Capital betters

You have to hand it to them. The staff of the in-house legal team at Barclays Capital are slick operators. External lawyers are drawn like magnets to the Bar Cap team. It has the largest legal spend of all the Barclays Group and the largest in-house legal capability, as well as working the secondment trail like no other. The team is nothing if not self-sufficient, and it operates separately to the rest of the Barclays Group.
But the team has seen some turbulence recently. Andrew Taylor, the former Clifford Chance banking partner who was lured out of retirement to head up the UK Bar Cap legal department at the beginning of 2001, left after barely a year in the post. He had intended to pursue a five-year master plan before retiring for good.
"I couldn't help being flattered by Bar Cap's energy in identifying me, although I'd never worked with them, and in tracking me down in retirement and being very flexible in their offer," Taylor told The Lawyer at the time. "After all, I didn't even want a job."
But it seems that Taylor found his experience at Bar Cap vastly different from private practice. "Andrew just found it massively different from Clifford Chance," comments Alex Cameron, legal director at Bar Cap. "It's a very different business."
Bar Cap has not replaced Taylor as yet and is not even certain that it will do so. All eyes were on Cameron to succeed to the role at one stage, but he insists he is not replacing anyone; and as a result of recent internal restructuring, Bar Cap may decide against appointing a successor at all.
In the last month Howard Trust, the group's global head of legal at Barclays plc, resigned from his position. Again, no replacement has been named and Trust has not announced his future stomping ground. That said, although the Bar Cap lawyers have a reporting line to Trust, the news does not really affect them to any great degree. They have always been linked more strongly with Frank McGarahan, Bar Cap's head of legal and compliance, who is not even a lawyer.
McGarahan is a dominant force within the legal department at Bar Cap. He was poached from Morgan Grenfell to become head of compliance and was then promoted to managing director. He is enough of a name in the City to get a mention in The Daily Telegraph's 'City Diary' for going on a stag marathon to Edinburgh with 22 City boys. He presided over The Lawyer's interview with Alex Cameron - and did most of the talking.
At first, this makes you wonder how much authority the in-house team has within the bank. But perhaps McGarahan's forceful presence is more because risk management and compliance are hot issues for the team. He certainly has a vision that he wants to perfect: he wants the legal team to be used as an advance process of managing risk (and not just legal risk), as opposed to being the team that is called upon when the damage has already been done.
So McGarahan has definitive ideas about how the team should be operating. Words such as 'risk' and 'management' litter his language. But he also knows what separates his team from the rest.
"A lot of the difference between us and the other banks is focus and execution," he states. "That differentiates everyone in their job, really, even if you're mining coal. It's about how you do it and how you prioritise.
"What we've sought to do is put into place a sensible governance structure that aligns legal risk management to the real risks we're taking as a firm."
It is impossible to manage all risks within a bank. Instead, McGarahan has structured a method of franchising a lot of responsibilities through policies and protocols.
"We get our legal team to be focused on the higher value added risks that make a difference to the upsides, ie revenues coming in; or to the downsides, ie litigation after the transaction has been executed," he adds.
Legal risk, notes the departing Trust, is something for which banks have no appetite. Credit market risk, yes; but legal, no. "There's a reasonably high tolerance of it," says Trust. "But the lawyers work within the tolerance of it." To address legal risks he believes there are certain necessary factors: excellent lawyers, who are as close to the business as possible; a need to reduce the number of law firms in use; and a coherent set of policies.
Having in-house lawyers close to the business is something of a rarity for investment banks. But McGarahan claims that Barclays has cracked it and that this adds to its success. "One of the reasons why I think the legal function at Bar Cap is successful is that it's respected internally, and the senior business guys give the legal function appropriate airtime, prioritisation and budget. The lawyers feel like they make a difference and are positively encouraged to do that rather than simply being the guys in the back room," he says.
He claims that other banks are not as proactive. "The legal team in some banks are tucked away on the fifth floor," he says. "They may as well be Clifford Chance."
Mark Campbell, London head of finance at Clifford Chance, claims that the team is unique in this respect. "The senior management in Bar Cap has fully bought into the need for a strong legal department," he says. "In some banks the in-house lawyers are looked upon as a cost, but you don't get that impression with Bar Cap."
It does not appear to be just that the Bar Cap legal team is empowered, Cameron insists that the quality of work helps too. "We get into everything. We're not shut out," he says simply. The lawyers - heaven forbid - are even asked for their creative input on transactions.
There is a definite type at Bar Cap, say Cameron and McGarahan. "There are lots of different people, but they all fit," explains Cameron. "You just need to look at people and you can tell whether they'll become part of the team and whether they'll fit in." The fainthearted need not apply. "We've generally got outgoing people because we have to be outgoing to talk to the businesspeople and to advise them," he adds. "There are very few shy, retiring people."
As a commercial animal, McGarahan is also realistic about money. He understands the importance of incentives. "You can't ignore the financial side," he says seriously. "We are in the investment banking industry, and the fact that lawyers may not be as driven as a derivatives trader in terms of what they expect their compensation to be, they nevertheless expect to be appropriately rewarded for good performance. And we stay very focused on that."
If the Bar Cap legal team seems to manage its internal relationships well, then it is particularly canny in the management of its external firms. As well as Bar Cap's 30 London in-house lawyers, it also has on average 10 secondees provided by its panel firms. This compares with around three to five in most investment banks. In many cases, the secondees are dedicated to specific business areas, so there are specialists in the loans area, commodities areas, derivatives and so on. Some sit with the businesspeople and others sit with the compliance team. Barclays plc has some secondees as well, fewer in number and spread across a range of areas.
Whether or not Bar Cap pays for the law firms' services is the million-dollar question and Cameron is not saying. "We never make comment on our secondees, otherwise it may jeopardise the position with the law firm," he says firmly. "We're aware that we manage to leverage our resources better than most other people we know. Either that or the law firms are winding us up when they tell us that. We believe we're fair in what we demand, but we put a lot of business to the law firms and we expect to get a lot back."
Allen & Overy (A&O) has around five secondees within Bar Cap and Clifford Chance at least three, while Linklaters also provides a steady, if smaller, stream of lawyers.
Some firms have sent very senior people to the bank in the past. A Simmons & Simmons partner was seconded to Barclays Group over a year ago to assist with the merger with the Woolwich.
"There's nothing to say that a partner from a law firm shouldn't be a secondee," says Cameron. "They'd add value as much as anybody else and they'd gain as much in terms of a training opportunity as someone at a lower level." The advantages of sending someone in are in abundance, but they swing in favour of the client.
"The cost to a law firm of providing secondees can be millions of pounds if you take the lost opportunity costs into consideration," notes a lawyer from one of Barclays' panel firms. "You're only going to send good people, usually at about four-years qualified. You've got to look at the hours they'd have worked and their charge-out rate, and that'll give you a realistic loss figure."
But in a market in which law firms are scrabbling over work, they will do anything to strengthen their position with clients. "The process can be very disruptive," says one lawyer close to Bar Cap. "But you just wouldn't get the work if you didn't cooperate. If you're dealing with a client like Bar Cap, then you're going to bend over backwards for them." He says that some secondees are obviously free of charge. The duration is usually six months and is part of the price that a law firm pays if it wants investment banking clients.
As well as working the secondment issue to its advantage, Bar Cap also likes to encourage transparency and competitive tension between the firms that it uses. Since the creation of the panels, Cameron provides each firm with regular information briefings, which give the law firms an idea of what their market share of the work is. The firms can also see what percentage of work other firms are getting, although they do not know which firms they are.
"They're very good at collating the figures," says Campbell at Clifford Chance. "We can compare the amount of work we've done to, say, A&O and Linklaters, because we've got an idea who the others are."
Cameron believes that it is a great system. "We give them the pie charts so they see what the other firms are getting, but they don't know who the others are," he says. "The firms just get their own percentage figure and other percentages with no names. It's quite amusing, because they often try and guess who the other firms are and they often get it wrong."
Bar Cap wins universal acclaim for the way it operates its panel. "They have a serious commitment to using their panel firms," says Campbell.
"If lawyers see that, then they give their best work," says David Morley, global banking head at A&O, another one of Bar Cap's preferred firms. "It's a human reaction and it's very motivating."
Morley also points to Bar Cap's attitude towards price and instructions. "There are no half-baked instructions coming through which never come to fruition, or which waste time and money," he says. "They manage fees expertly. We had a deal on for them recently where we were asked to estimate our costs. Bar Cap went to their client who said our fees were too high, but they wanted it done quickly so they told Bar Cap to get on with it." But the Bar Cap team were not prepared to underwrite it. "They wouldn't go ahead unless our fees were agreed, quite rightly, with the client, and eventually that happened. A small rumpus at the beginning by the Bar Cap in-house team saved a huge rumpus at the end."
Morley says Bar Cap is not a client that will drive him into the ground, but one that recognises that there has to be a trade off. "They know they can probably get a firm to do it cheaper for a while, but that's not the essence of the relationship," he says. "They're a very aware team."
Law firm fees are a big issue for the legal team. Generally, it is fairly happy with the fees it is charged and tends to get good value for money. If the team is ever surprised by a bill, McGarahan says it is the in-house team's fault for not managing the external relationships properly. But Cameron is less blithe. "The fees have escalated," he frowns. "I think we're going to have some difficult decisions to make when the panels are up for review." You get the feeling that Bar Cap will be calling more shots soon.