Here is a conundrum for corporate lawyers twiddling their thumbs waiting for the stock market to pick up: when and how should you get rid of a client who persists in breaking UK regulations? Should you:
a) Call your compliance people in a fit of confusion – your firm hasn't seen a dodgy client for decades… or at least since Guinness.
b) Call the Law Society.
c) Call Mike Francies at Weil Gotshal & Manges and ask him to explain, with the benefit of recent and bitter experience, what to do.
Okay, so the quiz is flippant, but this is a serious issue. Law firms are tripped up by undesirable clients more regularly than they would care to admit.
Every firm has its controversial client: for A&O it was corporate buccaneer Philip Green on the Marks & Spencer (M&S) bid; for Herbert Smith it was Mohamed Al Fayed on House of Fraser; for Clifford Chance it was Robert Maxwell on just about everything; but most recently US firm Weil Gotshal came a cropper with Robert Bonnier of Indigo.
Between December and January, Indigo made a series of share acquisitions in Regus, for which it is now under investigation by the Financial Services Authority (FSA). On the blackest interpretation of the facts, Indigo and Bonnier were guilty of market abuse, if not insider dealing.
We will have to wait for the FSA's pearls of wisdom, but the Takeover Panel has already made up its mind. Last month the panel censured Bonnier for seven breaches of the Takeover Code, which all took place while Weil Gotshal was advising – although the US firm itself was not criticised.
Heads of corporate say the answer is to head trouble off at the pass and be really picky about what clients you take on.
In the past, the Maxwell family has been ditched by Freshfields Bruckhaus Deringer and turned down by Slaughter and May, although Clifford Chance saw fit to take him on – only to be at the receiving end of a scathing Department of Trade and Industry (DTI) report, fingering Cap'Bob's City chums.
The Maxwell saga is a particularly unedifying example of client selection, but Clifford Chance is by no means alone in acting for colourful clients that other firms would turn their noses up at. Allen & Overy (A&O), for instance, still acts for Philip Green, despite the fact that, while he was involved in a public bid for M&S, his wife privately bought shares in the retailer and was investigated for inside dealing. Simmons & Simmons recently jumped at the chance to advise Green on the Safeway bid.
So what on earth did Weil Gotshal London think it was doing when it took on Indigo?
In this instance, Weil Gotshal does not even have the excuse that Indigo was a key client of the US homestead. Bonnier is connected to Weil's US practice through Scoot.com, but the dot com is is hardly up there with the Enron bankruptcy as a revenue generator. Francies in his private moments must deeply regret his decision.
But once lumbered with a dud client, what should a firm do? In the case of Indigo, the company was outed by the Takeover Panel over its chimeric takeover of Regus. When the Takeover Code timetable started ticking, the panel insisted Indigo get proper legal advice and in came Weil Gotshal, officially on 7 January.
But by this stage the FSA had a pretty clear idea that it would investigate Indigo for market abuse. Certainly, Regus was already “helping with inquiries”. There is no suggestion that Francies was complicit in any of Bonnier's shenanigans, but what is unclear is whether he was advising on the FSA investigation as well as the share acquisitions.
By mid-January, however, Francies must have known his client was out of control. The question by that stage was not if, but how and when, Weil Gotshal should get rid of the rogue client. Sources at Indigo have indicated that Weil Gotshal is now desperately trying to extricate itself; but why is it all taking so long?
The introduction to the Takeover Panel's City Code requires advisers to stop acting if a client is not, or will not, comply with the Takeover Code. The provision does not have the force of law, but City etiquette dictates that law firms acting on a public bid offer give companies the backing of their good name. Any monkey business and old school rules dictate the client should go immediately.
However, one complicating factor in Weil Gotshal's case is the FSA investigation. There is no evidence of formal talks between Francies and the Law Society, but it is just possible that arcane regulator's rules came into play here.
I can hear City lawyers scoff – after all, we are talking about a regulator so out of date with practice that in its recent consultation on conflicts it suggested that firms should (gasp) be allowed to work for more than one bidder on an auction. How very modern – someone obviously forgot to tell Chancery Lane that they are around 20 years too late.
However, the Law Society would view advisory work on the FSA investigation and corporate advice as two separate retainers. Weil Gotshal could ditch Indigo as a corporate client quicker than Francies could click his fingers, but it would be more difficult to drop the company in the middle of an FSA investigation.
The good news for the US firm is that Bonnier is now reportedly beauty parading law firms to advise on the FSA investigation. When one is in place, Weil Gotshal will have no excuse not to completely sever ties with Indigo. Once done, City lawyers will no doubt forget about the whole episode inside a few months.
UK lawyers had a close shave with the US Securities and Exchange Commission's (SEC) provisions on “noisy withdrawal”. Nobody likes a cultural imperialist and the SEC went too far, but is a gentlemen's code the best framework for handling runaway clients? Look around – not everyone in the City is a gentleman any more.
If Indigo beauty parades for a new corporate adviser in a few months time, you can bet that even some of the City's finest will be there in their Sunday best, vying to pick up the instruction.