While the economic downturn and subsequent public sector cuts have hit the region harder than most, Northern Ireland’s resilience is very much in evidence.
Client Survey Analysis
Responses to the Regional Insight survey show that Northern Irish businesses require a higher than average degree of advice when it comes to specific issues such as crisis management and reputational risk, cybersecurity, anti-bribery and corruption, and copyright and patent issues.
Many businesses are first generation, entrepreneurial enterprises that are seeking rapid growth. There is a very strong tradition of innovation and intellectual property driving businesses, something that’s as true for established engineering firms as for newer firms in the tech sector, so this continues to put copyright and patent issues high on the agenda. The high proportion of owner-managed and family-owned businesses tend to place a greater concern on issues of reputational risk and market perception than might be found in more corporatised structures.
The emerging commercial segment of Northern Ireland’s economy is also demonstrated by the substantial demand for finance and funding. Forty five percent of respondents identified the need for finance and funding as one of the main reasons for seeking external legal advice. This figure is only 28% for the UK as a whole.
The Northern Irish economy is further distinguished by the weight and influence of private equity. Our survey underlined the high proportion (52%) of respondents that work for companies that are privately owned or backed, this being compared to the UK regional average of just 27%. This may be partially explained by the success of the foreign direct investment environment as promoted by Invest Northern Ireland, the regional economic development agency, with many inward investors falling into the category of private equity.
Constant attention
It would appear that Northern Irish businesses require regular legal advice more than the rest of the UK. Fifty eight percent of respondents indicated that they needed frequent legal assistance rather than ad hoc advice, compared to an average of 45% of respondents across the UK.
Alan Taylor, managing partner of Arthur Cox’s Belfast office, believes that much of this can be explained by the employment law regime in Northern Ireland: ‘Of course, Northern Ireland has some significant legislative differences from the remainder of the UK, particularly in areas such as employment and equality. As a result, there is naturally a greater demand for advice. A London-based business can open an office in, say, Manchester or Cardiff and be comfortable that the legal function at head office understands the landscape. But a presence in Belfast or Derry/Londonderry will typically require a degree of external advice to make sure companies fully understand the legal framework here.’
Taylor comments: ‘Diversity has been a consideration in this jurisdiction long before it gained traction with the broader business community across the UK. Historic issues around promoting diversity and a strong focus on achieving a positive workforce balance explain the continuing focus on diversity matters in Northern Ireland, and this is an area where we are called on to provide a significant level of support and advice.’
Pro bono commitment is equally important in Northern Ireland, achieving an average priority score of 5.7/10 against a UK regional average of just 4.14/10.
Yet, typically, respondents are primarily concerned by the usual factors such as quality of legal advice, which receives the high score of 9.5/10, quality of commercial advice (9.14/10) and service delivery and responsiveness (9.05/10). ‘I think the ability to explain difficult legal concepts to a layperson is invaluable,’ says Peter Burnside, the managing partner of BDO Northern Ireland.
Mark Ellesmere, general counsel and company secretary at Northern Ireland Water, expresses similar sentiments: ‘We hold great store in terms of the quality of the advice that we receive, so it’s very frustrating from an in-house perspective if we are having to go back and, for example, correct drafts of correspondence or drafts of agreements or whatever, so quality I think certainly is key.’
When actually identifying firms that they can assess against these criteria, Northern Irish survey participants overwhelmingly rely on word-of-mouth recommendations, much more so than in the rest of the UK. Fifty nine percent of respondents seek recommendations from other businesses, compared to the UK average of only 32%. Taylor sees this on a regular basis: ‘Northern Ireland has a very close-knit business community, organisations do know one and other and historically there would be a strong emphasis on personal recommendations,’ he says.
chris.crowe@legalease.co.uk
Market View – Turning a corner
The last 12 months has been challenging for the Northern Ireland economy. As with some of the UK’s other regions, the recovery here has perhaps been a little slower in finding its initial momentum than has been the case in London and the South East of England.
However, from the activity that we have seen during the course of the last year, it’s clear that Northern Ireland has literally turned a corner and is now in a stronger position to move forward.
Of particular interest at the regional level, Northern Ireland is a strong proposition for global funds, with the result that there is more international financing and investment coming in now than at any time in the last couple of decades. Indeed, my banking and finance partners in Arthur Cox have seen a marked increase in their international funds work, and that level of investment is showing signs of sustainability for the medium to longer term which should translate into a more positive outlook for the region.
And there’s no doubting that Northern Ireland is now extremely well positioned on an international stage – we have been encouraged by the success of many homegrown indigenous companies.
Of course, it’s not just capital that is flowing to the region – there is a very significant level of foreign direct investment with companies locating sizeable elements of their business in Northern Ireland. There is an international buzz around the work being done by ambassadors for Northern Ireland, which we are seeing reflected in the instructions that we receive both from inward investors and for the indigenous businesses that are working alongside them.
The natural conclusion is to assume that the increasing international investment means Northern Ireland as a region will be increasingly connected to the rest of the world, and that Regional Insight reports such as this one may change in time as capital flows connect region to region and leave us all with an homogenised, mid-Atlantic form of business sentiment.
So it is very striking, and indeed very informative, to see some of the results that come out of this report, confirming what we continue to see when we are speaking to our clients: Northern Ireland in fact remains quite strongly distinguished from other regions of the UK.
What we have long known is that business leaders locally do still place a very strong emphasis on personal relationships and word-of-mouth recommendations. As a leading legal adviser in the region, Arthur Cox is fortunate that this plays to our strengths and the stock that we place in personal interaction.
Whether this trend will continue over coming generations remains to be seen, but for now this report shows that Northern Ireland as a region is navigating a very strong course towards increasing global relevance without sacrificing its personal touch.
Alan Taylor, managing partner, Arthur Cox Northern Ireland
Client profiles
Ciarán Fegan, GRAHAM
With operations throughout the UK and Ireland and an outlook that extends to Europe and beyond, construction, asset management and project investment firm GRAHAM cannot be pigeonholed as a ‘local’ operation. However, a Northern Irish provenance permeates the organisation, says head of legal services Ciarán Fegan: ‘An awful lot of what we do is based on personal relationships and personal interactions, which comes from that Celtic mentality of wanting to know who’s on the other side, to make sure that you’re doing what is right for them.’
This determines the legal team’s attitude when sifting through the skillsets of external law firms. ‘It may not be the determining factor,’ says Fegan, ‘but we put a lot of emphasis on personal relationships. Knowledge of the market is one thing, but knowledge of the personalities means an awful lot as well.’
Fegan says that the GRAHAM business has been fortunate in experiencing a fairly stable recession but that ‘in real terms there is still a chill factor, particularly on infrastructure’. In tough times disputes increase and that has translated to an increase in what Fegan terms ‘subcontractor activism’.
‘What we have seen, particularly in the last 24-30 months, is that you’re not getting that level of flexibility from your supply chain anymore. Your supply chain is much more ready to actually say: “No, sorry, we’re going to be very contractual about this.” So there’s a growth in disputes.’
Also at the forefront of Fegan’s mind are the proposed changes to public procurement legislation and the anticipated cases trying to test them. ‘For a while, Northern Ireland was a hotbed of procurement challenges – the Henry Brothers and the McLaughlin and Harvey cases and they both related to framework contracts which we were on and which had to be collapsed as a result of the litigation,’ he says. ‘So this is something where I’m being asked questions by directors in terms of what are the potential risks of the first few projects that come through this.’
Mark Ellesmere, Northern Ireland Water
Northern Ireland Water is in the middle of a transformation – from a government agency, which it was until 2007, to a government-owned company that is a non-departmental public body. This throws up legal and governance issues for general counsel and company secretary Mark Ellesmere, who comments: ‘It has the potential for conflict between how a fully functioning utility should operate, as opposed to how an arm’s-length body subject to public expenditure reviews and so on can operate.’
For Ellesmere and his team, the major issues are the ongoing price control with the independent regulator and procurement. ‘We procure regularly both in terms of capital and goods and services and we have found certainly the local market is very active in challenging procurement processes, and there is obviously the potential for court proceedings and all that this entails,’ he says.
When it comes to finding external legal advice, the organisation has a legal services framework, currently comprised of three lots. ‘Lot one we would regard as our strategic legal advisers, where we will be looking for high-quality advice and specific expertise in those areas,’ comments Ellesmere. ‘Lot two is more general day-to-day, where again it’s not economically effective for me to say to my litigation lawyer: “Here’s a case, you just go and run with it.” Lot three relates to personal injury claims – slips, trips and falls – so high-volume, low-value claims we would tend to outsource on the legal side.’
The in-house team comprises Ellesmere alongside three senior lawyers (one commercial, one litigation, and one property) and a paralegal. In terms of making the decision to go outside the team to law firms, Ellesmere’s approach could well change. ‘We’ve evolved, so when I first joined the organisation I felt it was better to have just one firm – so one size fits all,’ he says. ‘But as time has gone on, we felt it was more important that there was more of a spread.’
‘Certainly there are many instances where a local firm is a better fit from our perspective, particularly given our political situation and so on,’ he adds, pointing in particular to contentious matters. ‘But that’s not to say that we would exclude firms outside the jurisdiction.’
The major considerations, however, are quality, value for money, timeliness, and, of course, relationships. ‘If you have a connection with the people who are advising you, it often makes it a lot better from both parties’ perspectives,’ he says.
Peter Burnside, BDO Northern Ireland
Part of the BDO Group – the world’s fifth biggest accountancy firm – BDO Northern Ireland maintains a self-managed partnership, according to managing partner Peter Burnside. The firm’s clients are outward-looking – as is the Northern Irish business community generally, Burnside says – and are busy developing operations in China, Brazil and Africa.
However, he adds that BDO’s focus is on inward investment as well. ‘We also take every opportunity we can to encourage inward investors, so when we meet out of state businesses, we are always trying to redirect them back towards Northern Ireland as a place where they could base mobile operations.’
BDO’s legal needs are two-fold. As a professional services firm, it seeks advice on behalf of clients, as well as solutions to its own internal legal issues. For clients, IP issues are often paramount due to the growing knowledge-based economy in the region. ‘That’s where their research and development work takes them next, in terms of the commercialisation of new ideas,’ says Burnside.
As far as its own affairs go, with over 150 staff based in Northern Ireland, human resources issues appear often. In addition, BDO runs one of the UK’s largest groups of unauthorised unit trusts in-house, meaning: ‘We’re constantly working with regulatory issues regarding the Financial Conduct Authority and issues of managing an unusual corporate structure.’ The company retains an in-house legal team which handles documentation and project management, but when it comes to the specialist HR and regulatory issues generated in these areas, the group consults outside counsel.
When it comes to using external law firms, Burnside adopts a ‘very informal process’, facilitated by the compact nature of the market in Northern Ireland. ‘I can’t think of a law firm that we would use locally that’s not within walking distance,’ he says. This is largely down to the fact that employment law in Northern Ireland differs from UK law, making a regional perspective crucial. But business needs are also served very well locally. ‘The Northern Ireland marketplace tends to benefit from people who have trained as lawyers in England and practised for quite a few years, then returned home – so they keep filling up the gene pool,’ he says. The company does, however, tend to use London firms for regulatory issues.
He acknowledges that a law firm acting for a firm of accountants who don’t consider themselves lay people can be a challenge, especially as many will have completed law degrees before qualifying in accountancy. ‘We all think we know more about the law than our legal advisers. We are just the worst clients to have,’ says Burnside. ‘We really need someone who will tell us in a forceful fashion: “You need to take advice.” But we don’t want a lawyer working for us who is going to fall out with people just to prove how good a lawyer they are. We want somebody to be conciliatory – to make issues go away, without making them inflammatory.’
Raymond McGinley, Coca-Cola Hellenic Bottling Company
Coca-Cola Hellenic Bottling Company operates two separate trading companies in Northern Ireland and the Republic of Ireland, headquartered in Lisburn and Dublin, but Northern Ireland-based legal director Raymond McGinley has responsibility for both. The company is itself part of a global group with bases in 28 countries and a legal department for each. In each of these jurisdictions, says McGinley, the legal department ‘doesn’t simply work as a stand-alone legal advisory function’. Instead, the lawyers are fully immersed in the business and they are expected to work ‘as business partners’, he explains.
To this end, McGinley sits on the senior management team and his group prides itself on being progressive in a number of ways. ‘We benchmark how the legal department is performing, in much the same way as every other business unit within the company – it’s most unusual, I suppose, to see a balanced scorecard for an in-house legal function,’ McGinley says. In addition, he continues: ‘We participate in a number of projects which may not have a core legal requirement. But there’s a lot of added value in terms of what lawyers can bring to projects generally and also project management.’
Perhaps most uncommon of all is the team’s approach to training in the two-person legal department. ‘When I joined the company, one of the first things I did was to get us recognised by the Solicitors Regulation Authority as a training establishment,’ says McGinley. ‘This is an extremely complex and diverse business, and so there is a clear benefit to our business in being able to offer full in-house training. This is much the same as how the organisation operates for, say, its commercial, finance, HR or supply chain operations. It develops our people better for what is a challenging environment.’
But in addition, he says: ‘Although we’ve just completed the first training contract, the organisation is very committed to continuous development. So, our newly qualified lawyer now is in the process of completing the chartered company secretarial exams and gaining project management experience. Hellenic is excellent in encouraging transfer of skills within the group, and to that end that newly qualified lawyer has already started working in supply chain procurement and logistics within our supply chain team.’
Given this focus on upskilling in-house, ‘you can provide very solid and comprehensive business guidance and advice to the organisation without necessarily having to go externally’. This is especially pertinent because, as McGinley points out, external law firms simply cannot have ‘a granular knowledge of our business, or means to respond immediately to queries in an environment in which the legal department can often resemble a doctor’s surgery’.
But when the team does outsource, the individual personal relationships developed with external lawyers are considered more important than most other aspects. ‘One of the things that Hellenic prides itself on is the people side of things, so therefore how you engage your external advisers is no different to how we operate internally,’ he says. ‘You try to develop and nurture these relationships for the longer term because otherwise, the lack of continuity can be detrimental and disruptive to our business. One of the virtuous things about Hellenic is that whilst it is demanding, it is particularly loyal to its advisers.’
Michael Wilson, UTV Media
Belfast-based UTV Media operates television channel UTV, of which Michael Wilson is managing director. Chief among its current strategic aims is the January 2015 launch of UTV Ireland, to be based in Dublin. ‘It’s doubling the size of the business in a 12-month lead in,’ says Wilson.
UTV Media is one of the few plcs headquartered in Northern Ireland, and although this ‘takes it away from some of the opinion-formers,’ according to Wilson, the advantage of its location is that the company resists ‘a London-centric view of things’. In any case, the business is growing from its regional roots into a national and international company – through brands such as talkSPORT, the world’s biggest sports radio station, which is part of the group.
‘I’m a fan of face-to-face communication. I like to be able to either have a meeting in my office or walk around to their office to have a conversation because when we put work out it’s often so complicated and specialised,’ he explains. In-keeping with UTV’s desire ‘to support industries in Northern Ireland’, he finds it ‘useful to have someone in Northern Ireland that understands the wider picture’.
The company does go outside of the local area though, to firms in London and Dublin, although Wilson notes that Belfast is well-served for legal expertise: ‘Most of the partners we deal with here have cut their teeth in either international or London law firms, and have returned to Northern Ireland as partners. So actually we have a global, or certainly a UK and Ireland perspective.’
Results are all important. ‘I’m not saying that if there was a fail, we’d find a new law firm. But if there were multiple fails, we certainly would,’ he says. And when it comes to looking around for alternative providers or models, Wilson’s position is clear. ‘I’m not risk averse, but when I’m going to gamble, I want advice that says: “this is the risk you’re taking”; rather than me taking a risk with the advice.’
Ruth McAuley, Caterpillar
Caterpillar, a global manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and other products, has a significant manufacturing base in Northern Ireland. There it constructs generators for the Caterpillar and FG Wilson brands and builds other Caterpillar machines and components as well as fielding a sales and marketing function and a shared service centre. All of which means that corporate counsel Ruth McAuley supports a broad mix of the business from the Belfast office that she founded and leads herself.
The bulk of the work carried out by her team is commercial support for areas such as distribution – the FG Wilson brand alone has around 160 distributors across the globe, generating day-to-day legal issues. In addition to corporate/commercial work, compliance is a major focus, spanning export control, anti-bribery and antitrust, as well as regulatory work relating to products, litigation, employment and property. ‘We try to keep in-house the majority of what we do,’ says McAuley. ‘We’re best-placed to advise on our business, because we know it so intimately.’
The group goes to outside counsel for litigation matters, or for issues involving specific foreign jurisdictions. Employment and property are also areas that are outsourced. But just because a matter is sent to a law firm, this doesn’t mean it is forgotten. ‘I’ve been told that our approach is quite different from other in-house teams,’ she says. ‘We stay very closely involved. We are still leading the support – just with the input from our outside counsel.’
Caterpillar has a panel of law firms and supplements this with close contact between colleagues across the business who are able to recommend foreign counsel. On UK soil, McAuley finds that law firms outside London have an advantage: ‘If we are working with a regional law firm, we are a much bigger client for them than a Magic Circle firm in London,’ she says. Furthermore, longstanding relationships with firms in Northern Ireland itself mean that the team ‘doesn’t have to start from first base.’
However, Caterpillar’s legal needs aren’t always best-served by the traditional legal model, and so the team makes use of alternative legal outsourcing models for matters such as document review on larger projects. ‘We’re really driven by the best response and value for our internal clients,’ McAuley comments, ‘so we’re always on the lookout for new ways to do business.’
catherine.rodgers@legalease.co.uk
Economic overview
Considering the social and political unrest that has dogged Northern Ireland for much of the last 50 years, the most recent economic downturn has represented more of an irritation than a catastrophe. Even so, the effects of the financial crisis have been brutal: the UK government’s efforts to remodel the economy and put a greater accent on private sector influence have been especially hard on the region.
The Irish Congress of Trade Unions (ICTU) claims that Northern Ireland is the biggest victim of the Government’s economic rebalancing and expects 26,000 public sector jobs to have been cut by 2017. In 2008, the public sector accounted for more than 30% of employment in Northern Ireland, according to the Department of Finance and Personnel. By 2013, this figure had reduced to 27.6%. The public sector is still much larger as a percentage of the economy in Northern Ireland than other regions in the UK.
And while the UK as a whole is enjoying some fiscal resurgence, Northern Ireland is still waiting for the clouds to lift. In PwC’s latest Northern Ireland Economic Outlook, it indicates that UK unemployment fell by 30% in the year to July 2014, but by only 15% in Northern Ireland. It adds that Northern Ireland’s growth rate is the lowest of all 12 UK regions it tracks.
‘Against the rest of the UK, Northern Ireland is bumping along the bottom,’ admits Alan Taylor, the managing partner of Arthur Cox’s Belfast office. He adds that small-and-medium-sized enterprises account for a large part of the Northern Irish economy and that they simply don’t have the financial wherewithal to spend their way out of the recession, unlike large plcs that are able to utilise their balance sheets to initiate growth.
Northern Ireland’s nexus with its immediate neighbour, the Republic of Ireland, has not helped either. The Republic was devastated by the financial crisis, with Anglo Irish Bank being nationalised and Bank of Ireland and Allied Irish receiving multibillion-euro bailouts from the Irish government. Its significant property boom was flattened, and the shockwaves from Dublin hit Belfast. A sizeable proportion of companies in Northern Ireland have a real estate element to them, even if they are just principal investors.
Furthermore, the region doesn’t have the large export-based companies that the Republic does. It couldn’t just export its way out of a slump. Nor does it have the 12.5% corporate tax rate that attracts many of the world’s largest multinationals to Dublin.
A matter of perspective
Despite the economic hardship, commercial and transactional activity, including foreign investment, can only be encouraged by the steadier political and social climate in Northern Ireland in recent years. Immigration from other EU states has been a relatively new feature and demonstrates its newfound stability. Major investment from retail chains such as Tesco, Sainsbury’s and Asda have further illustrated the hunger for investment. According to the Belfast Telegraph, the three supermarket giants were among the top ten largest employers in Northern Ireland in 2013.
A more positive environment is heartening, even with Northern Ireland’s struggle to wriggle free of the economic downturn. Taylor says that he is representing more clients in more sectors and in more international deals. ‘I travel a lot more with clients than I used to,’ he remarks. Observers also note the influential role played by Invest Northern Ireland in attracting more foreign capital into the economy.
Coupled with a trimmer public sector, Northern Ireland’s commercial and industrial landscape has changed subtly over the years. Once the shipbuilding and industrial giant that gave us RMS Titanic, it has retained some of its maritime heritage through big corporate brands such as Harland and Wolff, though the company now concentrates much of its efforts on offshore wind and tidal turbines.
Today, food and agribusiness has become a central component of the business environment. Moy Park, the poultry farming and poultry processing company based in Craigavon, is now the largest private sector employer in Northern Ireland, with a 2012/13 turnover of £1.09bn. Another top-ten private sector employer is Dunbia, the Dungannon-based meat supplier.
Technology and innovation are increasingly apparent and, along with a highly educated population, means Northern Ireland is developing a strong services sector.
The legal industry is a classic example: while the local profession has largely stagnated due to the financial crisis, a number of international law firms have identified Belfast as an attractive location for back-office functions. Baker & McKenzie established its second global services centre in the capital in September 2014, adding to its operation in Manila. The centres handle routine legal work and provide business support services to the firm’s offices around the world. Herbert Smith Freehills has a document production unit in Belfast, while Allen & Overy runs a successful support services centre and legal services centre from there as well.
Taylor recognises why Northern Ireland is considered a prime location for such operations, including for document production and routine commoditised legal work: ‘We turn out quite a lot of law graduates here. These back-office functions do provide opportunities for those that can’t be absorbed into the local market.’
chris.crowe@legalease.co.uk