To coincide with the Euro 100 survey, we gathered together a representative selection of leading practitioners to discuss the state of the European market in these difficult times.
20 Summer 2009 The Client Report Round TableTHE EUROPEAN LEGAL MARKET(L-R) Adrian Knight, Skadden; Pierre Todorov, Lovells; Juan Carlos Machuca, Ur?a Men?ndez To coincide with the Euro 100 survey, we gathered together a representative selection of leading practitioners to discuss the state of the European market in these difficult times. 05_CR28_Europe Roundtable_20_23 11/6/09 13:27 Page 20 Chambers Client Report21"There is a very big difference between practices that are driven by investment banking or private equity,and those that are based on relationships with large multinationals."Robin Brooks, partner, Norton Rose THE EUROPEAN LEGAL MARKET – ROUND TABLEThe downturn across Europe and the fight for restructuring workClient Report: Has the credit crunch played out differently for law firms in different jurisdictions across Europe? Andrea de Tomas: In Italy we have some redun- dancies.Technically we are all self-employed,but there are gentleman's agreements where partners are asked to leave in a number ofmonths.Now we have seen people being asked to leave in a month,which is really a first in Italy and was a shock to the market. Juan Carlos Machuca: The European Commission has said that Spain will be the last country in the EU to get out ofthe recession.Just today it has been announced that there have been more than 200% more insolvencies in these four months of the year compared to last year,which amounts to around 1600 companies so far.And yet,none ofthe large independent national firms have announced redundancies.The international firms will be more affected,because we're going to see less investment into Spain by international companies. Robin Brooks: We haven't seen any change in our southern German practice at all.The Munich office is still working flat out to 100% capacity on traditional German M&A. There is a very big difference between practices that are driven by investment banking or private equity,and those that are based on relationships with large multinationals.Those clients are still doing deals,they're restructuring.You see that in southern Germany and even in London,the parts ofthe practice that are still relatively unaffected are those that derive the work from relationships with long-term corporate clients. Client Report: But can you really take corporate lawyers who weren't around for the last recession, and build a restructuring practice? Juan Carlos Machuca: There's a difference between Europe and the UK.In Europe it's impor- tant that corporate lawyers have a more rounded vision.In our firm every corporate lawyer has to handle litigation matters,from the junior lawyers to partners,and this was the case even during the boom.And we have still been doing lots oflearn- ing to be ready for insolvency matters. Adrian Knight: In some UK partnerships,and Slaughter and May is the best example,a corpo- rate partner will do a public takeover on Monday, an IP on Tuesday,a joint venture on Wednesday, restructuring on Thursday and so on.Ifyou have those broad skills,then with a bit ofhomework you can adjust without too much difficulty.But one ofthe problems for the large London firms The Attendees: Pierre Todorov – partner, Lovells and former general counsel, Accor Andrea de Tomas – partner, Bonelli Erede Papalardo Juan Carlos Machuca – partner, Ur?a Men?ndez Adrian Knight – partner, Skadden, Arps, Slate, Meagher & Flom Robin Brooks – partner, Norton Rose Margaret Boswell – partner, Gide Loyrette Nouel Andrea de Tomas, Bonelli Erede Pappalardo 05_CR28_Europe Roundtable_20_23 10/6/09 13:08 Page 21 22 Summer 2009"The best way for a client to have good standardised cheap work is to do it internally; it's far more effective than to subcontract it,or for a firm to subcontract it."Pierre Todorov, partner, Lovells THE EUROPEAN LEGAL MARKET – ROUND TABLEis that people have specialised in one area of finance and,frankly,they're beached whales now. Robin Brooks: That's more a disease on the banking side ofthe practice.I'm ofthe genera- tion that believes that to be a good corporate lawyer you have to have that breadth ofback- ground to be able to apply judgement on issues on your clients'behalf,and that has a benefit in recessionary times.It may not be the hallmark ofthe most profitable firms in good times but it gives you a resilience in the down times which levels you out. Pierre Todorov: In France,firms that have divid- ed their corporate departments into corporate finance and private equity are now going back and trying to merge them again.But young lawyers who are only used to private equity deals have trouble making the shift. But though there are many drawbacks to over- specialisation,some clients will always need high-end,very specific expertise.In-house lawyers are becoming more and more expert themselves,and when clients go to outside coun- sel they're looking for added value.So you need to find a balance.Changing client demandsClient Report: How have clients'demands changed as a result ofthe recession,in terms ofthe pursuit ofvalue? Pierre Todorov: There's a long-term trend in certain areas towards commoditisation,as is well known.Banks and large corporates alike have internal procedures which are very sensi- tive to fee structure.But the legal needs ofa large corporate are very diverse.They need dif- ferent types ofwork in different countries.So there is still room for different types ofservice. Sometimes our work is very high-end and profitable,but sometimes we will organise internally to provide more industrial service. It is lower margin,but it keeps our clients happy and loyal to the firm. Juan Carlos Machuca: When clients want to get something done,they want a partner,not ten associates,for that work.Even in the good times we responded to that,but recently we've tried to become still more flexible. Adrian Knight: The general counsel is a cost- saving centre,so you have to know the general counsel to make sure you're instructed.But if you want to charge an appropriate amount for your advice,you have to interact with the CEO and the CFO and so that they can understand (L-R) Ravinder Casley Gera, Chambers and Partners; Robin Brooks, Norton Rose 05_CR28_Europe Roundtable_20_23 10/6/09 13:08 Page 22 Chambers Client Report23"Ifyou have broad corporate skills,then you can adjust without too much difficulty.But one ofthe problems for the large London firms is that people have specialised in one area offinance."Adrian Knight, partner, Skadden THE EUROPEAN LEGAL MARKET – ROUND TABLEthe value you're bringing.In this market you should be meeting those clients more,and being as creative as possible in understanding their issues – ifyou don't then you fall into the zone ofÔhow much is it going to cost?' Robin Brooks: With banking relationships you're working for a part ofthe bank where people move around every few years.Whereas if you have a relationship with a general counsel you may have it for 15-20 years.You have to have a relationship oftrust,and a key part of that trust is that you're not going to overcharge them.So in a boom you might be tempted to double your fees but you never do. Margaret Boswell: I do a lot offixed-fee work. Ifwe quote a price for a job,we take on the risk.But with some firms clients can feel when they've reached the top oftheir fee cap because the firm takes its foot offthe gas,and waits until the next stage is agreed.And I just don't think that sort ofthing will be feasible any more. Client Report: What about outsourcing? None of the firms around this table have outsourced any- thing other than basic paralegal work.But surely you won't be able to resist ifit clients demand it? Margaret Boswell: But are clients demanding it? I don't think they are.I've never heard about it from a client or another lawyer,only in the legal press. Juan Carlos Machuca: The big Spanish corpora- tions are building up their in-house capacity to get low-cost work. Pierre Todorov: The best way for a client to have good standardised cheap work is to do it internally; it's far more effective than to subcontract it,or for a firm to subcontract it.The significance of EuropeClient Report: Between the credit crunch and general focus on emerging markets,is continental Europe less important for international firms than five years ago? Adrian Knight: It depends on the sort ofwork you are doing.There are huge corporates in France and Germany looking to do global deals in China,Latin America and the US.And they're just the sort of clients you want to work for on international M&A transactions.That's a huge potential resource. Juan Carlos Machuca: I think there are some more opportunities for international buyers to come into Western Europe.Indian,Chinese and Middle Eastern companies have all invested in Spain recently.It's becoming less interesting for American corporations because they have been established here for years,so they are looking at Eastern Europe and Latin America. Robin Brooks: It's very easy to sit in an office in London and New York and see the flow of capital from a completely Anglo-Saxon view- point.But Italian companies were the largest investor in Poland when we opened our Warsaw office.Having said that,ifyou want to invest, and invest heavily,you might want to invest in Asia and build a practice because it's going to grow faster. Margaret Boswell, Gide Loyrette Nouel 05_CR28_Europe Roundtable_20_23 10/6/09 13:08 Page 23