A year of bouyancy has had a pleasing knock-on effect for the in-house departments at Asia's largest 25 companies. Legal budgets have edged up slightly in order to meet the increased deal flow brought about by the recovery.
At the Hong Kong-based conglomerate Hutchinson Whampoa, legal spend is up 10%, "because there is more work", says head group general counsel and company secretary, Edith Shih. "As we've gone into more countries we have acquired more companies and that means more legal work."
At China Telecom the legal budget has nearly doubled in the last two years for the same reason. "It went up because of our increased work load," confirms Jian Bin Zhang, director of the telecommunications giant's in-house legal department.
Another factor in increased legal spend is the burgeoning compliance rulebook that companies have to abide by. Many of the in-house counsel interviewed by ALB noted that compliance was one of the faster growing areas for their internal and external lawyers. "The last two years has seen legal spend on implementing Westpac's response to major corporate governance and regulatory initiative increases," confirms Richard Willcock, group secretary and general counsel at one of Australia's big four banks.
However, although legal spend is going in the right direction, it isn't necessarily raining money on law firms. While spend is up, price controls are as tight as ever and the in-house counsel at Asia's top 25 have always had a canny eye for pricing.
At Whampoa Hutchison, Shih says: "At the end of the day everyone has to keep an eye on costs. If you spend too much, everyone will ask: 'What are all these in-house lawyers doing?'" (Shih has one of the largest in-house departments in Asia, and 180 lawyers and 50 para-legals worldwide.)
This year we went a little bit below the top 25 companies in Asia to also include the top ten companies in the major jurisdictions (see boxes on the Singapore top 10 and Hong Kong top 10). We asked in-house counsel about their team, their panel and their spend, and two particular trends stand out. Firstly, the concept of the panel has become institutionalised in large companies, with 'off-panel' work being squeezed out of existence; second, despite the recovery, in-house counsel are as focused on price as ever.
Asia's top 25 companies (ex-Japan)
**Market capitalisation was taken on 24 May 2005 - China Mobile is currently without a general counsel for the company - n/a indicates the company would not divulge the information**
The panel process
The concept of having a limited number of law firms to deal with has become a sine qua non for in-house departments. And why not? Fewer law firms means less management issues and the opportunity to develop a long-term two-way relationship between buyer and seller.
The panel also enables law fi rms to better manage any confl icts of interest, as Telstra's group general counsel, Will Irving, attests. "The panel resolves a lot of the conflict issues because firms have relationships with many large companies and this way it's easier to track who they are working for. Because it minimises clashes it allows firms to invest in the relationship."
For that reason in-house counsel have stamped down on off-panel work, a longstanding feature of large organisations where business heads have often used lawyers in their city with whom they have a relationship irrespective of their panel position.
At AMP, general counsel David Cohen led a review last year into the financial services giant's use of external counsel. He discovered that although 79% of all AMP's outsourced work headed in the panel's direction, there was still over one fifth going off-panel. In other words, instructions were being led by relationships outside of his control, a risk the in-house legal department decided it just could not take.
"We were going off-panel, which means that there was a proliferation of law firms," he says.
Cohen has since re-established the rule that using a firm on the panel is a must, although the company is reviewing its existing panel. "We are lifting the whole game up," says Cohen. "We will be introducing standard terms and conditions and we will be more focused on the relationship governance model. We'll expect higher levels of service, we'll be using e-billing and we'll issue very clear requirements for reporting to us. "Naturally there will also be the usual negotiations around the rates to be paid," Cohen adds.
Hong Kong: Top 10 Companies
**Market capitalisation was taken on 24 May 2005 - China Mobile is currently without a general counseld for the company - n/a indicates the company would not divulge the information**
Controlling budgets
To a large extent it seems as though it's the in-house teams that have taken the initiative on cost issues - after all, it's their budget.
Those initiatives stretch from investing in web-based cost tracking systems to outsourcing work to cheaper cost centres - something that many in-house counsel predict the legal scene will see more of.
In terms of IT development, the Australian telecommunications giant Telstra probably leads the way with an in-house system that the company developed and has now licensed to an external software development house. Irving says: "We realised that we needed a process that controls the way firms bill and we wanted to be able to track the matters that were live." The firm's system - which law firms can operate from their offices over the net - stops instructed lawyers from opening a matter until a fee has been agreed. Then it triggers an automatic warning when 50% of the agreed fee has been reached and again at the 90% mark. "If it's over the estimate then we won't pay," warns Irvine, "although there is room to adjust the figure during the matter." Surprisingly, Irvine states that law firms hit the estimated final figure about 35-40% of the time, and the rest of the time they are generally under the estimated figure. "Generally we estimate more than we need to because the process makes you think about things," he says.
Another mechanism for controlling cost is growing the in-house team. While legal spend may have gone up, not all of it has gone on external lawyers. In-house numbers have gone up at Hutchison Whampoa and at Hong Kong subway operator, MTR, and this accounts for some of the increases. At global bank HSBC, head of legal and compliance, Kenneth Ng, says: "Our legal fees have been fairly stable as my team do try and contain as much work as possible in-house."
Another popular method of control is the capping or fi xing of fees, a widespread practice. Catherine Yeung, legal manager of liquefied and natural gas operator, CLP Holdings, says: "The bulk of our legal work is performed in-house. Where outsourcing is necessary we have measures to ensure that the company received the best possible value for money in terms of legal services." Those measures from Yeung include a clear defi nition at the outset of the scope of the work in order to avoid duplication or what she terms 'overservicing', and having a framework set out about what is chargeable.
There's also an issue of outsourcing work to cheaper centres. ANZ's Tim L'Estrange says: "We don't need to have services delivered out of O'Connell Street [Sydney CBD] - Why can't they be delivered from Brisbane? I think that Brisbane is a very attractive market - it has the depth but everything is cheaper." L'Estrange is also one of the big Australasian in-house counsel toying with exporting some traditional Australian work across the Tasman Sea. "We have one New Zealand firm who wants to trial doing some Aussie work for us out of Auckland - I look at it from a shareholder point of view."
But what's worth noting is that, although it can seem like a battle between in-house and private practice in regards to fees, most in-house counsel say they are willing to pay a fair price for good work.
"We're happy to pay even if we do have to haggle from time to time. The most important thing for us is to get the work done and although pricing is an issue, firm's don't have to sell themselves short and we are happy to pay," says Edith Shih.
At BHP Billiton, chief legal counsel John Fast echoes this. "I am not as focused on the rate per hour as the quality of the product and the effectiveness of the advice," he says. "If you try to screw down all the time on costs you won't get a bargain and you won't get what you want either."
It's also important to note that while more in-house counsel bring in automated ways of tracking and reducing billing issues, most in-house counsel just want a relationship of trust. At Singapore Press Holdings, senior vice president, legal, corporate relations and company secretary, Ginney Lim, uses Allen & Gledhill as her main corporate advisers. She says: "I work on a trust basis. At the end of the transaction they say these are the costs and this is the discount and if I am not happy they offer me a further discount. Occasionally I do some benchmarking with some other colleagues to see what they are paying."
Singapore: Top 10 Companies
**Market capitalisation was taken on 24 May 2005
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Hutchison Whampoa: Edith Shih, head group general counsel and company secretary |
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Shih has been at the conglomerate Hutchison Whampoa for 15 years and heads a team of 180 lawyers and 50 para-legals worldwide. The major areas of work for her team are M&A, shareholders and joint venture arrangements and banking and fi nancing arrangements as Hutchison focuses on expanding its 3G telecommunications empire.
Q: What top commercial firms do you use the most?
A: Freshfields Bruckhaus Deringer, Linklaters, Baker & McKenzie, Woo Kwan Lee & Lo.
Q: How do you select external counsel?
A: Expertise in the subject matter, timely and speedy service, cost efficiency.
Q: If a law firm wanted to approach you for work, what's the best way for them to do it?
A: Contact us.
Q: What's your legal spend?
A: We are not in a position to disclose our legal spend. The spend has increased over the past 12 months, mainly as a function of expansion of group business and hence additional requirements of legal assistance.
Q: How do you control legal costs?
A: Choice of appropriate outside counsel, beauty parade, do the work inhouse whenever possible.
Q: Do you have special billing arrangements with fi rms on your panel?
A: We normally get a standard discount rate, but we always review each fee note on a stand-alone basis and if we feel that we are over-charged, we will raise the issue with the fi rm. We are happy to pay for good service we receive value for. |
| HSBC: Kenneth Ng, head of legal and compliance |
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Ng has been at HSBC for 17 years and manages a team of 65, which includes 21 lawyers. According to Ng, the team's focus recently has been on advising on the bank's investments in the Asia-Pacific region, as well as dealing with regulatory compliance, which he says is the fastest-growing area of work for the legal division.
Q: Which are the law firms to whom you have outsourced the most work in the past 12 months?
A: Our panel consists of JSM, Clifford Chance, Allen & Overy, Norton Rose, Linklaters and Freshfields Bruckhaus Deringer, and they all have a fair share of the work from us.
Q: How do you select external counsel?
A: A combination of expertise, efficiency, ethics, competitiveness in fees, knowledge of the HSBC Group, etc.
Q: If a law firm wanted to approach you for work, what's the best way for them to do it?
A: Outside the panel, I am also a believer in 'horses for courses' and nonpanel firms need to demonstrate that they can add value.
Q: How do you control legal costs?
A: I am mandated to keep an eye on the legal spend and I obtain the relevant information internally and from the firms on a regular basis. I have had in place negotiated fees with the panel firms and I have kept them under review all the time. Hourly rates are not always reliable as they do depend on time, which is justifiably spent or otherwise. I look at the totality of things and would impress upon the panel fi rms that they need to be competitive. |
| Singapore Telecom: Chan Su Shan, general counsel and company secretary |
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Chan Su Shan, the general counsel and company secretary at Singapore Telecom, has been at the company for nine years and heads a team of 19, which includes 12 lawyers. Most of the team's time is spent on M&A, telecomrelated activities and corporate governance. Shan is a rarity among Asia's leading in-house counsel as he does not operate a defi ned panel.
Q: Which commercial law firms have you used the most in the past 12 months?
A: Allen & Gledhill and Linklaters.
Q: What work have those firms done for you?
A: M&A and capital management activities.
Q: How do you select external counsel?
A: The main criteria we look for are: expertise, ability to give sound and practical advice and solutions to issues and to think creatively, good service and value for money.
Q: If a law firm wanted to approach you for work, what's the best way for them to do so?
A: They could send us information on their capabilities before arranging to meet us.
Q: How do you control legal costs?
A: It is our practice to always consider carefully whether matters can be handled in-house or require external counsel, and to obtain competitive fee quotes before appointing external counsel. |
| China Telecom: Jian Bin Zhang, director of in-house legal department |
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Zhang has been with China Telecom for fi ve years and heads up one of the largest in-house legal teams in Asia with a total of 200 lawyers in China Telecom's branches and subsidiaries. And, talking to ALB, Zhang intimated that he was on the look out for more legal power to join him at headquarters: "The six people here [at headquarters] are doing the work of 10 people. It's too much work," he said.
Q: Which areas do you outsource?
A: M&A, litigation and arbitration
Q: Which law firms have you outsourced work to in the last 12 months?
A: Freshfields, Sullivan & Cromwell, Clifford Chance, Jun He Law Offices, Jingtian Gongcheng and King & Wood, as well as firms in Japan and Korea.
Q: How do you select external counsel?
A: It depends on their area of strength.
Q: What's the best way for them to do it?
A: Send in their brochures and address them to me. We will contact them when necessary. |
| CLP Power Hong Kong Ltd: Catherine Yeung, legal manager |
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Yeung has been with CLP for 17 years and manages an in-house team of six lawyers and eight other staff. The team is mostly involved with regulatory compliance, fuel procurement, construction, litigation and intellectual property. In terms of external lawyers, she mainly outsources financing and fuel management deals.
Q: Who is on your panel of law firms?
A: Holman Fenwick & Willan (litigation), Allen & Overy (arbitration), Herbert Smith (environmental issues). We also use local law firms, including Keung Yip & Sin, Stephenson Harwood & Lo and Deacons. On the China front, we use King & Wood quite extensively.
Q: How do you select external counsel?
A: As a minimal requirement, our panel law firms must have a proven record of competence and professionalism as well as a commitment to provide value adding services at a reasonable cost. They must also have high ethical standards. Selection of the particular external counsel for individual cases (we focus on the lawyer providing the services rather than the law firm) is based on a range of factors such as:
- expertise/experience
- record of achievements in the relevant area
- law firm's back-up resources
- familiarity with our business
- ability to meet our needs in the most cost effective manner
- ability to work with us in an open and cooperative manner
- performance on past matters for the company
Q: If a law firm wanted to approach you for work, what's the best way for them to do it?
A: They should ensure that their expertise, experience and record of achievements are known in the market place. If it is, they will be included when we review our list of panel law firms or instructions in a new area of law - we want to make sure that we have the best people. |
| Singapore Press Holdings: Ginney Lim, senior vice president, legal, corporate relations and group company secretary |
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Lim has been in her role for 13 years and looks after a team of four lawyers and four non-lawyers. The team is mostly involved with libel/defamation, media and M&A work.
Q: Which firms are on your panel?
A: Allen & Gledhill (corporate), Drew & Napier (defamation), Harry Elias Partnership (defamation)
Q: How do you select external counsel?
A: Expertise in the practice area, a dedicated and good service team and fast turnaround.
Q: If a law firm wanted to approach you for work, what's the best way for them to do it?
A: Write in formally with a firm profile and clientele references, setting out the major transactions and cases handled in the last three years. If I am interested, I will meet up with the team.
Q: How do you control legal costs?
A: Get upfront quotes for major transactions and agree on a cap where possible. Periodic updates on escalation in costs are requested and closely monitored. All outsourced work is closely scrutinised and would require the legal division's full approval before any action can be taken by commercial law fi rms.
Q: If you have a panel, do you have special billing arrangements with those firms?
A: Yes, an agreed discount rate is given for time costs incurred, and for every stage of legal proceedings, a scale of costs has been agreed upon. |
| MTR: Leonard Turk, legal director and secretary |
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Turk has been at MTR, the Hong Kong underground operator, for 24 years and heads a team of 30 including 10 lawyers who focus on corporate governance and overseas railway consultancy and investment projects.
Q: Do you have a panel?
A: Yes, in Hong Kong we use different law firms for different areas. Slaughter and May (commercial), Deacons (general and litigation), Herbert Smith and Lovells (contract arbitration), King & Wood (China), DLA and Wragge & Co (UK) Sullivan & Cromwell and White & Case (cross border leasing).
Q: How do you select external counsel? A: Usually from personal knowledge and reputation of the fi rm, sometimes beauty parades (particularly if for a specifi c task such as US counsel for cross border leases). If we go to a country with which I am not familiar, then I will take the advice of others in the jurisdiction or our existing fi rms' recommendations. Q: What's the best way for a fi rm to approach you for work? A: I think I can only say that they would need expertise in a specialist area (ie in the UK bidding for rail franchises, etc). |
| Taiwan Semiconductor: Richard Thurston, vice president and general counsel* |
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Thurston manages a team of 38 lawyers from Taiwan, although that fi gure includes one lawyer in China and fi ve in the US. With a signifi cant team at the home base, Thurston outsources very little work to local fi rms - Lee and Li is the only local fi rm to get signifi cant instructions - and the rest of the work goes to American firms. The work that he does outsource is generally intellectual property and corporate work.
Q: Do you have a panel of law firms?
A: We have seven or eight firms that are the most commonly used: Duane Morris, Haynes and Boone, Slater and Matsil, McKool Smith, Lee and Li, White & Case.
Q: How do you select external counsel?
A: When you select a firm, oftentimes it's about selecting people. It depends on the situations: we might look for a speciality skill that other firm's don't have, or location - for example, if we have work in Europe but one of the firm's doesn't have an office in Germany.
Q: What's your legal spend?
A: US$12-20m. This went up in 2004 because some of the litigation was fairly active, but this year we don't have any major litigation coming up. |
ALB'S PANEL BEATING TIPS
Tip 1: If you've messed up in the past, forget it
Edith Shih, Whampoa Hutchison - "We keep a reporting system. If we've had a bad experience then that firm is blacklisted, while other firms might have halos."
Tip 2: Don't ignore the directories
Edith Shih, Whampoa Hutchison - "We are in 45 different countries, so when we go into a new jurisdiction then I will ask my existing law firms for recommendations, but I'll also go to one of the directories that are published and read it before approaching them."
Tip 3: Build up your own personal profile
John Fast, BHP Billiton - "It's horses for courses and it depends on the people. We focus on individuals rather than firms - the brand name [of the firm] means nothing to us."
Tip 4: Tender watch
John Fast, BHP Billiton - "If a firm currently not on our panel wished to approach me for work, the best way would be to wait till we review our panel."
Tip 5: Don't throw bodies at transactions
David Krasnostein, NAB - "We want work pushed down to the cheapest competent lawyers - the more effectively a firm can do that then the better the blended rate is and it allows us to know how well-managed the firm is."
Tip 6: Play up your local knowledge
Ginney Lim, Singapore Press Holdings - "We use Allen & Geldhill as our lawyers in Singapore and we thought that its association with Linklaters would be useful. But actually we realised that the link didn't matter. We've found that in places like China having a local law firm was more useful because they understand the culture."
Tip 7: Today's adversary could be tomorrow's client
Ginney Lim, Singapore Press Holdings - "One gripe that I have is when I'm in negotiations with an aggressive external counsel, they can be really rude. I have encountered aggression and rudeness across the table - these lawyers never seem to think that they might be working for you one day."
Tip 8: Be innovative
David Cohen, AMP - "Having come from a law firm I am not open to marketing efforts. I am a sophisticated user of marketing and I am looking for innovation - wining and dining me makes no difference."
Tip 9: Be targeted
David Cohen, AMP - "Law firms could be more targeted towards their clients instead of sending us brochures about the latest changes in fi nancial services. To be honest, if there have been any major changes, we've probably been involved in them. They never come to us and say: 'We've been looking at your business and can see that you've got x or y issues and we've come up with a solution for it'. That's the way that investment banks do it and law firms could really learn from that."
Tip 10: The panel is just the start
Edith Shih, Hutchison Whampoa - "Whenever we have a job I go for a competitive bid by the panel firms."