24 March 2003
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B&Q is wholly-owned by Kingfisher plc, the highly successful retailer that is also the parent company of electrical goods chain Comet. Gary Shillinglaw, who has been company secretary at B&Q for four years, oozes optimism during the interview - a further sign that the retail giant seems to have shrugged off the economic downturn. Last month, Kingfisher announced better-than-expected sales and as a result of the continued UK housing boom and the nation's obsession with DIY, B&Q's overall sales increased by 15.9 per cent in its last financial year.
As the UK's leading home improvement and garden retailer boasting a turnover of £3.2bn, it is surprising that B&Q's legal function is run out of the company secretariat and headed by a non-lawyer. But Shillinglaw, who is a chartered secretary, argues that this is a deliberate strategy that has worked successfully for many years.
"I come from slim head office functions, but I still think it's the right way [to manage a legal function] rather than by building up a large support department," he says. "The culture has always been to keep support departments like legal quite small and to outsource. We feel that because of the amount of work that we actually put out to firms we get a good deal in terms of provision of service, quality of advice and economics."
In fact, this philosophy is shared by Kingfisher, which has a legal department that is tiny compared with other FTSE 100 companies. Head of legal affairs Martin Chambers is the only qualified lawyer at Kingfisher's head office in London. He works alongside Helen Jones, Kingfisher's director of governance and central services.
Shillinglaw has one assistant, but last week a part-time secondee from Bond Pearce joined B&Q's company secretariat for a six-month stint. Shillinglaw says that at the end of the secondment he will decide if the department requires a third person permanently. "The reason for bringing a third person into the department is to see whether we can do more work in-house. We may take a permanent general lawyer in due course," he says.
B&Q farms out 75 to 80 per cent of its legal work to external lawyers. When instructing firms, Shillinglaw selects ones that are on Kingfisher's UK legal panel, which includes a combination of City and national firms and niche practices. Addleshaw Booth & Co, Bond Pearce, Freshfields Bruckhaus Deringer, Mayer Brown Rowe & Maw, Lovells, Macfarlanes, Scottish firms Fyfe Ireland and Burness, and intellectual property (IP) consultancy Rouse & Co International and its UK legal arm Willoughby Partners are all on Kingfisher's UK legal panel.
Bond Pearce is B&Q's day-to-day commercial law firm. It advises the company on IT-related work and also represents the company at employment tribunals. B&Q's relationship with Bond Pearce goes back to when the company was first established more than 30 years ago.
Rouse & Co handles B&Q's IP work, which has grown considerably over the past couple of years, while its affiliated law firm Willoughby & Partners handles the litigation relating to it. Currently, Willoughby & Partners is advising B&Q on an ongoing patent infringement case.
Addleshaws has helped B&Q complete two acquisitions. In 1999, the company acquired Dickens, a small chain of DIY retailers based in the North East, and Screwfix, the UK's largest hardware mail order shopping business.
Shillinglaw believes that because B&Q is a market leader in the UK, its growth has been mainly organic. It has expanded by building new stores and revamping existing ones rather than through acquisitions. And in Shillinglaw's view, given B&Q's size, any attempt to acquire a business in the home improvement sector is likely to get blocked by the competition regulators.
Addleshaws also advises on some non-transactional work. The national firm helped B&Q set up a buying office in India a couple of years ago and has also handled some IT work for the company.
B&Q's property work is handled by its property department, which is run by Terry Hartwell, now Kingfisher's property director. Dempster Binning, which was set up by ex-Bond Pearce, property partners gets a major slice of B&Q's property outsourcing, with some of it also going to Addleshaws and Scottish firm Fyfe Ireland.
Shillinglaw is happy with the quality of advice he receives. "We're a major client of Bond Pearce and Rouse & Co/Willoughby & Partners, which means we get special attention as a result. We need that, because retail, particularly B&Q, is very fast-moving. When we get instructions internally on new matters my colleagues expect a quick turnaround," he says.
National domination is not enough for B&Q, so the company has set out to expand overseas. In 2001, B&Q entered the lucrative Chinese market and opened its largest worldwide store in Shanghai. A further three stores were later opened in the Shanghai district together with four more in other regions of the People's Republic of China (PRC). Shillinglaw says that in the next few years, B&Q intends to open around 50 stores in the PRC. Due to legal restrictions, the stores that B&Q currently operates out of the PRC are owned through individual joint ventures with local partners.
Even though Shillinglaw has free rein to instruct external lawyers to advise B&Q in some cases, such as big-ticket foreign investments, Kingfisher generally assumes responsibility for selecting law firms. "The overseas pioneering work is handled by the Kingfisher legal department," he says. "B&Q international, which is the division that has China within it, actually reports directly to Kingfisher."
Clifford Chance, which is on Kingfishers' overseas panel, is acting for B&Q in connection with its expansion into China. The magic circle firm is also advising B&Q on a legal compliance review. Shillinglaw says that three years ago in the UK, B&Q decided that it needed to establish a regular programme to check that it was complying with laws and regulations in all facets of its business. Last November, a similar review was conducted in the PRC, with Clifford Chance's assistance.
B&Q is also planning to launch a store in South Korea next year and has instructed local firm Bae Kim & Lee to advise on the expansion. The company already has stores in Taiwan, which were opened with assistance from Taiwanese firm Lee & Li. Last year, B&Q opened two further stores in the country where it is the market leader in home improvement retailing.
Shillinglaw says that because B&Q hopes to double its turnover in the next three to five years, a lot more legal work will be generated, so unlike many other legal departments that are under the microscope, Shillinglaw's team is really not under much pressure to control its spending.
|UK Turnover||£3.8bn for the year ending 1 February 2003|
|Number of stores in the UK||321 in the UK, 54 overseas|
|Legal capability||Two chartered secretaries|
|Company secretary||Gary Shillinglaw|
|Reporting to||Finance director Duncan Tatton-Brown|
|Main law firms||Addleshaw Booth & Co (corporate), Bond Pearce (general commercial work), Dempster Binning (property), Rouse & Co (intellectual property), Willoughby & Partners (intellectual property litigation)|