Capital gains

Carl Lobell has been GE’s top relationship partner at Weil Gotshal in New York – and now he’s moving to Europe. But with GE shaking up its external advisers, should he be worried? By Dearbail Jordan

On an otherwise uneventful Friday back in July 2002, General Electric (GE) chief executive Jeffrey Immelt made an astonishing announcement. After just nine months as head of the US conglomerate, he was doing the unthinkable: breaking up GE Capital.

The financial services arm had been a separate division of GE for as long as most people could remember. But from that point in 2002 on, the structurally complex GE Capital, consisting of five divisions under which 24 businesses operated, would be broken down into four areas. More importantly, the four divisional heads would now report directly to Immelt and not, as had been the case in the past, to a separate chairman and chief executive.

For Carl Lobell, trade practices and regulatory law partner and former co-chair of that department at Weil Gotshal & Manges, it was the end of an era. The lawyer had acted for GE Capital since 1968; in that time he had seen four sets of presidents/chief executives and general counsel come and go, acting for all of them. Now things were changing.

When I meet Lobell, it is at a crucial time for Weil Gotshal. Lobell has acted exclusively for GE Capital since 1985, but with the former GE Capital now an integrated part of the sprawling GE conglomerate, the once separate financial services business had decided to review the process of selecting legal counsel.

To understand just how astounding this is, think of Sullivan & Cromwell’s deeply ingrained relationship with Goldman Sachs. Imagine if the investment bank started reviewing its legal services. People would scarcely believe it. Nevertheless, more than six months ago, GE began a review in the US. It is now looking to the company’s vast European business.

When we meet, Lobell is literally days away from relocating from New York to the firm’s Paris office. We talk on a brief stopover in London where Lobell, all Savile Row chic and sparkling charm, is visiting clients – and no doubt GE in London is one of them.

While the attraction of France’s gastronomic delights are no doubt a draw for the gregarious 66-year-old, there are much more fundamental issues to address when he lands in Paris. “GE has initiated a new process of selecting counsel,” says Lobell. “In all fairness, there was a time, when Mr [Gary] Wendt was GE Capital’s president, when everybody just picked up the phone and said, ‘Where’s Weil, where’s Weil, where’s Weil?’.”

Now there is a fresh look at legal. One of the people pushing it is Keith Morgan, general counsel of GE’s commercial finance division, one of the four groups created in the 2002 shake-up (the other units are consumer finance, equipment management and insurance).

“Since Keith has come in he’s been looking at this,” confirms Lobell. “And I have no problem with that. In fact, I said so at a meeting in France last September.

“This is actually starting in the US and they’re moving it to Europe as well. GE is refining its method of selecting counsel to ensure it has the most appropriate counsel and that it can get the highest-quality service. It’s not sacrificing quality for price, but you know if somebody can do it more efficiently at better cost or whatever, then it will go to that person. We aren’t always guaranteed to get it.”

That is not to say that all of a sudden GE instructions are suddenly petering out for the company’s legal adviser of nearly 40 years. Far from it. As we speak, Lobell says Weil Gotshal’s London office is working on two deals for GE, while over in France the firm recently won out for GE Investissement Real Estate in a €2.3bn (£1.5bn) hostile battle for property group Sophia.

If there are lawyers out there temporarily blinded by the sight of imaginary pound signs and the thought of lots of lovely GE mandates, hold your horses. Weil Gotshal is not about to step back and let any old law firm come in and take the rump of the GE work. Lobell has already put in place a clear and well-defined structure for looking after the client.

In fact, years before the company’s strategic shake-up of 2002, Lobell was working with young and talented lawyers, in particular William Gutowitz and Jane McDonald, co-heads of Weil Gotshal’s financial services group. For GE Corp, Weil Gotshal grand fromage Thomas Roberts, chairman of the corporate department and member of the management committee, is principally responsible for the relationship.

“Since Mr Wendt left we were actually hired by GE and we do a tremendous amount of work for General Electric Co, not just in financial services,” says Lobell. “We really now have a much bigger client than GE Capital.”

Looking back, he adds: “I ended up with a pyramid team, with myself and, at first, Bill [Gutowitz] as my assistant. Then, over the years, Bill developed the confidence and the expertise with the client to the point where they started giving him the deals to run himself.

“Then, maybe five years after Bill, a woman that I worked with on a restructuring – it was a utility in Texas – named Jane McDonald, was in our Houston office. I thought she was too good for Texas.” (Don’t worry Texans, he’s kidding.) “She was working on a GE Capital deal with me and I thought she’d be very good for this client.

“Both have run that practice and gained the confidence of the client,” he adds.

Lobell cites a letter that Weil Gotshal’s chairman Stephen Dannhauser received from general counsel Morgan: “He said – how did he put it? – that I had left a legacy at the firm, developing an infrastructure with which the client was very happy. That the lawyers Bill Gutowitz and Jane McDonald were among the best transaction lawyers he’d ever worked with.”

Lobell often repeats that he is not worried about GE’s new counsel selection process, which sometimes sounds like a case of protesting too much. But on the other hand, he has ample cause to be confident.
Could any other firm possibly understand the mind-bending structure of the financial services businesses better than his?

This, Lobell thinks, gives Weil Gotshal an advantage over other, potentially cheaper, law firms. It is certainly not the cheapest around, but because of its knowledge and client-focused partners, Weil Gotshal can get a job done quicker, saving costs on not having to use reams of additional lawyers.

When Lobell began to work exclusively for GE Capital back in the 1980s, he estimates that he represented around 20 out of the 27 businesses that then made up the financial services group. Before 1985, his other clients included General Motors Acceptance Corporation (GMAC), the finance division of General Motors and department store chain JC Penney.

“I played an unusual role I think,” he muses. “Not only did I work on these deals with my law firm, but in effect I acted as a consultant with other law firms. So if there was a litigation in the state of Washington, usually a consumer class action, I was sent out and worked with the local law firm.”

What I discover during the interview is just how instrumental Lobell has been in setting up Weil Gotshal’s European strategy. It is fair to say that GE’s financial services division acted as a lynchpin, if not a driving force, behind the growth. First to open in 1991, under the guidance of European coordinating partner Joe Tortorici, was an office in Budapest; next came Warsaw, then Prague, mainly to advise the American Enterprise Fund.

“In Eastern Europe, GE Capital was very helpful,” says Lobell. During that time, the company made some major acquisitions and became involved in privatisations in the region.

Because of the sheer amount of privatisations taking place, Lobell says it became clear pretty quickly that Weil Gotshal needed a banking capability in the UK financial centre. “While they could do the M&A piece, most of the financing was done out of London and we didn’t have an office there,” he recalls. “Originally, as a way of trying to help them, we decided to open an office in London, but we’d start with a banking practice – a finance practice.”

The opening of London certainly began a period of extreme activity within Weil Gotshal, and not just from a workflow point of view. Lobell admits: “I can’t say the whole firm was behind it, but I would say the majority of people understood the need for it.”

Except, I suggest, for one diminutive but vocally robust corporate rainmaker? Dennis Block, who left Weil Gotshal in 1998, eventually joining Cadwalader Wickersham & Taft, famously made his rather critical feelings known about the firm’s European strategy.

“Yes, but Dennis Block was against everything,” counters Lobell.

Germany was also grown organically, with the new recruits geared more towards private equity when Gerhard Schmidt and partners moved from Beiten Burkhardt Mittl & Wegener to open in Frankfurt in 2001 (the firm now has a Munich office aswell).

“I guess that the next piece was Paris,” says Lobell. “I probably pushed that harder than anybody else.”

With a stellar reputation in all facets of corporate, the legacy Serra Leavy & Cazals – now forming Weil Gotshal’s Paris operation – could hit the ground running, notching up lists of impressive deals. But the GE influence is still strong. Not only through the Sophia deal, but funnily enough, Lobell says a former client of his from GE Capital, who is now a co-manager at Bain Capital, was helpful in securing the firm a mandate. He adds: “It wasn’t that hard, because the head of France for Bain said he just loved David Aknin.”

Lobell is yet to meet private equity star Aknin, who joined the firm from Linklaters last year, but he is clearly looking forward to it.

Aside from this, Lobell’s Paris move is very much a strategic one, to put in place the final piece of the GE client support structure. France is undoubtedly hot at the moment for the US conglomerate. It has been reported that GE is interested in acquiring a 10 per cent stake in Snecma, the French aero-engine manufacturer in which the French government is the majority shareholder. Snecma could be the first of many other mooted state-owned sell-offs – absolute manna for GE.

The other factor in the GE relationship is Lobell himself. At 66, he is just two years away from having to retire as an equity partner from Weil Gotshal. He was the firm’s 24th lawyer when he joined in 1965 after three years as a trial attorney with the antitrust division of the Department of Justice. With the firm now made up of 1,100 lawyers, Lobell has been instrumental in helping to build the firm.

Whether he will choose to stay on at Weil Gotshall, maybe as a contract partner, Lobell has not yet decided.

“I just felt two things,” he offers. “One – and let me be clear about this – as long as I’m in New York, I do act as sort of a glass ceiling, not on the substantive development, but on the ability of my protégés, on Bill and Jane, developing relationships with businesspeople I’ve known for many years. I honestly thought that, if I got out of the way, it would expedite their ability and opportunity to do that.”

The other reason? Well, Lobell just wants to try his hand at different sorts of deals and, frankly, with the opportunity to go and live in Paris for a few years, who can blame him? After all, he’s been working since he was 13 years old. I think he deserves a break.
Carl Lobell
Weil Gotshal