The Lotus Elite
30 April 2001
Lotus. The mere whisper of the name conjures up images of the fastest, sexiest cars, the finest engineering and a most sought-after brand. But have you ever heard of Hethel, the tiny Norfolk village that harbours the secrets of Lotus cars?
The site holds all the usual features of a small car manufacturer, with the extra allure of its concealed testing track and top-secret design studios. No wonder John Messent is enjoying his job. As well as holding the position of group head of legal, he is responsible for the corporate affairs team at the company with an estimated turnover for 2001 of between £140m and £160m. Messent assures me that the two functions support one another admirably. "It's an interesting combination for me. [PR] is not actually a contrast to law at all: you have to be very careful about what you say and try to get the most out of every situation, but it tends to be with more razzmatazz around it," he says. Messent has had a varied career, which began with five years at General Motors (GM), where he ended up as manager of European dealer investments, furnishing him with an excellent grounding in the motor industry. It was during this time that he encountered Rakisons, a small City-based practice, which GM used for the acquisition of dealerships.
The firm paid to put him through law college, which he says "was very nice". But Messent soon realised that getting back into industry would be the best option for him and so moved on to Lotus shortly after. He was group legal adviser for just 18 months before he was asked to join the board.
However, times do not seem quite as rosy for Messent or Lotus right now, as redundancy plans have been announced. As director of corporate affairs, Messent is busy maintaining the positive front. "It's going to be between 250 and 300 redundancies," he explains. "Our projections for the coming year, in terms of engineering work or vehicle sales, given our production constraints, mean that we have only so much to spend on costs. Therefore, we have to look very carefully at what our costs are. It's only sensible to run a business with your costs inside your revenues. We've looked at every other opportunity to either boost revenues or save costs before looking at people. The other thing is that it's actually quite normal in the engineering business, where a lot of the 250 redundancies will be from, for the workforce to fluctuate as the projects come and go."
Messent does not expect the redundancies to hit the legal department. The economics are very clear to him: 1,500 chargeable hours at £35 each, or £40,000 per year, is much better value than 1,500 hours at £150 per hour in external legal fees. Add that to the reading-in that lawyers unfamiliar with the specifics of the business would need to do, and it is not hard to see the decision is based on operational and financial efficiency. Having said that, Messent is not playing down the role that external firms have in his strategy. "Clearly, the people in private practice are more up-to-date with the changes and developments in the law, and they have the specialisation. For example, we can do some employment law in-house, but firms and partners specialising in employment law - if you have something quite difficult to deal with or a complex issue - have probably done five of them that week. It's much more efficient that way, but for the base work that we do, it's most efficient to have in-housers; then, when we need very specialist advice, we'll go outside. That's the balance we need to strike."
Lotus has recently issued a floating rate note to raise money for the business, successfully amassing £40m. Without the insider experience in fundraising, the company was adamant that it needed someone with a proven track record in this area to avoid the potential pitfalls. A member of the board had some previous experience of Dechert, the firm born out of the merger between UK firm Titmuss Sainer Dechert and US practice Dechert Price & Rhoads in July 2000, and so the selection was made. Partners Richard Ambery and James Lewis were the contacts, and they struck up a good relationship with the Lotus team, earning themselves praise along the way.
For Messent, personal relationships in business are everything. "We use Lovells for big pieces of litigation work and we've come across an individual there called Chris Hardman," he says. "He has a very good feel for the automotive industry, and is a very sound litigator who gives immensely practical commercial advice.
"It isn't a whole collection of section numbers that they send through, it's really good: you can do this and this, the upsides are these, the downsides are these. It's exactly what you want - very practical, very reasonably priced which may be a surprise from a big firm, and they're always available. We get on very well with them, and it seems to make a very big difference to the amount of effort we'll make for each other.
"There have been some things that Chris has worked on over the past few years that have had the makings of being quite serious for us, but which he's managed to extinguish at an early stage. Some of the things we wanted him to have a look at were our trademarks and our historic involvements with the Formula One racing team, Team Lotus, which is now owned by David Hunt. Obviously, given that theirs is a very big name and ours is a very big name, we wanted to make sure exactly who owns what and what rights each party has so that we can coexist in the most profitable fashion. Clearly, that's the type of area that could have had legal argument, and therefore it was valuable having Chris' advice. He spent quite a considerable time researching into that and coming out with some very practical and succinct advice for us."
A working relationship with Barlow Lyde & Gilbert has yet to be tested, but it has been established on Messent's hypothesis that a good personal relationship will lead to a successful business partnership. A more local firm is key to the day-to-day running of the team. Eversheds was chosen because of its professional attitude and national spread as well as its proximity. Used mainly for employment law, the firm always makes somebody available at short notice. Messent says: "To tell you the truth, the basic technique we use for choosing our law firms is that clearly they need to have a specialist in the right area, but so much of it is getting on with the people you're working with or instructing. Most law firms, especially the bigger firms regionally, are very good; they're very professional and have very good lawyers working for them with great portfolios of clients. The question is, do you get on with them? If we get on with them, it makes the relationship, and therefore the fee structure, that much more efficient. That's what's important to us."
Messent is verging on the cynical when it comes to discussing those fee structures. What saves him is his secure relationships with those he negotiates with and a reliance on gut feeling. "If you get on well with somebody, it's much more difficult for them to take you for a ride on fees," he says. "They'll see a valuable long-term relationship with you."
A big issue on the agenda is to oversee the split of the business into two separate operating companies. Currently, the cars and engineering divisions operate out of one limited company. This has been accepted for years, with a "don't fix what isn't broke" mentality. It has now been decided that it would be more profitable and would provide greater focus for each side if a split went ahead.
With 40 per cent of the car business and 80 per cent of the engineering business going overseas, Messent also has need of international expertise. One US firm inspired praise from Messent. "I was involved in buying an engine testing business just south of Detroit," he says. "It was an interesting experience dealing with US lawyers. It was actually very good. We used a firm called Butzel Long which was first rate, and surprisingly for US lawyers, they were very, very good value - staggeringly good value. I'd recommend them to anybody."
Most of the legal work is done on an ad hoc basis, with the aim being to solve problems early. Messent says: "If you check our corporate strategy, it doesn't say anything in there about the fact that we're in the business to litigate. So, if someone wants to have an argument with us, then what we don't really want to do is have an argument with them. It shouldn't be in anyone's interest in a sensible corporate world to go to court and fight each other. Far better that we can reach a sensible accommodation so that we can get back to what we're really in business for, which is making money out of cars and out of engineering."
Head of legal and corporate affairs director
|Legal capability||Four in-house lawyers|
|Head of legal and corporate affairs director||John Messent|
|Reporting to||Chief executive Chris Knight (in the process of retiring, to be replaced by Terry Playle)|
|Main location for lawyers||Norfolk|
|Main law firms||Barlow Lyde & Gilbert, Dechert, Eversheds, Lovells and Wragge & Co|
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