Switzerland – On The Rise

While several leading Swiss law firms contemplate their new lives as corporations, LB finds out what a series of high-profile partner exits means for Switzerland’s famously conservative legal market

This year, Zürich-based law firm Pestalozzi celebrates its 100th birthday. Just ten years ago, it joined forces with Geneva practice Lachenal Brechbuhl Cottier & Roguet to become Pestalozzi Lachenal Patry. But in late 2010, the two factions parted company, shutting down the Brussels office along the way.

As eight partners, including Bernard Lachenal and Alain Le Fort, departed to form Lachenal & Le Fort, Pestalozzi opened its own Geneva office, led by financial services head Sébastien Roy and Christophe Emonet. Pestalozzi’s Geneva operations will focus on commercial litigation and arbitration, corporate and M&A, banking and tax.

Pestalozzi was not alone. Other Geneva offices have also experienced losses. Secretan Troyanov’s name partner Cyril Troyanov joined Altenburger at the start of 2011, Horace Gautier left for Cabinet Mayor, a medium-sized law firm and André Gruber launched DGE Avocats Attorneys at law. At Borel & Barbey, partners Carl Heggli and Jean-François Ducrest exited in October 2010 to set up Ducrest & Heggli Avocats.

The defections were not limited to Geneva. Vischer’s Zürich and Basel offices lost their tax teams. In Basel, Hubertus Ludwig, Franziska Bur Bürgin, and Thomas Ziegler departed to set up tax boutique Ludwig + Partner; and private client partner Jacqueline Burckhardt Bertossa departed to establish boutique law firm Burckhardt with Mark Eichner and Ramon Mabillard, offering a full range of services, including tax and dispute resolution advice. In Zürich, tax expert Stefan Widmer left to establish tax boutique, Prime Tax.

‘We believe more in a modern firm approach, as opposed to the traditional individual lawyer way.’
Robert Furter, Pestalozzi

These splits and defections show that not only are Swiss lawyers more willing than before to shift allegiances, but that the Swiss legal market is becoming increasingly modernised. With most of the large, domestic practices converting into limited liability corporations (LLC) and the litigation market promising new opportunities through recently enacted procedural reforms, the market is undergoing significant change.

Also testament to this is Swiss arbitration’s continued success and the increasing numbers of high-net-worth individuals, trading businesses, hedge fund managers and technology companies that are redomiciling to Switzerland. But while the larger firms need to be on their toes if they wish to prevent further defections, the banking industry’s recent troubles mean that medium and smaller practices must also be on their guard if they are to retain quality work and clients. Otherwise, the Swiss legal market may face a period of consolidation.

A tale of two cities

Some blame the unintegrated offices, the cultural differences and generational gaps. For instance, Thomas Legler, a partner at Geneva law firm Python & Peter, believes that some law firms have not allowed for the promotion of younger partners. Others say it was the economy. Alexander Troller, a partner at Geneva arbitration boutique Lalive, contends that the present volatility in the Swiss legal market can be linked to the recent economic crisis. With some partners earning less, the firms were structurally unprepared to weather the storm, and have suffered or even imploded. ‘We can expect further movements among law firms,’ he predicts.

It’s most likely all of the above. Any firms that suffered splits would have had pre-existing problems, but when the crisis was at its peak and partners were earning less than they were used to, tensions surfaced.

Pestalozzi claims that it strived to operate as a fully integrated law firm, believing that a national structure better supports modern management structures and offers greater financial incentives. Managing partner Robert Furter says that the split was provoked by a different cultural attitude to the profession. ‘We believe more in a modern firm approach, as opposed to the traditional individual lawyer way,’ he comments. In response, Lachenal & Le Fort’s senior partner, Bernard Lachenal, says that there were no issues regarding the joint firm’s business model or nationwide structure, but that the split was provoked by a difference in how best to achieve the firm’s objectives, as well as personal conflicts between some partners.

Vincent Jeanneret, managing partner at Zürich-based Schellenberg Wittmer, says that it was known that Pestalozzi was effectively being run as two separate law firms in Geneva and Zürich. Furter begs to differ. ‘The firm had a common management structure; but given that it was not fully integrated, the individual offices obviously enjoyed more autonomy than they would have in a central management structure.’ As to the future, Furter is very happy with the path the firm is on, while recognising that it needs to gradually grow again in Geneva.

When asked about the departures from his firm’s tax team, Vischer partner Rolf Auf der Maur says: ‘Being from accountancy backgrounds they probably never felt especially comfortable in a law firm environment.’ Even though the Basel team had a legal and accountancy background and practised for years at Ernst & Young, Ludwig points out that the people who left the office were lawyers. ‘They departed because of a different understanding of career planning and business development. Ludwig + Partner wants to live and practise the dualism of law and tax. We believe that such a combination has great potential.’

‘Our culture allows for the absorbing of outside teams where additional expertise is strategically required.’
Didier Sangiorgio, Walder Wyss

In a market accustomed mostly to organic growth, many believe that some law firms grew too quickly. ‘Vischer made it clear that it was in growth mode about six or seven years ago,’ says Troller. Auf der Maur does acknowledge that the firm grew very quickly. ‘In ten years we jumped from 40 to around 110 lawyers. Now we are around the 100 mark, but we intend to continue to grow.’ As for the tax teams that departed, Auf der Maur was sorry to see them go but says: ‘We still have a strong tax group and are equipped to provide high-level quality advice.’

Pestalozzi’s own split also highlights the difficulties of running integrated offices in such culturally different cities as Zürich and Geneva, with the French-speaking side in Geneva perceived as more conservative. One Zürich partner, preferring to remain anonymous, remarks: ‘Lawyers in Zürich are mostly addressed on first-name terms but if you go to Geneva, the lawyers will expect to be called Maître.’

Having offices on both the German and French side, Froriep Renggli understands the challenges involved. Yet Froriep claims not to have experienced problems integrating its various teams. It grew organically over a period of 30 years and never took a team from another firm. It was Froriep’s Zürich lawyers who set up the Geneva and Lausanne offices, so they were able to introduce their own established style and approach. ‘Of course, the offices do differ on certain issues,’ says managing partner Peter Merz, ‘but we welcome the chance to share knowledge and we always work together to find solutions.’

Bär & Karrer, which opened its Geneva office in 2000, also avoided merging its way into the Geneva market. ‘Mergers between law firms are a very delicate undertaking,’ says Bär’s litigation head, Matthew Reiter. ‘Language barriers and different cultures can aggravate the difficulties.’ To help the co-operation between the two offices, Bär’s Geneva associates are sent to the Zürich office for an extended period of time.

Going global

The recent movements also demonstrate how international the Swiss market has become. Many believe that teams in larger law firms are becoming less loyal and that it is becoming more difficult to keep a unified culture among the members. ‘As in other industries,’ says Balz Hösly, a corporate partner at Zürich law firm MME | Partners, ‘Swiss lawyers are no longer taking it as a given that they will stay with the same law firm for life. They are increasingly looking around for alternative opportunities.’

Others have also observed the increased mobility among practitioners in Switzerland. ‘Formerly, Swiss lawyers did not migrate from one firm to another very often,’ says Charles Adams, partner-in-charge at Akin Gump Strauss Hauer & Feld’s recently established Geneva office, ‘mostly because the typical law firm was a cost and overhead-sharing vehicle rather than a partnership with a single unitary profit pool.’ In other words, each partner was more likely to be an entity unto himself, with no reason to take any particular interest in what another partner down the corridor was doing.

Zürich outfit Walder Wyss is one firm that has been approached by partners looking around. It is known to be open to lateral hires and has grown from 21 lawyers in 1996 to around 90 today. ‘We are not limited to organic growth,’ says managing partner Didier Sangiorgio, ‘and our culture allows for the absorbing of outside teams where additional expertise is strategically required.’

Back in 1999, a ten-lawyer team from Altenburger, including Markus Kroll, Luc Defferrard and James Peter, spun off and joined Walder. That was the firm’s first experience of integrating a whole team. From then on, growth accelerated. Around three years ago, tax specialist Marcus Desax and litigation partners Peter Straub and Marc Veit joined from Pestalozzi; and two years ago, corporate partner Marco Strahm and tax expert Samuel Dürr arrived from Prager Dreifuss’s Berne office. Commenting on the Prager departures, partner Christian Lang, says: ‘Because the Berne office had been moving towards a strong competition and trade practice focus during recent years, it was natural that some partners were looking to move.’

As for Walder, Sangiorgio insists the strategy has worked well. ‘All of the incoming lawyers have fitted in easily,’ he says. What goes around could come around, but to date Walder has not lost partners to the market, save for mediation partner James Peter, who left for Aschwanden Peter & Partner in 2001, to avoid being conflicted on mediations.

Most observers do not believe that anything new has occurred just because partners have not been getting along. ‘I refuse to see these as examples of fundamental change’, says Thomas Lustenberger, a partner at meyerlustenberger. Nor is Python’s Legler convinced. ‘It’s difficult to say if a trend has emerged from those splits or if it was just a coincidence that they all happened around the same time. Each one of them had a unique history.’

But many of the lawyers willing to shift allegiances will find some doors firmly shut. Several Swiss practices still feel passionately about organic growth. Homburger will look selectively at the CVs on the market, but it has only engaged in lateral hires of partners in two exceptional circumstances during the past 20 years. ‘We want to be careful about the message we send to our promising associates,’ says Homburger’s managing partner Heinz Schärer, ‘and we do not want their partnership chances to be diminished.’ Prager Dreifuss would also prefer to grow organically. It is the most sustainable way to build the practice, believes Lang.

To convert or not to convert

Swiss firms are modernising in other ways. In May 2006, Obwalden was the first canton (federal state) to allow the incorporation of law firms, followed in October 2006 by Zürich. Switzerland’s other Bar councils followed soon after. To date, only St Gallen has not changed its rules to allow incorporation. Zürich-based firms that have converted include Bär & Karrer, Homburger, Poledna Boss Kurer (PBK) and Niederer Kraft & Frey (NKF). Nater Dallafior plans to incorporate by the end of March and MME | Partners hopes to complete the process by the end of this year.

In Geneva, BCCC Attorneys-at-Law has made the change, while FBT Attorneys-at-Law expects to be incorporated within the next few months. FBT cites the more flexible structure that incorporation allows for younger partners, whom the firm can invite to participate in the company’s share capital, as one advantage. Borel & Barbey partner Nicolas Piérard says that his firm is still to decide whether to incorporate. ‘No decision has been taken yet,’ he says, ‘but being one of the major law firms on the market means that we should be making a decision of this importance.’

As well as offering younger partners a stake in the business, incorporation provides the safety net of limiting individual partners’ liabilities. However there are differences in the tax regime with Geneva less favourable than Zürich.

Some firms are also undecided on how to split profits after incorporation to ensure that the new employees’ remuneration mirrors what they received as equity partners. Plus, once you have established a board, you have to decide whether or not to include all the partners on it; and if some board members have different organisational duties you must decide whether the members’ liabilities should be apportioned accordingly and whether their pension entitlements should be equal.

‘Many incorporated firms rely on non-written agreements for years and when they sit down they don’t agree.’
Jean-Louis Tsimaratos, FBT Attorneys-at-Law

Certain Geneva law firms that have already converted are known to have faced difficulties at the beginning of the incorporation process. ‘Many of them rely upon non-written agreements for years,’ says Jean-Louis Tsimaratos, a partner at FBT, ‘and when they actually sit down to iron out all the new provisions, they realise they don’t agree on everything!’

Several partners agree that because Zürich firms are larger than their Geneva rivals and typically handle more big-ticket work for public companies, they have converted more for liability reasons.

Geneva firm BCCC, for instance, saw conversion as an opportunity to overhaul its practice rather than a liability play. It was keen to develop a brand beyond the individual partners in the firm and improve its management structure.

Conversion also has significant tax implications for individual partners. In a partnership, all partners have to declare a share of their taxable income at the place of their residence, with remaining shares declared through each of the law firm’s offices. In MME’s case this is Zürich and Zug. After MME converts to an LLC, the firm will be taxed at its head office location and all partners taxed as employees according to where they live. ‘The differences in taxation among the partners will thus increase,’ admits Hösly.

For some of those that have converted, very little has changed in practice. In many ways Homburger has been operating like a company since the early 1990s in terms of its structure and governance. The firm used to have partnership meetings, now it has board meetings and partners have had to get used to the idea of being employees. Generally, lawyers in Switzerland prefer to think of themselves as independent professionals. One partner said to Schärer: ‘I know this is necessary, but it doesn’t mean I like it.’

Walder’s Sangiorgio saw the process as a mere formality. Even before the conversion the firm operated as a fully integrated partnership with a lockstep model. Nonetheless, partnerships without lockstep may struggle to absorb the changes that come with conversion. It could be the end of the eat-what-you-kill system, with certain senior partners dominating a firm.

Some believe that the new corporate status of some firms will lead to even more market movement because it is more difficult to walk out of a partnership than it is to resign as an employee. At Zürich firm Nater Dallafior, partner Mathis Berger, also argues that with more firms incorporating, the market will most probably see more lateral moves. Former partners do become shareholders but they are also just employees and may be less likely to identify with the new entity. ‘This will be less so though with small firms such as ours, where the relationships between partners or shareholders tend to be more personal,’ he says. Not everybody agrees that lawyers will be less loyal to a corporation than to a partnership. If the practice’s corporate identity is improved and the collective aspects of the business reinforced, then lawyers could feel even stronger ties to the firm.

Code of practice

The new Unified Civil Procedure Code (the Code), which came into force at the start of the year, also expected to bring Switzerland’s legal system in line with international practice. Previously, each canton had its own rules, meaning that there were 26 different civil procedure codes. ‘The Code was a long time coming,’ says Akin Gump’s Adams. ‘It always seemed curious and archaic that, say, Geneva should have one set of procedural rules, and 20 miles up the lake, in the canton of Vaud, you would have completely different local procedures to follow.’

Most of the partners interviewed for this article are enthusiastic. ‘I like the new Code!’ says Prager’s Lang. ‘Our firm has always litigated throughout Switzerland, often in co-operation with local counsel, and this will help lay the ground for understanding what actually goes on in a litigation case in cantons like Geneva or Ticino.’

‘We are careful about the message we send to our associates. We do not want their partnership chances to be diminished.’
Heinz Schärer, Homburger

Foreign clients should appreciate the greater clarity and the pre-litigation court payment thresholds should also discourage spurious claimants. In some cantons such as Berne, and to some extent Zürich, the new Code hardly differs from the old, local one.

Firms with strong arbitration practices, such as Akin Gump, are also interested in the extent to which the reforms may promote uniformity among the various cantonal courts when it comes to the recognition and enforcement of international arbitration awards (see box, ‘Success story’, page 88). Homburger’s litigation head Felix Dasser believes that it will now be easier to implement the Lugano Convention’s rules – revised as of 1 January 2011 – on jurisdiction and the recognition and enforcement of foreign judgments, which are modelled on the Brussels I Regulation. Previously, it was by no means a matter of course that the Lugano Convention rules fitted with the diverse procedural laws of the cantons.

Many are also curious to see how the Code will interplay with domestic commercial arbitration. They hope that high-profile domestic arbitration will finally take off. Currently, it is almost invisible except in construction and labour law cases. The Code contains a chapter on domestic arbitration that is more modern and liberal than the previous rules of the intercantonal arbitration concordat and quite similar to Chapter 12 of the Private International Law Act on international arbitration.

‘It’s difficult to say if a trend emerged from the firm splits or if it was a coincidence that they happened around the same time.’
Thomas Legler, Python & Peter

Because the cantons are so culturally different, Vischer’s litigation and arbitration partner, Daniele Favalli, suspects that those lawyers, who previously carried out some ancillary litigation, may refrain from handling disputes in the future. But the larger firms are expected to play more significant roles in the smaller cantons, whereas previously they had to be associated with local practices. Firms like Homburger hope to pick up new work. It is well prepared for litigation in other parts of Switzerland as it has attorneys from all of the major cantons who understand local idiosyncrasies. Even today, it appears in court in most cantons.

Some firms and clients will always prefer to use local practitioners. ‘The cantonal differences are still significant,’ says Hösly, ‘and local legal representation is still an advantage.’ So much so, that MME advises clients litigating in another canton that they should also instruct a local firm. Others agree that some firms may still prefer to use local lawyers for the same reasons, but not in situations where Zürich lawyers are litigating in locations such as Geneva or Zug. ‘This will only happen in the exceptionally rural areas of Switzerland,’ says PBK’s Walter Boss, ‘where, in any event, large cases are unlikely ever to be litigated.’

‘Switzerland remains a leading global centre for private banking, private wealth advisory and asset management.’
Jonathan Vanderkar, Appleby Global

‘It’s too early to know what effect it will have,’ says Patrick Sommer, managing partner at CMS von Erlach Henrici. ‘Clients are likely to respond warmly to it, but it’s not as if they’ve been phoning up telling us how great they think it is.’ Others say that the Code has so far produced a flurry of confusion, with the courts and lawyers extremely busy as they adjust to the new procedures.

More cases are needed to clarify how the Code fares in practice. Meanwhile, some lower court judges are unlikely to change how they approach procedure, waiting until the appeal courts issue precedent decisions that they can follow. ‘It will take a generation for the Code to take proper effect,’ says Nater’s Berger. Around 220 civil claims were lodged in Geneva at the very end of December by local law firms. By doing so, they knew that, at least until the end of the first instance case, they could take advantage of the old rules that the lawyers were used to.

Invasion

With Switzerland’s legal community slowly beginning to mirror its Anglo-Saxon counterparts through partner moves, incorporated law firms and a harmonised litigation system, is it finally time for foreign law firms to storm the market?

Although most commentators do not expect a swathe of international legal practices to land in Switzerland because of the unified procedural rules, foreign law firms are increasingly interested in the Swiss market. ‘Look at the IT outsourcing work that Swiss banks generate,’ says BCCC’s Manuel Bianchi della Porta. ‘Firms like Linklaters or Bird & Bird, to name a couple, have the adequate industry knowledge and expertise to outperform local firms for resource-intensive assignments.’

Nonetheless, Switzerland’s legal market is still too small to generate the sort of deal flows that most international law firms need from a jurisdiction. Plus the market is competitive with numerous excellent local practices, and with improved communications, many do not believe that the international practices have new reasons to set up offices in Switzerland. Even marketing can be carried out on a fly-in fly-out basis. ‘Any international firm would think twice before opening up an office in Switzerland,’ Bianchi della Porta says.

At Appleby Global, Zürich managing partner, Jonathan Vanderkar, says there’s a niche for a number of UK, US and offshore firms because the Swiss firms only advise on Swiss law. ‘Switzerland remains a leading global centre for private banking, private wealth advisory and asset management,’ he says. As a result, there is a strong requirement for advice in relation to offshore trusts and foundations, private and business-related holding structures, and for offshore investment vehicles.

‘In ten years we jumped from 40 to 110 lawyers. Now we are around the 100 mark, but we intend to continue to grow.’
Rolf Auf der Maur, Vischer

Appleby opened its Zürich office in December 2008 and the local legal market did not immediately warm to the new arrival. Its toughest hurdle was gaining trust and acceptance in the Swiss market and among Swiss lawyers, many of whom suspected that they would compete with them on their own turf. ‘Since we have never had ambitions to practice Swiss law,’ says Vanderkar, ‘the suspicion was misplaced.’

Overseas firms have tended to set up a small office with a few people focusing on specialist areas. Private client specialist Withers opened in Geneva in 2005 to focus on cross-border international tax and trust services while Charles Russell’s Geneva branch also focuses on private client work. US practice King & Spalding entered Geneva in 2010, intent on expanding its international trade practice.

Having started in Geneva, Withers is determined to expand its Swiss presence. Its Zürich office is due to open in April 2011 and will have lawyers providing US, UK, Russian and cross-border international tax and trust services. UK tax partner Judith Ingham, and US tax partner Jay Rubinstein, will relocate from the Geneva office to Zürich, along with Russian specialist Olga Boltenko. Geneva-based managing director, Justine Markovitz, will become head of Swiss operations.

Ingham points out that the Geneva and Zürich markets are quite different, with high-net-worth individuals from Russia, Eastern Europe and Israel particularly attracted to Zürich (see box, ‘A place in the hills’, above). The move has not gone unnoticed by the local market. Pestalozzi’s Furter says that Zürich’s private banking sector is becoming increasingly important as high-net-worth individuals move there. ‘Withers’ recent announcement is also testament to this,’ he adds.

‘In large firms that operate like huge industries, often the lawyers are not good at thinking outside of their practice areas.’

Georg Umbricht, Umbricht

Sonnenschein Nath & Rosenthal also opened in Switzerland in late 2008, when it absorbed Zürich boutique Bloch&Partner and local partners now point to obvious advantages from the US firm’s merger last year with Denton Wilde Sapte. Dentons adds not only a large London offering but also a strong presence in the Middle East. In Switzerland the combined firm is now focused on growing in Zürich by hiring Swiss-qualified general commercial lawyers. It is already in the latter stages of making a significant lateral hire.

Not every international merger has ended in the same way. When Hogan & Hartson merged with Lovells in 2010, the legacy Hogan lawyers in Geneva turned their back on the combined business. ‘From our perspective, there was no upside to staying with the two legacy firms that became Hogan Lovells,’ says Akin Gump’s Adams. ‘To us, this looked almost as much like a global branding exercise as it did a real merger. We had been practising law for so long that we figured we ought to decide the best configuration in which to pursue and enhance our careers.’

In the build-up to the merger, Hogan’s Geneva office was contacted by Akin Gump, which was looking for a credible, well-regarded international arbitration team. ‘We liked what we saw,’ says Adams. So on 1 May 2010, while Hogan Lovells was celebrating its new future, the Geneva lawyers jumped ship for Akin Gump.

Like several of the international firms, the US practice does not consider itself to be in direct competition with local firms. ‘Our significant international arbitration practice happens to be headquartered in Geneva,’ says partner Michael Stepek, ‘but is by no means limited to case venues in Switzerland or to disputes arising out of Swiss law contracts.’

If more international firms do come, they are unlikely to find Swiss firms interested in merging. Inevitably, the local players would lose a lot of business if they were only able to work with one international practice.

‘If large Swiss firms like ours merged with an international practice,’ says NKF’s Philippe Weber, ‘it would be difficult for the flow of work from that firm to compensate for the loss of mandates from all the others. Just yesterday I was working on different matters with five foreign, tier-one firms.’

‘Swiss lawyers are no longer taking it as a given that they will stay with the same law firm for life.’

Balz Hösly, MME | Partners

Many think that it would be more likely for the international practices to take on teams of lawyers that they could set up new operations with. But at FBT, which is frequently instructed on France-related mandates, Tsimaratos does not dismiss the merger concept entirely. ‘Even now, if a law firm has sufficient flows of work with one country and merges with a particularly strong firm, then the fact that it will be tied to that law practice becomes less important,’ he says.

Notwithstanding the catalogue of reasons to stay away, several Swiss lawyers mention rumours of Allen & Overy opening up in Switzerland, although a spokesperson for the Magic Circle firm insists that there are no plans to launch an office. If a large, global firm does open up in Switzerland, and merges, or takes an important team from a local practice, then it could really shake up the market.

Local firms are also expanding their geographical reach. Although several Zürich practices have regularly gone beyond their own cantonal borders, often to Geneva, in January 2010 Lalive became the first Geneva firm to open a greenfield office in Zürich. Typically firms that have entered either market have done so through a merger. Lalive’s opening in Zürich was driven by its clients demanding the firm’s presence in the German-speaking centre. Troller believes that this move is further evidence of the continued unification of the Swiss legal market and that it gives the firm an edge when assisting clients nationwide. The move looks to have paid off, with five lawyers in Zürich, and the firm is already considering hiring more.

Some think that with the new uniform Code in place, other Geneva firms may get ideas about opening up in Zürich. But as far as transactional work is concerned, most do not expect a trend to develop. Zürich is well served by local lawyers; and so long as you have practitioners who are proficient in German, transactions can be conducted on the German side without a presence on the ground.

The future is not Orange

It is also the quality of cross-border mandates requiring top-level local advice that are testament to the Swiss legal market’s place on the world stage. One such transaction was the attempt by mobile operator Orange, owned by France Telecom, to buy TDC’s Sunrise. Unfortunately, the Swiss antitrust authorities scuppered the proposal, fearing the deal would lead to a collective dominance situation in Switzerland.

Although an appeal was filed, it was withdrawn because appeals procedures take between 12 and 18 months. Unusually for the appeals court it declared that the appeal would have had a good chance of success.

‘Clients are likely to respond warmly to the Code, but it’s not as if they’ve been phoning up telling us how great they think it is.’
Patrick Sommer, CMS von Erlach Henrici

The proposed deal involved a number of the country’s top legal advisers, including Lenz & Staehelin and US firm Simpson Thacher & Bartlett, as Swiss and international counsel for Sunrise, while NKF’s Weber headed the M&A team for Orange. His regulatory partners András Gurovits Kohli and Nicolas Birkhäuser covered the telecom and antitrust regulation aspects.

With Orange out of the picture, buyout house CVC stepped in to acquire Sunrise for approximately CHF3.3bn. ‘It was probably the largest buyout in Europe in 2010’, says NKF’s Weber. The acquisition was financed by equity, high-yield notes and syndicated loans. CVC was advised by US firm Latham & Watkins as international counsel and Homburger as local adviser.

Cravath, Swaine & Moore advised the banks, including Deutsche Bank and BNP Paribas, as US counsel in connection with the high-yield aspects, while A&O was UK counsel to the banks on the syndicated loan. Weber again led the NKF team, which acted as Swiss counsel in the high-yield and syndicated loan. Simpson and Lenz & Staehelin again represented TDC. The CVC deal was also significant because it was the first sizeable private equity acquisition in Switzerland for some time.

Swiss drugmaker Novartis has also been on the acquisition trail. In 2009, it bought a 25% stake in eyecare company Alcon and exercised its option to buy an additional 52% from Nestlé for $28.1bn, increasing its stake in Alcon to 77%. At the time, Homburger advised Nestlé on Swiss law.

But Basel-based Novartis also declared an interest in the remaining 23%, owned by minority shareholders. The minority shareholders claimed that the offer was too low and that they were not being treated equally. Had they accepted the $153 per share offered, they would have been paid less per share than Novartis’ main shareholder, Nestlé. ‘The minority shareholders were interested either in blocking the envisaged merger or in receiving higher consideration,’ Berger tells LB. ‘But once again, it was shown that a minority shareholder is, according to Swiss law, in a weak position,’ he adds.

‘Firms like Linklaters have the expertise to outperform local firms for resource-intensive assignments.’
Manuel Bianchi della Porta, BCCC

Cut to December 2010 and Alcon announced that its board of directors, acting on a recommendation from its independent director committee, approved a merger agreement with Novartis. The drug giant agreed to pay $12.9bn for the remaining Alcon shares at the same average price of $168 per share that it paid to Nestlé. Homburger advised Alcon on Swiss law, while A&O and Bär & Karrer represented Novartis. Pestalozzi’s Jakob Hoehn and Christoph Lang led the team acting for Alcon’s independent director committee.

But with big-ticket deals like CVC and Novartis scarce in the current economic climate, Swiss firms are casting the net wide for instructions. Regulatory work is an area several practices have invested in. Because of the establishment of the Federal Administration Court in 2007, which handles the appeal stages, public regulatory litigation has been predicted to grow, particularly in the energy, life sciences and telecommunications sectors.

Vischer has managed to build up a significant market share in this space, while meyerlustenberger is acting on more energy law matters than ever before. Froriep Renggli has also been investing in the regulatory space, with partner Raffaele Rossetti joining the firm after eight years with Switzerland’s financial regulator, FINMA.

Because of its recent troubles, Switzerland’s banking sector is also crying out for lawyers with regulatory skills. ‘Regulation is the key word,’ says Thomas Goossens, a managing associate at BCCC. In 2010, FINMA issued its rules on legal risks in cross-border private client business. These are meant to ensure that Swiss banks monitor the legal and tax risks of their operations in foreign jurisdictions. ‘Swiss banks have been obliged to conduct due diligence to ensure that their activities in foreign markets comply with domestic laws,’ says Frédérique Bensahel, a partner at FBT. ‘This has forced banks to revisit their approach.’

Consequently, regulatory lawyers in Switzerland will no longer only have to advise their clients on Swiss financial regulation, but they will need to have a good understanding of all the regulation coming out of Europe and the US. The flip side is that because of the extra compliance work and cost, some banking activities such as the establishment of successionary trusts may disappear from Switzerland (see box, ‘State of health’, page 92).

Unsurprisingly, litigation continues to drive a lot of work. ‘People feel prepared to go to court right now,’ says CMS’s Sommer. ‘Post-crisis, there’s a lot of cleaning up to do.’ Lalive has been acting on investment disputes, recently representing a Fortune 500 company with a head office in Switzerland in relation to certain claims in South America. Others say that, rather than litigate, company executives prefer to settle their disputes in times of crisis or economic insecurity. As elsewhere, losses relating to the Lehman Brothers’ insolvency and the Madoff fraud have generated a lot of litigation.

Large, medium or small?

As to which firms are likely to fare best in a more unified, more internationally focused legal market, some observers believe that mid-sized practices are losing access to certain clients because of the slowdown in private equity and M&A work. Others say that the continued evolution and concentration process of the banking industry means that some medium- and small-sized law firms may suffer because of the decline in banking work. ‘Partners in banking law boutiques used to sit on the boards of banks’ offshore clients,’ says Schellenberg’s Jeanneret, ‘but that may become a thing of the past. After the UBS affair banks have lost business.’ Consequently, so have some law firms, which could struggle, seeing as they still have to maintain the same cost structures in relation to rents, salaries and insurance.

Further consolidation among smaller firms is therefore widely anticipated. It has already begun in some quarters. Bratschi Wiederkehr & Buob completed a three-way merger in 2009, and Zürich and Berne firm Kellerhals Hess joined forces with Basel-based Christen Rickli Partner to form Kellerhals.

But for the firms still looking for critical mass, increased headcount does not necessarily equate to an improvement in market position. ‘They have to attract the best talent at a time when there is more likelihood of ambitious lawyers moving to large established firms,’ NKF’s Weber says.

‘Mergers between law firms are a very delicate undertaking. Language barriers and different cultures can aggravate the difficulties.’
Matthew Reiter, Bär & Karrer

Many large firms maintain that they actually benefited from the crisis and have come out stronger. This is because clients tended to use the leading firms for complex matters. That said, the large firms should also watch out. Some Swiss lawyers are increasingly specialising in niche areas, such as family, inheritance, insurance and liability, construction and labour law, with some individuals and teams feeling more confident about spinning off from large firms by themselves to focus on specialist areas.

Others warn against over-specialisation in general. ‘In those large firms that operate like huge industries, the lawyers tend to specialise too early,’ says Georg Umbricht of Umbricht Attorneys At Law. ‘Often they are not good at thinking outside of their narrow practice areas.’ It can be difficult for such lawyers to build up a broad client base and this can be a problem when they make the leap to partnership.

Certainly, the personal touch is crucial for smaller practices. When private clients make the rounds of various law firms, one question they often ask Umbricht is: ‘When I call the office, will I be instantly recognised by my voice? They expect an extremely high level of personal attention.’

Whatever the successful future strategy for Swiss law firms, the global downturn shows how important it is that Switzerland’s legal market continues to evolve from its island mentality. Even though Switzerland is not in the EU, it is impacted by its neighbours’ economies and because of the various crises in several European countries, many commentators expect 2011 to be a difficult year. Looking ahead, partners at full-service firms maintain that it is crucial for firms to be carefully balanced between transactional work and dispute resolution. While happily reporting that Schellenberg has had its best year ever, Jeanneret predicts that the successful firms of the future will be the well-managed ones.

In spite of recent turmoil and apprehension over the future, most of Switzerland’s top practitioners are confident that the country’s legal community will pull through using tried and tested methods, as well as a few new ones. ‘Remember that Switzerland’s second name is pragmatism,’ Homburger’s Dasser comments. LB

julian.matteucci@legalease.co.uk