Are you commercially aware?
7 April 2010 | Updated: 8 April 2010 4:23 pm
L2B Autumn 2010
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Commercial awareness is essentially a secret code for a candidate’s ability to show a genuine commitment to a career as a business lawyer. Lawyer2B.com helps you to break the code.
Preparing for a training contract interview involves much more than simply browsing through a law firm’s graduate recruitment website and flicking through the FT while waiting in reception.
A law firm is looking for candidates who have a thorough understanding of its business and the legal market - that is, essentially, what commercial awareness is all about. But with so much to learn and so little time Lawyer2B.com understands that this is easier said than done.
So we thought we would lend a hand and have produced a bluffer’s guide to the legal profession, highlighting some of the key developments in the sector in recent months. And as you can see it is not just about the credit crunch.
When it comes to law firms’ overseas ambitions there are two parts of the world that continue to hit the headlines. The first is the Middle East and the second India. Indeed, even though the Middle East has seen its fair share of recession casualties the region is still a hotspot for law firms.
Eversheds, for example, confirmed in April that it will open in Saudi Arabia through an alliance with Saudi practice Hani Al Qurashi Law Firm, after discussions with four potential sponsors over the last 18 months. Clyde & Co is also launching in Saudi after forming an alliance with Islamic finance specialist Abdulaziz Al Bosaily, and SJ Berwin is planning to set up an office in Dubai.
Newcastle-based Watson Burton, meanwhile, is looking to expand its focus beyond North East England with the launch of its first international office in the next 12 months, and it has picked the Middle East as its first port of call. Senior partner Rob Langley said the Middle East makes sense because of the firm’s petrochemical practice, which generates one-quarter of turnover.
The Indian market, however, has been a much tougher nut for UK firms to crack thanks to the country’s strict rules on foreign law firms entering the market. But some progress is being made, with the Bar Council of India scheduling talks on liberalisation following a number of allegiances between Indian and overseas firms.
These include Clifford Chance’s alliance with AZB & Partners, the second largest firm in India, as reported by Lawyer 2B’s sister magazine The Lawyer (14 January). A year before that fellow magic circle firm Allen & Overy signed a referral relationship with Indian law firm Trilegal (The Lawyer, 22 February 2008), while Linklaters entered into a relationship with Mumbai-based Talwar Thakore & Associates in early 2007 (The Lawyer, 14 December 2006).
The Jackson Review
Lord Justice Jackson was due to publish the long-awaited consultation on how the litigation framework in England and Wales should be reformed at the time of going to press (8 May). Jackson LJ was instructed to conduct his review by the Master of the Rolls, Anthony Clarke. Hourly rates, court costs and the future of the costs-shifting rules have all been scrutinised. All factions of the litigation community have been asked to contribute to the report and will be given the opportunity to see the draft paper. After receiving comments from the profession, Jackson LJ will put together a final report, which will be sent to the Ministry of Justice for review in September 2009.
The investigation, which was prompted by the growing cost of litigation in the English and Welsh courts, has attracted some criticism from leading litigators for failing to go far enough. They argue that a broader review is needed if legal fees are to be reined in, including revisiting the Woolf reforms, which were introduced in April 1999.
Jackson LJ’s review is one of several strategic consultations that have been launched to look at the future of the profession. Elsewhere, regulation of the profession is being scrutinised as City lawyers push for the Solicitors Regulation Authority (SRA) to create a division especially for firms with corporate clients.
The report, which was published in March, said the SRA must fundamentally reform how it regulates corporate firms to restore the profession’s confidence in it. The Smedley review was commissioned by the Law Society as a sub-strand of the wider Hunt review into the future role of regulation. Lord Hunt, formerly Beachcroft’s senior partner, was commissioned by the Law Society to conduct a review of how the profession is regulated. The full report will be published in the autumn.
The Legal Services Act
When it was first envisioned the Legal Services Act (LSA) was set to revolutionise the regulation of the profession as well as open it up to non-lawyers for the first time.
The brainchild of former Lord Chancellor, Charles Falconer, the LSA first attracted huge criticism from the profession for attempting to give the Government powers to appoint members of the new overarching regulator the Legal Services Board (LSB).
Plans to allow non-legal firms to set up alternative business structures (ABSs) were also slammed for being rushed. The Law Society and Bar Council lobbied hard to have the act amended and after much wrangling, the LSB will be a light-touch regulator and ABSs will be monitored carefully.
But there has hardly been a rush of non-lawyers into the profession. Legal disciplinary practices (LDPs) came into being on 31 March. These firms are specifically regulated because up to 25 per cent of employees are non-lawyers.
Just 14 firms were given permission to practise as an LDP by the Solicitors Regulation Authority (SRA) on 31 March. Thirteen have non-lawyer managers and one has a lawyer manager.
Meanwhile, the LSB has set out its priorities for the first year. As regulator of both the SRA and the Law Society, the body has a tightrope to walk in its regulatory remit.
In its first-ever business plan it pledges to make the regulation of legal services a model of best practice within three years. The LSB has seven core objectives, including widening access to the legal market through the introduction of ABSs. This will be underpinned with a series of key aims, which include assessing the impact of ABSs on consumers and identifying actual consumer experience of legal services provision.
Modernisation of the profession is clearly on the agenda and some commentators believe the introduction of ABSs will bring about faster progression for graduates looking to reach law firm management. In practical terms, however, it could be some time until the profession fully embraces the LSA.
If there is one word that characterises the first few months of 2009 for many of the biggest law firms in the US it is ‘layoffs’.
Between January and mid-March this year there were 7,092 layoffs (2,874 lawyers and 4,218 staff) among the largest US firms.
One US legal market blog, Lawshucks.com, did sterling work trying to keep up with the layoffs but it was tough-going. On one day alone, 12 February, well over 350 lawyers lost their jobs as one US firm after another (including DLA Piper, Goodwin Procter, Dechert and Bryan Cave) lined up to announce layoffs.
Jump forward to mid-April and there are few signs of a quick recovery stateside. The number of firms introducing salary freezes continues to grow while an increasing number of US firms have deferred their 2009 autumn associate classes and reduced the length of this year’s summer programmes.
All round it’s a gloomy picture. And the news posted on 17 April by another US legal blog, Abovethelaw.com, is unlikely to cheer up many junior US lawyers.
ccording to the blog, Morgan Lewis & Bockius chairman Francis Milone is considering bowing to increasing client requests for a ban on first-year associates working on their matters.
Should that trend catch on, the recruitment prospects for US students could take an even bigger dive off the cliff than they have already.
Credit crunch A reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan.
Due diligence A process, typically undertaken by junior lawyers or paralegals, involving the review of a company’s legal and financial documents to flag up any issues that may cause problems during or following a transaction.
Conditional fee arrangement Legal speak for ‘no win, no fee’.
Equity partner A partner at a law firm who owns a share in the business and whose pay comes from the firm’s profit.
Leveraged buyout The acquisition of a business funded by bank borrowing.
LLP Stands for ‘limited-liability partnership’ and is the business stucture increasingly used by law firms. It allows partners to limit their liability to the amount they invest in the firm, unless they are somehow personally responsible for the loss.
Lockstep A system for paying partners according to how long they have been in the partnership. Lawyers in the partnership for three years, for example, will all earn the same, even though they may all bring different amounts of work to the firm.
MDP Stands for ‘multidisciplinary partnership’. This structure allows different professions such as accountants, lawyers and estate agents to work together in partnership.
Magic circle The term used to describe the four largest UK law firms: Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer and Linklaters.
Rainmaker A lawyer who brings in a lot of work and makes a lot of money for their firm.
Subprime mortgage A loan made to a borrower with a patchy credit history.
Deals of the year
Green shoots of recovery? Probably not just yet, but the last few months have seen a marked increase in company activity. Deal volume is still way down compared with last year, but since January a number of large transactions have punctuated the gloom.
Undoubtedly the standout instruction of the year so far was Barclays’ sale of its iShares division for £3bn. The sale of any financial company is always a big deal for corporate lawyers, and the fact that the buyer was a private equity group, CVC Capital Partners, was good news for an ailing industry.
The deal was led from the US, with Sullivan & Cromwell acting for Barclays and Cadwalader Wickersham & Taft for CVC. But there was also a trophy mandate for SJ Berwin advising the private equity group in the UK, while Clifford Chance represented regular client Barclays.
Elsewhere, there was consolidation in the natural resources sector. Talks between British Gas owner Centrica (advised by Slaughter and May) and North Sea gas producer Venture Production (advised by Orrick Herrington & Sutcliffe) could lead to a £1.1bn takeover bid. Also, Linklaters client Rio Tinto was back in the news following the failure of its £40bn bid for fellow minor BHP Billiton. Rio secured a £13bn cash injection from the Chinese government, which was represented by Clifford Chance.
The biggest deal of the year in value featured two companies you have probably never heard of. But pharmaceuticals giant Merck has offered a staggering $41bn (£28.07bn) bid for rival Schering-Plough, leading to instructions for US firms Fried Frank Harris Shriver & Jacobson and Wachtell Lipton Rosen & Katz respectively.
Finally, Norton Rose benefited from its close relationship with HSBC, getting the call for the bank’s £12.5bn rights issue. Norton Rose corporate partner Martin Scott led the team alongside London-based corporate partners Nick Adams and Chris Randall and Hong Kong-based corporate partners Richard Crosby and Liza Lee. As is the case for the majority of recent share raisings, Linklaters acted for the underwriters.
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