Fuel for thought

The Lattice group may not be a sexy little dotcom newco or as high-profile as the likes of Virgin, but this solid multi-business gas distribution company is more like a firm’s best friend. Abigail Townnsend reports

In a brand recognition test, Lattice would probably not score very highly. But say “Transco”, and things start getting a little clearer. The Lattice group owns a range of companies of which Transco is the jewel in the crown. Transco owns and operates the majority of the UK’s gas transportation systems and Lattice is one of the successor companies to British Gas.

There are seven further Lattice companies besides Transco, covering telecoms, energy, property, support services and leasing. The group was created only recently, when it was demerged from the BG Group in October 2000 to become a listed company in its own right. The BG Group comprised of two main parts: Transco and an oil exploration company. It also had two legal teams, of roughly equal size, servicing corporate and Transco respectively. The two teams rarely worked together.

It was at this stage, in November 1999, that group general counsel Patrick Somers joined as head of the Transco division from Irwin Mitchell, where he was head of commercial.

He says: “It was clear to me that there was likely to be a demerger in the future because I’d done my due diligence. You couldn’t anticipate when it was going to happen, which suited me. But in the event, the demerger took place just five months into my tenure.”

By October 2000 the deal was complete and Lattice was a separate company, but it retained only the Transco legal team and not the corporate function. Somers’ first job, therefore, was to build an in-house department spread across the eight separate companies.

Although Somers uses external advisers, the in-house team is, in his opinion, the epicentre of Lattice’s legal capability. The main reason for this is the amount of regulation affecting the company. “You need to make sure you comply with the requirements that affect the company, but there aren’t that many lawyers out there who really understand utilities,” explains Somers. “That doesn’t detract from the City firms with dedicated units supporting utilities, but you can’t understand the business unless you live and breathe it. I found coming here very humbling.”

The in-house team now numbers 33 qualified lawyers, 10 paralegals and a patent team, consisting of one patent attorney and four paralegals. The original Transco team consisted of 16 lawyers. The new function was put together on the basis of three basic criteria: what work was the Transco function doing?; who were the users and what did they need?; and what were the legal capabilities that the company already had?

But 10 years as an equity partner at Irwin Mitchell was hard to shake off. Somers decided to organise the team along practice lines: corporate, employment, commercial, business support and property. Commercial is the biggest group, encompassing a variety of work that includes contracts, joint ventures, procurement and competition. It also houses the intellectual property (IP) team.

Four lawyers act as the practice group leaders and Somers’ deputies. The in-house function is then stretched even further: each Lattice business (see box) has its own dedicated lawyer. Finally, the team is spread throughout the UK offices, although the bulk are based in Solihull.

Yet regardless of the size and scope of the team, there is still a need for external advisers. As with the in-house team, after the demerger Somers shook up the external provision too. Although BG Group had traditionally handled most of its work in-house, when it did outsource, it predominantly used Allen & Overy (A&O), Linklaters & Alliance and Shearman & Sterling.

However, this was not a setup that Somers was prepared to emulate without question. “It was my view that it was not necessary to use magic circle firms for quite a lot of the work that was being outsourced,” he says.

So he brought in Hammond Suddards Edge, Pinsent Curtis Biddle, Osborne Clarke and Wragge & Co, handing them smaller pieces of work to begin with. “I wanted to see how they’d handle us, what sort of advice we were getting and what sort of bills we were getting,” explains Somers.

The group continues to use Linklaters for City work and A&O for equity capital markets and has also maintained a long-term relationship with Denton Wilde Sapte (originally the relationship had been with Denton Hall, which merged with Wilde Sapte just over a year ago).

But Somers is not one to rest on his laurels. Up to now Lattice has not had a formal panel, but all that is about to change.

Somers says: “We’re planning a more formal panel to give some solidity to the relationships and to take them forward. If someone knows that they’re one of two or three firms [that we use], then they’re going to be more inclined to build up a relationship.”

He has already spoken to all of the firms currently used by the group as well as a handful of as yet unnamed hopefuls. But there will be no beauty parades and cold calls will not be returned. Somers argues that beauty parades are “hit and miss”, and that “it’s very much down to who puts the best acts in front of you”. He also takes the attitude that if he is interested in a firm, he will approach it. If the firm has not heard from him, then no amount of cold calling will change his mind.

Somers will look at costs during the review. The yearly legal budget is in the “low millions”, but Somers still expects a deal on billing from the chosen firms. But the most important thing will be finding lawyers who can provide value-added solutions. After all, a highly-developed in-house team is already in place to cost-effectively cover the bulk of the company’s legal requirements.

What he wants from his external firms is not, as Somers puts it, “black letter advice”, but answers to “what should I do next?”

The future is unlikely to get any calmer for Somers, his in-house team or the firms that advise Lattice. Once the panel is established (as yet, no completion deadline has been set), it will be reviewed regularly, although Somers adds that reviews are likely to be every few years to give the relationships a chance to blossom. But he will expect to see at least some results quickly. “Given how much law firms charge and sell themselves, it’s only fair to expect them to come up to speed fairly quickly,” he says.

Lattice may not be the sexiest company in the world, but it is a large group with an extensive and diversified range of businesses under its umbrella. As certain sectors continue to yo-yo in and out of fashion, and consequently up and down the stock exchange, a solid old economy client such as Lattice is the sort of client that might not make headlines but does generate profits.

What is more, the group actually encourages and promotes the legal function as a whole, providing it with a hefty budget and internal resources. Somers’ remuneration package, for example, fell only slightly when he came on board. He says of his decision to quit Irwin Mitchell: “It wasn’t an easy decision by any means. I’d seen myself as a lifer at the firm and had been an equity partner for 10 years and I liked my practice.

“But, as a commercial lawyer, I felt that I wanted to be more hands-on and be part of the decision-making process, and you can only do that by being part of the client.”
Patrick Somers
Head of legal and group general counsel

Allen & Overy, Denton Wilde Sapte, Hammond Suddards Edge, Linklaters & Alliance, Pinsent Curtis Edge, Osborne Clarke and Wragge & Co

Organisation Lattice
Sector Gas Distribution
FTSE 100 Ranking 57
Market Capitalisation £4.9bn
Employees 15,579
Legal Capability 33 qualified lawyers and one patent attorney
Head of legal Group general counsel Patrick Somers
Reporting to Group chief executive officer Phil Nolan
Main location for lawyers Solihull, West Midlands
Main law firms Allen & Overy, Denton Wilde Sapte, Hammond Suddards Edge, Linklaters & Alliance, Pinsent Curtis Edge, Osborne Clarke and Wragge & Co