A growing band of in-house counsel are taking on major projects with little or no support from outside advisers. How far can ambitious GCs push the envelope?
When asked why an in-house legal team would choose to handle the majority of its major projects in-house, head of legal at Marks & Spencer, Robert Ivens, turns the question on its head.
‘You have to look at this the other way round, that is, the first question has to be: “Why do we have to send work externally?” not “Can we do it internally?” Our function is a cost to the organisation, so the most effective way we can provide a service is by doing it in-house and that must be our first assumption.’
For many general counsel (GCs), acting as a kind of triage for work handed to external advisers does not fulfil the value of having a dedicated legal team. ‘If you’re just passing on work, you’re not adding value to the business,’ says Carolyn Jameson, GC of Skyscanner.
In our second annual in-house survey, published last October, 81% of respondents said they had a policy of retaining matters in-house, significantly up from 2012. But this desire – and sometimes need – to keep legal work within the business is pushed further by the in-house advisers interviewed for this piece, who have taken the lead on major projects for their companies, either entirely on their own or with external counsel taking only a limited or secondary role. The question is whether, as this approach gathers momentum, it can really work for large-scale matters.
Well out in front
According to Russell Johnstone, chief counsel in the TV legal team at BT, just 7% of the legal work associated with the launch of BT’s £1bn inaugural sports channel last year was outsourced to external counsel with the rest being managed by his in-house team. Johnstone grew his team from three to eight lawyers after BT acquired the rights to 38 Premier League games a season in June 2012.
‘We said: “If we really aggressively project manage this then we can manage it in-house”,’ says Johnstone. ‘We had 293 projects to do in 289 working days, so we had to complete one legal project on average every day for one year. We had about half a dozen massive deals and then it was volume work.’
However, there was a tipping point where the BT team had to look externally for help.
‘There were two categories of things we outsourced, firstly it was overflow because no matter how well you project manage it, there are times where you get points of contention where you have to deliver 20 deals in one week and it’s just not possible,’ he recalls.
The telecoms giant has also partnered with external firms for some of the large and complex technology and infrastructure deals. One example of this was with Olswang, which has recognised expertise in large-scale complex services agreements in the media sector.
‘When it came to doing our big productions services agreement, which is the deal we have with Sunset+Vine to do all the live Premier League production, it made sense that even though we had someone in-house, it was so big and complex we would need support, and partnering was the optimal way of doing it,’ adds Johnstone, who also used media law firms Sheridans to handle some of the sports rights acquisitions, and Wiggin in various instructions, while BT Group panel firm Bird & Bird also provided commercial advice on the project.
Johnstone, who was rated in Legal Business’ GC Power List: Rising Stars for 2014, estimates that his team ended up spending just 35% of the initial rough estimate he had calculated for outsourcing the project.
But Johnstone concedes he was nervous about whether BT could move fast enough to let him recruit and also whether there would be enough talented lawyers on the market at multiple levels.
‘It was a full-on year of people’s lives, there’s an element of having to go above and beyond but the people we got have the core skills in production and rights and talent and then they were really willing to cross-skill and up-skill and train their colleagues and partners. It is one of the most satisfying things, seeing everyone pull together as a properly integrated team at all levels,’ he adds.
Head first
Much like Johnstone, Skyscanner’s first-ever GC, Jameson, who took up her role last June, has been building headcount since she joined to handle, among other things, the legal work associated with the acquisition of a small hotel company in Spain by the online passenger flight search company, which has recently expanded to offer hotel and car hire meta-search. Jameson has now grown her team to six lawyers and one trainee, a level that is currently sufficient for the state of the company, but which may need to expand again to fit in with the fast-growing business.
‘Bringing in external help is more a headcount issue than anything else,’ she says. ‘I would always advocate in-house teams do the majority of work on anything that crops up, whether on major or smaller pieces. You have the advantage of understanding the business, so essentially there is no reason not to. In-house lawyers have the same training as in private practice, but also the resources available these days are so good.’
Jameson says her team ‘basically did everything’ on the Spanish acquisition, from due diligence to negotiating the sale and purchase agreement (SPA). ‘We used an external firm for extra heads to manage due diligence, and on the negotiation of the SPA I did end up taking one of the associates along with me, but that was more so that they could do the marking up while we did the negotiating.’
The biggest challenge for Skyscanner in this deal – which is likely to be a recurring theme considering the nature of the global travel search company’s business – was having a different jurisdiction to contend with.
‘For Spanish employment law, for example, I went off and asked something specific about that piece, but checked myself before and then got them to check that I’d got the understanding right as opposed to getting them to do it,’ says Jameson.
‘It’s really important to work like this, it’s what makes the job rewarding and how you keep learning. It keeps the team motivated and moving forward,’ she adds.
Majority rules
For some, the size and breadth of their in-house department doesn’t warrant external help even on some larger projects, with all required bases already covered within the organisation. This is the case at Aviva, where senior counsel Clair Marshall has led a UK and Ireland team on an ongoing basis in its role in ensuring the insurance giant complies with the US 2010 Foreign Account Tax Compliance Act (FATCA) – which prevents US persons from using foreign products to avoid tax – without any help from outside counsel.
‘We could have used external help for implementing FATCA, but they would have had to take time getting to understand the intricacies of our systems and policies, how they are administered, by whom and where – all of that takes a long time to get up to speed,’ she says. ‘We felt we were better placed to understand our business and products, and the way our business is set up. There are lots of consultants who could help – some lawyers, some not – and they could give very high-level guidance, but we didn’t think they would have the same level of granularity or understanding of our business that we as internal counsel had,’ she adds.
For Barry Matthews, director of legal affairs and third-party sales relationships at ITV, being handed commercial responsibility for the broadcaster’s third-party sales relationships as well as legal has made negotiating agreements a much more streamlined affair, leading to his team handling all ITV’s sales-related and commercial legal work ahead of the launch of Northern Irish channel UTV in the Republic of Ireland in early 2015.
‘For the last ten years I have provided advice to the commercial team, so when one of our senior directors retired a year ago, I was given commercial responsibility as well as being the lead legal adviser for our third-party sales relationships, which makes negotiating agreements much easier because you are not required to confer with a commercial lead – you just make the decision yourself within ITV’s overall commercial objectives,’ says Matthews. ‘We could have decided to outsource the legal work to a law firm to put together the sales agency agreement and all software licensing, but because we now have both legal and commercial responsibility, it made no sense. I’ve worked very closely with the commercial team at UTV to piece together how their UK sales operation is going to work, then drafted, negotiated and agreed the deal directly with them. The speed of putting that together is increased because a layer of the process is removed.’
For the times when the ITV legal team – which is based primarily in the UK, with a presence in Los Angeles and New York, as well as lawyers in Australasia, Hong Kong, Germany and the Nordics – needs additional assistance, the ITV legal team has made strides in putting together an alignment programme, which embeds panel law firms and preferred advisers into ITV. The legal team counts Wiggin, Slaughter and May, Squire Sanders, Olswang, Hogan Lovells, Charles Russell, Reed Smith and DLA Piper among its preferred law firms, with two additional preferred adviser relationships with Martin Davies, a litigation partner at Quinn Emanuel Urquhart & Sullivan and IP partner Richard Dickinson at Arnold & Porter.
‘If we require a particular specialism that we do not carry as part of our in-house function or there is a period of peak activity, it is easy to bring someone in because we’ve put in place education and development programmes, which keep our panel firms up to speed and enhance peer relationships across the teams to maintain the feeling of one legal team made up of our in-house and panel firm advisers.
‘We have also set up panel firm lawyers in areas of ITV through pre-introducing them to commercial colleagues and providing them with ITV e-mail accounts in order for them to act like legal SWAT teams during periods of high activity.
‘This has been particularly useful in our airtime business, where we have a surge of legal work for the first and second quarter of each year,’ says Matthews.
Aviva head of legal for UK general insurance, Howard Grand, uses private practice counsel as a kind of external adjudicator as he discusses leading his team on handling the majority of the legal work for an investigation by the Competition Commission (CC) into the private motor market, which looked into theories of harm that could affect insurance customers. In handling the investigation itself, Grand’s team has spent just 30% of the original estimate for external legal spend.
‘Where we have gone external, we have deliberately worked out what we think the position should be or what the answer is so we’re even controlling the output that they give. We’re looking to external firms who have done a lot of these investigations to say: how should we play this point? How should we develop this argument? Is there a certain point we’ve missed?
‘What the business wants is actually an external independent lawyer who can look at the issues and make sure it’s right, like an external adjudicator. It’s a second pair of eyes if you like, because external advisers have a wider perspective because they deal with many clients,’ says Grand, who led a team of ten lawyers in the competition team, and in turn reports to Aviva’s UK and Ireland general insurance GC, Tim Vickers.
‘We’ve had some hearings in front of the CC and the first time round we leant quite heavily on external lawyers for how to prepare and how to do it. With the second one, effectively I ran it myself and that worked fine.
‘What you find is that we understand the products, know the people in the business, and sometimes an external lawyer will confuse matters rather than take the issue forward. We’re very much the controlling interface between the external lawyers and the business,’ he adds.
Go your own way: the essential guide to handling major projects in-house
Do…
– Be commercially minded. Understand your business and form close relationships with commercial colleagues.
– Make a detailed workflow plan beforehand.
– Read, research and speak to others who have done a similar deal before attempting a project you have no experience of.
– Use a trusted external adviser as an independent adjudicator for work you have done, especially in grey areas of law or for complex pieces.
– Be prepared to outsource at points on a deal when the workflow becomes impossible to manage internally.
Don’t…
– Automatically ship work out. You might be surprised at how much you can manage in-house, even if you do occasionally turn to external advisers for a second opinion.
– Overcommit to building up headcount for a major project.
– Forget to have a back-up plan if you need external help so you have a ready-made SWAT team when needed.
– Avoid using local advice when operating in a different jurisdiction, even if it’s just to check things over.
– Litigate or attempt large M&A deals without a dedicated lawyer or team in-house.
Reaching the limit
But for Arvinder Mangat, sole legal adviser, GC and company secretary of online business insurance broker, Simply Business, handling the majority of the legal work on a complex, three-party transaction, which saw shareholder Brit Insurance, along with all founding shareholders, dispose of the business through a management buyout in 2013, was a challenge he wouldn’t attempt alone again.
‘The sale that we did last year was incredibly taxing. It’s a case of if we did it again, no matter how structured and organised you are, you can’t have just a GC doing it,’ says Mangat.
‘In the middle of the transaction I instructed two or three external lawyers who were desperately important for two months. On the other side – the purchasers and the sellers – they had a team of at least five [lawyers], and at points ten for a couple of months, and I was handling all of their queries. So you have a ten to one, and sometimes you have to go back to them and say: “are you really asking me this?”
‘The difficult bit is that you know that these guys are billing as much they can and the company has to pay for it. You have to make sure they understand that there is only one point on the other end, so you say: “you will get an answer by this date”; you absolutely always have to priority order, and then you suddenly realise what they actually think is most important,’ he adds.
For senior legal counsel at GE Oil & Gas Subsea Systems, Lilia Alexander, a hybrid method is preferable, whereby the bulk of the work is handled internally with just documentation checked for compliance with certain jurisdictions or purely as a risk management tool.
‘Even with the trend of more being handled in-house, there is always room for external lawyers. It is important to have those relationships because deals are increasingly more complex, and because of globalisation there is this cross-border aspect,’ says Alexander, who, during her time in various senior legal roles at Vestas Wind Systems, handled 90% of the legal work in-house on the wind turbine manufacturer’s €250m bilateral agreement with the European Investment Bank. In contrast, in its inaugural €600m eurobond issue, given the profile of the transaction and prospectus preparation, there was much more extensive external legal involvement.
Now at GE Subsea, the vast majority of legal work for energy procurement and construction projects around the world is also managed internally.
Some transactions, however, usually attract external involvement. ‘With M&A in particular, if you buy a technology company or a company in your supply chain, the vast majority of strategising around the transaction, intellectual property rights and technology assessment, and preparation and negotiation of the sales and purchase or asset purchase agreements, I would handle in-house. However, more often than not, the due diligence process necessitates involvement of external lawyers as they have the resources.
‘Sometimes it’s just not cost-effective to handle it in-house because this is their bread and butter – they have streams of people they can put on the job. I worked with Freshfields Bruckhaus Deringer and it would provide at short notice, and with lightning speed response rate, all the necessary resources to tap into, particularly senior people who have in-depth knowledge of the company and our business requiring minimal briefing,’ she adds.
Despite the trend for in-house counsel to manage all they can internally, it remains rare to run major projects in-house, even in large global legal teams.
And while the consensus among the ambitious in-house counsel interviewed for this piece was that with each new challenge conquered the desire increases to push further, it seems unlikely that private practitioners will be out of a job quite yet. LB
francesca.fanshawe@legalease.co.uk