Accountants against the law: a competition time is coming

The news of the launch of Coopers & Lybrand's law firm has created more of a ripple than a splash in the marketplace. But the waves will follow eventually.

The top 10 City law firms have noted that Arthur Andersen's three-and-a-half-year-old firm, Garrett & Co, which has more than 100 lawyers, is still to affect their market. And they hardly spare a thought for Price Waterhouse's Arnheim & Co, which is about to celebrate its first birthday with only 15 lawyers on board.

Furthermore, Coopers' launch of Tite & Lewis is hardly a surprise – it has taken an exceedingly long time for the firm to make up its mind. In the last months of 1996 there was an embarrassing leak of lawyers from its tax team – including Reg Nock – who were supposed to be forming a new law firm.

This week, we reveal more news about the launch, (see front page) as it emerges that the head of Coopers' employment law unit is leaving for rival Arnheim & Co. There is talk that not all the lawyers at Coopers are keen to form part of a new firm under two relatively unknown Stephenson Harwood partners.

While those who have come into contact with Christopher Tite and Mark Lewis speak of them warmly as good lawyers and likeable personalities – and although there were those at Stephensons who saw Lewis as a potential senior partner – they are neither big, nor widely known names.

Leading IP/IT lawyer Mark Abell from Field Fisher Waterhouse says: “You expect to see accountancy firms moving into legal practice, but this particular recruitment was perhaps not the most expected.”

There is no doubt Coopers will want Lewis, also an IP and IT lawyer, to build his specialisms into one of the pillars of the practice. Arthur Andersen's Garrett & Co has also made IT and IP a speciality. The Big Six accountants can use their Europe-wide networks to provide the international basis for the IP advice that their multi-national clients need. International IP legal advice is particularly important when it comes to that big fee earner for the Big Six, tax planning.

But, as Nock points out: “Tite and Lewis are talking about doing global law. Gerard Nicolay, [the head of Coopers' European legal network] just wants a UK backyard to refer work to.”

Some observers are also surprised at the fact that Coopers is intending to transfer lawyers from its accountancy firm into the legal practice. There is a danger that clients, told that they will be referred to a separate law firm, will choose to shop elsewhere for their legal services.

Paul Downing, head of Price Waterhouse's European legal network said: “There are partners at Price Waterhouse who are lawyers, particularly in the tax department. They feel they can serve the law firm by being in its tax department.”

Certainly Coopers' head of tax in Birmingham, Stephen Coleclough, who was recruited from Simmons & Simmons at the end of 1996, told Coopers that he did not want to be part of any new law firm they might set up. “I'm voting Labour so that MDPs will be allowed and I can become a Coopers partner,” he said last year.

Lewis, who was due to discuss full details of the new firm with Coopers partners when he talked to us last week, said: “Most of them [Coopers lawyers], if not all of them have been in private practice – some more recently than others, so they are going back to something they were in, although we hope we can offer a better environment. I don't think it will be a problem at all.”

There are other long-term difficulties for the accountancy-tied law firms.

The Securities and Exchange Commission does not like the same organisation doing the audit and the legal work for one client. Accountancy firm partners do not like losing clients because their lawyers are working for them on the other side of a transaction. Last year, The Lawyer has discovered, Arthur Andersen lost an important client after a Garrett & Co litigation partner advised someone to sue them.

The client's financial adviser told us: “It cost us close on a quarter of a million to successfully defend the case. Then Garretts appealed against the judge's decision. It would have cost us even more and we had not known we would get the costs. I said to the head of audit at Andersens: 'Can't you sort out your law firm? It's going to cost you more if you lose it.' They gave me a line about independence. Fair enough. We won the case and got all our costs, but we didn't use Andersens any more. They lost one of their largest clients.”

But that sort of problem may disappear once MDPs are allowed and the “independent” law firms are swallowed up into their accountant parents. For this reason, no law firm can afford to greet the arrival of a third member of the Big Six in the legal marketplace with complacency.

“They are simply not in our market,” Linklaters & Paines managing partner Terence Kyle said last autumn of the accountancy law firms.

But then he added quickly: “That's not to say they won't be in five or 10 years.”

So who are Tite & Lewis?

Mark Lewis and Christopher Tite, who are both Stephenson Harwood partners, regard themselves as equals in their new firm.

Lewis, 42, has been head of Stephenson Harwood's IP/ IT department since 1994.

He started his legal career as a barrister and from 1983 to 1989 was assistant parliamentary counsel and legal adviser to the Treasury. Later he joined Warner Cranston, a firm where he is remembered fondly.

He was then recruited to Stephenson Harwood from Warners in early 1991 by the then head of the IT group Ranald Robertson, one of the leading IT lawyers in London.

At the end of 1993 and beginning of 1994, Stephensons' IP department was hit by the departure of Robertson and Ludi Lochner, the head of the IP department.

Stephensons had decided not to build up a mainstream IT/IP law practice, but intended to use its team as an add-on service to existing clients. It was this that triggered at least Robertson's departure and may be one reason why Lewis too is now leaving.

Lewis' includes acting for government agencies in two IT PFI schemes and he advised a bank on the funding of two other PFI projects.

Tite, the 37-year-old head of privatisations at Stephensons, has worked closely with Lewis on a number of transactions and has also advised several government departments on privatisations.

He joined Stephensons in 1989 from shipping firm Holman Fenwick & Willan and was made up to partner in 1990.