27 January 2003
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Times are tough in the IT sector and Cisco Systems has had to tighten its belt accordingly. The company's chief executive John Chambers was paid just one dollar in the last financial year and refused a bonus payment. In previous years Chambers had been one of the highest paid executives in the US.
While Cisco remains one of the tech sector's most cash-rich companies, Chambers' paycut can be interpreted as a symbolic 'look, no Ebbers here' gesture, rather than a desperate cost-cutting device. It is also a gesture that Cisco's streamlined legal team probably appreciates.
"Cisco has a very unusual structure for the legal team. There's no European general counsel. The 100 lawyers are a very leanly staffed legal function given the size of the company, and in Europe it's particularly leanly staffed because you have a total of just 10 staff," says Alfred Farha, who is one of Cisco's top two European lawyers.
The Europe, Middle East and Africa (EMEA) team generates around 28 per cent of Cisco's revenue, but has only a tenth of its lawyers. Farha, in London, supports the licensing and technology group and Hans Albers in Amsterdam is the European lawyer who oversees the sales team.
Albers is assisted by a team spread among offices in Brussels, Copenhagen, Frankfurt, Paris and Stuttgart. His team has responsibility for the complete contract management of systems integrators, such as IBM and Hewlett-Packard, down to small resellers and distributors. These are standard agreements, which are then negotiated by the legal team. Many in the legal team are not even lawyers but contract negotiators. In London there is a lawyer who supports key client BT (which has around 140 lawyers) and two who work with Albers.
Farha, then, who does not have any lawyers under him, is a lone gunslinger. "I joined when there were the last big parties and the boom was still on; then a month later it wasn't. I was interviewing people… Right from the start I thought I was building a team. But I'm not the only person [who thought that]. A lot of functions had to deal with that," laments Farha.
This makes outsourcing an important part of Farha's role. The legal department mirrors the way the company runs its business as a whole - it outsources whenever it makes sense. "I'm still working out the perfect model to do that and I'm still in discussions with a lot of firms," he says.
Since the end of the boom, Cisco's lawyers have instituted a new regime for squeezing fees. In 80 per cent of cases, Farha now demands a fixed fee and will also invite competitive bids from firms. "I then found that some of the incumbent firms were not on target," he says. "We look very closely now at how they work on the billing side, and we're very sensitive if they don't bill the way we thought they were going to."
There is no official panel, and in some areas all Farha does is conduct beauty parades on behalf of departments that he does not actively support, such as the facilities group or the HR department.
"We found that there isn't a one-size-fits-all firm," he says. "I'd worked with some of the same firms and I knew some of the individuals, so I didn't have a problem continuing some of those relationships. I'd worked with Robbie Dowling of Baker & McKenzie while I was at Unisys, and Weil Gotshal & Manges too. Weil Gotshal does a lot of Cisco's patent work in the US and I developed the relationship in the UK, which hadn't previously existed."
Weil Gotshal is doing a lot of the outsourcing work and working very closely with the procurement team, which Farha does not have the resources to support. Cisco has a lot of pan-European contract needs, which require a network of law firms. Weil Gotshal has also done some work on the M&A side.
Outside the US, Cisco has historically had strong links with Baker & McKenzie (B&M). Albers' boss Graham Allan, director of worldwide legal operations, used to work for the firm. B&M provides some data protection and HR advice to Farha and works a great deal with Albers. The firm is also Cisco's main competition adviser and is used in Germany, the Netherlands and Sweden.
Albers has also begun to use Willkie Farr & Gallagher a great deal and recently hired an associate from the firm's Paris office. Albers has a longstanding relationship with François Bloch, who used to work at Clifford Chance, and the relationship has extended from France to Italy. Albers also gives Christopher Rees at Herbert Smith a special mention, while Farha uses Brobeck Hale & Dorr for all investment-related work. Brobeck is still Cisco's principal corporate firm in the US.
Cisco has a maximum budget of 0.2 per cent of revenue for legal services, which works out at around $38m (£23.5m) for the last year. Unsurprisingly, both Albers and Farha are keen to emphasise the assistance they have from homemade technology in meeting this target.
"There's almost always an opportunity to automate the process. Cisco will always look for possibilities, in any part of its business, to automate processes by using internet and IT tools that are often created by our own people. We've always felt that if you can invest in these tools and therefore be more efficient, then you can probably make do with less lawyers than other companies might do," said Albers.
And while Cisco may have less lawyers than other companies, that leaves the current ones to clock up the air miles. Farha is a true internationalist. He was born in Switzerland, qualified at the New York Bar and then spent a year at a law firm in Japan. He talks with glee about negotiating with the UN to set up a network academy in the Gaza Strip.
While both lawyers are fairly independent, they have weekly conference calls with their bosses in the US. Farha is especially thankful for this support. "Because a lot of decisions are made in the US, it's invaluable to have a line in to the team there," he says.
Farha is also the EMEA lawyer responsible for mergers and acquisitions. In the boom times this would have kept him very busy indeed. Cisco has made 78 acquisitions, the vast majority of them before Farha was recruited. But Farha has still managed to work on a few, including a spinoff in Italy and a "structure" in Saudi Arabia. Farha explains that Cisco does not like to do joint ventures. "There's too much risk. It's part of the conservative nature of our CFO (chief financial officer). I think that part of the success of Cisco is knowing where its limits are and what we're good at," he states.
Despite the tech sector doom and gloom, Cisco remains good at a few things. Revenue was up 9 per cent in the last quarter, while the company estimates that revenues at its top 10 remaining competitors were down 48 per cent.
As Cisco's success continues, so will the companies and law firms that service it. But woe betide any firm that steps out of line. "It's very much an open-door policy and we really look at it case by case, and if we're not satisfied we treat it as an open-market situation and we'll look to change horses," warns Farha.
Senior corporate counsel, licensing and technology
|Employees||35,278 worldwide; 5,500 in Europe, the Middle East and Africa (EMEA)|
|Legal capability||100 worldwide; 11 in EMEA|
|European legal heads||Senior corporate counsel, licensing and technology, Alfred Farha; and EMEA director of legal services Hans Albers|
|Reporting to||Vice-president deputy general counsel Van Dang and director of worldwide operations legal Graham Allen|
|Main law firms||Baker & McKenzie, Brobeck Hale & Dorr, Clifford Chance, DLA, Eversheds, Herbert Smith, Theodore Goddard, Weil Gotshal & Manges, Willkie Farr & Gallagher|