Understand Your Rights. Solve Your Legal Problems
Last month, the European Parliament once again strengthened its fight against financial crime and money laundering across the 28 member states with the introduction of the 5th Money Laundering Directive (5MLD). The directive, which feeds into the European Parliament’s wider plan to combat money laundering and terrorist financing across the continent, could directly impact law firms and comes amongst a flurry of activity that aims to increase transparency amongst companies and business owners.
One of the key focuses within 5MLD is the provision of open access to beneficial owners registers, an initiative designed to identify the true beneficiaries of companies and commerical property across the EU. By listing the ultimate company and property owners on an open national register, information between member states will be more readily available, helping law enforcement to identify potential illicit activity across the continent. It must be noted that some member states, including France and Germany, have already passed legislation as part of their compliance with 4MLD which means that the public will have restricted access to such registers.
The UK was already ahead of the curve in this respect with the introduction of the ‘Person with Significant Control’ initiative from Companies House in 2016, whereby organisations have to identify their PSC – another term for ‘beneficial owner’ – and record their details on a register. This approach is being taken one step further with UK Government announcing the introduction of the Foreign Owners’ Property Register, which aims to increase transparency in the UK property market and allow the authorities to identify properties owned by high risk entities, who may be using property purchases to launder money.
Given the UK’s exit from the European Union, it remains to be seen how much of 5MLD will be implemented into UK law, as the Sanctions and Anti-Money Laundering Act has just received Royal Assent to be introduced following the Brexit transition. Irrespective of the introduction of beneficial owner registers, UK organisations are already under obligation to identify the ultimate beneficial owner in a business transaction – the provisions in 5MLD are simply designed to make this easier in practice.
Shining the spotlight on the legal sector
The recent Panama Papers and Paradise Papers highlighted how critical transparency is – they revealed how companies and individuals hide behind complex tax and business structures both at home and in secrecy jurisdictions; information which only came to light because their respective law firms suffered a data breach. Provisions in 5MLD will potentially help to improve visibility and create greater transparency, however in reality, it may be more complex than that.
Even with greater transparency financial criminals can create very complex corporate structures which are hard to unravel, they use tools such as appointing associates, nominee shareholders and bearer shares and it takes a high level of skill to identify the real beneficial owners.
Requests for such complex corporate structures should be an automatic ‘red-flag’ for legal firms, indicating a higher risk scenario. In such circumstances it is critical that lawyers conduct enhanced due diligence against their clients. It is their responsibility to identify who the ultimate beneficial owner of a business is, and if the organisation is linked to entities which are classed as ‘higher risk’, such as politically exposed persons (PEPs). Not only does this have to take place at the client onboarding stage, lawyers must undertake the appropriate level of due diligence on an ongoing basis to ensure that their client information is up to date, and any emerging risks are identified.
For compliance to be a success, it needs to be a firm-wide responsibility and not just sit with the firm’s Money Laundering Reporting Officer (MLRO) or Money Laundering Compliance Officer (MLCO). Whilst the MLRO and MLCO are there to guide and support law firms on their path to compliance, it is the individual lawyers who may have to face the repurcussions from the SRA; the buck does not always stop with the firm itself.
Legal backing
Another area in which lawyers will be able to make a discernible difference is in the property market. It is evident that dirty money is making it into the sector, with the UK Government estimating that over £180 million of UK property has already been placed under criminal investigation as the suspected proceeds of corruption, with over three quarters of that related to money laundering via a secrecy jurisdiction.
That is just the tip of the iceberg, however, with recent figures stating that £4.4 billion of UK property may have been bought with suspicious wealth. With billions of pounds potentially still being laundered through the country’s property sector, it is vital that the lawyers acting as the gatekeeper to these transactions are conducting the appropriate levels of due diligence to identify the ultimate beneficial owners and flag any suspicious activity.
Whilst it is not yet clear how many of 5MLD’s changes will come into force in the UK, there is a strong likelihood that a majority of the measures within the directive will take shape in UK law in one form or another.
There is already a heightened regulatory appetite to ensure that money laundering requirements have been fully implemented by the legal sector, in line with the 2017 Money Laundering regulations; for example the SRA has conducted investigations into six law firms for not complying with money laundering regulations in the last year. As such lawyers must ensure that 5MLD and any other upcoming regulation is taken just as, if not more seriously, than previous legislation.
Michael Harris
Director
Financial Crime Compliance at LexisNexis® Risk Solutions
LexisNexis® Risk Solutions provides customers with solutions and decision tools that combine public and industry specific content with advanced technology and analytics to assist them in evaluating and predicting risk and enhancing operational efficiency. Our innovative solutions enable organisations to manage risks like identity theft, fraud, money laundering and terrorism, and prevent financial crimes, and insurance and government benefit scams.
Dreamlines, a German-headquartered online travel agent and tour operator, confirmed the acquisition of 100% of the share capital of Cruise 1st. Cruise 1st is a leading cruise retail brand with offices in Manchester, Sydney and Singapore. Cruise 1st has been operating as a combined web and call centre business since 2000 and opened the UK’s first interactive cruise retail store in the Lowry Shopping Centre, Manchester in January this year.
Surrey and London law firm Mundays advised the shareholders of Cruise 1st on the sale of the company to Dreamlines. The Mundays’ transaction team was led by Head of Corporate and Commercial, Neale Andrews who was supported by Corporate Senior Associate, Howard White.
Caspar Moore on behalf of the seller shareholders said, “The professionalism and good humour of Mundays LLP as they supported us through the sale process was invaluable. Neale and Howard guided us expertly through the negotiations and were instrumental in achieving a successful outcome.”
Travel specialist accountants White Hart Associates provided financial, tax and regulatory advice to Cruise 1st.
Dreamlines were represented by Dentons and Ernst Young.
The value of the transaction is not disclosed. The acquisition signals Dreamlines’ entry into the UK cruise market.
Algaia, a French company manufacturing algae-based products for the agriculture feed, personal care & nutraceutical industries, has raised €4 million ($4.7 million) in follow-on funding from its main shareholder.
Algaia, S.A., will accelerate its development and install a new specialty seaweed extract production unit in its Lannilis (Brittany-France) manufacturing facility dedicated to specialty algae extracts. The company’s main shareholder, Maabarot Products Ltd., infused Algaia with an additional €4 million in equity to support further expansion of its production facility and innovation centre located in Saint-Lo (Normandy-France).
Algaia works with local fishermen to harvest brown algae just a few kilometres from its plant in Brittany, France, to ensure a constant fresh local supply of seaweed biomass. The company is committed to control its supply and ensure its customers receive sustainable, high-quality products.
Algaia previously invested €5 million in 2017/2018 in its facilities in Lannilis, France, to develop new marine ingredients, improve processing, and increase capacity. The company intend to install a new specialty algae extract production line based on innovative technology developed in the past three years. The new production unit will expand Algaia’s portfolio beyond traditional seaweed extracts, adding functional liquid products for the Ag-tech market.
“We are pleased with the rapid growth of Algaia”, notes Eyal Shalmon, Chairman of Maabarot Products Ltd. “We continue to strive to position Algaia as a leader in the algae extracts market.”
“We are expanding both our portfolio and our geographical presence”, adds Fabrice Bohin, CEO of Algaia. “Innovative products and technologies are currently being developed for launch in the coming months. We also are strengthening our positions in the Americas where, as in Europe, we identified a growing interest in marine-derived ingredients. We are pleased to see our shareholders committed to Algaia’s growth plans and we look forward to continuing our growth both organically and via acquisition of specialty marine-based companies.”
From Australia to the UK, Trudi Charles has travelled the globe, sharing her legal knowledge as she goes. As Associate General Counsel for the internationally renowned BP, she shares how her and her team worked towards BP achieving their highest fiscal results for three years, what surprised her about the company and what the in-house legal industry can do to ensure the legal sector is more diverse.
What took you by surprise when you first came to the UK to study law at University of Oxford? The college system was very different from what I’d experienced as an undergraduate in Australia, not to mention the weather… tennis team practice in the snow was definitely a first. Having been in the inaugural intake of students at Bond University, which was still under construction when we started, it was amazing to find myself at Oxford surrounded by over 800 years of history and tradition.
What was the transition from being a student, to practising law like? What would you advise students to be aware of?
It feels like a very long time ago now, but one of the best pieces of advice I received was the importance of knowing your audience. A professor or partner may well be interested in your detailed and meticulously researched legal reasoning, but it’s highly unlikely many of your clients will be. As a client, what I value from external counsel is an understanding of our business, an ability to focus in on the issues that really matter and a willingness to take a view.
How did your experience at Herbert Smith Freehills prepare you for your role as Associate General Counsel?
HSF was a great training ground. I worked with some fantastic people on great transactions across a broad range of industries. It often felt like being thrown in at the deep end, but it taught me resilience and gave me the confidence to know that I’m ok with being outside of my comfort zone.
What attracted you to work in-house for BP? What aspects, which you weren’t expecting, were different when you first began your role there?
I joined BP over 14 years ago and it was absolutely the right decision. When I was looking to move in-house, I didn’t have a clear view of which sector I wanted to work in, but I knew I wanted a role where I’d be part of a business that respects and values its legal team, working with clever people at the forefront of their field. What I hadn’t appreciated was the sheer scope and scale of BP or that I would have the opportunity to reinvent myself several times over.
From this, how would to advise lawyers that are contemplating moving from law firm, to an -in-house role? What are key things to consider beforehand?
Do not underestimate the importance of culture. Try to gain an understanding of the core values of the organisation you are hoping to join, how it operates and the people you will be working with. Not only do you need to like what you do but also how you do it.
What are three key characteristics to have when managing a legal team?
Credibility, integrity and resilience.
You currently lead a global team: how do you keep on top off everything, especially when it is so internationally based?
I have a very strong team that I trust and constant communication is critical. Working across the different time zones makes this challenging, but technology has made a huge difference.
What do you see the future of supply and trading in the energy sector being like in ten years? Is there anything you are hoping to see change? Moreover, is there anything you are hoping will not change?
Supply and trading will become increasingly competitive with new market entrants and a higher volume of data available to draw insights from. Technology will also play an important role in the industry with tools such as satellite imagery and artificial intelligence enabling us to absorb and interpret data in an advanced manner. Organisations will also need to adapt to the changing market dynamics and geopolitical situations, as demand for energy shifts to developing geographies. We are hopeful that regulators will work to ensure that compliance requirements become better aligned and simplified across jurisdictions to help enable the growth of international businesses such as ours. BP supports the effort and continued focus from regulators in ensuring that systemic risks in the financial markets are mitigated.
With BP’s posting the highest fiscal results for three years, can you share ways in which you think your team contributed towards a good turnaround?
Because we work so closely with the businesses we support, our legal teams have a deep understanding of both our industry and BP, enabling us to provide business focussed solutions. My business colleagues in the supply and trading business describe the legal team as a source of competitive advantage. I can’t think of a better accolade than that.
How do you overcome the challenge of maintaining BP’s commercial face across a variety of countries, as well as adhering to the legal regulations in each of these jurisdictions?
It is absolutely a challenge, which is why we are hopeful that compliance requirements become better aligned and simplified across jurisdictions.
Our legal team is very international and we have lawyers qualified in many of the key jurisdictions with which we transact. We are also fortunate to have BP legal teams present in many countries across the globe. In the absence of this, we work closely with external counsel to ensure that we are in compliance with applicable local laws.
As chair of the BP Legal and Compliance Global Diversity and Inclusion Steering Committee, what do you think the in-house legal industry can do to ensure the legal industry is more diverse?
At BP, we recognise that to be competitive, we need the broadest talent pool available – and that our workforce should reflect the communities in which we live and work. This requires diversity and inclusion (D&I) to be central to all that we do and our legal executive team is fully committed to this. Over the past several years, working closely with HR, we have made numerous changes to our recruitment and talent management processes aimed at attracting, developing and retaining our talented and diverse workforce.
We also recognise that we have significant influence with our external counsel. Several years ago we introduced D&I criteria into our panel law firm selection process. We continue to actively challenge our panel firms on how they are staffing and managing matters as well as thinking about how they engage with BP generally, including collaborating in D&I related training and other activities. We have also recently undertaken meaningful steps to identify additional women and minority-owned law firms that may have the skills and resources we need in BP Legal.
Finally, can you share with Lawyer Monthly what you enjoy most about your role and why?
I love the variety and daily challenge of my role. I am never bored. I have the privilege of working in an incredibly exciting industry, with clever and dynamic people in a meritocratic culture where how you do things is just as important as the end result.
Trudi Charles,
Associate General Counsel
BP
Trudi Charles is the Associate General Counsel for BP’s supply and trading business, which is BP’s commercial face to the traded markets for oil, gas, power, petrochemicals, emissions, financial derivatives and currencies. She leads a global team of over 70 legal professionals based in London, Singapore, Chicago, Houston and Calgary, working with a business that operates across the entire value chain supporting BP’s upstream and downstream segments as well as offering its 12,000 customers a combination of physical supply and trading and innovative financial structures. Trudi is a member of the Executive teams for both the supply and trading business as well as for the BP Legal function. She also chairs the BP Legal & Compliance Global Diversity & Inclusion Steering Committee.
Originally from Australia, Trudi was part of the inaugural intake of students at Bond University on the Gold Coast where she studied law. She first moved to the UK to study the BCL at Oxford and went onto to join Herbert Smith Freehills, working as an associate in both the London and Hong Kong offices. Since joining BP plc in 2004 she has managed a number of global legal teams, supporting a wide range of BP businesses in the downstream and since 2013 in the supply and trading business.
BP is one of the world's leading integrated oil and gas companies. We operate in 70 countries worldwide. We find and produce oil and gas on land and offshore. We move energy around the globe. We manufacture and market fuels and raw materials used in thousands of everyday products, from mobile phones to food packaging.
Some cities stand out more than others when it comes to their style score — they are a shopper’s paradise and a fashion blogger’s haven. Zalando, an online fashion retailer, conducted their own research and created a list of the most elegant cities in the world. Together with Frank Wright, experts in male fashion and retailers of black derby shoes, we look at what makes them top destinations and how much it’ll cost you to visit
5. Florence, Italy
Florence has become more of a trendy city in the past decade — with more people discovering the wonderful art museums, colourful architecture and quaint shopping streets. The Italian city is home to big names such as Gucci and Salvatore Ferragamo as well as other big-name boutiques which can be found at Via Tornabuoni.
As well as the established world-famous designers, discover many local markets and tanneries — many of which are from a family of traders who have been creating leather goods for centuries. Find yourself an accessory that’s truly unique. There’s also the unmissable Ponte Vecchio for jewellery lovers — discover pieces set with precious gemstones that you’d struggle to find anywhere else.
See panoramic views of the city from rooftop bars such as The Grand Hotel Baglioni and the Torre Guelfa Hotel. Capture perfect shots of Florence from these spots whilst you enjoy a drink and soak up the atmosphere.
4. Venice, Italy
Famous for its picturesque waterways and scenic canals, Venice gives off vibes of luxury and class. Traditionally, the local craftsmen specialised in creating delicate masks that are worn for the Carnival of Venice and for their glass-blowing techniques. But, the Italian city is now becoming an attraction for fashion lovers with its prestigious showrooms and ateliers of big designers.
If you’re looking for designer boutiques, head towards St Mark’s Square, look out for the streets Calle delle Mercerie or Calle Larga XXII Marzo and shop to your hearts content. Discover charming side streets where you can buy custom made Venetian slippers and other garments unique to the city.
Venice ranked lesser than the other destinations according to Zalando, due to its lower number of fashion schools in the city and their rankings.
3. Vienna, Austria
The capital of Austria sits in the east of the country and is well-known for its elaborate palaces and historic buildings. And, according to Zalando, it’s the third most elegant city in the world. It lost some points due to their lower number of fashion weeks, expos and designers who have resided in the city.
You can find international luxury brands in the centre of the city, for example at Tuchlauben — a shopping area that is part of the Goldenes Quartier. For local designer garments, make your way towards Neubaugasse and Kirchengasse. Vienna is also home to the famous Lindengasse fashion mile — a street of small boutiques offering stylish fashion in the form of independent brands.
Discover local designer garments around Neubaugasse and Kirchengasse.
2. London, England
Home to Her Majesty and some of the biggest designers in the world, it comes with little surprise that London has made the top cut.
If you’re looking for quirky bars and restaurants to enjoy, London has it all. From enjoying a panoramic view of the city at The Shard to heading to smaller cocktail bars such as the award-winning Dirty Martini in Islington — this destination has something for everyone.
And, when it comes to the finer things in life, how could one forget Harrods? Seven floors and 330 departments dedicated to the only-the-best products in food, fashion, homeware and more. For outdoor browsing, head over to Bond Street for exclusive brands, designer fashion or Mayfair for luxurious goods and super exclusive restaurants.
1. Paris, France
Zalando ranked Paris first due to its high perception from fashion journalists and the number of events, expos and more that the city has been host to. Paris is lined with trendy neighbourhoods, including Montmarte — an area with a rich history and culture tucked away on a hill in the north of the city.
Considered to be the city of love, it’s impossible to believe that you’re in any old city when you’re strolling around Paris. If you’re looking for one-of-a-kind boutiques, head over to the famous Champs-Élysées which stretches from the place de la Concorde to the Arc de Triomphe. To get the full Parisian experience, head to rue Saint-Honoré which boasts the perfect balance of classic designers and Parisian concept stores.
Written by Amy Hodgetts, copywriter on behalf of Frank Wright.
https://www.zalando.co.uk/worlds-most-elegant-cities/#mec-methodology
www.skyscanner.net
www.lonelyplanet.com
http://www.telegraph.co.uk/travel/destinations/europe/austria/vienna/articles/vienna-shopping/
https://www.venice-italy-veneto.com/shopping-in-venice.html
https://www.visitlondon.com/things-to-do/shopping/luxury-shopping/top-10-luxury-shopping-destinations#Azx16eSvbePrhKY0.97
http://www.telegraph.co.uk/travel/untapped-destinations/new-fashion-capital-florence/
CS Wind, which is one of the world’s top wind tower manufacturers has agreed to purchase 100% shareholding of Ege Tower based in İzmir.
With production bases in Vietnam, China, Canada, UK, CS Wind aims to expand its business in Turkey as a strategic first step before penetrating into the neighbouring countries. The deal showcases strengthening of economic relations between South Korea and Turkey, especially before introduction of the Turkish government's incentivising plans in the renewable energy sector. The deal was closed as of June 2018, following satisfaction of corporate and regulatory requirements.
Paksoy was pleased to announce that M. Togan Turan (Partner), Serdar Ildırar (Senior Associate) and Ece Sarıca (Associate) advised CS Wind on this transaction.
If you were not aware of him before, you definitely are aware of him now: Harvey Weinstein – who has been charged with rape, a criminal sex act, sexual abuse and sexual misconduct for cases involving two women - has been plastered all over the papers over the past several months. And even though innocent until proven guilty remains true, with more than 75 women accusing Weinstein of wrongdoing and sexual offences, it is hard to not hold an opinion towards this case. Now in the midst of the masses, you may not think your opinion towards such a public case may not affect much, but a collation of the same opinion causes a strong movement; after all, the #metoo movement rose to the surface by a group of voices.
But this movement was a positive after effect. What about the negative outcomes? Well, movie mogul Weinstein has nothing left of his company, and what remains is being sold for a mere $287 million (even though problems are amidst the process), while in 2015 they estimated the company value at $950 million[1]. Finding a buyer was tough in itself, but Weinstein has lost his entire legacy. So, we ponder: what can you do to save your company during litigation?
The power of thought
These opinions and its voice can shape society and its thoughts, and Weinstein’s lawyer very well knows the affect this can have on his client’s legal case. Earlier last month, he had expressed concern that potential jurors may have tainted predisposed ideas towards the case due to bad press.
PR Director Emily Rogers expands on how public opinion matters during litigation: “The power of public opinion is well recognised by the legal system: a barrister must not comment publicly during a case, juries must remain silent throughout, and are ‘protected’ from exposure to press or public opinion that could alter their decision-making process.
“Public opinion may nonetheless influence the outcome of a case on occasion. Although this is relatively rare, businesses can often go wrong in their handling of external communications during and after a case: Uber is fighting to rebuild its public image, not so much because of the outcome of its court cases, but as a result of how it is perceived by its public following legal action. Contrast this with Merlin, who behaved with dignity and empathy when faced with their own lawsuit – notwithstanding the substantial liability, and came out with far less damage to their brand as a result of their handling of the media.
“In the recent employment rights battle faced by Pimlico Plumbers, public opinion was not on Gary Smith’s side; a quick trawl on Twitter revealed a far from favourable assessment of him in the eyes of the public, who viewed him as avaricious and sly. His comment, when they lost the case, that it wasn’t ‘the end of the world’ did little to repair that damage.”
Bad PR vs good PR
So, with the media playing a huge part in legal cases, we ask: how does PR impact legal cases, and what does this mean for businesses involved?
We are all aware of bad PR: think how Volkswagen[2] “did a Ratner”. VW paid US$4.3 billion in civil and criminal penalties and the total cost of their actions was rumoured to be about $21bn, after it was revealed they gave false readings on exhaust emission levels on some 11 million vehicles. A bad PR move some had stated, believing that Chief Executive Matthais Müller should have not been in the position of being surrounded by a herd of journalists; some believed they should not have prolonged their responses to the public, as it resulted in them getting bad coverage for longer, arguing their slow reaction allowed their crisis to ‘spin out of control’; other PR experts believed disjointed responses worked in their favour, allowing VW to not say too much before they had a grasp on events themselves.
Confusing, right? There are so many options for handling PR when your company is facing legal action, and we know all too well the importance of it, as after all, no one wants to be in the position of Cambridge Analytica filing for bankruptcy. And in some cases, battling with litigation and fighting to save your customers can prove to be quite the challenge.
Keeping customers to keep business booming is vital. Neil McLeod MPRCA Head of Strategic Communications at The PHA Group gives a nugget of advice:
“Whether bad PR on its own can lose a case of course depends on what the case centres on. One thing to remember is that these days, very much every piece of PR output from a company appears online in some shape, which means it has a habit of sticking around forever and can be easily searched for.
“Therefore, poor or unguarded statements in the past, or handling of situations, can easily be found by court opponents as they seek to paint a picture of a company or individual in court, or its pattern of behaviour. This means having a joined up, solid and professional comms strategy throughout the course of the business year and not just when facing litigation is all important. Planning a comms strategy on the steps of the court is no use to anyone.
“Good public relations professionals should be able to advise not only on whether information or paperwork can be used, but whether it should be used. This of course has a damaging effect on companies or individuals involved, and extends to output on social media as well as the media in general. And of course, behaviour during court cases can not only do nothing to help the court’s view of a litigant, but also plays poorly in the eyes of the public, if the case is high-profile enough to get its attention.”
Do you need a PR specialist, as well as a lawyer?
One of the key points to remember is that during any legal case there is a correct way to go about using PR. Poor practice – particularly during a live case, be it criminal or civil – can have a number of negative outcomes, ranging from contempt issues which can halt to simply annoying the sitting judge. This would include trying to litigate through the media, or releasing statements and information which the court would frown upon.
"There are various things lawyers can do to prepare for negative media coverage resulting from litigating a high profile case. They would be sensible to speak to a media relations specialist – somebody that understands both the workings of the law, but also the media and the lengths that journalists may go to in order to report on a story”, speaks Rebecca Moffat, a former Solicitor and legal PR specialist.
“In the glare of a media scrum it can be difficult to remain calm, which is fundamental when it comes to delivering a press statement, answering questions or being interviewed aggressively. Media training can help with this; a good session will provide opportunities to be interviewed across a wide range of different scenarios whilst being recorded.
“Lawyers must also liaise closely with their client and their respective media relations team, and agree upon a media strategy – which they must also keep under review. This may include creating statements to deal with the various outcomes of the case in question, being clear about who will speak to the media, and if necessary placing limits upon what will be discussed.
“With the speed, impact and reach of social and online media, it is also really important that any media strategy integrates seamlessly across traditional, online and social media channels.”
Litigation PR is vital. Training to deal with the aggressive nature of eager journalists will help. It may not save all situations, as I am pretty sure those accused of acts similar to Weinstein may need a time machine to rectify their mistakes, but experts are needed to be able to control the situation for you, when you are too busy caught up in the litigative process. After all, emotions will be running high, and it only takes one simple sentence, tweet or comment to turn the world against you.
[1] https://metro.co.uk/2018/05/26/harvey-weinsteins-net-worth-much-dropped-7578879/
[2] https://www.thenational.ae/business/the-top-10-pr-disasters-in-history-1.51976
Chris DeConti, Executive Vice President, Global Solutions, at Axiom, the leading alternative legal services provider, offers insights into the changing structure of legal services for Lawyer Monthly, and what emerging trends will create a more perfect future for the legal sphere and its clients.
In economics, a perfect market is one with transparency and perfect information flows, where knowledge is freely available to all participants. As a result, the market will come to an optimal balance of supply and demand, with production distributed to each market participant on the basis of comparative advantage. In a perfect market, the market relentlessly self-corrects to weed out inefficiencies or economic rents in which a single market participant or group enjoys a disproportionate share of the economic surplus.[1]
In contrast, when we look at the legal industry, inefficiency, opaqueness and imperfect competition are hallmarks of the profession one General Counsel (GC) described as “the last vestige of the medieval guild system.”[2] As a result, production is distributed inefficiently across the legal ecosystem, creating enduring economic rents, with most legal production handled by legacy law firms at prices that most customers consider excessive, despite high levels of satisfaction with the work product itself.[3]
Mark Harris, Axiom’s founder, once stated that: “If one party in an exchange is satisfied and one is miserable, somebody struck a terrific bargain. But if both parties are miserable, the exchange needs to be reconceived from the ground up”.[4] While it’s tempting to think the inefficiencies in the legal industry are driven by law firms having ‘struck a terrific bargain’, with mounting financial pressure and well-documented levels of dissatisfaction among law firm lawyers, the truth may be that the exchange (the market) itself is broken.[5]
GCs spend billions of dollars with outside law firms that have comparative advantage in advisory services, when most of that work they need done is transactional (i.e. work, that by its very nature, follows a path that has been trodden many times before). Recent Axiom analysis reveals that although internal perceptions reveal that law firms (partners, in particular) provide very high-quality advice, 50% of total law firm hours are billed by junior associates with two years or less experience. These junior associates, who are often very bright but fresh out of law school, cost the client more than a senior in-house lawyer with decades of relevant and specialised experience. In the current model, in order to get the partner-level, specialised advisory services they want, GCs are forced to buy billions of dollars of junior associate hours as part of a ‘bundled’ package. Neither the complexity of the work, nor the risk underpinning it, demands this.
These juniors aren’t typically ‘advising’ but rather handling the surrounding transactional work which is informed by the advice their partners are delivering. Top law firms have genuine competitive advantage in high-end advice. Even if nominally expensive at $1000, $1500 or even $2000/hour at the most rarefied levels, client feedback suggests their offering represents real value for money and alternatives would likely be even more expensive or of lower quality. But what about the $300+/hour junior associates supporting transactional legal work? For this work, the argument that alternatives would be more expensive or of lower quality just does not hold up.
Conventional wisdom is that high-end advisory and transactional legal work are inseparable. For decades this may have been true but a number of trends have converged to challenge this status quo. Taken together these trends create the conditions for unbundling these once inseparable elements.
While imperfections in the legal market have persisted for decades, we believe these three emerging trends combined will create the conditions for a more perfect future – where each part of the ecosystem plays to its strengths (law firms doing pure advisory work, firms with scale and process expertise taking on more execution based tasks with technology enabling that, and in-house lawyers directed at higher value activities).
[1] Economics Online, Perfect Competition
[2] The Wall Street Journal, Law Firms: “The Last Vestige of the Medieval Guild System”
[3] Financial Times, Technology: Breaking the law
[4] Legal Week, Rethinking the firm/client relationship – a conversation with Axiom CEO Mark Harris
[5] UCLA Women’s Law Journal, The Alarming Growth of Dissatisfaction Among Lawyers
[6] Axiom, Axiom launches BrexitBridge to Handle the More Than 7.5 Million Financial Services Contracts That Require Updates for Brexit
Sberbank of Russia has signed a share purchase agreement for the sale of Denizbank, the fifth largest bank in Turkey, to leading UAE banking group Emirates NBD Bank. Emirates NBD will acquire 99.85% of Denizbank's issued capital for a consideration of approximately USD 3.2 billion. The completion of the transaction is subject to clearance from the regulatory authorities in Turkey, Russia, the United Arab Emirates and other countries in which Denizbank operates.
Paksoy announced that Stéphanie Beghe Sönmez (Partner), Sera Somay (Partner), Şansal Erbacıoğlu (Counsel, Tax and Fiscal Services), Ökkeş Şahan (Counsel), Selen Terzi Özsoylu (Counsel) and Nazlı Bezirci (Senior Associate) acted as local counsel to Sberbank on this transaction.
Offering flexible, agile working and the ability to serve national and international markets arguably better than traditional firms, individuals are now frequently breaking away to set up their own niche practices. However, the growing trend isn’t all about reward, and individuals shouldn’t sleepwalk into setting up a new practice without first mapping the risk.
Meanwhile, traditional larger firms need to confront the competition, and should be trying to retain talent and make the option of staying harder to resist. We hear from Ian Johnson, a Director in the Professional Practices team at Crowe UK, on the growth of legal start-ups.
There is no escaping the fact that we are in a period of economic and political uncertainty, so it is encouraging to see that the number of practice start-ups remains robust. When you consider the drivers, as well as the personalities driving these new firms, the reasons are clear.
It is no secret that the legal market has become more and more price-driven in recent years and the availability of free, and of course unfiltered, legal advice online has been a key factor in this trend. It is unlikely that this will change any time soon.
However, where the consumer is looking for particularly specialist advice, a firm’s pricing structure, and even its overall reputation, often takes second place to an individual professional’s reputation and that can be a hard driver to resist for the professional who feels that they are contributing to their current firm’s success more than others.
Recent SRA consultations have focused on driving innovation and seem to actively encourage individuals to operate beyond the framework of the traditional law firm. Couple this with a shift away from the traditional assumption that the sole aim of a fee earner is to become a partner in the firm with which they trained, and it becomes clear that the conditions for new legal start-ups are becoming more favourable.
Of course, no individual should strike out alone without first considering the risks as, although it is unlikely that they would outweigh the potential benefits in the long run, there are many different factors to consider.
There has been a growing number of niche firm start-ups and the work types that these firms focus on can be relatively high risk, from both a financial and professional liability perspective, so it is common for new firms to start out as either a Limited Company or Limited Liability Partnerships (LLP) in order to try to protect against this risk. Over the last two years, the percentage proportion of law firms operating as limited companies has increased, while the percentage of unincorporated practices has decreased, and there is nothing so far to suggest that this trend will slow down or change anytime soon. However, different structures bring different statutory obligations, as well as varying taxation regimes, and so this all needs to be explored from the outset.
Although many new practices have a lower starting cost base, operating from smaller office spaces, with fewer support staff, for individuals who have worked as employees in larger firms, they may find that they have been protected from the harsh financial reality of owning and operating a business in a competitive industry and the learning curve can be steep. The competitiveness is exacerbated for new firms, so detailed financial modelling and stress testing, backed up by a realistic business plan is crucial.
Lawyers breaking away from larger firms, who may have enjoyed a strong business and administrative support network in the past, may suddenly find themselves having to be much more hands on with basic administrative duties. They could learn quite quickly why many managing partners in law firms actually carry out relatively modest amounts of chargeable work.
Individuals shouldn’t sleepwalk into setting up a new practice without first mapping out the regulatory risks too. Getting the regulatory ‘must do’ actions in order at the start is critical, and the cost of getting it wrong can be even more critical. The SRA provides guidance on setting up a new law firm, but it only really scratches the surface. It is important that individuals don’t try to handle it all alone and the initial cost of bringing in other experts to help at the start will pay further down the line.
Ian Johnson
Director
Crowe UK
Ian Johnson is a Director in the Professional Practices team at national audit, tax, advisory and risk firm Crowe UK. He is based in the firm’s Cheltenham office.
He has considerable experience in assisting professional practice firms with all aspects of financial reporting and accounting matters, including statutory accounts audit issues. He also advises law firms on the SRA Accounts Rules, financial and regulatory compliance, restructuring (including mergers, de-mergers and business acquisitions), internal management reporting, financial forecasting and tax compliance.
With a special interest in training and development, he lectures nationally on the SRA Accounts Rules.
