Gilbert's risky strategy

Paul Gilbert was poached from a booming plc to a struggling insurance house because, he says, he is seeking a new challenge. And from his new in-house role he is warning firms that they must start proving their worth.

The former head of legal at Cheltenham & Gloucester (C&G) was appointed company secretary and head of legal at United Assurance Group (UA) this month. He is adamant that he is going to overhaul the company's in-house legal department and improve its policies on outsourcing work.

Gilbert was at C&G for 11 and a half years and took over as head of legal in March 1997. He was given the freedom to restructure its legal department in any way he saw fit.

“I was allowed to organise the department how I thought best. I had a clean slate,” he says. His first move was to retrain its team of three lawyers.

“I wanted to change legal services from being an advice giving department to a department that assesses the legal risks the business was facing and to find solutions for them.”

Gilbert then set about changing the company's outsourcing strategy. He restructured C&G's panel in 1997 from about 30 firms to five: Eversheds, Addleshaw Booth & Co, Dibb Lupton Alsop, Salans Hertzfeld & Heilbronn HRK and Edge Ellison.

But he says that after he changed the legal strategy at C&G, he needed another challenge. “One of the down sides is that the business became less innovative and the legal work that kept me going dried up. I am 37 and did not want to stay there for the next 23 years,” he says.

So he moved to UA, and it promises to be a challenge. Two weeks ago, shares in the life assurer slumped after the group reported first-half earnings below expectations.

Stockbroker Teather & Greenwood's insurance analyst Tim Young says: “The figures came at the bottom of analysts' forecasts.

“Analysts predicted the company's shares would fall between 125 and 180, but they came in at 125.”

Analysts blame the company's problems on the merger between United Friendly (UF) and Refuge Assurance (RA) that created the assurer in 1996. Young says the merger made sense on paper, but in practice it has caused problems.

He says: “Both parties were home service providers. It made sense to put them together. UF was considered progressive, and RA was sleepy. Combined, they were expected to provide economies of scale.

“But there were severe management conflicts that led to the departure of chief executive George Mack in 1997.

“UA found it hard to replace him for many months. It was a rudderless ship until towards the end of 1998 when Alan Frost took over.”

Gilbert says it is the assurer's problems that excite him. “The UA merger is not regarded as hugely successful, it needs to show it can obtain results quickly.

“In-house lawyers are more important in business and knowing I am in a company that needs to change means I have the perfect role. If things are going to change here they can only change positively,” he says.

Gilbert is no stranger to controversy. He was appointed representative of in-house lawyers on the Law Society Council in July. In the year before he was chairman of the Law Society's commerce and industry group. He is known for fierce campaigning for in-house issues.

He branded Law Society councillors “completely stupid” when they ditched Pauline McBride's in-house representative seat on the council earlier in the year. And he described the running of the council as “just plain incontinent”.

He says he uses strong language because he thinks it will help raise the profile of in-house lawyers. “If you shout and make sense you are more likely to be heard,” he says.

As may be expected, Gilbert has plans to overhaul his new department and to change its relationship with outside law firms. UA does not have a panel.”Slaughter and May is its principal corporate adviser and it instructs Masons, Beachcroft Wansbroughs and Simmons & Simmons on other issues.

Gilbert, however, intends to create a panel. He says: “I can't say how many firms will be on the panel but it should be about three or four.

“We must find out what is comfortable for the business. I am waiting for everyone to demonstrate how good they are,” he says.

He claims not to base his criteria for panel firms on the strategy he implemented at C&G. He says: “Every business is different. It takes a little time to work out. Certain principles will be the same.

“We need to drive down costs. Every business must be cost-efficient. I am looking at what we spend and seeing if we can make some savings.”

Gilbert says one criterion prospective firms for UA's panel should fulfil is the ability to help manage the company's legal risks. “They need strong risk management skills,” he says.

He adds: “As a company you can't blow your nose without offending someone nowadays. Things are far more regulated in general.

“Corporate governance issues are increasingly important now, especially as the Turnbull Report will be out next month and companies must prepare for it now.”

When the reforms become effective this year, companies will have to take a more risk-based management approach to legal threats to the company, rather than just financial risk. Companies must then disclose their system for dealing with risks in their company accounts.

Gilbert says: “I think we will outsource more work. The amount of work is increasing, so there is more work to be outsourced. My department will move from doing legal work to managing it.

“I like outsourcing because it frees up lawyers here to concentrate on the core business. That drives down costs. Often we do not need to do project work in-house. But we will need to manage the work outside in a more efficient manner. I will be looking at this.”

He may also increase the size of his in-house team. It consists of three lawyers at the moment but he is considering appointing a fourth.

“We don't just want to outsource more expertly, we also want to manage risk better internally and drive down costs. There will be more work for legal services because highly regulated plcs continually face government measures, and that means in-house teams are becoming more important.”

Analysts think Gilbert was chosen to head the legal department as part of plans to pull the company out of its quagmire. But is he the man for the job?

At 37, he has an impressive record, but the only place he has worked in-house is at C&G – previously he trained at Worcester practice, Gaynor-Smith Owen & Co. And assurance legal issues are different to those of mortgage lenders.

Young says: “It strikes me as odd that a man who has only worked at C&G should go to an insurer. But you need ambition at UA. He has obviously joined because he wants to make a difference.”