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.
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 firms to better manage any confl icts of interest, as Telstra's group general counsel, Will Irving, attests.
"The panel resolves a lot of the confl ict 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 fi nancial 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 ebilling 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.
Controlling budgets
To a large extent it seems as though it's the inhouse 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 offi ces 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 fi gure 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 fi gure. "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 fixing of fees, a widespread practice. Catherine Yeung, legal manager of liquefi ed 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 definition 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." ALB
| Commonwealth Bank of Australia: John O'Sullivan, general counsel |
|
Following 25 years at Freehills, O'Sullivan joined CBA two years ago and runs a team of 83 lawyers and 45 non-lawyers in the bank's legal team. They spend most of their time dealing with banking and fi nance, corporate work, insurance, property, litigation, employment and industrial relations law.
Q: Which firms are on your panel?
A: Freehills, Clayton Utz, Gilbert + Tobin, Minter Ellison, Allens Arthur Robinson, Mallesons Stephen Jaques. Each firm advises us in a number of areas.
Q: How do you select external counsel?
A: Expertise for the relevant transaction, value for money, absence of confl icts and accessibility.
Q: If a law firm wanted to approach you for work, what's the best way for them to do it?
A: If a law firm not currently on our panel wished to approach me for work, the best way to do it would be to wait until the next occasion on which we review our panel.
Q: How do you control legal costs?
A: We obtain estimates of costs, detailed narrative bills and a monthly report from all of our panel firms giving a detailed breakdown of costs incurred, work-in-progress and amounts outstanding. |
| Telstra: Will Irving, group general counsel |
|
Will Irving has been with Telstra for nearly eight years and heads a team of 80 lawyers and 30 non-lawyers. The team is mainly involved with products, marketing and sales, competition law, telecoms, IT and IP. With T3 underway, corporate is the fastest-growing area for his team.
Q: Which are the top commercial law firms to whom you have outsourced most work over the past 12 months?
A: Mallesons Stephen Jaques, Blake Dawson Waldron and Freehills.
Q: Which practice areas are these firms responsible for? A: Most areas. Q: How do you select external counsel?
A: We have a tender approximately every four years.
Q: If a law firm wanted to approach you for work, what's the best way for them to do it?
A: The next tender is scheduled for 2007.
Q: Has your legal spend increased or decreased in the last year?
A: We benchmark ourselves each year via the general counsel roundtable and our spend as a percentage of revenue is lower than comparable companies. Our spend has decreased in the last year due to differing patterns of work and improved productivity.
Q: How do you control legal costs?
A: A small panel of firms; an online matter management system that requires up-front fee estimates for every matter; close attention to which lawyers are on a matter; planning and matter/issue defi nition at the outset; having at least two firms in most areas so that there is competition, but also benefi ts from accumulated knowledge and experience in a given area. |
| Westpac: Richard Willcock, group secretary and general counsel |
|
Willcock has been with Westpac for sevenand- a-half years and looks after a team of 100 lawyers spread across Australia, New Zealand, the Pacifi c, the UK and the US. The team is made up of a number of practice groups that support the bank's business streams, or support a geographical area, or the Westpac Group as a whole on overarching legal issues. There are also some group-wide practice groups such as dispute resolution, employee relations and the technical and intellectual property practice groups. He is currently reading Primal Leadership: Realising the Power of Emotional Intelligence by Daniel Goleman.
Q: Do you have a panel of law firms?
A: Westpac has a panel of eight Australian law firms and a panel of six New Zealand law firms. These panels are currently under review, and a new single panel spanning both jurisdictions is due to commence from 1 July 2005. Westpac's Australian panel (in alphabetical order) comprises: Allens Arthur Robinson; Corrs Chambers Westgarth; Freehills; Gadens; Gilbert & Tobin; Henry Davis York; Mallesons Stephen Jaques and Minter Ellison. Westpac's New Zealand panel (also in alphabetical order) comprises: Anthony Harper; Bradbury & Muir; Brookfi elds; Chapman Tripp; Minter Ellison Rudd Watts; Russell McVeagh and Simpson Grierson, Consumer Recovery and Corporate/Complex Recovery.
Q: If a law firm wanted to approach you for work, what's the best way for them to do it?
A: The panel provides Westpac with access to high quality legal services that support almost all of Westpac's needs. As a result, there are very few occasions that it becomes necessary to instruct a non-panel firm (which requires pre-approval by our group secretary and general counsel). It follows that outside of Westpac's panel arrangements, there is limited scope for law firms to procure work from Westpac.
Q: Has your legal spend increased or decreased in the last year?
A: The last two years has seen legal spend on implementing Westpac's response to major corporate governance and regulatory initiatives increase, while in the preceding two years legal spend in connection with the acquisition and integration of new wealth management businesses was signifi cant.
Q: How do you control legal costs?
A: Our principal mechanism for controlling legal costs is through rigorous adherence to our panel arrangements. |
| BHP Billiton: John Fast, chief legal counsel and head of external affairs |
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Fast has been with BHP Billiton for five-and-a- half years and was previously a partner at Arnold Bloch Liebler. He heads a team of 64 lawyers and 20 non-lawyers spread across the globe. He says that compliance - because of all the regulatory changes - has been the single most absorbing area for his team.
Q: Do you have a panel?
A: We don't call it a panel; we have relationships with several law firms in Australia but our key firms are Blake Dawson Waldron, Allens Arthur Robinson and Mallesons Stephen Jaques, but we also use Gilbert + Tobin, Minter Ellison and Arnold Bloch Leibler. In America we use Skadden, Arps, Meahger, Flom & Slate and Wachtell, Lipton, Rosen & Katz.
Q: If a firm wanted to approach you for work, how would they go about it? A: They would approach the regional counsel and we'd look at it. We have our own views of firms and people and if we want someone, we will go and seek them out.
Q: What is your legal spend?
A: US$60m. |
| ANZ: Tim L'Estrange, group general counsel and company secretary. |
|
L'Estrange has been with ANZ for two years following a stint at Allens Arthur Robinson. He heads a team of 80 lawyers split between Australia and New Zealand. One third of the team focuses on the bank's institutional business.
Q: Do you have a panel of law firms?
A: Yes, we use Blake Dawson Waldron, Allens Arthur Robinson, Mallesons Stephen Jacqes, Minter Ellison, Freehills - they look after our institutional business and big specialist deals, then we use Deacons, Gadens and Kemp Strang for other work. In London we use Linklaters and Allen & Overy, with less work going to Slaughter and May and Ashurst Morris Crisp. In America we use Sullivan & Cromwell, Skadden, Arps, Slate, Meagher & Flom and Sidley Austin Brown & Wood. In Australia we tend to use Australian firms although we would use an international firm in Asia if the transaction was under US or UK law or there was a firm that had a particular track record in a particular area.
Q: How do you select external counsel?
A: We go to tender every fi ve years and will go to tender next year.
Q: What is your legal spend?
A: There has been a slight increase that has been driven by regulatory change, it's about $60m and we try to hold it level.
Q: How do you control legal costs?
A: We agree rates at the beginning of the year and will bring in an electronic billing system later this year. |
| National Australia Bank: David Krasnostein, chief general counsel |
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It's been a busy year for Krasnostein as NAB weathered the storms of public disputes at board level and a foreign exchange trading scandal. As he says himself: "This was the year that we lost most of our board, our CEO, our head of risk, our external auditors, and most of our senior management team. It has been a time of turmoil and change and I think the thing that I am most proud of is that I was able to provide some continuity and stability and corporate history for the incoming management team." Krasnostein has been at NAB for nine years and looks after one of the largest in-house teams in Asia, with 140 lawyers and 90 non-lawyers. Most of them sit in the business units, with only 10 lawyers at the corporate level.
Q: Which firms are on your panel?
A: Mallesons Stephen Jaques, Freehills and Clayton Utz - the fi rst two get the lion's share of our work, say about two-thirds. We also use Minter Ellison and have some smaller firms such as Russell Kennedy and Dibbs Barker Gosling.
Q: How do you select them?
A: We normally do a panel every three years, but we did one last year and took the option to extend it another two years if all was going well.
Q: What's the best way to approach you for work?
A: The best way is to wait for the tender.
Q: What is your legal spend?
A: It's increased because of the troubles last year. I can't give an exact figure, but globally it's over $100m.
Q: How do you control legal costs?
A: We monitor the blended rate from each firm and we share our information about that blended rate with the law firm and their competitors. We fi nd that very useful when negotiating. |
| AMP: David Cohen, General counsel |
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David Cohen arrived at AMP just as the Australian fi nancial services icon plunged into fi nancial turmoil resulting in the eventual demerger between its UK and Australian operations. Not only did Cohen have to see through the $11bn demerger, but he also had to slim down his legal team from the 90 lawyers that were there when he arrived to its current total of 35. Despite all this, Cohen describes working in-house as "incredibly rewarding" and views the demerger as "a once in a lifetime transaction".
Q: Do you have a panel?
A: The corporate panel is Mallesons Stephen Jaques, Clayton Utz and Minter Ellison and we have a litigation panel that includes Henry David York, Ebsworth & Ebsworth and Baker & McKenzie, but we are in the midst of a review right now. In New Zealand we use Simpson Grierson, Kensington Swann, Chapman Tripp and Minter Ellison Rudd Watts - we don't have a formal panel in New Zealand but we will come up with one in the second half of this year.
Q: What are you looking for in the review?
A: We're lifting the whole game up and will introduce standard terms and conditions that are uniform. We are seeking to put in place specialist firms at the second level.
Q: What is your annual legal spend?
A: In 2003 we spent $80m but that was because of the demerger. Last year we spent $40m but I suspect that we should be somewhere in the middle. |
| Contact Energy: Ross O'Neill, general counsel |
|
O'Neill has headed up Contact Energy's fourlawyer in-house team for the past two years after joining the company from Kensington Swann. When he arrived the company had only one domestic legal adviser and he introduced another to "bring some tension to the relationship".
Q: Which firms are on your panel?
A: Bell Gully and Buddle Finlay and we use Freehills in Melbourne for Australian work
Q: How do firms get onto your panel?
A: They need to build a long-term relationship. When we go to tender we will tend to go to the people that we know. But I understand that it's a confi dence thing for law firms, if they are not on the panel then they tend to steer clear and feel like they are imposing if they get in touch. But I am always happy to talk to anyone about their offerings.
Q: What is your legal spend?
A: Last year it was NZ$5-6m
Q: How do you control costs?
A: Appointing a small panel does deliver benefi ts because you can control specifi c fee arrangements. We give to the relationship and we get back - from billing arrangements to free seminars. I feel that it's not fair to ask for those things unless you are giving a tranche of work. |
| Telecom New Zealand: Mark Verbiest, group general counsel |
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Verbiest has been at Telecom New Zealand for over four years heading up a team of 35 lawyers. As befits New Zealand's largest company he's a signifi cant spender on the local legal scene with a budget in the "many millions". However, panel firms should note that Verbiest is actively considering upping the numbers for the in-house team, "resulting in less work being outsourced".
Q: Which firms have you used the most in the past 12 months?
A: Chapman Tripp, Russell McVeagh, Simpson Grierson, Phillips Fox, Anderson Lloyd Candwell, Allens Arthur Robinson, Skadden, Arps, Slate, Meagher & Flom
Q: How does a firm approach you for work?
A: They have to get on our panel first. |
|
ALB'S PANEL BEATING TIPS |
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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: Go on secondment Will Irving, Telstra "We have alot of secondees-about 20 at the moment, some on a matter by matter basis, others are more structured. It's an opportunity to educate and they get value on the way back."
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."
|
tables Asia's top 25 companies (ex-Japan)
| Rank |
Company |
Country |
Head of legal |
Market cap (US$bn)* |
| 1 |
HSBC |
Hong Kong |
Kenneth Ng |
186.74 |
| 2 |
Samsung Electronics |
South Korea |
Jae-Hyun Kim |
77.13 |
| 3 |
China Mobile (HK) |
Hong Kong |
n/a |
64.19 |
| 4 |
Telstra |
Australia |
Will Irving |
51.96 |
| 5 |
China Petroleum & Chemical |
China |
Shao Jing Yang |
44.97 |
| 6 |
Taiwan Semiconductor |
Taiwan |
Dr Richard Thurston |
41.16 |
| 7 |
Hutchison Whampoa |
Hong Kong |
Edith Shih |
38.54 |
| 8 |
Commonwealth Bank of Australia |
Australia |
John O'Sullivan |
36.64 |
| 9 |
National Australia Bank |
Australia |
David Krasnostein |
35.45 |
| 10 |
China Telecom |
China |
Zhang Jian Bin |
30.87 |
| 11 |
ANZ |
Australia |
Tim L'Estrange |
30.85 |
| 12 |
Westpac |
Australia |
Richard Willcock |
27.79 |
| 13 |
Singapore Telecom |
Singapore |
Chan Su Shan |
26.81 |
| 14 |
CNOOC |
Hong Kong |
Zhao Li Guo |
23.83 |
| 15 |
Sun Hung Kai Properties |
Hong Kong |
Ernest Lai |
22.4 |
| 16 |
Cheung Kong Holdings |
Hong Kong |
Victor Luk |
22.05 |
| 17 |
BOC Hong Kong |
Hong Kong |
Andrew Wang |
20.13 |
| 18 |
Chunghwa Telecom |
Taiwan |
n/a |
19.87 |
| 19 |
China Life Insurance |
China |
Zheng Yong |
18.7 |
| 20 |
Formosa Petrochemical |
Taiwan |
n/a |
16.45 |
| 21 |
Cathay Financial |
Taiwan |
Lin Xian Chong |
16.31 |
| 22 |
Hon Hai Precision |
Taiwan |
n/a |
15.02 |
| 23 |
CLP Holdings |
Hong Kong |
Catherine Yeung |
13.8 |
| 24 |
DBS Group |
Singapore |
Sharon Craggs |
13.69 |
| 25 |
Woolworths |
Australia |
Rohan Jeffs |
12.81 |
· Market capitalisation was taken on 24 May 2005 · N/a refers to a company currently without a head of legal or a company that refused to divulge its head of legal
tables New Zealand's top 10 companies
| Rank |
Company |
Name |
Title |
Market cap (A$bn)* |
| 1 |
Telecom Corporation of New Zealand Ltd (NS) |
Mark Verbiest |
General counsel |
11.05 |
| 2 |
Contact Energy Ltd |
Ross O'Neill |
General counsel |
3.73 |
| 3 |
Fletcher Building Ltd |
Martin Farrell |
Company secretary and general counsel |
2.81 |
| 4 |
Auckland International Airport Ltd |
Charles Spillane |
General counsel |
2.42 |
| 5 |
Sky Network Television Ltd |
n/a |
n/a |
2.36 |
| 6 |
Carter Holt Harvey Ltd |
Nicolas Short |
General counsel |
2.20 |
| 7 |
Independent Newspapers Ltd |
Sean Wynne |
Company secretary and legal counsel |
2.07 |
| 8 |
TrustPower Ltd |
n/a |
n/a |
1.68 |
| 9 |
Sky City Entertainment Group Ltd (NS) |
Andrew Webster |
General counsel |
1.63 |
| 10 |
Fisher & Paykel Healthcare Corporation Ltd |
Caroline Quay |
General counsel |
1.40 |
* Market capitalisation was taken on 30 May 2005 from NZX N/a refers to a company currently without a head of legal or a company that refused to divulge its head of legal
Australia's top 10 companies
| Rank |
Company |
Name |
Title |
Market cap (A$bn)* |
| 1 |
Telstra |
Will Irving |
Group general counsel |
69.3 |
| 2 |
Commonwealth Bank Group |
John O'Sullivan |
Chief solicitor and general counsel |
48.9 |
| 3 |
National Australia Bank |
David Krasnostein |
Chief general counsel |
47.3 |
| 4 |
ANZ |
Tim L'Estrange Group |
general counsel |
41.2 |
| 5 |
Westpac |
Richard Willcock |
Group secretary and general counsel |
37.09 |
| 6 |
Woolworths |
Rohan Jeffs |
Company secretary and general counsel |
17.10 |
| 7 |
Wesfarmers |
Vicki Krause |
Chief legal counsel |
15.66 |
| 8 |
Woodside Petroleum |
David Martin |
General counsel |
15.39 |
| 9 |
AMP |
David Cohen |
General counsel |
14.43 |
| 10 |
St George Bank |
Michael Bowman |
General counsel and secretary |
13.34 |
* Market capitalisation was taken on 30 May 2005 from ASX