With Barclays’ GC Mark Harding recently announcing his retirement, the search is on to replace one of the biggest jobs in City law. Legal Business assesses the much-changed role of bank legal heads in the post-Lehman world
When news broke in February that Mark Harding, general counsel (GC) for Barclays, was resigning after ten years in the top post, it sent ripples through the City profession. In replacing arguably the most high-profile GC in the country, the market is divided over whether Barclays should recruit internally or from private practice. The professional world that Harding has dominated for so long has changed almost beyond recognition. In filling those shoes, Barclays will be looking for much more than a leading corporate lawyer.
In many ways, the reaction to Harding’s departure says much about the rise in prominence that in-house lawyers have attained since he took on the job, especially in a banking sector that has been hit by a wall of regulation and tougher enforcement activity since the banking crisis struck over four years ago.
The irony for the most senior in-house lawyers is that greater demands have in many cases increased their job satisfaction – and financial rewards.
Former Clifford Chance senior partner Stuart Popham QC, now vice chairman of EMEA banking at Citigroup, is clear that the banking crisis has pushed GCs near the top of the financial services hierarchy, shifting substantively from a dynamic during the boom when in-house lawyers were viewed primarily as part of deal execution. ‘Nowadays, the GC at the investment bank sits above his legal team and next to the CEO,’ he says. ‘Lawyers at the bank are employees like anyone else, but the GC’s status is growing in importance.’
The elevated status of banking GCs was one of the many unintended consequences of the financial crisis, with GCs finding a far greater role in terms of managing risk and compliance issues, with a particular premium on identifying potential problems ahead of time, rather than the traditional role of reacting to legal problems as they present themselves.
Such a role – and the greater importance banks are putting on managing risk in all its forms – obviously puts current in-house counsel closer to top level decision-making, meaning the modern banking GC is part in-house lawyer, part adviser to the board and a first port of call when the bank is in reputational peril.
The collapse of the financial markets in 2008 put banks under intense scrutiny and it fell to GCs to quickly master the complex regulations their banks would have to meet. According to Popham: ‘GCs are being hit by regulations in every size, shape and form – there’s been more published since 2007 than one person could read in a lifetime.’
Peter Kurer, a senior business strategist at BLR & Partners and a former chairman and group GC at UBS, says: ‘With the banking crisis and the additional new regulations, the requirement to have a strong GC has become more important.’
A different environment demands different skills. There is far more pressure on legal heads to be effective ‘politicians’ and strategists. The good news is that – alongside rising influence – greater responsibility means that the rewards on offer are significant and in many cases rising sharply.
So while there has been unprecedented pressure over the last five years at investment banks in terms of pushing down on costs of work being sent to external counsel, for the top in-house roles in banking, overall remuneration packages have risen over the last five years.
True, the reduction in bonus pools has meant that more junior lawyers in investment banks have often seen their earnings slide since 2008, especially in transactionally driven areas like structured products, but for senior counsel and the mounting numbers tasked with risk and compliance, the picture is much brighter.
When Harding joined Barclays from Clifford Chance in 2003, a senior partner at a top London firm would generally easily out-earn the kind of packages on offer at even prestigious bluechips.
Step forward to 2013 and such roles in banking can match or even exceed that on offer in private practice. (A Barclays filing on 20 March showed that Harding was this year awarded £3.76m worth of shares under a long-term incentives plan, not including any salary or other elements of remuneration. Harding was one of nine executives awarded shares with a total value of £40.2m.)
‘The requirements for the guy who will replace Mark Harding are much tougher and harder than they would have been ten years ago,’ says Kurer. ‘On the other hand, a GC at an investment bank makes more money now than a partner at a Magic Circle firm – and rightly so. It’s simply a tougher job and you manage people in a difficult environment.’
‘It isn’t necessarily true that the best technical lawyer gets the job,’ says Chris Vaughan, chief corporate officer and former GC at Balfour Beatty. ‘For this role, you’ve got to be someone that helps set the benchmark, or the culture, in the organisation and be very conscious of doing the right thing, and not just what’s legal.’
New regime
Doing the right thing has been a key area of attention for banks of late and the regulatory framework has shifted accordingly. In the UK a revised regime came into effect on 1 April through the new Financial Services Act 2012, which abolishes the Financial Services Authority (FSA) and hands over power to the Bank of England to monitor financial institutions.
This will then be transferred to the Prudential Regulation Authority (PRA), which will be part of the Bank of England and responsible for the supervision of banks, building societies and 1,700 financial services firms in total. An independent ‘conduct of business’ regulator, the Financial Conduct Authority, will also be introduced with ‘product intervention rules’ to ban or restrict any financial products without consultation.
The government has also said that it will avoid ‘tick-box compliance’ and that the new authorities will instead ‘foster a regulatory culture of judgement, expertise and proactive supervision’. A number of banks, including Barclays and UBS, have already received record fines for Libor-rigging, respectively £290m and $1.4bn, and a string of other international banks are expected to face fines for Libor manipulation. Recent months have shown plenty of evidence of the mounting regulatory pressure on international banks with Standard Chartered in August agreeing a $340m settlement with a US agency over allegations that it had breached US sanctions against Iran, while HSBC was forced to pay $1.9bn to settle allegations of money laundering in the US. In addition, HSBC chief executive Stuart Gulliver last year announced that the bank was to double the amount it spends on compliance to $400m.
‘Nowadays, the GC at the investment bank sits above his legal team and next to the CEO. The GC’s status is growing in importance.’
Stuart Popham QC, Citigroup
Signs of the resulting premium being placed on regulatory skills in in-house roles can be seen in recent appointments, with Lloyds Banking Group recently appointing former FSA legal head Andrew Whittaker as its new group GC, while Barclays last year also named former FSA chief executive Hector Sants to the newly-created head of compliance role.
The latest challenge facing in-house legal teams was news confirmed last month that the European Commission is to force banks to cap staff bonuses at 100% of salary, a controversial measure that is expected to lead to challenges from financial institutions.
But Philip Quirk, EMEA GC at Morgan Stanley, says that although the landscape has changed, the fundamental demands of the job are the same. ‘In-house counsel have to have good antennae to spot the issues of the day and those that are likely to materialise. We increasingly look for lawyers who think in those terms and respond to that environment. A forward-looking response to those issues in terms of developing skills and providing training is important. Lawyers come in different shapes and sizes and some are happiest doing deals rather than taking on more of an advisory function. Our group trends to the advisory model. It is a particular skillset. Not everyone is wired that way, or interested in doing that.’
Kurer says that in the ‘new regime’ there are three elements that are intertwined: one is aggressive regulatory pressure post-crisis, another is legal risk (which has increased generally over the last three decades thanks to more investigation and litigation). This leads to more cost pressures for GCs, he says, adding: ‘Hence general counsel have to do more for less.’
The third element, reputational risk, is a much broader concept than pure legal risk, but one that in-house counsel have become increasingly acquainted with. Kurer says the best advice he could offer an investment banking GC is to take management skills very seriously. ‘You must know how to manage things and thoroughly understand the risks inherent in the business of your company. It is no longer enough just to be a good lawyer.’
Law and compliance
Given the size of global investment banks, not all GCs are in charge of the compliance function. The GC is likely to have another senior colleague who runs that activity or a bank may structure compliance with an entirely separate board reporting line. ‘Although the overall legal function is the responsibility of the GC they are more like the “conductor” than “lead player” in the orchestra,’ says Popham. ‘The control function is ultimately the responsibility of the GC, but he has a team of specialists helping him.’
‘Over the past decade, there has been an evolution towards more robust corporate governance,’ says Quirk. ‘This is expected by all our stakeholders, including clients, employees, shareholders and regulators and requires high-quality in-house advice. Over the past couple of years, we have been allocating more senior resources to that area. We need the right people as there is a real need to have deep, engaged interaction with those who sit on our boards and who have corporate governance responsibilities.’
Maria Leistner, managing director and EMEA GC at Credit Suisse, is a strong advocate of drawing together legal work and compliance. She has been in her current role for three years and it involves advising the chief executive of the EMEA region and other senior regional and divisional management as well as the boards of the UK-based entities. She goes so far as to encourage members of her team to obtain regulatory and compliance skills as the expanding role of the in-house lawyer becomes more intrinsically linked to corporate governance matters.
‘You can say that today you are not just a trusted legal adviser, but also responsible for advising on a variety of matters, such as compliance, regulatory and reputational risks,’ she says. ‘These days I do not know if there are any lawyers that do purely legal work – the lawyers in-house are also predominantly risk managers in addition to being facilitators.’
At the time of writing, there is concern among the legal community over how much responsibility a GC will take when a major bank inevitably finds itself mired in litigation, regulatory actions or just controversy. There are no fast rules on what line to take, as there is no evidence of any GCs in the banking industry being punished, but the concern is still real. There have been some examples of GCs falling on their swords and resigning when their company becomes the focus of regulatory action, though largely these have been outside the banking sector.
It seems senior banking counsel are resigned to the fact that greater responsibility means they are more likely to face personal career consequences when things go wrong at their institution. But by the same token, more prominent roles within bluechip companies also strongly suggest that GCs can fall victim to the corporate shake-ups that often happen when a new chief executive joins with a mandate to overhaul a public company.
‘These days I do not know if there are any lawyers that do purely legal work – the lawyers in-house are also predominantly risk managers.’
Maria Leistner, Credit Suisse
In a changed world, GCs are more accountable for wrongdoing within banks, Leistner says. ‘Previously, the front office took sole responsibility but that has changed over recent years with senior legal counsel much more the centre of focus in such activities.’
Former Barclays deputy GC Jeremy Ogden says today’s banking GCs must have a greater focus on the ethics of a company and the role is about doing the right thing for customers and complying with the spirit of the law as much as the letter of the law.
‘This means having much more of an antenna, looking out for potential risks and anticipating ethical issues,’ says Ogden, who is currently associate director at consulting firm The 010 Group. ‘There’s always going to be this conflict between helping the company make a profit and being its conscience. This is a balancing act for any GC.’
Leistner points out that there is nowhere for a banking GC to hide in the current environment. ‘Today [the regulators] scrutinise everything we do and should do, as there are more stakeholders – including new governance bodies, executive bodies and regulators in several countries than ever before. This is a very different picture than before, and from a risk point of view, you don’t just do the legal thing, but the right thing. Banks are not always the villains but in today’s climate, we are more careful.’
Demanding role
Lee Doyle, banking partner at Ashurst and former head of the UK corporate bank and global restructuring legal team at The Royal Bank of Scotland, says that there has never been a more demanding time to be a GC at a large investment bank than now. He says: ‘With multiple stakeholders around you, it is exceptionally difficult as not only do you have to deal with this “flood” of new regulation, but also the threat of what’s coming next. Your executive is constantly looking at you to predict what’s going to happen.’
One banking GC says that money, terms and conditions are not the main drivers for getting the best GC candidates but ensuring you find someone with a philosophical mindset about the type of lawyer they want to be. ‘I don’t think I have ever interviewed a lawyer that came to me, and had [simultaneously] gone to Freshfields, and if they did I would ask them to decide what kind of lawyer they want to be,’ they say.
Barclays is unlikely to find a ready-made replacement for Harding – whoever comes in will experience pressure like never before. They will need to be ready and have decided whether the rewards outstrip the benefits.
‘It’s a much more fulfilling role than it was five to ten years ago,’ says Doyle. ‘Your influence is certainly far stronger than it was in the past.’ LB