A £100m courtroom victory – and at a slice of expected costs – is a pretty good way for Standard Life general counsel Malcolm Wood to prove the value of his team
He may require a crib sheet to get the numbers right, but Malcolm Wood is looking pretty pleased with Standard Life’s (SL) recent financial results as he perches in the hospitality rooms atop London’s iconic Gherkin building, home to the insurance and investment company’s City operations.
As the insurer’s top lawyer, Wood should not be expected to know the numbers unaided: operating profits up by 6 per cent to £304m for the first half of the year; fee income rocketing relative to the same period a year ago, by 14 per cent, to £694m.
The figures may not be as good as analysts had forecast – some in the Square Mile predicted a profit figure twice that recorded – but they make Wood smile. Not least because he reckons his department has played an important role in boosting Standard Life’s bottom line by successfully defending a potentially groundbreaking piece of litigation and bagging £100m in the process.
The dispute – involving SL marketing documents for a £2bn pensions-sterling cash fund and the company’s indemnity insurers – was resolved on appeal at the end of 2012, with leave denied to the other side to take the matter to the Supreme Court coming at the beginning of last spring.
A complex row resolved
The four-year drama dates back to the run-up to the financial crisis, when some of the SL fund was invested in asset-backed securities. Wood makes the point that they were “super-duper, AAA-rated” securities, but nonetheless when the financial world imploded in 2008 the market virtually disappeared and it became almost impossible to value the fund.
The SL number-crunchers decided at the beginning of 2009 that the fund was worth nearly 5 per cent less than investors had thought – a point understandably difficult to digest for punters atop omnibuses all over the country as, rightly or wrongly, they had assumed they were investing in a bank that produced good returns. Woods says a review of the marketing material revealed that some was not “as good as it should have been” and ultimately SL senior executives decided to top up the fund with £100m of shareholders’ cash in a bid to protect its reputation with investors.
At the same time those execs thought it prudent to recoup that injection from SL’s professional indemnity insurers. Having started life as a Scottish assurance company itself, they must have thought – what else is insurance for?
But, recalls Wood, the insurers – a syndicate led by ACE – “weren’t too keen to pay out”. They ran a series of intriguing arguments that attracted the attention of the wider sector, not least a suggestion that the concept of apportionment should apply to the claim, as some of the £100m was allocated to brand preservation, something sector boffins normally reserve for marine insurance.
Wood initially went directly to the bar for advice, wheeling in George Leggatt QC from Brick Court Chambers, who advised on insurance issues, and 4 Stone Building’s John Brisby QC for advice on SL’s duties to policyholders. But when he sensed a court date looming Wood cut a conditional fee agreement (CFA) with Addleshaw Godard litigation partner Richard Leedham. Counsel themselves went on to CFAs for the appeal.
“To control costs,” recalls Wood, “we got our in-house team to do witness statements. There were two million discovery documents to look at and we got our in-house team to work with Addleshaws, which has a relationship with an external e-discovery software provider. That meant the process of getting through those documents took only three months, which is pretty remarkable, and we saved hundreds of thousands of pounds doing it internally. At the pre-trial disclosure of costs hearing, our estimate was £1m less than the other side’s.”
SL won at first instance and appeal, hence Wood’s good mood in the Gherkin.
“The big issue for in-house counsel is how to demonstrate value,” he says. “In this case we won and got £100m – that’s a wonderful way to demonstrate value. But even if we’d lost we would have been able to demonstrate value because by negotiating a good CFA we reduced our risk and by involving the in-house team in a big way we cut our costs.”
And Woods maintains there were longer term lessons learnt from the litigation, not least “the incredible importance of governance and good records. Minutes I had taken and drafted as group company secretary were subject to detailed investigation by expert QCs in the Court of Appeal.
“And then there’s the issue of getting your colleagues to understand the importance of discipline when it comes to e-discovery generally. People are careful when they write things down, but they don’t think emails are the same. It’s important to think before you write and press send.”
Striking that CFA deal conformed with Wood’s wider policy on fee arrangements with external advisers. He employs a range of approaches, but describes them all as involving “continuing discussion” with the firms concerned.
“I don’t want to get to the end of something and then see a rabbit jump out of the hat,” he says.
Wood enthusiastically encourages firms to share risk.
“Sometimes a firm will spend a long time on an unsuccessful transaction which is no fault of theirs,” he says. “But part of the long-term relationship is that there are swings and roundabouts, so if a deal hasn’t been successful we’ll quite often say – we’ll share the pain. But equally, if something has gone really well we should share the gain. For example, if a firm comes up with something innovative and value-adding to our business, we’ll recognise that through bonuses.”
Position: General counsel
Reporting to: Chairman Gerry Grimstone and chief executive David Nish
Revenue: £694m fee income
Total legal spend: £10m (est)
AXA puts a premium on its panel
Half a dozen leading firms will be polishing their pitches and mobilising squads of business development troops in advance of the UK arm of French insurance giant AXA launching a panel review next year.
Current panel members are Hogan Lovells and Norton Rose Fulbright for corporate work; Linklaters for regulation instructions generally and competition specifically; DAC Beachcroft and Pinsent Masons for commercial insurance matters; and Mayer Brown for employment. But UK GC Edward Davis, who joined the business in 2000 and took over the top slot five years later, is doing his best not to frighten the horses.
“We’ve always worked with a small panel,” he says, “and we aim to build long-term relationships with a smaller number of firms.”
Nonetheless, that team of six should not rest on their reputations.
“We’ll be looking for firms that are responding to changes in the market for legal services,” says Davis, “firms that are looking at new ways of working with us, firms that are looking at managing their costs by implementing valued-based billing rather than simply using hourly rates.”
Still, relationships remain at the heart of Davis’s approach to instructing outside counsel.
“The critical issue is the people,” he says, “high-quality people who are credible. We’ve got a strong internal team and I’m looking for people who can add to that.”
Davis’s UK team, which covers compliance as well as legal, is some 50-strong, of which 34 are qualified lawyers. The structure matches the GC function at AXA’s Paris headquarters, involving what Davis describes as “a centre of excellence managing legal and regulatory risk, and ensuring that the appropriate governance controls are in place”.
The difference is that the Paris team takes a head office function, dealing with corporate work, group financing arrangements and mergers and acquisitions. On the other hand, the London legal team advises AXA’s UK businesses at a more operational level.
Davis maintains the UK side has reached a plateau in staff numbers: “We are where we want to be, although we keep the position under constant review. You’ve got to manage the risks that are out there and there is an ever-increasing regulatory burden posing challenges. You need a strong legal and compliance team to manage the issues”.