering and radiant”: just the place to be. The centrepiece of the room is a custom-made banquette that dramatically ‘wraps around’ a grand piano.

The bar is a work of art in itself; sculpted tinted crystal with a back-lit mirrored wall to perfectly complement the light playing round the room.

Whether you’re organizing a business meeting or a social event, hosting an event at the Principe di Savoia is a hallmark of success. Guests and delegates can look forward to the comfort, convenience and exceptional service for which the Principe is renowned. Staging a successful event requires a delicate balance of tradition and expertise: that’s why the Principe di Savoia has been the finest venue in Milan since 1927.

Thanks to its banqueting capacity, flexibility and state of the art facilities, the Principe is an ideal venue for both corporate events and social gatherings.

Located on the top floor of the hotel with a roof terrace overlooking the city, Club 10 Fitness and Beauty Center is the most exclusive health club in Milan. Offering a range of personalised and exclusive treatments - with products by Kanebo, Comfort Zone and Thalgo, our aim at Club 10 is to ensure that our guests feel relaxed and rejuvenated. Our 5000 sq ft facility includes a heated swimming pool, fully equipped fitness centre, Jacuzzi, sauna, steam bath, five massage rooms, changing rooms with marble

The Principe has a total of 14 exclusive events spaces – which can be combined upon request, and the largest meeting space of any five-star hotel in Milan, accommodating up to 1000 guests across 7500 sq ft. All our meeting spaces are equipped with the most advanced audiovisual technology including Wi-Fi Internet access. Our highly qualified hotel staff is available to assist events planners, both in the planning stage and during the event. Whatever the event, our kitchen staff is on hand to prepare exquisite

traditional regional, international dishes and kosher meals, with an attention to detail and quality of service that remains consistently exceptional – regardless of the size of the event or the number of guests. In order to make each experience special and unique, Hotel Principe di Savoia is pleased to help customise every detail.

The hotel’s central location means it is perfect for visitors hoping to discover Milan’s myriad delights. The hotel is within walking distance of Repubblica underground station and 5 minutes from Milan’s main station, Stazione Centrale. Milan is served by three airports, all a short journey from the hotel: Linate (for European and domestic flights) is 20 minutes away, while Malpensa International Airport and Orio al Serio

Airport (in nearby Bergamo) are 45 minutes away.

Hotel Principe di Savoia Dorchester Collection Groups & Events Department: Tel: +39 02 6230 7921 groups.HPS@dorchestercollection.com hotelprincipedisavoia.com

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LUXURY BRAND SERIES – HONEYMOON HOTELS AND RESORTS

Viceroy Bali The Viceroy Bali resort is situated in a lush highland setting just five leisurely minutes’ drive to Ubud centre. The refined 25 all villa resort is luxurious in the finest of details, each with private pools and spectacular vistas over Petanu River gorge and tropical forests.

All villas are well appointed with European fittings and amenities contrasted by traditional Balinese architectural features.

At the Viceroy Bali award winning French cuisine is offered at Cascades which houses

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an extensive wine cellar and cocktail bar with breathtaking views of the valley and tropical countryside.

The resort’s Lembah Spa is one of the island’s most talked about health retreats which also features a full equipped gym with the latest cardiovascular equipment. The Viceroy can be reached by road, a one hour drive from Ngurah Rai International Airport or 12 minutes by helicopter to the property’s own private heliport.

Jln. Lanyahan, Br Nagi, Ubud, Bali 80571 Indonesia www.viceroybali.com

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Raffles Hotel Singapore LUXURY BRAND SERIES – HONEYMOON HOTELS AND RESORTS

Established in 1887, Raffles Hotel has over the years gained international recognition as a traveller’s paradise and is heralded as one of the world’s top hotels. Cherished as the legendary symbol for “all the fables of the Exotic East”, few hotels can look back on more than a century of legendary service to so many distinguished guests and fewer still have preserved their past with a more loving attention to detail.

In l989, Raffles Hotel closed for two and a half years for complete restoration. The essence of the restored Raffles Hotel lies in the 103 suites, each tastefully appointed with classical furnishings and modern convenience to cater to every discerning traveller. Residents are pampered in an atmosphere of privacy and intimacy, a harmonious synthesis of 21st century luxury with the style and grace of a bygone world.

The exclusive swimming pool and Raffles Spa set amidst Raffles Hotel’s historic walls and famed gardens provide a sanctuary for renewal and well-being.

The hotel is a complete world in itself, where patrons can enjoy a wide choice of cuisines in 15 distinctive restaurants and bars including the Raffles Grill with its ardent French cuisine, the Tiffin Room with its famed curry buffet, the Bar & Billiard Room with its Champagne Sunday Brunch and the famous Long Bar where the world-famous Singapore Sling was born.

The Bar & Billiard Room, once a sanctuary to a spirited tiger, is today a retreat for Champagne brunch on an idyllic Sunday.

The colourful parade of gastronomic pleasures is skilfully paired with vintages from Champagne Billecart-Salmon – an exclusive and privileged boutique champagne house.

Tiffin Room’s décor and ambience reflects the Hotel’s glory days from the turn of the century to the 1930s. The designs of the tables, chairs, and uniforms are all based on early photographs. Square teak tables – including many Raffles Hotel’s originals – are combined with “palm back” bentwood chairs. For most of this century, a mild chicken curry was one of the few Asian mainstays on the hotel’s daily menu as the partaking of Sunday tiffin curry was an essential aspect of colonial life. Today, Raffles’ tiffin curry can be enjoyed from a delectable buffet spread for lunch and dinner.

Some signature dishes include the succulent Raan Lamb, Tandoori Mushroom and colonial classics such as Mulligatawny Soup and Butter Chicken.

Dining at Raffles Grill is truly a delightful experience that is long remembered. The skilfully orchestrated menu at Raffles Grill is a shining chapter to an already illustrious setting. Every plate is dominated by light and lightness. Dishes are imaginative yet original, perfectly ensconced in the flavours of classic French. Raffles Grill also prides itself on its celebrated wine cellar. To the traditional sources of France, Italy and

54 • Global Business Magazine • September 2012

Germany have been added outstanding vintages from newer wine regions such as California, Australia, New Zealand and South Africa.

Since the restoration in 1991, the historic Long Bar has found a new home at Level 2, Raffles Hotel Arcade, where visitors continue to undergo one of the true rites of passage of world travel – savouring a Singapore Sling, the legendary hot pink cocktail with a reputation of iconic proportions, having travelled the world since its creation in 1915 at the Long Bar by Hainanese-Chinese barman, Ngiam Tong Boon. Some 2000 Slings are served each day. The earthy decor of the two-storey Long Bar is inspired by Malayan plantation life in the 1920s. The deep, rich colours and greenery bring patrons back to the edge of the tropical plantation. In keeping with the relaxed atmosphere, guests are invited to brush peanut shells off the table and bar-top to the floors; quite possibly the only place in Singapore where ‘littering is encouraged’.

The adjoining land parcel, built in architectural harmony with the Hotel, is known as "Raffles Hotel Arcade". Raffles Hotel Arcade is an integral part of Raffles Hotel, offering a broad range of facilities for visitors to enjoy. It houses 35 regional and specialty shops, indoor and outdoor function areas including The Ballroom and The Lawn and a variety of restaurants and bars including Long Bar where the famous Singapore Sling was created.

Also at Raffles Hotel Arcade is the Jubilee Hall, a recreation of a nineteenth century playhouse which features audio visual presentations, plays, recitals and cultural events. And the Raffles Hotel Museum showcases memorabilia, period photographs and other mementos, providing a fascinating historical glimpse of the Hotel, colonial Singapore and travel in the East.

Tropical gardens have always been synonymous with Raffles Hotel. These occupy more than a quarter of the entire estate, providing a tranquil contrast to the bustling city beyond. The delightful sound of singing birds beyond the verandahs and the rustle of palm branches in the breeze recalls the atmosphere of a bygone era and enhances the simpler pleasures of nature usually denied the modern traveller.

Raffles Hotel Singapore 1 Beach Road, Singapore 189673 www.raffles.com/singapore

September 2012 • Global Business Magazine • 55

GLOBAL OUTSOURCING

Global OUTSOURCING The Growth of Ukraine’s IT Outsourcing and Software Development Services Industry Since the year 2000, Ukraine has been a leading player in the global software development space.

The country has a long-standing reputation as a major technology region, with a well-developed scientific and educational base.

Based on a 60 plus year history, Ukraine’s software development industry is now rapidly developing into one of the most important export oriented sectors of the Ukrainian economy.

Membership in WTO and a free trade agreement with the EU, has accelerated trade and provided another layer of protection of investments. A well-developed infrastructure, telecommunications and a legal system, has also allowed for the creation of very favourable conditions for business in Ukraine.

56 • Global Business Magazine • September 2012

Ukraine’s geographical and cultural proximity to both the European Union countries and Russia, large quantity of its consumers and the physical size of the country, make it an excellent location for businesses to expand locally and regionally.

More and more companies come to Ukraine, selecting it as a preferred outsourcing destination for their R&D offices.

The history of Ukraine's software development industry is deeply rooted.

Officially, December 25th, 1951 is considered the beginning of the computer science era, when the Ukrainian academician from Kyiv, Sergey Lebedev, introduced the first computer in Continental Europe. A rapid growth of the industry was then recorded in the middle of 1990s, when a large number of independent software development companies emerged.

Currently Ukraine’s software development and IT outsourcing services industry is the largest in Central and Eastern Europe, and is still growing at a rapid pace. One of the

Figure 1. The Volume of Provided IT Outsourcing Services in 2003-2011 Source: “Exploring Ukraine. IT Outsourcing Industry”, Ukrainian Hi-Tech Initiative

Source: “Exploring Ukraine. IT Outsourcing Industry”, Ukrainian Hi-Tech Initiative Source: “Exploring Ukraine. IT Outsourcing Industry”, Ukrainian Hi-Tech Initiative

primary unbiased indicators of growth in the IT outsourcing market is the volume of the services provided.

Over the last eight years, the volume of software development and IT outsourcing services the Ukraine has provided has grown by a factor of ten. The most significant leap was recorded in 2004-2005, when Ukraine underwent an extensive liberalisation of foreign economic relations, and visa free travel was introduced. As a result, the growth in the volume of the services provided jumped 51 % in 2005 and 56 % in 2006, respectively.

In 2008, the market growth slowed and market volume decreased by 2-3 % due to the global recession, before the market rebounded to turn in a 25% growth in the post-crisis year of 2009. This proves the resilience of Ukrainian software companies, and their ability to weather adverse global economic factors. The significant growth in 2009 also confirms that the management of Ukrainian companies can successfully

The presence of strong science2.schools and universities mainly focused on fundamental engineering Figure The Number of IT Specialists in 2007-2011 education fuel the industry.

In fact, graduates from Ukrainian universities areonthe main source of The“Exploring presence of strong science and universities mainlyUkrainian focused fundamental engineering Source: Ukraine.

ITschools Outsourcing Industry”, Hi-Tech Initiative personnel for the IT outsourcing and In software development industry.universities Each year, education fuel the industry. fact, graduates from Ukrainian areroughly the main16,000 source IT of specialists graduate area universities.and Such a high number ofindustry. annual IT graduates potentially personnelfrom for the IT outsourcing software development Each year, roughly 16,000gives IT graduate from universities. a high number of annual The IT graduates gives the Ukrainespecialists a strong foundation forarea further industrySuch growth and development. numberpotentially of graduates Ukraine strong foundation for further industry and development.

The number of graduates might easilythe double in athe foreseeable future, because of thegrowth initiatives of Ukrainian government, aimed at The presence strongofscience schools and aimed at navigate a contracting market situation might easily double infor theIT foreseeable future, because of theof initiatives Ukrainian government, creating favourable conditions outsourcing business development. creating favourable conditions businessmainly development. and actively grow demand.

By 2011, the for IT outsourcing universities focused on fundamental volume the there software development and ITwith over engineering education fuel thesoftware industry. In In of 2011, were 1,050 companies, each 15 employees, in the Ukrainian In 2011, there were 1,050 companies, each with over 15 employees, in the Ukrainian software outsourcing services in Ukraine fact, graduates from Ukrainian development andprovided IT outsourcing services services industry.industry.

However, this number doesdoes not include companies development and IT outsourcing However, this number not universities include companies with staff ofwith less thanof15 people, groups, and to local consumers reached a healthy US$1.1 billion. aregroups, the those main source ofservices personnel the staff less than 15unorganised people, unorganised and providing those providing services tofor local consumers only. only.

IT outsourcing and software development Figure 1. The Volume of Provided IT industry. Each year, roughly 16,000 IT 3.

Number of Outsourcing Companies in 2007-2011 Outsourcing inThe 2003-2011 Figure 3.Services TheFigure Number of Outsourcing Companies in 2007-2011 specialists graduate from area universities.

Such a high number of annual IT graduates Since 2003, the Ukrainian outsourcing potentially gives the Ukraine a strong industry has enjoyed exceptional growth foundation for further industry growth and due to the strength and depth of its IT talent. development. The number of graduates The industry of software development and might easily double in the foreseeable IT outsourcing services is service-oriented, future, because of the initiatives of Ukrainian therefore, the volume of the IT outsourcing government, aimed at creating favourable services provided is closely related to the conditions for IT outsourcing business number of the personnel working in the development. industry. In 2011, the number of IT specialists working in the industry reached 25,000 In 2011, there were 1,050 companies, each people with 20% growth. Furthermore, with over 15 employees, in the Ukrainian the growth in the number of IT specialists software development and IT outsourcing engaged in delivering software development services industry. However, this number and IT outsourcing services recorded in 2011 does not include companies with staff of less was more than 4,000 people. than 15 people, unorganised groups, and those providing services to local consumers Figure 2. The Number of IT Specialists in only.

2007-2011

September 2012 • Global Business Magazine • 57

the Ukraine a strong foundation for further industry growth and development. The number of graduates might easily double in the foreseeable future, because of the initiatives of Ukrainian government, aimed at creating favourable conditions for IT outsourcing business development.

In 2011, there were 1,050 companies, each with over 15 employees, in the Ukrainian software development and IT outsourcing services industry. However, this number does not include companies with staff of less than 15 people, unorganised groups, and those providing services to local consumers only.

GLOBAL OUTSOURCING Figure 3. The Number of Outsourcing Companies in 2007-2011

Source: “Exploring Ukraine. IT Outsourcing Industry”, Ukrainian Hi-Tech Initiative

Figure 3. The Number of Outsourcing Companies in 2007-2011

The market is quite balanced, with about 80% ofIT IT Outsourcing specialists in the market working for the 20% of large Source: “Exploring Ukraine.

Industry”, companies (those with more than 200 people), and the large number of small and mid-sized companies Ukrainian Hi-Tech Initiative (those with less than 100 people) representing 70 % of all companies in the market. This high percentage Figure 4. Main and Outsourcing Services Provided byecosystem, Ukrainianascompanies is an important essential part of a healthy market these smaller companies are developing new market segments, creating attractive conditions for larger and more powerful competitors to enter these market segments. Thus, the market is based on the solid foundation laid by smaller companies that are more mobile and nimble and enable the market to explore, discover and fine tune the best strategies for further development.

The foundation of the export of Ukrainian IT outsourcing services is services related to the complex software development, with IT support and BPO services accounting for a minor part of the market.

Considering that IT support and BPO services are closely related to offshore software development services, there is great potential for further developing these segments. In addition, the recent strengthening of Ukrainian legislation to meet European standards for the protection of personal data, is a strong, positive step for the development of IT support and BPO services in Ukraine.

The majority of clients of Ukrainian companies are small-and mid-sized firms. Historically, this has been the case since times when the market was fragmented and there were no large players who could provide clients with large pools of talent resources. However, with the adoption of a range of laws in Ukraine designed to support IT service providers and software developers, global companies have begun exploring the Ukrainian market and setting up R&D centres here.

Source: “Exploring Ukraine. IT Outsourcing Industry”, Ukrainian Hi-Tech Initiative

Figure 4. Main Outsourcing Services Provided by Ukrainian companies

Source: “Exploring Industry”, Ukrainian Hi-Tech Over the last decade UkraineUkraine. has been IT theOutsourcing leading provider of software development andInitiative IT outsourcing services in the Central and Eastern European region (excluding Russia). Ukraine is ranked the first in the volume of IT outsourcing services provided, not only in the number of IT specialists working in the Figurebut 3. The of graduates.

Outsourcing support and BPO services accounting for a industry, in theNumber number of Companies in 2007-2011 minor part of the market. Considering that IT support andcompanies BPO services aretheir closely The industry is developing at a rapid pace of 20-25% a year, with new opening R&Drelated The market is quite balanced, with about to off shore development software development services, offices in Ukraine. After the recent exemption legislation for software companies had been 80% of global IT specialists in the accepted, vendors such as market Google, working Microsoft, Samsung expressedfor interest in developing thereand is Huawei great potential further for the 20% of large establishing R&D centerscompanies in Ukraine. (those with these segments. In addition, the recent more than 200 people), and the large number strengthening of Ukrainian legislation to of small and mid-sized companies (those Ukraine still boasts the most impressive gap in Europe between per capita in the country GDP meet GDP European standards for theand protection less 100 people) representing perwith capita in than the software development industry.70This could an important incentive for step ofbe personal data,economic is a strong, positive specialists businessmen to enter the profitable market of software development and IT % of all and companies in the market.

This highand well-paid for the development of IT support and BPO outsourcing services. percentage is an important and essential services in Ukraine. part of a healthy market ecosystem, as Ranked thecompanies countries best for outsourcing, and affordable, topofnotch IT specialists, these among smaller aresuited developing Theoffering majority of clients Ukrainian Ukraine has already earned solid reputation as a provider of innovativeare technology skills and ideas. fiAs a new market segments, creating attractive companies small-and mid-sized rms. result, the country can boast numerous advantages over competitors. conditions for larger and more powerful Historically, this has been the case since times competitors to enter these market segments. when the market was fragmented and there One of the main things that make Ukraine so attractive as an outsourcing destination is the availability of Thus, skilled the market is based on country’s the solid strong emphasis were large players whoengineering could provide a highly IT talent pool. The onno education – especially and foundation laid by by smaller that large pools of talentinresources. sciences – is supported the factcompanies that it boasts the highestclients public with expenditures on education the CEE are more mobile that andevery nimble and enable However, theofadoption of a range region.

This ensures industry segmentthe in Ukraine reaps the with benefits a highly qualified andof market to explore, discover and fine tune the laws in Ukraine designed to support IT trained IT workforce. best strategies for further development. service providers and software developers, global companies have exploring Ukraine also has a distinct advantage in software quality. Talented IT specialists withbegun in-depth knowledge The foundation of the export of Ukrainian and experience, as well as a creative approach, guarantee an highmarket qualityand of developed theextremely Ukrainian setting up R&D IT outsourcing servicesofisthe services related software.

The affordability IT workforce is to another centres prime reason here.why businesses consider the complex development, IT their core IT development in Ukraine, western outsourcing theirsoftware IT services to Ukraine. Bywith locating European and U.S. companies can expect to save 40% to 60% on their total in-house IT spending.

Reasonable cost, combined with a reliable and well-developed infrastructure, telecommunications, legal system and simplified tax structures, have created extremely favourable conditions for conducting 58 • Global Business Magazine • September 2012 business in Ukraine.

Figure 4. Main Outsourcing Services Provided by Ukrainian companies Over the last decade Ukraine has been the leading provider of software development and IT outsourcing services in the Central and Eastern European region (excluding Russia). Ukraine is ranked the first in the volume of IT outsourcing services provided, not only in the number of IT specialists working in the industry, but in the number of graduates.

The industry is developing at a rapid pace of 20-25% a year, with new companies opening their R&D offices in Ukraine. After the recent exemption legislation for software development companies had been accepted, global vendors such as Google, Microsoft, Samsung and Huawei expressed interest in establishing R&D centers in Ukraine.

Ukraine still boasts the most impressive gap in Europe between GDP per capita in the country and GDP per capita in the software

Inna Sergiychuk COO Ukrainian Hi-Tech Initiative innas@hi-tech.org.ua Phone: +380 66 434 1911 LinkedIn Profile: http://ua.linkedin.com/in/innasergiychuk

development industry. This could be an important economic incentive for specialists and businessmen to enter the profitable and well-paid market of software development and IT outsourcing services.

Ranked among the countries best suited for outsourcing, and offering affordable, top notch IT specialists, Ukraine has already earned solid reputation as a provider of innovative technology skills and ideas. As a result, the country can boast numerous advantages over competitors.

One of the main things that make Ukraine so attractive as an outsourcing destination is the availability of a highly skilled IT talent pool. The country’s strong emphasis on education – especially engineering and sciences – is supported by the fact that it boasts the highest public expenditures on education in the CEE region. This ensures that every industry segment in Ukraine reaps the benefits of a highly qualified and trained IT workforce.

Ukraine also has a distinct advantage in software quality. Talented IT specialists with in-depth knowledge and experience, as well as a creative approach, guarantee an extremely high quality of developed software. The affordability of the IT workforce is another prime reason why businesses consider outsourcing their IT services to Ukraine. By locating their core IT development in Ukraine, western European and U.S. companies can expect to save 40% to 60% on their total in-house IT spending.

Reasonable cost, combined with a reliable and well-developed infrastructure, telecommunications, legal system and simplified tax structures, have created extremely favourable conditions for conducting business in Ukraine.

A similar culture and shared business values, has led to historically close ties between Europe and Ukraine. These cultural similarities and a favourable geographical position with insignificant or no time

differences, make communication and mutual understanding much easier for foreign companies doing business here.

Ukrainian IT outsourcing industry demonstrates stable growth over the past several years. Compared to other CEE countries, Ukraine reports the highest rate of market growth. In fact, Ukraine’s growth dwarfs that of other CEE countries in exported IT outsourcing services.

Ukraine, with its extensive IT talent pool, reasonably low labour costs and established business infrastructure, is attracting Western European and North American companies as the preferred destination for outsourcing IT work.

This article is based on the ‘Exploring Ukraine. IT Outsourcing Industry’ Report by Ukrainian Hi-Tech Initiative.

September 2012 • Global Business Magazine • 59

GLOBAL OUTSOURCING

Outsourcing: Making It Work with the NOA

By Martyn Hart, chairman of the National Outsourcing Association.

When it goes right, it goes unnoticed. When its goes wrong, it’s national news – that’s the major issue that outsourcing faces. Failure is, quite rightly, castigated, but success is, very wrongly, never championed enough. For as many projects out there that are gaining negative media attention, there are an abundance of contracts that are improving services, saving public sector money and genuinely ameliorating business prospects. When it’s done properly, that is.

Despite poor public perception, Outsourcing Works.

The need for quality service at a lower cost is greater than ever. The Financial Times recently predicted that levels of public sector outsourcing will increase, because in the vast majority of cases, it delivers the goods. It continues to dominate the private sector too - the fact that every single FTSE 500 company uses outsourcing emphasises this. But, as all of these organisations know, outsourcing is hugely effective, but rarely simple.

Good outsourcing programmes take more than a robust contract. It is the governance procedures that keep things on track, driving the partnership towards the goals outlined in the supplier engagement stage.

This is the client’s medium for exerting control; this is how it helps itself to maximum value.

Fail to govern effectively and your bottom line will suffer. According to research by KPMG, ineffective governance of provider contracts can cause value leakage ranging from 17% to 40%. But suppliers do not out to set out to leak value, not deliver, or that most slanderous of terms: ‘rip off.’ Situations that are perceived as ‘rip offs’ often begin with a lack of interaction between stakeholders that leads to ambiguity and misunderstanding; two cardinal sins of any outsourcing relationship. Leaving expectations implied or non-formalised will lead to confusion, the mother of poor decision making.

Outsourcing clients need to know what they want, and how to make sure they get it. Relationships and governance are at the heart of success. Too often, support functions like procurement, finance, HR or legal obstruct the path to a truly interactive supplier / consumer relationship. Good governance promotes greater integration between the companies; involving stakeholders at all levels, from the very onset, means working to jointly agreed expectations and objectives, rules and guidelines that describe exactly how to work together, including, vitally, how to communicate your needs effectively.

Ensuring that both sides understand the required deliverables and obligations at the outset of the engagement goes a long way in preventing loss of value from miscommunication and misinterpretation of roles and services.

Colin Craig, Director, Information Services Group, said recently to the NOA-affiliated news site sourcingfocus. com: “In my experience, those relationships that

60 • Global Business Magazine • September 2012

display a strong degree of trust also have a much better, deeper understanding between the parties, a greater focus on the longer term relationship and a desire to adopt risk sharing rather than a risk avoidance approach – all resulting in delivering greater value from the contract. Strong governance will be the key differentiator between effective, efficient outsourcing relationships, and those leaking value and long turned sour.”

You cannot merely sign the contract and hand over all responsibility and just expect the supplier to get on with things. Both parties need to collaborate to make things happen. There needs to be a commonality and alignment of attitudes towards the contract and the available data.

Information management is a joint responsibility: rather than one side having all the data, both parties should have access to the full suite of information pertaining to the deal. That way, both sides can monitor concurrently, which helps keep the value exactly where you want it – right there in the business outcomes. As well as locking in value, openness with information is necessary for establishing accountability during service delivery. This prevents both users and suppliers from neglecting communications and services. Accountability also serves in rapidly identifying and acting against errors while holding users and suppliers to account for collecting data and ensuring value.

While it is important to monitor multiple areas with the project in order to reduce loss, relationship management is at the heart of any outsourcing relationship. Facilitating the creation of a strong relationship can often be the best practice for reducing ‘value leakage.’

Relationship management is so closely tied into governance that they all almost one and the same – the key difference is the formalisation. By formally managing the key actions of the joint enterprise it both becomes more proactive and truly accountable.

Management systems must be parameterised by objective, transparent performance measures that create clear joint understanding between partners and ensure you ‘get things done’ to time, cost and quality. Not only that, it should become a virtuous action cycle that acknowledges the joint nature of the endeavour and ensures that performance increases become inevitable. And conversely, failure and dissatisfaction with contracts comes when companies are lack the means to assess whether a relationship is delivering against original agreed goals – so formalise all measures and parameters from the outset, and use them to set meaningful targets to allow BOTH partners to measure success. Knowing what success looks like gives your partner a fair chance of being able to deliver it…

Remember, you can outsource a project, but not the responsibility. Poor governance – conducted people accustomed to managing operations, rather than relationships – remains the most common, avoidable

barrier to outsourcing success. Outsourcing does work.

But only when it’s done right, with the client operating with a certain level of maturity. But an outsourcing consumer does not necessarily have to be extensively experienced to behave in a mature, outsourcing savvy way – it’s all about the advice you take. It doesn’t have to be expensive – that’s where the National Outsourcing Association comes in.

So, if you need help and advice making your outsourcing work, get in touch with the NOA. By joining as a member, you can boost your maturity level: by rubbing shoulders with experienced

consumers at networking functions, and learning the latest relationship management techniques at our masterclasses. Membership (and, therefore, event attendance) is free for ‘end-users’ of outsourced services and is useful in your quest to raise your maturity level by developing your knowledge of the latest outsourcing techniques and best practice.

As well as events, we offer qualifications accredited

by Middlesex University which cover a wide variety of outsourcing management roles, which provides a practical famework for firms going through the outsourcing process

September 2012 • Global Business Magazine • 61

GLOBAL OUTSOURCING

The Evolving Value Paradigm: A Perspective from a Russian Outsourcer As a software-outsourcing destination, Russia first appeared as a serious player on the global scene a little over a decade ago. After blue chip companies such as Boeing, Intel and Motorola started establishing their software development operations there, the Russian software development industry experienced a veritable boom, growing by as much as 30% annually. In the years that followed, the growth continued, and according to research by RUSSOFT, the software outsourcing market is today estimated at $4 billion. Many recognised market leaders have chosen to take advantage of the country’s exceptional pool of software talent, including Google, Oracle, EMC, Intel, Deutsche Bank, Quest Software, Motorola, T-Systems, Dell and others.

We will provide a brief analysis of factors that made Russia so attractive to these companies. However, it is also important to analyse the dynamics of this market, and to take a closer look at what will allow Russian software outsourcing firms to continue their successful growth in the global outsourcing arena in the years to come.

From Russia with Software Some of the reasons are obvious. Russia boasts a highly literate population and a strong education system, in particular in maths and natural sciences.

Its prowess in computer science education is aptly illustrated by the overwhelming domination of Russian colleges and universities in the International Collegiate Programming Contest, which has been organised annually by Association for Computing Machinery (ACM) since 1977. This global contest brings together contestants from 65 countries and 1,300 colleges around the world. Having made its debut in the event in 1996, Russia today is second only to the US in the total number of wins.

However, the last American win took place in 1997, while the Russian students won 7 out of their last 13 contests, including the most recent one in 2012.

This is one illustration of the fact that the Russian higher education system produces a steady stream of extremely capable software engineers who are in high demand among IT industry leaders around the world.

Another characteristic of the Russian labour market that makes Russia a popular destination for software services is its relative stability. Many global buyers of outsourcing report significant attrition in their offshore development facilities in India and China, some as high as 40% a year. This phenomenon can make the outsourcing exercise exceedingly costly and risky for some customers. In Russia, on the other hand, the industry average attrition level has been around 8% for a long time, which translates into lower training costs and overall project risks for the clients.

The close cultural affinity Russian software professionals enjoy with their Western European and North American customers also plays a significant role. Software development is a highly involved

62 • Global Business Magazine • September 2012

social process and effective communication is critical to its success. As many experienced users of outsourcing services will readily tell you, similar cultural backgrounds and work ethics go a long way toward establishing a productive environment for enabling successful cooperation between globally distributed teams. At the same time, if there are significant cultural differences in the outsourcing relationship, they may hinder successful collaboration and effective management of projects.

Based on the above, it is no surprise that while the absolute size of the Indian software outsourcing industry is many multiples that of the Russian industry (it is projected to reach expected to post $87.6 billion in 2012 vs. $4 billion for Russia), the number of Russian and other Eastern European software outsourcing firms on the 2012 Global Services 100 list of the world’s leading providers is only slightly less than half of the number of their Indian competitors (16 vs. 36, respectively).

However, it takes far more than being located ‘in the right place’ to succeed in the global outsourcing marketplace. In our opinion, certain key paradigms in the world of software outsourcing have been gradually shifting. Let us briefly explore several dimensions in which these changes are occurring.

Globalise and Specialise In the previous decade, it was quite common for companies searching for outsourcing providers to focus a particular country as a starting point in their selection process. However, today’s highly interconnected global economy is putting pressure on both buyers and sellers of outsourcing services to adapt continuously for greater efficiency.

Furthermore, clients with a wide range of needs are further diversifying their sourcing strategies to take advantage of the best resources available to them in different regions of the world. A large global company may use one geography for BPO, another for advanced software engineering or product development, and yet another for the more routine application maintenance work.

On the other hand, providers are moving away from the single country focus in both their positioning and delivery capability. More and more organisations, having started and matured in one particular country or region, are working to establish a more global footprint in efforts to adapt to or to anticipate their clients’ needs. Companies whose initial value proposition was tied in large part to the attractiveness of a particular geography are finding that they now need to serve their customers globally.

Another facet of the same process manifests itself in the change in providers’ go-to-market strategies.

Instead of touting their size, numbers of resources or prices, providers have shifted to emphasising particular industry experience. This supply of specialised services is met with demand from a growing number of firms. Vertical knowledge and domain expertise have become a prerequisite for

many customers looking for an outsourcing supplier.

Clients don’t necessarily see their business challenges in terms of code or software engineers, so providers will increasingly need to understand the actual business domain in order to provide viable solutions. This often entails – in addition to offshore resources – creating an onshore consulting group working closely with the customers. For example; at First Line we have launched dedicated practices in cloud computing, database marketing and loyalty technologies, and online media with consulting presence spanning two continents, in order to meet this highly specialised demand from our clients.

Success through Closer Collaboration Even the methodology for producing software has been evolving. Gone are the days when it was conventional for clients to write a set of specifications, figuratively throw them over the wall and then expect the system to be delivered by the outsourcing supplier. Clients can afford neither the exceedingly long time it usually takes to deliver a solution in this fashion, nor the risks associated with the traditional waterfall development approach.

That is why Agile methodologies have been on the rise, to the extent that more projects around the world today are run using Agile than waterfall. With changes in the market occurring more rapidly than ever, companies that try to drive projects by creating exhaustive documentation upfront are left hopelessly behind the curve, while those using ‘just-in-time’ Agile methods are able to create systems that match consumer demand much more closely. When Agile is used in outsourcing, the client and the vendor work very closely together, with the ‘us vs. them’ divide practically disappearing, and all project participants collaborating as one team to deliver just the functionality desired by the users, reducing waste and boosting productivity.

Based on thousands of man-years of experience in delivering offshore projects, First Line has come to adopt Agile as our preferred approach. Since Agile was designed precisely to address the inherent uncertainty of software development, it can make a particularly powerful impact in outsourced projects.

Our experience has convinced us that Agile is the best way to minimise project risks and increase return on investment.

by discovering new ways to create consumer value together. In some cases, the offshore location itself can turn from a factor of labour arbitrage into a driver for new business opportunities.

At First Line we have created several partnerships where we not only help customers develop innovative and breakthrough products, but also act as their integration partners and value-added resellers. This allows them to accommodate more new business, as well as extend their reach by opening up new markets. At the same time, when a provider has a direct financial stake in the quality of the software they develop, this creates a more powerful incentive to deliver than the strictest possible language of an outsourcing contract could ever achieve.

About First Line First Line Software is a premier provider of custom software development and technology enablement services, specialising in cloud computing, data management, online media, loyalty and marketing technologies, and enterprise content management.

First Line provides recognised expert services to customers in North America, Europe and Asia, including Bonnier Group, Quest Software, and ClickSquared. First Line’s culture is grounded in subject matter expertise, technical excellence and proven delivery methodologies, with a strong focus on Agile.

Launched in late 2009 by a seasoned management team, First Line Software has become one of the fastest growing software outsourcing vendors in Eastern Europe. In two short years, it has gained worldwide recognition as one of the world’s best outsourcing providers by making the 2012 Global Services 100 list published by the Global Services magazine, as well as the 2012 Global Outsourcing 100 ranking by International Association of Outsourcing Professionals (IAOP).

Going beyond the traditional scope of application development outsourcing, First Line also assists its technology customers with integration and client implementation services, and helps them develop new geographical markets. This integrated services portfolio enables First Line’s technology clients to focus on their core value drivers and therefore achieve faster and more sustainable growth.

From Vendor to Partner

Author: Nick Puntikov, President, First Line Software

Finally, we are seeing outsourcing relationships emerge that are much more about partnership than subordination. This occurs when companies are able to create synergies and align their incentives

To learn more about how we can help you achieve your business objectives, contact us at sales@ firstlinesoftware.com.

First Line Software Nick Puntikov, President Phone: +1 (877) 717-7178 nick.puntikov@firstlinesoftware.com www.firstlinesoftware.com

September 2012 • Global Business Magazine • 63

GLOBAL OUTSOURCING

A View From the Clouds: What’s Going On With Outsourcing?

The outsourcing sector is a troubled area at present, with depressed economic markets, stretched company balance sheets and bad publicity all taking their toll. However, there are some exciting trends in the sector, with technological innovation, exponential growth of shared Cloud services and increased complexity of service offerings, leading to new opportunities in the marketplace. Below we consider some important and topical issues in the outsourcing sector, and what they may mean for businesses in these difficult times.

Has Outsourcing Become a Dirty Word?

The very concept of ‘outsourcing’ has become negatively perceived in recent months – particularly when it has been in the form of ‘offshoring’ rather than simply moving services within one country.

In the United States, President Obama and Mitt Romney have both been accusing each other of sending US jobs elsewhere to the detriment of its citizens. Whilst US technology companies rely heavily on the sourcing of services to Asia (and as such Silicon Valley will be concerned about the negative backlash), the campaigns of both politicians, coupled with recent news stories, have created negative publicity for outsourcing.

In the field of banking in the UK, NatWest/RBS’s recent computer system failure led to speculation surrounding its causes and some commentators were quick to blame outsourcing. The financial services sector is often wary of publicising its reliance on outsourcing and managed services for their IT, fearing public displeasure that their personal and financial information may be at risk.

This fiasco was no different.

Even more recently G4S did no favours to outsourcing with its self-confessed shambolic failure to provide the security services it pledged for the 2012 London Olympic Games – a crisis which was ultimately solved by the contributions of the British Armed Forces. That debacle may well have put a hold on outsourcing plans in the police and security services for now. This is just another example of how outsourcing public services to private companies with the intention of saving costs, can sometimes lead to massive reputational damage and a larger ultimate bill for the customer.

Where Are the Big Deals?

It is undeniable that the number of large value outsourcing transactions has decreased significantly this year compared with 2011. According to technology advisory service company ISG, the cumulative value of outsourcing deals in the EMEA region (Europe, the Middle East and Africa) in the first quarter of 2012 was just €6.9bn, down from €17.2bn in the last quarter of 2011.

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This may be due to a multitude of factors, perhaps the most fundamental of which is the fifth consecutive year of global economic downturn, now acutely focused on the future and the liquidity of certain Mediterranean states in the EU. The reduction may make sense, as outsourcing is a medium-to long-term business strategy. With low economic confidence, coupled with high levels of international political and financial uncertainty, it is understandable that many projects are being shelved. In the UK, only the public sector seems to be bucking this trend, with UK government spending on outsourcing considerably outstripping that of the rest of the EMEA area (although still not at levels seen pre-2008).

The pre-recession world of outsourcing supplier giants and their massive deals (both in value and duration) has also evolved considerably in recent years, with an increased number of suppliers of all shapes, sizes and service offerings. Many businesses have moved away from the model of outsourcing all of their back room or administrative services to a single provider, now opting to source multiple services from multiple suppliers. This applies even within sectors such as IT outsourcing, with an increasing reliance on ‘interconnectors’ to integrate multiple technology service offerings – many of which are now in the Cloud. Cloud service provision itself – the delivery and use of hardware and software computing resources as a service over a network (typically the internet) – has also grown exponentially (as considered below).

Interconnectors – Who Are They and What Do They Do? For an end user business, a Cloud offering is a relatively simple service: For a set fee, the business gets access to an up-to-date IT services platform for a designated period. It can have that for as many employees as it wishes and if its requirements increase, it can pay a fixed price for that as well.

However, developing, integrating, rolling out, running and managing Cloud services and platforms is increasingly complex, particularly given the lack of any interoperability standards in the industry. The European Commission announced in December 2011 that it has been asked to ‘provide a coherent legal framework for Cloud computing services’ by industry leaders, but this has not yet been carried out. Managing these issues can become problematic for small and large organisations alike, and that is where interconnectors are becoming increasingly useful.

Interconnectors – also termed ‘Cloud brokers’ by the US Government’s National Institute of Standards and Technology – are organisations that

Edwin Moore-Gillon and Andrew Priest are members of the IP and Technology Group at Davenport Lyons.

Davenport Lyons 30 Old Burlington Street London W1S 3NL

sit between Cloud providers and their end-user customers. The Institute defines them as ‘an entity that manages the use, performance and delivery of Cloud services, and negotiates relationships between Cloud providers and Cloud consumers’.

Interconnectors act as the prime negotiator and contractor with all Cloud service providers, and amalgamate those services into an integrated platform that a business can readily use.

According to organisations like ISG and Gartner, we have seen, and will continue to see, a significant increase in companies operating in this space and providing these services.

More Clouds on the Horizon?

The Cloud has become a huge area of growth for the outsourcing market, the movement of many IT business functions to the Cloud representing a fundamental change in the way that businesses work. Increasingly, sophisticated organisations are opting for solutions like Desktop as a Service (DaaS) or Software as a Service (SaaS) based solutions – and indeed Infrastructure as a Service (IaaS) and Platform as a Service (PaaS). According to Gartner, the global market for Cloud services will have a value of $150bn USD by 2013. However, there are consequences as they estimate low-cost Cloud services will cannibalise up to 15 percent of the current top outsourcing players' revenue by 2015, and by 2016 more than 50 percent of Global 1000 companies will have stored customer-sensitive data in the public Cloud.

For businesses the attractions are: cost savings, scalability and flexibility; certainty of economic spend; reduced capital expenditure and IT infrastructure budgets; and (in theory) a highly

up-to-date and tailored IT platform offering. There are, of course, risks, particularly with data privacy and security, ensuring regulatory compliance and disaster recovery – the last of these being in everybody’s minds after the NatWest crisis. For Cloud providers and indeed interconnectors, costs must be kept down in the face of increasingly complicated service requirements, leading to increased integration and training costs, coupled with greater complexity in contracting, pricing and contract management.

From our working desktops to vast data centres in subterranean Scandinavia, the way that businesses are structuring their IT provision is changing fundamentally. Indeed, will non Cloud-based desktop PC computing in the business environment become a thing of the past? We wait to see.

So What Now? The outsourcing sector faces challenges, opportunities and changes in the years ahead. It will succeed if it focuses on two key areas: firstly, adapting to operating in a climate of financial uncertainty, and secondly, keeping up with technological developments. Olympians and the British public adapted to a shift in the jet stream, which ruined an English ‘summer’. Outsourcing suppliers, customers (and their lawyers) must adapt to shifts not just in the economic and political landscape, but also the technological developments coming out of Silicon Valley and its equivalents in the UK. In short, we must not keep our head in the clouds, but we must keep a weathered eye on the Cloud!

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SPOTLIGHT ON SOUTH KOREA

SPOTLIGHT ON

South Korea South Korea: A World of Opportunities – North-East Asia’s Best Kept Secret as a Destination for British Exports Often thought of as a difficult market, South Korea is worth the effort. As the 12th largest economy worldwide and the fourth largest in Asia, South Korea is a dynamic and vibrant place to do business. And its 50 million strong domestic population is wealthy, savvy and out to buy the best. With the introduction of the EU-South Korea Free Trade Agreement and a passion for UK goods, the country ranks among the most lucrative and exciting overseas markets for British companies with numerous and varied opportunities for export.

The figures speak for themselves. Over the next five years, the South Korean economy is set to make the 10th-largest contribution to world growth. That’s as much as the UK and more than France or Italy. Despite the global economic slowdown, South Korea’s economy grew by 3.6 per cent in 2011, the fastest in the OECD (Organisation for Economic Cooperation and Development).

South Korea is a high-tech economy. It is a world leader in electronics manufacturing, including semiconductor chips, flat-screen TVs and mobile phones. Samsung – the world’s largest electronics company – originated in South Korea. The organisation has a turnover greater than that of Apple, Google and Microsoft combined. South Korea also has the highest level of broadband penetration in the world (with speeds of 100 megabytes), as well as the highest 3G mobile usage.

Moreover, the country is a world leader in shipbuilding, steel and the automotive industries. Its construction and energy companies are increasingly successful overseas as well.

The population is highly educated. Seven per cent of the country’s entire GDP is spent on education and nearly three quarters (74 per cent) of South Koreans undertake postgraduate-level study. This creates excellent opportunities for UK educational institutions.

In July 2011, the EU-South Korea Free Trade

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Agreement (FTA) came into force. This historic agreement presents opportunities for greater UK-Korea trade and collaboration.

Based on current trading patterns it will be worth at least £500 million per annum to the UK economy. The most comprehensive FTA ever agreed between two parties, the deal will create outstanding opportunities in financial services, telecommunications and legal services.

Ninety seven per cent of tariff barriers between Korea and the EU will be eliminated within three years and €1.6 billion of duties for EU exporters will be abolished annually.

South Korea is currently the only country in Asia to have concluded a FTA with the European Union.

On green energy, the South Korean Government is leading the way in the Asia Pacific region with an ambitious low carbon strategy. In July 2009, the Government committed to spending 2% of GDP annually on the low carbon economy. South Korea’s

Presidential Committee for Green Growth has set an ambitious target of a 30% reduction in carbon emissions by 2020. British business can help South Korea meet these targets.

Opportunities in South Korea for UK companies UK Trade & Investment – the British government department that helps UK firms do business overseas and supports overseas firms to set up or expand in the UK – has designated South Korea as a high growth market and identified significant opportunities for British exporters in the following key sectors: Aerospace – The South Korean government is looking to develop a small and medium-sized aircraft manufacturing value chain, led by its single aircraft manufacturer, Korean Airspace Industries Ltd. There are opportunities for UK companies to supply and collaborate.

Creative industries (Design) – South Korea’s overall design market is worth £10.6 billion.

Seoul was the World Design Capital in 2010 and encouraged new and creative design concepts in and around the city. UK design is highly valued by Korean companies.

ICT (Communications, Industrial Electronics, Consumer Electronics) – South Korea leads the world in many applications, including digital media broadcasting (DMB). There are numerous opportunities for UK companies involved in areas such as embedded software; 4G mobile telephony; games (including mobile games); bio-recognition systems and internet security; and green ICT. In addition to these strategic priority sectors, there are also significant commercial opportunities for UK companies in the following areas: Automotive – South Korea has been the world’s fifth-largest automotive producer for three consecutive years and offers wide-ranging opportunities for auto supply, component and design companies, particularly in the development of low carbon and electric vehicles.

Consumer products – South Korea is a sophisticated market with steadily increasing levels of disposable income. Most major luxury brands are represented, with many rating South Korea as one of their most profitable markets. Major opportunities exist in fashion, and in food and drink.

Education – South Korea is one of the largest education markets in the world. Englishlanguage training, including training delivered via e-learning, offers considerable opportunities. British English, our accent and linguistic expertise are held in high regard.

Energy – South Korea currently imports 96 per cent of its primary energy needs, but is seeking to reduce significantly its dependency on oil and gas imports by generating power from renewable sources.

Opportunities exist in wind, wave, solar and CCS (Carbon Capture & Storage), in R&D and full commercial-scale projects. Major opportunities also exist in nuclear, both in South Korea and in partnership in third markets – particularly in the Middle East.

Environment – President Lee Myung-bak’s “Green Growth” policies are creating multiple opportunities in the development and application of green technologies, particularly in reducing carbon emissions from industry and buildings.

There are also niche opportunities in water and waste management, and in air pollution abatement.

Financial and legal services – Korea has a highly developed and profitable financial services sector including the second largest insurance market and third largest banking market in Asia. The EU-South Korea FTA will remove some key barriers to the profitability of UK banks in the country and, gradually, allow UK law firms access to the South Korean market. There are particular opportunities for asset management companies to work alongside Korean sovereign wealth funds, including the Korean National Pension Service (the fourth largest in the world), and the Korean Investment Corporation.

Global Sports – South Korea will host the Winter Olympics in 2018 in the city of Pyeongchang in Gangwon Province. British companies with expertise in managing and delivering major international sporting events are well placed to offer their services to the Korean organisers.

Life Sciences – South Korea’s rapidly ageing population and societal drivers for a healthier lifestyle ensure a wide range of opportunities, from the supply of branded drugs to over-the-counter supplements, and naturalingredient-based products in particularly high demand. South Korea is a developed market for healthcare provision, offering niche opportunities in the supply of high-end equipment and telemedicine.

A helping hand So how do UK companies go about doing business in South Korea? One way is through UK Trade & Investment (UKTI). Our team in South Korea, based in the British Embassy in Seoul, has an in-depth knowledge of the market and can provide a range of services to UK-based firms looking to grow their business in Korea.

In 2011 we provided significant assistance to over 700 British companies from a range of sectors doing business in Korea, more than double the number we provided assistance

to in 2008. And because every enterprise is unique, UKTI tailors its services to suit specific needs from export training and networking opportunities to providing overseas contacts and bespoke market reports. Some of our services include: Overseas Market Introduction Service (OMIS) is a chargeable UKTI-led, tailored service to access market and industry information, identify potential contacts or assist in planning an event.

Passport to Export provides new and inexperienced exporters with the training, planning advice and ongoing support they need to succeed overseas.

Gateway to Global Growth is a free service to experienced exporters. It offers a strategic review, planning advice and support to help companies build on their previous success and develop new overseas markets.

Events and seminars are held across the UK and South Korea. They include specific sector-based activities. Trade missions are organised to help UK companies visit the market and talk face-to-face with prospective business partners. UKTI also organises missions to the UK to allow overseas delegates to meet with potential UK partners or investors.

Business opportunities can be emailed directly into your in-box, highlighting hot leads in your chosen overseas market. British companies can sign up for this free service by visiting www.ukti.gov.uk Of course there are challenges to exporting abroad too and things can go wrong in any market. Unfamiliar laws, regulations and language can cause problems. The UKTI team in South Korea, working with the Korean authorities, local business organisations, legal and business professionals, and supported by a powerful home network in the UK, can also provide support and advice to ensure resolution and a positive outcome.

As South Korea continues to build its reputation as a place to do business, UK companies should seize the ever-growing opportunities that are emerging in this flourishing market, sharing skills and expertise and playing a part in this country’s bright future.

If you would like to find out more about doing business in South Korea, please take a look at the UKTI pages on www.ukti.gov.uk/southkorea or email trade.korea@fco.gov.uk

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BUSINESS IS

With low tax, less regulation and a talented workforce, the UK is one of the easiest places to start a business and access the European Union’s 500 million customers. No wonder more companies set up European Headquarters here than anywhere else. Find out more with UK Trade & Investment.

Sir Richard Branson Virgin Group

ukti.gov.uk/greatbritain

SPOTLIGHT ON SOUTH KOREA

Grand Ambassador Seoul associated with Pullman Seoul Super Deluxe Hotel Located in the Heart of Seoul In the heart of the metropolitan city of Seoul, Grand Ambassador Seoul associated with Pullman (‘Grand Ambassador Seoul’), overlooks a magnificent cityscape, with unrivalled access to the major shopping and business districts. With such geographical forte, Grand Ambassador Seoul invites you to discover a true connection to a perfect world, where you feel a deep welcome and experience service in a class of its own.

Since opening in July 2009, Grand Ambassador Seoul has been formerly appreciated by world travellers under the name of Sofitel Ambassador Seoul. Now as an associate of Pullman, Grand Ambassador Seoul’s primary focus is to provide a successful business setting that combines maximum relaxation with cutting-edge IT solutions, in order to contribute to your professional success.

A contemporary 19-story hotel, Grand Ambassador Seoul houses a fitness centre complete with an indoor pool, spa tub, sauna, steam room and thermal baths. There is a gym that offers fitness equipment and aerobics classes. In addition to beauty and massage treatments, authentic hydrotherapy and balneotherapy is also available. With its crystal chandeliers and fireplace, the marbletiled lobby provides a picturesque setting in which to enjoy coffee and complementary newspapers. Free Wi-Fi is also available throughout the lobby areas and restaurants.

The 413 air-conditioned guestrooms with city views are decorated in a modern style, featuring light wood furnishings and fireplaces that provide the perfect backdrop to your stay. Recently, the hotel has refurbished 108 guestrooms and expanded the VIP floors from three floors to six.

All of the rooms at Grand Ambassador Seoul are equipped with satellite television, wireless Internet, mobile rental service, minibars and espresso coffee machine and tea facilities. There is even a remote ‘Jack Pack’ system available, enabling guests to find personal contentment through connecting their personal IT devices with the television.

The diverse selection of rooms includes 42 Suites, Deluxe Rooms and Superior Rooms – all perfectly suited to accommodate every need.

Grand Ambassador Seoul has seven first-class restaurants and bar, including an International Dining Restaurant, Entertainment Pub Bar, Chinese Restaurant, Japanese Restaurant and Lobby Lounge & Deli. A recent addition is the Premium Buffet, THE KING’S, newly opened with a ‘LIVE’ theme, using fresh ingredients or all live seafood, and offering a la minute service.

At Grand Ambassador Seoul, there are 13 banquet rooms of varying sizes that can host any type of function for up to 700 guests – from large events to small business meetings.

Whether you are hosting a seminar, exhibition, cocktail party – or even an alumni event – drawing on professionalism based on expertise, preparation and know-how, the hotel can seamlessly cater to every need.

Grand Ambassador Seoul associated with Pullman Address Dongho-Ro 287, Joong-Gu, Seoul 100-855, KOREA Tel: 822 2275 1101 Fax: 822 2272 0773 Email: amb@ambatel.com http://grand.ambatel.com

Grand Ambassador Seoul has been designed to offer an exceptional business centre, extensively equipped with the latest technology and administrative support. To match quality of service with the renovated infrastructure, the hotel continually invests in staff – even helping them to raise their qualifications to include foreign languages.

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SPOTLIGHT ON SOUTH KOREA

Korea: A Remarkable Journey from Poverty to Prosperity The Olympic Games hold a special meaning for Korea. It was after Korea gained its independence in 1945 the country had its first chance to participate in the 1948 Olympic Games in London. That’s why Team Korea’s 2012 slogan is ‘From London to London’.

In 1948, Korea was so impoverished that its Olympic team had to ask for donations to pay for the athletes’ flight to London. But we have come a long way since then. The 1988 Seoul Olympics were a great success, in spite of the many concerns about whether a developing country could host such an important international event. That success raised Korea’s profile on the global stage and it has continued to grow ever since.

Overview of the Korean Economy Many economists and other commentators speak of the ‘Korean miracle’, and indeed the wider ‘Asian miracle’ of recent decades. In Korea’s case we have transformed in the last 50 years to having the world’s 12th largest economy by GDP, and becoming a key member of the G20 and OECD nations.

In 2011, Korea became the world’s ninth country to achieve one trillion dollars in annual trade volume. Furthermore, last June Korea joined the so-called ‘20-50 club’ – that is, it became one of the countries that have at least twenty thousand dollars in per capita national income and a population of at least fifty million.

From an economy in the 1950s dominated by agriculture – whose main exports were textiles and wigs made from human hair – we are now at the forefront of advanced technology and green growth, with 14 Korean companies in the Fortune Global 500.

Intense development marked the era from the 1960s to 1980s. During this time Korea posted splendid annual growth figures of 9% on average. Since the 1980s our economy has moved towards maturity. Its strength and resilience are underscored by the way we have overcome the Asian financial crisis of 1997 and global downturn of 2008. Overall, the scale of the transformation is staggering: Korea’s GNI per capita rose from US$67 in 1953 in the aftermath of the Korean War to US$22,489 in 2011 – a 300-fold increase.

When Korea became the 24th member state of the OECD’s Development Assistance Committee (DAC) in 2009, it was the world’s first former aid recipient to transform into a donor. Few facts

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illuminate Korea’s remarkable journey from poverty to prosperity more than this. Back in the 1960s when Korea was among the 186 aid recipient countries, even the greatest optimists would scarcely have predicted its transformation in the 50 years ahead.

The benefits of Korea’s growth have been distributed widely within our society. The World Bank has described how ‘egalitarian growth’ has been central to the ‘Korean miracle’. While clearly GDP and trade are crucial factors, social cohesion and fairness are also extremely important to businesses.

Korea has high social cohesion, low rates of crime, low unemployment and is a world leader in human capital: In fact, it has among the highest proportion of PhDs of any country in the world. Added to this is our world-leading infrastructure. Korea’s cities, award-winning airports and cargo ports are linked by advanced high-speed rail and highway networks. Our rate of broadband penetration is also the highest in the world.

The Korean experience serves as proof that it is not a paradox to

achieve both economic growth and equity.

However, we are not complacent. While we celebrate the success of our globally renowned conglomerates – or ‘chaebol’ – we take measures to encourage small and medium-sized enterprises, sole traders and cooperatives. We also continue to affirm our openness to ideas, technology and trade.

Free Trade Agreements (FTAs) Since 2004, a strategic policy priority of my government has been to sign Free Trade Agreements with major and emerging world economies. In March 2012, the Korea-United States Free Trade Agreement took effect.

This is one of the most high-profile examples of the Korean government’s FTA strategy.

Similarly, the Korea-EU FTA, which was realised last July, is a major success for all parties.

The Korean government is currently moving closer towards a landmark Korea-ChinaJapan Free Trade Agreement. However, several other FTAs are already in effect,

including ones with India, Singapore and the Association of Southeast Asia Nations. Further FTAs are under negotiation, including ones with Canada, Australia, Mexico, and the Gulf States. My government’s agenda also includes future FTAs with countries such as Russia and Indonesia.

These Free Trade Agreements provide not only economic benefits, they strengthen our international partnerships by reaffirming our mutual commitment to free trade and avoiding the dangers of protectionism.

Furthermore, they also reinforce Korea’s position as a gateway to East Asian markets for businesses and investors. In 2011, the World Bank rated Korea number eight for ease of doing business – hence Korea is increasingly attracting businesses from around the world for its hard-won reputation.

Advanced Technology With the Olympic Games underway, the world’s eyes are on London. Recently, we held a hugely successful event to mark the launch of ‘Korea Loves London, Innovation & Technology 2012’ at the world-famous Harrods Department Store. This special exhibition showcased some of the best products that Korea has to offer, including advanced technologies and excellent designs from 12 of Korea’s major companies such as Samsung Electronics and the Hyundai Motor Company. For one month, visitors from around the world had the opportunity to see electronics, display devices, automobiles, robots and designer clothing. Thanks to this exhibition, I am sure that many more people will understand the quality of high-end Korean products and the competitiveness of our industries.

We are now at the forefront of advanced technology, famed for our world-leading expertise in electronics, robotics, shipbuilding and construction. Strategic planning has been central to this move – so has our work ethic and capacity for rapid innovation. Nurturing future technologies and taking steps to further improve the investment environment

are other important policy goals.

The recent creation of six Free Economic Zones (FEZs) further reinforces our strength.

Foreign investors can take advantage of tax and financial benefits, and a range of further incentives – from housing assistance – to foreign language services. Furthermore, Korea offers professional services such as legal, accounting and consulting to foreigninvested companies, to ensure investors are equipped to address any challenges they may be facing. We are also easing regulations to pave the way for more international schools.

Green Growth I mentioned earlier the huge success Korea has achieved since the 1950s. This success has come in spite of the potential hurdle of possessing very few natural resources within our territory. In the years and decades to come, renewable energy will – and must – play an increasingly important role in the world. We firmly believe economies must be green to grow. Of course, this has not always been our way. The scale of Korea’s industrial and economic development in the second half of the 20th century created a number of environmental challenges. However, in 2008, President Lee Myung Bak announced a new national vision of low carbon green growth – an increasingly important dimension of 21st century business. Therefore, it is our goal to become the world’s seventh-largest green economy by 2020.

The benefits of green growth are real. Not only are we investing heavily in the research and development of next-generation power technologies such as smart grids; we are also trying to become the leader in renewable energy sources. We have implemented requirements for our biggest carbon-emitting companies to set greenhouse gas targets this year. They will, of course, work to deliver on their promise.

Beyond these measures, Korea is leading changes to global governance. The Global Green Growth Institute (GGGI) is an interdisciplinary, multi-stakeholder organisation headquartered in Seoul. It

is driven by emerging and developing countries, which seek the combined objectives of combating climate change and promoting economic growth.

Daegu-Gyeongbuk will host the 2013 World Energy Congress – a fitting host at the heart of Korea’s Green Energy Corridor.

The Daegu-Gyeongbuk region produces solar photo voltaic cells, with the aim of strongly developing its solar industry in the coming years. The Green Energy Corridor is also leading on wind power, with major electronics and shipping companies working together to supply hi-tech components needed to generate power from windmills.

Furthermore, there is strong collaboration on fuel cells. Companies like Exxon Mobil and the Nippon Oil Company are working alongside world-renowned universities such as POSTECH in discovering new applications for fuel cells and secondary batteries.

Summary The Republic of Korea’s remarkable growth over the past six decades means that we are now among the biggest economies of the world. As a key member of the G20 and OECD countries, our global leadership responsibilities continue to evolve.

While Korea has cemented its position as a hub of global trade in recent years, the country’s global leadership goes far beyond our FTA strategy. We take immense pride in being the first country to transition from aid recipient to aid donor. In 2011, Korea hosted the High Level Forum 4 on Aid Effectiveness in Busan, and in March 2012, the Seoul Nuclear Security Summit. Our world-leading economy continues to see innovation and development of renewable energy and advanced technologies.

Our openness to international investors, thirst for new ideas and our famously welcoming hospitality, ensure that those who come to Korea are sure to enjoy a thoroughly enriching experience. With preparations already underway to host the 2018 Winter Olympics in Pyeongchang, these are exciting times ahead indeed.

Lee Ho Hyeon Counsellor-Commercial Embassy of the Republic of Korea Tel: +44 20 7227 5542 Email: hohyeonlee@hanmail.net

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SPOTLIGHT ON SOUTH KOREA

Current Issues in the Competition Act of Korea

The Introduction of the Consent Resolution The Monopoly Regulation and Fair Trade Act of Korea, (‘the MRFTA’) was revised on 2 December 2011. The rules and regulations thereof came into effect on 1 April 2012. One of key points of the recent amendment to the MRFTA is the introduction of the Consent Resolution.

The Consent Resolution is a system to close a case without determining the illegality, when a business operator proposes appropriate corrective measures including the consumer injury relief system and restoration, and the Korea Fair Trade Commission acknowledges the feasibility of such corrective measures through gathering opinions of interested parties. The Consent Resolution is considered similar to the US’s consent order but is different in details.

An enterpriser or enterpriser's organisation under the investigation and deliberation of KFTC may apply for the Consent Resolution, for the voluntary solution of restrictions on competition, the consumer damage redress and the enhancement of fair trade practice.

However, if it corresponds to unfair collaborative behaviours and satisfies the requirements for accusation under the MRFTA (if the illegality is critical and obvious) or the applicant revokes its application, the application cannot be accepted. An applicant should specify the factual relevance and corrective measures necessary for the restoration of transaction order and the consumer damage redress and prevention, in writing.

In this case, it should be balanced with corrective measures or other restrictions, and be considered as appropriate to achieve the purpose of the consent resolution.

Even if the consent resolution is made, it does not mean that the relevant action is illegal and no one can claim the illegality thereof.

Whether to initiate the consent resolution should be determined by the KFTC, in consideration of the need for swift action and compensation for damages. However, in order to gather opinions for 30 days, outlines of actions, relevant laws and corrective measures should either be notified to the interested parties (including the reporting person) or published on the Internet. In addition to this, it should be notified to the relevant ministries

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and negotiated with the prosecutor general beforehand.

In case of a foreign company suffering difficulties due to violation of the competition law in the Republic of Korea, it is necessary to seek for ways to actively use the consent resolution. That is, instead of getting negative decision of KFTC through heavy penalty (surcharge) or corrective measures, it is necessary to use the consent resolution more actively to bring positive effects such as voluntary correction and restoration, while not acknowledging the illegality.

The Establishment of the Standardised Contracts Dispute Resolution Council The revised Regulation of Standardised Contracts Act (the ‘Revised Act’) has been in force since 18 August 2012. Among other changes, the Revised Act provides for the establishment and operation of the Standardised Contracts Dispute Resolution Council (the ‘Council’).

Prior to the revision, the primary focus of the Regulation of Standardised Contracts Act was the protection of end consumers. The only relief afforded to merchants and industrialists of small and medium-sized enterprises (e.g., an agent, a member company, a retailer at a department store, supplier to home shopping companies etc) was to file for a civil suit at the court. However, with the Council in place, such enterprises may now apply for dispute resolution prior to filing a lawsuit.

compared to the courts. On the other hand, such enterprises will need to arrange for timely remedial/corrective measures following any adverse ruling by the KFTC, as the enterprise may be subject to multiple or collective dispute resolutions.

As for the foreign entities operating business in Korea under the Revised Act, such entities will face a greater risk of being subject to dispute resolution regarding any unfair contract terms. Therefore, in order to avoid any unnecessary disputes, foreign entities are advised to review and revise any terms that may be held unfair.

If you have any questions regarding the Consent Resolution of Korea or any other current issues of competition act in Korea, please email Mr. Sung Man Kim (partner of Lee & Ko) at: ksm@leeko.com, or phone: 82-2-772-4317.

Sung Man Kim LEE & KO 18th Floor, Hanjin Main Building | 118, Namdaemunno 2-ga, Jung-gu | Seoul, Korea 100-770 Direct: 82.2.772.4317 Main: 82.2.772.4000 Fax: 82.2.772.4001 ksm@leeko.com www.leeko.com

Moreover, under the Revised Act, parties may submit for dispute resolution case regarding not only the Standardised contract terms, but also those related to the ‘terms similar in form to the Standardised contract terms,’ which involve issues of fairness as addressed by the Revised Act, regardless of the title or subject of the provision in question.

However, for cases with 30 or more consumers that have been harmed as a result of the Standardised contract terms or ‘terms similar in form to the Standardised contract terms,’ the Revised Act allows for collective dispute resolutions. Such cases require public notice of the collective dispute resolution on the Korea Fair Trade Mediation Agency’s website for a set period (at least 14 days), upon which other consumers or enterprises may join within such period by written application.

Following the Revised Act, merchants and industrialists of small and medium-sized enterprises will be able to utilise the Council, which is favourable towards such enterprises

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SPOTLIGHT ON SOUTH KOREA

Grand Hyatt Seoul, South Korea GRAND HYATT SEOUL: THE LEISURE DESTINATION OF CHOICE Grand Hyatt Seoul, located in the heart of the nation’s capital, is situated amidst beautifully landscaped gardens on historic Mt. Namsan. With 601 guestrooms and suites, the hotel is only minutes away from the downtown commercial district and lies within walking distance of Itaewon, a major tourist attraction.

Commanding breathtaking views of the Han River to the south and Mt. Namsan to the north, the hotel is only 60 minutes away from Incheon International Airport, 35

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minutes from Gimpo Domestic Airport, and 20 minutes from the Samsung-dong business hub, with most all of the city’s key districts within close proximity of the hotel.

All guestrooms afford spectacular views of the city through the floor-to-ceiling walls of glass. The highly acclaimed Grand Club, a unique “hotel within a hotel” concept with an emphasis on luxurious comfort, offers private lounges, concierge and butler services. The hotel’s fitness centre, Club Olympus, a state of the art facility, steeped in luxury, is the perfect place to exercise or relax, featuring three outdoor tennis courts, two indoor squash courts, an aerobic studio,

outdoor and indoor swimming pools, a 24hour gymnasium and sauna with extensive massage services, an ice skating rink during the winter season, a jogging course set amongst ten acres of landscaped grounds and men’s and women’s relaxation lounges.

The Spa Grand Hyatt Seoul features 14 luxurious spa suites and treatment rooms. As one of the few spas in South Korea managed directly by the hotel, The Spa’s botanical garden ambience has been designed to create a sensual, intimate environment where guests can indulge in The Spa’s meticulously choreographed services, including traditional Korean remedies and European therapies.

One of the recommended treatments is The Spa’s Signature Ginseng Massage, which uses an oil blend extracted from six-year-old ginseng and Korean herbs.

The treatment starts with a dry stretching followed by a body wrap applying warm, super anti-oxidant ginseng oil to facilitate the body’s detoxification process through the penetration of the oil. Finally, an invigorating and therapeutic massage is performed, using such techniques as kneading, wringing and effleurage, to balance the meridians of the body and eliminate toxins, ultimately promoting overall warmth and nourishment.

As a multi-functional lifestyle destination, cuisine plays a key role at Grand Hyatt Seoul. A variety of fine cuisines ranging from European to Japanese and Chinese are offered in the hotel’s 12 restaurants and bars, each showcasing its own unique style and authenticity. The Paris Grill offers authentic European cuisine delivered with exceptional quality, fresh ingredients and simplicity of style. Akasaka serves an array of authentic Japanese cuisine in a breathtaking setting high above the Han River. The Chinese Restaurant represents the ultimate in authentic Northern Chinese cuisine, while The Terrace is the perfect choice for a selection of delicious international dishes accompanied by a host of tempting desserts.

The restaurants present a diversity of culinary experiences that await discovery.

For grand scale meetings and conventions, the Grand Ballroom of Grand Hyatt Seoul provides the most elegant venue in the city.

From its beautifully landscaped entrance, complete with a waterfall, pond and fountain, to the marble and crystal foyers, the Grand Ballroom makes a lasting first impression on arriving guests. The Grand Ballroom, a 1,213-square-metre rectangular-shaped, pillarless venue with a six-metre-high ceiling, can accommodate up to 1,000 guests for banquets and 1,500 guests for cocktails and can also be divided into three sections.

Hyatt Seoul is the perfect destination for leisure, business, or both. Grand Hyatt Seoul’s commitment to excellence, attentive services and complete satisfaction, makes it the destination of choice.

Grand Hyatt Seoul 322 Sowol-ro, Yongsan-gu,Seoul, South Korea 140-738 Tel: +82 2 797 1234 Fax: +82 2 798 6953 seoul.grand@hyatt.com

Alternatively, the Grand Ballroom, Regency Room and the foyer between the two can be used as one space, accommodating approximately 2,000 people in a cocktail reception style setting. A professional dedicated Events Team is on hand with a vast array of design and production resources at their disposal to transform your concepts into reality. The hotel’s five additional, newlyrenovated function rooms on the 2nd floor provide spacious, yet efficient alternatives for smaller scale business meetings. Each room features its own sanitary facilities and cloakroom, and is equipped with the latest in audiovisual equipment, wireless Internet and enhanced, solid, soundproofed walls to secure the privacy of any event.

As Seoul’s leading, five star business hotel with all the amenities of a resort, Grand

September 2012 • Global Business Magazine • 75

UK HEALTH & SAFETY

UK

Health& Safety

Reviewing Health & Safety at Work in the Current Economic Climate

In Britain, important questions are being asked of our world-renowned system of health and safety regulation. Is it fit for purpose? Does it stifle businesses, or give them a platform on which they can thrive?

Should it be cut right back – and if so, by how much?

Britain boasts one of the best records on preventing work-related fatalities and injuries in Europe, yet the global economic climate and a domestic political agenda are demanding answers to these questions, which will surely impact on the workplace safety of many millions of people.

This focus sharpened in 2010. Commissioned by a new Government, former Minister Lord Young reported that common sense needed to be restored to health and safety, suggesting that the existing regulatory system should be consolidated into a “single set of accessible regulations”. In 2011, Professor Ragnar Löfstedt then chaired a review of health and safety regulation in Britain, with 200 statutory instruments in scope, not including our regulatory bedrock, the Health and Safety at Work Act 1974. His aim was to “combine, simplify or reduce” the instruments and associated codes of practice to reduce the perceived burden on Britain’s employers.

Professor Löfstedt’s report, Reclaiming health and safety for all, found that the health and safety system was broadly “fit for purpose”,

76 • Global Business Magazine • September 2012

that “there is no case for radically altering current health and safety legislation” and that the problem “lies less with the regulations themselves and more with the way they are applied”.

In addition to these two reviews, the British Government launched a ‘Red Tape Challenge’, inviting the public and business to comment on which regulations should be scrapped, saved or simplified. They argued that regulation protects consumers, employees and the environment, helps to build a fairer society, saves lives and protects health. But the associated bureaucracy that came with the regulatory framework, it said, had reached a level where it was harming business and society. “Unshackling” business from regulatory “burden” would enable business to flourish, delivering much needed fiscal impetus to a flagging economy, it argued.

The Institution of Occupational Safety and Health (‘IOSH’) believes that a shortsighted approach now could be damaging as Britain comes out of recession. Evidence from previous recessions suggests that accident rates fall during periods of economic downturn, as there are fewer new employees and the level of experience in the workforce is high. This offsets the health and safety ‘corner-cutting’ that can give rise to increases in accident rates. In recovery, there is likely to be upward pressure on injury rates as job opportunities rise and workers take up their new positions. This is why IOSH feels very strongly that effective worker protection combined with economic success and wealth

creation must go hand in glove.

What’s happening now and on the horizon?

With these reviews now completed, the Government has produced an ambitious plan (see the Department for Work and Pensions website) for the implementation of health and safety reforms, spanning the next two-three years. By the end of 2014, it aims to have reviewed, revoked or improved half of health and safety regulations, despite the Löfstedt review indicating a reduction figure of 35 per cent.

Improvements to the regulatory system that help businesses gain clarity on what is required to protect the business and people that work for them is to be welcomed, but IOSH has told Government that such a largescale reform agenda needs adequate time and resource to ensure important issues are not overlooked in the race for reform.

By 2012: Businesses will get the guidance they need Britain’s regulatory body the Health and Safety Executive (HSE) is carrying out a major review and revision of its guidance with a view to clarifying what businesses, especially small businesses, need to do to comply with health and safety legislation. It is important that what is useful and helpful to business shapes change not a drive to cut out documentation.

Introduction of challenge mechanism to deal with cases of incorrect or over-application of health and safety

The Independent Regulatory Challenge Panel looks at complaints from businesses about decisions made by the HSE or local authority inspectors. The Myth Busters Challenge Panel looks at complaints regarding the advice given by non-regulators and has considered over 40 cases, publishing the responses on the HSE website.

By 2013: Self-employed people whose work poses no threat to others will be exempt from health and safety law It is unclear how the law will reliably define a self-employed person whose work poses no threat to others. For example, many selfemployed people use chemicals, equipment or visit other workplaces. The HSE is seeking views on three options for exemption of different categories of self-employed people.

Approved Codes of Practice (ACoPs) will give businesses clear practical examples of how to comply with the law Improved guidance and case study material is to be welcomed but the timescale is so ambitious. The HSE is currently seeking views on proposals to revise, consolidate or withdraw by the end of 2013 some 15 codes of practice. These include a proposal to replace the ACoP for the Management of Health and Safety at Work Regulations 1999 with a suite of more specific, updated guidance. Opinions are being sought on proposals to revise, or make no change to, a further 15 ACoPs by 2014. There is also a proposal to limit most ACoP documents to a maximum length of 32 pages.

Unnecessary regulations will be revoked To improve access to and compliance with it is good practice to streamline and consolidate regulations, removing those that are redundant regulations, but still maintaining appropriate levels of protection.

Consultations on revocation are underway with two tranches of seven and 14 legislative measures proposed for revocation – you can see these on the HSE website.

A simpler accident-reporting regime will be in place Having already extended from three days to seven, the period an employee has been unable to carry out their normal work before an injury needs to be reported, HSE is

and genetically modified organisms, and will consult with industry stakeholders.

Consolidations can be helpful to business so long as they do not undermine protection standards.

seeking views on wider amendments to the reporting requirements aimed at providing simplification and clarity, while ensuring adequate data and intelligence are gathered.

Any amends will be scheduled to come into force in October 2013.

Pre-action personal injury protocol standard disclosure list is clarified and restated

HSE-enhanced powers to direct all local authority health and safety inspection and enforcement activity

Restating the original intention of the preaction protocols to support early settlements through better and earlier exchanges of information, would help avoid confusion about the appropriate use of standard disclosure lists.

The HSE is working with local authorities on the development of a national code.

Legislation to strengthen the Primary Authority scheme is being progressed to ensure the scheme delivers increased consistency. Businesses need consistency and clarity from enforcement inspectors wherever they operate; however, delivering this requires adequate resourcing.

IOSH’s role IOSH is the Chartered body for health and safety professionals. With more than 40,000 members in 85 countries, we’re the world’s largest professional health and safety organisation. We set standards, and support, develop and connect our members with resources, guidance, events and training.

We’re the voice of the profession, and campaign on issues that affect millions of working people. IOSH was founded in 1945 and is a registered charity with international NGO status.

Regulations that impose strict liability will be reviewed and either qualified with ‘reasonably practicable’, or amended to prevent civil liability being attached to a breach of the requirements. The watering down of strict liability (absolute duties) could lead to a harmful erosion of standards of protection and may also have an adverse impact on fair and equitable access to appropriate legal redress. The ability of employers to sue third parties for defective goods, and effectively recoup any compensation they may make to their employees, has been overlooked.

By 2014: If the Government is successful in influencing the planned review, EU health and safety legislation will in future be risk and evidence-based IOSH supports risk and evidence-based legislation. However, where there are emerging technologies and novel hazards for which the evidence base has yet to be established, for example, nanotechnology, we need to proceed with caution, to avoid a similar legacy to that of asbestos. The Government’s Chief Scientific Adviser is also tasked with stimulating discussion on engaging society on risk issues.

Regulations will be consolidated by industry sector, making it clear which provisions businesses need to comply with The HSE is currently reviewing legislation for biocides, petroleum mining, explosives

Our members are committed to cutting down the number of people who die or get hurt or ill because of what they do for a living.

Across the world, two million people die every year as a result of health and safety failures. Despite this stark reality, some businesses still need reminding about the business case for sensible, proportionate health and safety management. IOSH has produced a series of case studies and resources so that many more businesses can start reaping the benefits for all.

IOSH was invited to contribute to Lord Young and Professor Löfstedt’s review, and did so through meetings with the report authors and submission of written evidence.

Committed to evidence-based practice, our research programme ‘health and safety in a changing world’ looks to tackle fundamental questions about occupational safety and health knowledge and its management, in the context of furthering the understanding of risk.

Written by Dr Luise Vassie, Executive Director of Policy at the Institution of Occupational Safety and Health (IOSH)

For more information, visit the Institution of Occupational Safety and Health’s website, or call +44 (0) 1162 573 100

September 2012 • Global Business Magazine • 77

UK HEALTH & SAFETY

Health and Safety Sentencing – on the Up? A little heralded passage in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (‘the Act’) means that magistrates may soon be able to hand down unlimited fines. The effect of this provision will be to remove one of the key distinctions that exist for ‘triable either way’ offences under health and safety legislation, namely that fines in the magistrates’ courts are capped but may be unlimited in the Crown court.

Section 85(1) of the Act provides that where an offence was punishable on summary conviction by a fine or maximum fine of £5,000 or more (however expressed), the offence will now be punishable on summary conviction by a fine of any amount. This section is not yet in force and there is no indication so far of when it will be implemented. However, as the bulk of the Act is due to enter into force in April 2013, it is possible that section 85 will be implemented shortly thereafter.

Magistrates are responsible for the vast majority of criminal fines – 99.8% in 2009, according to Ministry of Justice statistics. The Government noted in the debate on the Act, that raising the upper limits on fines will give magistrates greater flexibility to identify the most effective punishment appropriate to the offences and the offenders before them.

It would also improve the efficiency by removing the need for magistrates to send cases to the Crown Court when they feel the current maximum fine is not a severe enough punishment.

This is a laudable aim as the ‘standard scale’ of fines (up to £5,000) has not been amended for many years, and some form of increase is long overdue. The use of ‘or more’ however,

78 • Global Business Magazine • September 2012

means that section 85(1) goes beyond the standard scale to encompass all higher limits, including the specific limits that already exist for environmental and health and safety offences (where it has long been recognised that the standard scale would be too low).

Fines are often the only penalty available for corporate offenders, and greater limits usually apply on summary conviction (for example £20,000 for breach of the key duties under the Health and Safety at Work Act etc). Combined with the magistrates existing ability to commit to the Crown Court for sentencing, these limits have generally been considered by practitioners to be fit for purpose to-date. The proposed changes, when implemented, will introduce a new era of uncertainty.

In practice, unlimited fines may not make much difference to those health and safety prosecutions where the adjusted average fine (ignoring fines greater than £100,000) per offence rose between 2008/09 and 2009/10 by almost exactly £2,000, to £9,912 – even though a cap of £20,000 exists for most offences. However, there is also the risk that lay magistrates will produce some unusual decisions when given the possibility of meting out unfettered justice. These capped offences could soon result in a level of fine that until now has been reserved for significant breaches.

Up to now, an early guilty plea discount, combined with the certainty of a cap in the magistrates’ court, meant that a defendant had a fair idea of its maximum exposure on conviction. This often encouraged defendants to ‘go guilty early’. However, one unintended effect of this new provision in the case of

Simmons & Simmons James Taylor james.taylor@simmons-simmons.com www.simmons-simmons.com

waste ‘either way’ offences (which can involve complex and detailed arguments on points of law) may be to actually increase the burden on the courts as defendants and their advisers – having weighed up the risk of unlimited fines and the unpredictability of magistrates’ court – instead push for the Crown Court at mode of trial where soon there may no longer be a fine differential, and where they may receive a more measured hearing.

At Simmons & Simmons we have extensive experience in relation to health and safety regulation, ranging from initial investigations right through to court representation. We are therefore well placed to advise on the appropriate strategies for handling incidents, working with investigators and responding to enforcement action.

Please contact James Taylor, Senior Associate, Simmons & Simmons for more information on 0207 6282020, or email him at: james. taylor@simmons-simmons.com.

Chandler – V – Cape PLC: Responsibilities of a Parent Company – An Extension of Liability?

The Court of Appeal recently provided a significant judgment on the liability of a parent company, Cape Plc (‘Cape’), in respect of its subsidiary. The Court decided that in certain circumstances a parent could be held directly responsible for safety failings of a subsidiary (25 April 2012: David Brian Chandler –v- Cape Plc [2012] EWCA Civ 525).

This decision has implications in the field of corporate manslaughter, because it highlights the scope of those who owe a duty under the legislation. As a result, higher fines may result if the parent is held responsible for the subsidiary’s failings.

The Case Whilst working for Cape Building Products Ltd (‘Cape Products’), the Claimant was exposed to asbestos dust and fibre. At trial it was found that Cape Products’ system of work was unsafe and that Cape was aware of this.

Difficulty arose in determining the appropriate defendant as Cape Products was dissolved and the relevant EL insurance policy contained an asbestos exclusion clause.

Accordingly, restoring Cape Products to the companies register would serve no purpose as the Claimant could not enforce against the policy. Against this background the claim was brought against Cape, formerly one of the UK's largest asbestos manufacturing companies.

Although finding for the Claimant, the Court at first instance accepted that just because Cape was the parent, it did not automatically owe a duty to employees of its subsidiary.

A duty of care was not determined by ownership structure, but was fixed by the actions and assumptions of responsibility taken by the parent.

The Court of Appeal confirmed that it was not looking to ‘pierce the corporate veil’ and that a parent and subsidiary remained separate entities. The question was simply: Did the actions of the parent company amount to taking on a direct duty of care for the employees of its subsidiaries?

Cape owed a duty because it knew in particular that the release of asbestos dust was not adequately controlled despite the risks, and had direct involvement in the operations of its subsidiary. This included: first, group medical surveillance requiring medical check-ups for all employees having regular exposure to asbestos; secondly, one or more directors of Cape being on the board of the subsidiary; and lastly, control over the

activities of the subsidiary (including some financial control). The Court was explicit that ‘absolute control’ of the subsidiary was not necessary for Cape to assume a responsibility to employees of the subsidiary.

Broader Implications The Court observed that the circumstances where a parent is likely to have responsibility for the health and safety of a subsidiary’s employees include: where the business of the parent and subsidiary are in a relevant respect the same; where the parent knew (or ought to have known) that the subsidiary’s system of work was unsafe; where the parent has (or ought to have) superior knowledge on health and safety in the particular industry; and where the parent knew, or should have anticipated, that the subsidiary or its employees would rely on it using that superior knowledge for the employees’ protection. Where responsibility exists, to discharge it the parent must either advise the subsidiary what steps to take to provide a safe system of work and/or ensure those steps are taken.

Corporate Manslaughter Although a civil claim, the issues considered are relevant to an offence under the Corporate Manslaughter and Homicide Act 2007, the essential elements of which are that a duty of care is owed; that there was a gross breach of that duty due to a senior management failing; and, that it caused a death that was foreseeable. The duties are those owed under the civil law of negligence. This case highlights that in some circumstances those duties of care may extend to a parent company, bringing it within the ambit of corporate manslaughter.

While there is no fixed correlation between the finances of a company and the level of fine, the guidelines require the Court to consider turnover and profit. Fines for a parent company held directly responsible for the safety of the employees of a subsidiary are likely to be significantly more than would otherwise be the case if just the subsidiary were found liable.

Ann Metherall (Partner) +44 (0) 117 902 6629 ann.metherall@burges-salmon.com Matt Kyle (Associate) +44 (0) 117 902 7215 matt.kyle@burges-salmon.com Burges Salmon LLP One Glass Wharf, Bristol, BS2 0ZX

To minimise the risk, Group’s should have lines of communication and responsibility, distinguishing between what may be group policy and operational decisions taken at individual company level – and where audits are done – following through actions. A parent company aware of a safety failing, either through its operational involvement or as a result of an audit, will be fixed with a duty of care and so must take steps to protect safety. It cannot later try to distance itself from the breaches.

This judgment does not extend the potential liability of a parent but rather provides confirmation of the position and the potential risks, which have previously been assumed. It is not a question of limiting group company involvement or retracting from any scrutiny, but providing a combined approach to sensible risk management.

Group companies may wish to revisit the position and ensure their group structure is robust and provides the protection envisaged and required.

Exposure of a Parent The case brings into sharp focus group arrangements for managing safety risks. While a parent company may wish to retain control over the arrangements of subsidiaries and achieve consistency across the group, the benefits this brings will need balancing against the risk of potential extension of liability – both civil and criminal.

September 2012 • Global Business Magazine • 79

UK HEALTH & SAFETY

Teresa Hitchcock DLA Piper UK LLP 1 St Paul’s Place, Sheffield, S1 2JX Tel: 0114 283 3302 teresa.hitchcock@dlapiper.com

Health & Safety Enforcement: Two Different Cultures and a Common Solution In the developed world, there are two quite different approaches to the enforcement of health and safety legislation. This cuts across the traditional divide between common law and civil law systems.

The first, which is followed in the UK and a number of countries influenced by its legal culture, is to use the criminal courts.

The criminal law is adapted to regulatory requirements by creating offences of strict liability. The defendant will be liable simply for failure to meet a regulatory requirement, regardless of any fault, or lack of it, on the part of individuals. However, the matter is heard by the ordinary criminal courts and the usual criminal procedures are followed.

Proceedings can accordingly be lengthy and costly for both defendants and regulators.

In many other jurisdictions a different approach is taken. Instead of bringing proceedings in the criminal courts, regulators have power to impose monetary penalties themselves by administrative decision, on businesses that have failed to comply with regulatory requirements.

Businesses on which such a penalty is imposed can usually appeal to the courts if they consider that the regulator was acting unlawfully, or the penalty was disproportionate. However, it would be a matter for the organisation concerned to involve such a remedy, and it is much easier and cheaper for regulators to take positive enforcement action in this way, as opposed to bringing criminal prosecutions.

Under this system, which is applied not merely in civil law jurisdictions, but also in the United States, the criminal law system is reserved for serious cases involving intentional, or criminally negligent,

80 • Global Business Magazine • September 2012

wrongdoing on the part of individuals.

The UK system might be thought to be better adapted to deal with serious health and safety failings, which cause the deaths of employees and members of the public.

However, following a number of major fatal transport incidents, the existing criminal law of health and safety was not considered adequate to meet the public concern that arose. Moreover, there also proved to be considerable difficulties in applying the common law of manslaughter to cases where the failings of a corporate organisation were implicated in fatalities.

The existing common law of manslaughter required it to be shown that a senior official of the defendant corporation, at directorlevel or the equivalent, was personally guilty of manslaughter. It was also not possible to aggregate individual failings by the organisation, to show that defects in its general health and safety systems had caused the relevant fatality.

In 2007, the UK introduced special legislation, the Corporate Manslaughter and Corporate Homicide Act, to address these difficulties.

However to-date, only three successful prosecutions have been brought. Two of these involved small companies, where it could be shown that an individual director of the company was personally implicated in the circumstances leading to the fatal injuries.

However, in the third and most recent case – the prosecution of Lion Steel Equipment Limited – a guilty plea to the corporate manslaughter charge was only obtained as a result of a decision to drop the prosecution of an individual director for manslaughter, and regulatory charges brought against the company by way of plea bargaining,

following the collapse of the prosecution of two other directors.

Under either system, companies that are shown to be guilty of systematic failings in their organisation of health and safety can face severe criminal and reputational damage.

In the event of a fatal incident, a company can be very vulnerable if the regulator or prosecuting authorities conclude that the ‘accident’ was one that was ‘waiting to happen’. A company that can show that it has sound health and safety systems and organisation, is in a much better position to face hostile scrutiny.

DLA Piper acted for one of the individual directors implicated in the Lion Steel Case. We have also advised a number of organisations which decided to take a proactive stance when the 2007 Act came onto the statute book. These include multinational groups, for which we have conducted multijurisdictional strategic reviews. We have been able to help them review their health and safety systems and documentation, so that if a fatality or serious injury does occur they are in a better position to demonstrate that the organisation itself and its senior management have fully discharged their responsibilities.

These reviews involve a comprehensive consideration of all aspects of the client's safety system and prioritisation of remedial measures. The review, which is carried out under the principle of legal privilege, not only enables the company to consider a frank and honest appraisal of safety performance, but also to resist regulatory requests for disclosure of that information where appropriate to do so.

Getting your course approved by IOSH -

Do you want to develop your own course?

Have you already developed one?

Would you like the added credibility of IOSH approval?

Simply, we will look at all health and safety courses, whatever the level, whoever the audience.

Our tailored course approval service will help you create an IOSH approved course that suits your clients, delegates or employees.

If you’d like to find out more about the IOSH course approval service or get a quote, please call us on +44 (0) 116 257 3194 or email us at tailored.courses@iosh.co.uk

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Institution of Occupational Safety and Health, The Grange, Highfield Drive, Wigston, Leicestershire, LE18 1NN, UK t +44 (0)116 257 3100 f +44 (0)116 257 3101 www.iosh.co.uk

INTERNATIONAL DATA PRIVACY

International DATA PRIVACY

The New Cookies Changes and What They Mean For Your Business

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On 26 May 2011, new rules on the use of cookies were introduced.

These changes followed an amendment to the Privacy and Electronic Communications Regulations 2003 (PECR or ‘the Regulations’), which cover the use of cookies and similar technologies for storing information and accessing information stored on a user’s equipment, such as their computer or mobile.

For those unfamiliar with cookies, a cookie is a small file downloaded on to a device when the user accesses a website. The use of cookies and similar technologies is commonplace, and cookies in particular are important to the provision of many online services.

A cookie can, for example, remember items placed in an individual’s online shopping basket, or store an individual’s preferences such as the language they want to use.

Cookies can also help store details about a user’s activity, allowing organisations to show advertising relevant to that user’s likely interests. However, the updated Regulations 82 • Global Business Magazine • September 2012

now require your company to tell visitors about how cookies are used on your website, and give them a choice about whether they want you to store cookies on their device.

As the UK regulatory body in this area, the Information Commissioner’s Office (ICO) is responsible for ensuring businesses comply with the new changes. While a number of people have made it clear that they do not agree with the amended Regulations, it should be recognised that the law has already been passed in the EU and the UK. At the ICO, it is our responsibility to help businesses and other UK organisations comply.

Of course, every website uses cookies in a slightly different way and implementing workable solutions to this legislative problem would not be easy. That is why we gave organisations a yearlong lead-in period to comply with the new changes, before considering formal enforcement action. It is also why the ICO published guidance in May last year to explain the new rules to UK organisations, and provide advice on how to become compliant. Over the past twelve months we have seen the developer community come up with creative and innovative ways to comply.

The ICO’s cookies guidance has been updated twice during the past year, with

each update reflecting the feedback that we received from organisations in the UK. In December 2011, the ICO published further guidance with examples of what compliance could look like, while in May of this year we added further information to our guidance on the issue of implied consent.

Now that the yearlong lead-in period has expired, we have setup a cookies reporting tool on the ICO website. This tool allows members of the public to report their cookies concerns to our office. We then use this information to develop our guidance further and inform our future enforcement action.

So what should companies have in place already and what can theydo if they have fallen behind? The first step to achieve compliance is that websites must find out what cookies are being used on their website and who is setting them. They can do this by carrying out a cookie audit, which should also include a review of what these cookies are used for.

After establishing which cookies are being used and why they are used, the website should then look to remove any that are no longer required. We have heard examples of organisations finding cookies that are still collecting information, which relates to surveys that have long since closed. The audit

After carrying out an audit, organisations should then turn their attention to the task of informing users about what cookies are being used and why. Users must also be given the opportunity to control the use of cookies on a website, and our guidance explains the possible solutions available.

You may have seen scare stories about endless pop-ups blotting the online landscape, but we do not believe that the law requires you to do this. Popular websites such as the BBC website and our own website (www.ico.gov.uk) have a bar at the top of the page that allows users to find out how cookies are used on the website, and make an informed decision on whether they are happy for them to be placed on their device. Other websites have gone for an approach where a message appears for a short while before disappearing if someone chooses not to act on the information.

The approach that is appropriate to your website will depend on how intrusive the cookies you’re using are, who the information is being sent to, and how likely users are to be concerned. Therefore, the most successful solutions are the ones that fit in with how your site looks and works and what your users expect.

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With the European Commission already having taken action against a number of European countries for failing to bring the Regulations into force, it is important that websites introduce measures to become compliant as soon as practically possible. If we were to contact your company, we would expect you to be able to demonstrate how you are working towards compliance, and that you have a date in place for completing the work.

By complying with the new cookies changes, organisations are not only avoiding possible enforcement action, they are providing customers with important information about the services they provide online and the way cookies are used to provide them.

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therefore provides a good opportunity for a ‘spring clean’.

David Evans, Strategic Liaison Group Manager for Business and Industry at the Information Commissioner’s Office (ICO)

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September 2012 • Global Business Magazine • 83

INTERNATIONAL DATA PRIVACY

USA

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US legal environment poses high privacy risks for businesses It is widely known that the US does not have an “omnibus” federal data protection law.

What is less widely known is that the US legal environment nevertheless poses high privacy risks for business. A multitude of privacy laws and requirements have been adopted at the federal and state levels. Half the battle for a business is figuring out which privacy laws apply to its activities.

The other half is achieving and maintaining compliance. And, if a business thinks achieving compliance is difficult, it should try noncompliance. Federal authorities, such as the Federal Trade Commission, and state authorities, such as State Attorneys General and Consumer Protection Agencies, actively enforce the privacy laws. Plaintiffs firms aggressively pursue class actions seeking damages, statutory penalties, attorneys fees, and other remedies. And, perhaps even more significantly, the press and other media are always on the look out for another good attention-grabbing headline on a privacy issue, which can cause damage to business reputation and customer relationships.

Companies doing business in the United States therefore must ensure that US privacy compliance becomes and remains a priority within the organization. This

Article provides a brief overview of the legal landscape for privacy requirements in the United States.

(1) A Multitude of Federal and State Privacy Laws The first challenge that any business faces in the United States is simply to identify the privacy laws that apply to its business operations. Some privacy laws focus on particular industries, such as: (i) healthcare privacy rules under the Health Insurance Portability and Accountability Act and comparable state laws; (ii) financial services privacy rules under the Gramm-LeachBliley Act and comparable state laws; and (iii) telecommunications privacy rules for customer proprietary network information under the Telecommunications Act of 1996.

Some privacy laws focus on particular activities, such as: (i) the Fair Credit Reporting Act that applies to companies that gather and share certain data about consumers for credit and other specified purposes (“consumer reporting agencies”), as well as users of the consumer reports, furnishers of data to consumer reporting agencies, and other businesses that

engage in certain activities (such as printing consumer credit card numbers on receipts); (ii) the Children’s Online Privacy Protection Act that applies to online collections of personal information about children under 13 and other federal and state online privacy requirements; (iii) the Electronic Communications Privacy Act and comparable state laws that generally apply to, among other activities, the interception of wire, oral, or electronic communications, and access to certain stored communications; and (iv) the CAN SPAM Act, the Telemarketing Sales Rule, and other federal and state requirements that apply to direct marketing activities.

Some privacy laws focus on particular data types such as California, Massachusetts, and a multitude of other state data security and breach notification requirements that can apply to Social Security Numbers, Driver’s License numbers, bank account numbers, credit card numbers, health information, customer Internet account numbers, e-mail addresses, user identification names, log-in names or handles, passwords, date of birth, parent’s legal surname, digitized or electronic signatures, and biometric data such as electronic fingerprint or retinal scans.

(2) Federal Trade Commission and State Attorneys General Beyond the specific privacy laws and regulations, the Federal Trade Commission (“FTC”) has broad authority pursuant to Section 5 of the FTC Act to take action against businesses that engage in certain “unfair or deceptive” trade practices. The FTC has traditionally used this authority to pursue companies that engage in “deceptive” practices, such as violating consumer privacy policies. More recently, the FTC has expanded the use of its authority to take actions against companies that engage in “unfair” practices, meaning practices that are disclosed in a privacy policy, but nevertheless are deemed by the FTC to be contrary to consumer expectations or otherwise harmful.

For these reasons, businesses must address FTC actions in the form of a growing body of FTC privacy consent decrees, as well as FTC guidance on privacy matters. Perhaps most notably, in March 2012, the FTC issued a report called “Protecting Consumer Privacy in an Era of Rapid Change” (the “Report”).

The Report outlines a privacy framework that applies to all commercial entities that collect (either online or offline) or use consumer data that can reasonably be linked to a specific consumer, as well as to data about a

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specific computer or other device. The scope is not limited to collections of “personally identifiable data.” The FTC considers that there is no longer a clear distinction between personally and non-personally identifiable data since anonymized or de-identified data can now frequently be linked to the relevant individual (e.g., “cookie” data, or the Unique Device Identifier or “UDID” for a mobile device).

The framework identifies the following three core privacy principles for companies to follow in their privacy practices: (a) privacy by design; (b) simplified choice; and (c) greater transparency.

With respect to privacy by design, companies must build privacy protections into their everyday business practices. Specifically, companies must: (i) incorporate substantive privacy protections into their practices (e.g., data security, reasonable collection limits, sound retention practices and data accuracy); and (ii) maintain comprehensive data management procedures throughout the life cycle of their products and services.

Regarding simplified choice, companies must provide choices to consumers about their data practices in a simple and streamlined manner. To achieve this goal, consumer choice must be provided in certain situations and not in others. In particular: (i) consumer choice must not be provided before companies collect and use consumer data for “commonly accepted practices,” such as product and service fulfilment, internal operations such as product improvement, fraud prevention, legal compliance, and first-party marketing; (ii) for all other practices, consumer choice must be provided and such choice should be offered at a time and in a context in which the consumer is making a decision about his or her data (e.g., at the time when the data is actually collected rather than in the privacy policy); (iii) for “sensitive data,” including health and medical data, express opt-in consent must be obtained for the collection and use of such data; and (iv) for online behavioural advertising, the FTC encourages the development of a “do-not-track” framework as a key option for adequately addressing consumer choice issues in this context.

With respect to the promotion of greater transparency, companies must: (i) issue privacy notices that are clearer, shorter and more standardized; (ii) provide individuals with reasonable access to the data that they maintain, where the extent of the access should be determined based on the

sensitivity of the data and other factors; (iii) provide prominent disclosures of changes in uses of data and obtain user consent before using data in a materially different way than was disclosed at the time of collection; and (iv) educate consumers about their data privacy practices.

Beyond the FTC actions, many State Attorneys General also have broad authority to pursue unfair or deceptive practices pursuant to state powers (often called “MiniFTC Acts”). An important recent trend has involved greater collaboration between and among State Attorneys General to pursue actions against companies that experience data security breaches or other privacy issues. Such coordinated actions can often exact greater penalties and impose increased demands on companies than what would otherwise be required by the FTC. (3) US Law Enforcement and Other Legal Demands Beyond federal and state privacy laws, there are various related federal and state requirements to produce information to law enforcement and regulatory authorities, to gather data for purposes of global internal investigations, and to respond to e-discovery and other demands for data in civil litigation.

By way of a few examples, companies may be ordered to produce information pursuant to: (i) a search warrant executed by federal or state criminal authorities; (ii) an order for the interception of electronic communications by criminal authorities pursuant to federal or state wiretap acts; (iii) a grand jury subpoena issued by federal or state criminal authorities; (iv) a trial subpoena issued by federal or state criminal authorities; (v) an administrative subpoena issued by federal or state regulatory authorities; (vi) a civil subpoena seeking the production documents in connection with civil litigation; and (vii) another form of court order requiring disclosure, such as an order under Section 215 of the USA PATRIOT Act.

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Baker & McKenzie Brian Hengesbaugh Principal Tel: +1 312 861 3077 brian.hengesbaugh@bakermckenzie.com www.bakermckenzie.com/ PrivacyInformationManagement

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(4) Global Privacy Solutions Baker & McKenzie is a global leader in solving data protection, privacy, and data security challenges for businesses in the US and around the world. We are consistently ranked in the top tier for data protection in this important practice areas, as well as related disciplines of information technology, outsourcing, and telecommunications.

Whether your business is undergoing an IT transformation initiative, sourcing a function to a third party, conducting an internal investigation, responding to an e-discovery or government demand for data, or engaged in crisis management to address a privacy incident, we can help. Please feel free to contact the Baker & McKenzie partner listed below, or your usual Baker & McKenzie relationship partner.

Some of these US legal demands, including orders under the USA Patriot Act, have attracted considerable attention in nonUS jurisdictions. Such US legal demands may create potential conflicts with non-US data protection, privacy, bank secrecy, confidentiality, anti-investigatory or “blocking” statutes, and other data restrictions. Companies need to be mindful of these potential conflicts when structuring their global privacy compliance programs, and strive to find solutions that adequately address the competing legal obligations.

September 2012 • Global Business Magazine • 85

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Deal Directory

Genel Energy Acquires An Additional Interest in a Commercial Gas Discovery in Iraq On 21 August 2012, Genel Energy plc (‘Genel Energy’) announced that it had agreed to acquire an additional 26 per cent interest in the Miran exploration block in the Kurdistan Region of Iraq (the ‘Miran Block’) from Heritage Energy Middle East Limited (‘HEME’), a wholly owned subsidiary of Heritage Oil plc (‘Heritage’), for US$156 million (the ‘Acquisition’). In addition, Genel Energy will provide a bilateral loan of $294 million to Heritage, secured on Heritage’s shares in HEME as well as HEME’s remaining working interest in the Miran Block (the ‘Loan’). Commenting on the transaction, Tony Hayward, Chief Executive Officer of Genel Energy, said: “This acquisition represents an excellent opportunity to extend our interest in, and assume joint operatorship of, a commercial gas discovery and high quality asset in the Kurdistan Region of Iraq. Following our recent acquisition of a 44% interest in Bina Bawi, it will further enhance our position as the leading oil and gas company in Kurdistan.” For more information, visit genelenergy.com.

Iomart – Acquisition of Melbourne Server Hosting Ltd On 16 August 2012, iomart Group plc (‘iomart’) announced the acquisition of the entire issued share capital of Melbourne Server Hosting Ltd (‘Melbourne’), the cloud computing company, for a maximum cash consideration of up to £7.0 million.

A Manchester based provider of managed hosting solutions to over 600 customers, Melbourne operates its own datacentres, providing iomart with additional datacentre capacity. As well as the addition of spare capacity, this provides a sales platform to address the North of England market. Angus

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MacSween, Chief Executive stated: “We are delighted to complement our continued organic growth by acquiring profit enhancing businesses. iomart has been looking for some time to acquire a quality managed hosting operation in the North of England to extend our UK coverage and Melbourne fits the bill perfectly, adding a strong customer list and additional datacentre capacity. We are also pleased to have welcomed Skymarket into the Group last month.” For more information, visit www.iomart.com.

Acquisition of US Mobile Security Testing Specialist by NCC Group On 20 August 2012, NCC Group plc (‘NCC Group’), the international, independent provider of Escrow and Assurance Services, acquired US-based Intrepidus Group, Inc. (‘Intrepidus’), an independent security research and testing services provider primarily focused in the mobile telecommunications sector, for a maximum consideration of £7.1m (US$11.0m) in cash.

Intrepidus is a leading US security testing services provider that provides a range of services to detect security flaws in mobile devices, applications, systems and networks, complementary to NCC Group’s existing capabilities. Rob Cotton, NCC Group Chief Executive, said: “Intrepidus is a highly respected business with an extremely strong presence in the rapidly growing mobile telecommunications sector. This acquisition is an important strategic development for us as it considerably widens our range of offerings, as well as industry IP, and brings a number of new blue chip technology customers.

Intrepidus will further increase our profile and capabilities in the significant New York market where we now have the largest testing team. It already has an excellent record of growth and we are confident that it will continue to thrive with the additional resources of the wider Group.” For more information, visit www.nccgroup.com.

Qatar Telecom Launches Tender Offer to Acquire Shares in Wataniya Telecom Qatar Telecom (‘Qtel’ or ‘Qtel Group’) on 16th August 2012, announced that it had proceeded with a tender offer, to acquire all the issued shares of National Mobile Telecommunications Company K.S.C (‘Wataniya Telecom’) not currently owned by Qtel or any of its wholly owned subsidiaries, (the ‘Offer Shares’) at Kuwaiti Dinar.

Commenting on the Offer, His Excellency Sheikh Abdullah Bin Mohammed Bin Saud Al-Thani, Chairman of the Qtel Group said: “Wataniya Telecom has enjoyed significant growth over the course of the last few years.

However, in line with the increasing maturity of the markets in which it operates, the company’s investment profile is changing.

Qtel requires a simplified governance structure to enable it to manage the Wataniya Telecom businesses more efficiently and effectively to protect shareholder value.

We are grateful for the steadfast support of Wataniya Telecoms shareholders to date and believe this cash offer provides shareholders with an attractive option to capitalise on their investments at a fair price.” For more information, visit www.qtel.qa.

SeaEnergy – Acquisition of R2S On 24 August 2012, SeaEnergy plc (‘SeaEnergy’ or ‘the Company’) announced the acquisition of the entire issued share capital of Return to Scene Limited (‘R2S’) from its management for an initial cash consideration of £5.0 million. The acquisition is in line with the Company’s strategy of building and acquiring innovative and complementary energy services businesses.

Commenting, David Sigsworth, SeaEnergy’s Chairman said: “We are delighted to announce SeaEnergy’s acquisition of R2S. The acquisition of profitable and growing businesses is one strand of our strategy for building an energy services company, alongside the development of offshore wind

support vessels and additional business services for the energy industry.” R2S, as a profitable business, is already enjoying a strong growth trajectory. This is thanks to its innovative imaging technology, which enables clients to optimise their maintenance activities, thus minimising down time and bringing them significant cost benefits.

Access to the management, professional and financial resources of SeaEnergy will accelerate R2S’ growth potential, both in existing and new market segments.” For more information, visit www.seaenergy-plc. com.

Thomson Reuters – Acquisition of FXall The world’s leading source of intelligent information for businesses and professionals Thomson Reuters, announced on 20 August 2012, that it had completed its acquisition of FXall, the leading multi-bank electronic foreign exchange platform. The acquisition brings FXall’s leading trading and workflow processes which are used by over 1,300 institutional clients including asset managers, corporations, banks, broker-dealers and hedge funds into Thomson Reuters, combining two leading companies in their respective segments of the dynamic foreign exchange marketplace. “The completion of this transaction is an exciting and significant step in the further growth and development of Thomson Reuters Marketplaces business,” said Abel Clark, managing director, Marketplaces, Thomson Reuters. “Both FXall and Thomson Reuters will continue to operate their trading platforms and service channels as we complete the integration. We look forward to building our community, people and services to deliver the most innovative FX services available across the entire spectrum of trade discovery, execution and post-trade services.” For more information, visit www.thomsonreuters.com.

Ultra Electronics Acquires RFI Corporation On 17 August 2012, Ultra Electronics Holdings Plc (‘Ultra’ or ‘the Group’)

announced that DGT’s shareholders had closed the June deal to acquire the power conversion business operated by RFI Corporation (‘RFI’), a wholly owned subsidiary of DGT Holdings Corp. (‘DGT’), for a cash consideration of US$12.5 million (subject to a potential working capital adjustment). Ultra is the internationally successful defence, security, transport and energy company with a long consistent track record of development and growth. RFI is an established manufacturer of proprietary, high-voltage, power conversion subsystems including electronic filters, high voltage capacitors, pulse modulators, transformers and inductors, and a variety of other products designed for industrial, medical, military and other commercial applications.

It is located on Long Island, New York, USA, close to Ultra’s EMS Development Corp. and will be integrated into the EMS business in 2012. Rakesh Sharma, Chief Executive of Ultra, commented: “I am pleased that we have acquired RFI. It has strong market and technical synergies with EMS with which it will be combined to the benefit of both businesses.” For more information, visit www.ultra-electronics.com.

United Drug Plc Acquires Leading Clinical Trials Materials Business Bilcare United Drug plc (‘United Drug’), a leading international provider of healthcare services, announced on 20 August 2012, that it had reached agreement to acquire the UK and US clinical services businesses (combined ‘Bilcare Global Clinical Supplies’ or ‘Bilcare GCS’) from Bilcare Limited, a leading clinical trials materials business providing services to global pharmaceutical and biotech manufacturers and Clinical Research Organisations from facilities in the US and UK, for a total consideration of US$61 million. United Drug is a leading international provider of services to healthcare manufacturers and pharmaceutical retailers, with operations in over 20 countries including the UK, Ireland, Germany, the Netherlands, Belgium, and the USA. As part of this agreement, Bilcare Limited will retain its clinical supplies

business in Asia. Commenting, Liam FitzGerald, Chief Executive of United Drug said: “The Bilcare acquisition is another very important step in the development of United Drug as we focus on margin expanding, international opportunities. This business fits well alongside our existing packaging businesses in the US and Europe and will position us as a leading provider of services in the growing clinical trials materials market.” For more information, visit www. united-drug.com.

Waterlogic – Acquisition of Taylor Made Water Systems Inc Waterlogic plc (‘Waterlogic’), a leading designer, manufacturer and global distributor of point-of-use (‘POU’) drinking water purification and dispensing systems, on 24 August 2012, announced that it had agreed to acquire the entire share capital of Taylor Made Water Systems Inc. (‘Taylor Made’), a well-regarded vendor of water dispensers and coffee machines based in Northern California, USA from the Taylor family.

Following completion, Taylor Made will become a subsidiary of Waterlogic USA, the Company’s US division. Jeremy Ben-David, Waterlogic, Group CEO, commented: “Taylor Made is our first US west coast acquisition and is an important step to enhance our North American presence, providing a solid platform for continued accretive growth in the region. We are especially excited about the opportunity to introduce Waterlogic’s highly innovative Firewall UV water purification technology and associated products into the Taylor Made customer base.

We continue to explore future acquisition opportunities and will update shareholders in due course.” For more information, visit www.waterlogic.com.

Yamana Completes Acquisition of All Extorre Shares Yamana Gold Inc. (‘Yamana’) announced on 22 August 2012, the completion of the Company’s previously announced agreement to acquire all issued and outstanding shares of Extorre Gold Mines Limited (‘Extorre’).

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Yamana is a Canadian-based gold producer with significant gold production, gold development stage properties, exploration properties, and land positions in Brazil, Argentina, Chile, Mexico and Colombia.

“We are pleased to finalise the acquisition of Extorre and through that acquisition, the ownership of its Cerro Moro project.

Integration, exploration and development plans are already underway. As an initial step, we plan to spend US$5 million at Cerro Morro over the next four months to upgrade and increase mineral resources, with a focus on certainty in the definition of grade and size of the ore body,” commented Peter Marrone, Chairman and CEO. “By the end of the year, we expect to have a definitive plan for exploration and development to achieve our target. We believe this asset will deliver significant value to Yamana’s shareholders.”

For more information, visit www.yamana.com.

Zhaikmunai LP to Acquire Oil & Gas Fields in Kazakhstan On 20 August 2012, Zhaikmunai LP (‘Zhaikmunai’), the oil and gas exploration and production enterprise with assets in north-western Kazakhstan, announced that it had signed Asset Purchase Agreements to acquire 100% of the subsoil use rights related to three new oil & gas fields in Kazakhstan.

Zhaikmunai has agreed to pay the current owners a total of US$16 million for the three fields. The fields, Rostoshinskoye, Darjinskoye and Yujno-Gremyachenskoe, are located in the Pre-Caspian basin to the northwest of Uralsk, approximately 90 kilometres from the Chinarovskoye field.

Kai-Uwe Kessel, Chief Executive Officer of Zhaikmunai commented: “This is a great moment for Zhaikmunai as we move from a single field asset to a multi-field oil & gas company. Whilst Chinarovskoye remains

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very much our core focus I am pleased that we have been able to acquire these complementary assets and maintain our prudent approach to cash flow management and a robust capital structure. I am confident that we have found a number of exciting fields to develop over the coming years.” For further information, visit www.zhaikmunai. com.

forces in England and Scotland, extensively with NHS trusts and, through our health and wellbeing business, with a number of large public and private sector organisations.

These additional capabilities will allow us to provide new solutions, on a tailored basis, alongside our multi service offering.” For more information, visit www.www.capita.co.uk.

Capita Group Plc Acquires Medical Assessment and Criminal Justice Support Services Firm

Colt Acquires Fidelity Telecom Limited

Capita plc (‘Capita’) announced on 24 August 2012, that it had acquired the medical assessment and criminal justice support services firm Reliance Secure Task Management Limited (`RSTM’) for £20 million on a cash free, debt free basis.

This comprises £9.7 million in purchase consideration and £5.85 million payable to the vendor group in repayment of intragroup funding, with the balance being cash required to fund committed capital expenditure, pension obligations and working capital at completion. Capita is the UK’s leading provider of BPO and integrated professional support service solutions. RSTM provides forensic medical services, custody support and secure transport services. Capita joint chief operating officer, Andy Parker, said: “The acquisition of RSTM will provide further scale and depth to the range of solutions we offer the health and emergency services, criminal justice system and wider public and private sector clients. It also has significant synergies with our wide-ranging health and wellbeing business, which provides medical assessments in the private and public sector, including those for the new personal independence payments (PIP). We already work in some capacity with all police

On 13 August 2012, Colt Group S.A. (‘Colt’) announced that it had completed the purchase of 100% of the share capital of Fidelity Telecom Limited (‘Fidelity’), an unrelated, privately owned company based in the United Kingdom. Fidelity, which trades under the ThinkGrid name, is an international enabler of cloud computing that equips IT providers with the tools and help necessary to establish or expand a revenue stream from the cloud. ThinkGrid’s three key component offering consists of a state of the art self-service and billing platform, productised cloud services (including Hosted Virtual Desktop, Virtual Server, Unified Communications, Hosted Email) and above all, an enablement and go-to-market programme to help partners achieve success. François Eloy, Executive Vice President at Colt, commented: “The SME market for managed services is set to grow at 15% annually during the coming years. Colt is well positioned to penetrate this market through our indirect channels.

The acquisition of ThinkGrid further strengthens our position with the addition of a complementary range of cloud-based services. We also gain a reseller-oriented management platform and portal which will reduce our time to market across our European markets.” For more information, visit www.colt.net.

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