Last year the legal market was rocked by a string of senior in-house redundancies in the technology, media and telecoms (TMT) sector.
As first reported in The Lawyer (15 December 2003), Primus Telecommunications’ European general counsel Ashraf Mohammed became the latest victim of in-house pruning after the company decided to do away with its legal department.
Mohammed, who joined Primus three and a half years ago from key external adviser Campbell Hooper, left Primus amicably after completing a major restructuring of the company.
As with many telecoms companies, the past few years involved restructuring, retiring debt and a redundancy programme. But after the process came to an end, there was little for Mohammed to do.
Meanwhile, earlier in the same month (8 December), The Lawyer reported that mmO2’s highly respected head of legal Guiseppe Sanna was being made redundant.
In addition to Mohammed and Sanna, during the past 12 months alone Dan Fitz, the former general counsel of Cable & Wireless (now general counsel at Misys), Graham Howell, the former company secretary and general counsel of HMV Group (now Ofcom secretary) and Stephen Mitchell (destination unknown), the former general counsel of Reuters, were also made redundant.
Sanna’s departure was part of an ongoing wholesale review of the mobile operator’s legal function, which will result in the amalgamation of a number of departments. The review is part of a broader restructuring of mmO2’s business following the sale of its Dutch division and the integration of O2 Products into O2 UK.
As in Sanna’s case, most of these redundancies have been triggered by internal reorganisations, reflecting changes in the TMT sector, but in many cases they are motivated by a desire to drive costs down.
For example, the streamlining of Reuters’ legal function was part of a general redundancy programme affecting 3,000 staff in every part of the company.
Mohammed argues that these redundancies are simply part of the economic cycle, a “flushing through” of the overexcesses in the TMT sector during the “dizzying heights of the dotcom boom”.
“Three or four years ago, telecoms companies were busy recruiting senior lawyers to advise on acquisitions, capital raising and the rolling out of new networks. But after the dotcom bubble burst that process ended,” Mohammed notes. “The companies that survived this were downsized and started to focus on their core businesses and the delivery of service to their customers. As a result, their legal requirements shrunk.”
Gavin Wakefield, Cap Gemini Ernst & Young’s former head of legal for UK and Ireland, who recently joined fledgling technology boutique Technology Law Alliance, also believes that some companies overengineered their businesses during the dotcom boom.
“Companies grew their legal departments very rapidly due to 3G and because the market was so buoyant. However, there wasn’t sustainable demand,” Wakefield says.
Although there have been redundancies throughout the entire TMT sector, the problem is less acute within IT companies. Naveen Tuli, a partner at recruitment consultants Laurence Simons, says: “With a few exceptions, IT companies have managed to keep their legal teams more or less intact.”
This is further evidenced by the fact that the likes of Dell, Cisco Systems, Microsoft and Hewlett-Packard have bucked the trend and grown their legal teams.
Andrew Foster, head of legal at IT outsourcing company IT Net, supports this assertion. He says he hopes to expand his five-strong legal team this year.
Companies in the TMT sector, however, have not been alone in axing senior lawyers. Indeed, Foster argues that lawyers based in large multinationals are the most vulnerable. He says this is because, in the current economic climate, companies of this nature are more likely to restructure their businesses.
As first reported in The Lawyer (18 November 2003), KLM general counsel Leslie Mooyaart was made redundant following an internal reorganisation to cut costs. Mooyaart’s departure followed the consolidation of three of the Dutch airline’s departments: government and industry affairs, legal affairs and the secretariat.
Mooyaart’s destination is still unknown.
Mohammed argues that the in-house sector will still need senior lawyers. “Things will begin to settle down in the latter half of 2004 because companies never stay still,” he says. “Those companies focusing on their core businesses will need to start making acquisitions again in order to keep their shareholders happy and sustain growth.”
Tuli, meanwhile, argues that in the long term in-house legal departments will continue to grow because it is not economically viable for companies to farm out all their legal work to external lawyers. However, he warns that there is still a lack of senior in-house positions and expects this situation to remain the same well into next year. “It’s still going to be very tough,” he says, “because there’s still very little movement in the market.”