Under pressure

Lawyers in the country's biggest companies are feeling the squeeze. Budgets are under scrutiny, work is being tightly managed, and legal teams are being stretched. Lauren Scott goes in-house at Australia's top ASX-listed companies to find out how legal counsel are meeting the challenge

By all accounts, the '80s were halcyon days for the private legal sector. It was the era of corporate excess, and lawyers were some of the biggest beneficiaries. Big deals were being done as the likes of Skase and Bond built their mini-empires. Bills for legal work were presented with a flourish and roundly paid without question. Stories abound of fees being determined on the basis of the weight of a file.

Those days are well and truly behind the profession. When the 1990s ushered in the recession Australia "had to have", as then prime minister Paul Keating famously declared, companies that remained standing were forced to take a long hard look at where their money was going. Many that had, to that had been indiscriminately shunting out work to a raft of external legal advisers tightened the reins and looked to grow their own legal teams to handle more work in-house.

There were other drivers. With the corporate sector subject to increasing scrutiny by regulators and the general community, the role of corporate counsel has become far more important - and powerful - than 10 or 15 years ago.

When Brett Johnson joined Qantas as its general counsel around eight years ago, one of his first tasks was to take a scythe to the 26 firms the airline used in Sydney alone. The need was clear. "There was no loyalty to Qantas, and we didn't get a particularly good deal," he says bluntly. "So I focused that down." A number of conflict situations - the bane of companies operating in a small domestic market - largely dictated the choice of firm. "For example, Ansett used Allens, Air NZ used Freehills, and BA [British Airways], at that point a 25% shareholder, used Mallesons. So it was a bit hard to use any of those three," explains Johnson. The work was put out to tender to five firms - with Minter Ellison and Blake Dawson Waldron emerging as the two providers of choice."We've used them since - with varying degrees of satisfaction," says Johnson.  The work is, he says, "effectively always on the market".

"I'm not wedded to any firm. I'm wedded to the lawyers. If the lawyers provide me with the service that is required at what I consider to be reasonable costs - and we don't normally have a problem from that perspective - we continue to use them. When things become difficult, we don't."

Since Johnson started with the company, controlling external legal spend has become more of an issue. "There's a lot of pressure," he admits. "Even the deputy general counsel doesn't have the ability to brief out without talking to me. And that's purely to try and manage costs. Previously, we briefed out and paid the bills. Today, we won't brief out until we get a quote."

Simon Tuxen, group general counsel at Westfield Holdings, says pressure to keep costs under control is not the main driver for keeping more work in-house. "Everybody likes to be cost efficient, and whether we're doing it in-house or through external lawyers, that cost efficiency is something that we look for," he says. "For us, basically it's a desire to execute the transaction really efficiently and for the benefit of the organisation."

To this end, the company only briefs out work where there is a real need, or when particular expertise is required. "As a team, we really try to hire experienced lawyers and we try to punch above our weight in transactions," says Tuxen. "We would outsource a lot of the day-to-day work - say, the tenancy, the retail leasing - that sort of thing is done basically through external firms, with the exception of major matters, which we would try to handle in-house."

David Simpson is general counsel of Leighton Contractors, part of the country's largest project development and contracting groups, Leighton. Simpson says while there is continual pressure to reduce costs, it is ultimately his responsibility to manage them effectively. "If I fault in my job and don't provide good instructions, then the costs will go up," he says. "So if something blows out, I don't generally blame the external lawyers."

Simpson - who at 31 must rank as one of the youngest general counsel in the country - is in no doubt as to the squeeze on firms in the present economic environment. "By virtue of the amount of cold calls I get per week, and the amount of people that want to have lunch with me," he says, "I'd say that firms&and partners in firms are under enormous pressure."

Orica Limited's group general counsel, Janice van Reyk, says the economic climate is just one factor influencing how legal affairs are managed. "Our sole driver is what best suits and meets our business objectives and the nature, scope and scale of our businesses," she told ALB in May. "Our external legal spend and need for internal resources is more likely to be a function of our business activity and whether there is a change in the scale or scope of our business."

Economic conditions - both on a domestic and global level - have forced Telecom NZ to reduce its panel, according to its group general counsel, Mark Verbiest. "This is particularly the case for New Zealand, where the panel has been cut by more than half," he says. "We now largely use two core firms and three specialists; previously we had 10-12 on the panel. The company is now retaining more work in-house. We have already expanded our team by 20% and by the time we've completed this recruitment process, the team will be up 25% on the previous 12 months." This is partly due, says Verbiest, to Telecom NZ seeking a better balance between "quality and cost efficiencies", as well as the move to a more regulated telecommunications environment in the country.

Greater responsibility
An increasingly regulatory environment is undoubtedly contributing to pressures on in-house legal teams. Peter Guttormsen, general counsel at Suncorp-Metway, is one long-time lawyer who observes that a greater level of responsibility now attaches to the position. "I think also the role has changed in terms of the proliferation of legislation that governments seem to want to engage in," he says. Guttormsen briefs out "anything that has a major impact for the group". "Things like new legislation, for example - we'll do the spade work but get a confirming opinion from the outside lawyers." Financial services reform is one area he is expecting more work in.

Westpac's group secretary and general counsel, Richard Willcock, is another who feels that growing pressure on companies from a regulatory and shareholder perspective has meant his role has "changed significantly". "In particular, the increased focus upon the obligations of the board of directors and executive management has meant that these arms of the governance structure require clear advice on the changing regulatory environment and its implications for them," he says.

Johnson agrees. As Qantas' general counsel, he has primary responsibility for major matters such as the airline's current negotiations over its proposed alliance with Air New Zealand, and section 46 (misuse of market power) issues under the Trade Practices Act. But he also has to manage 'public company' issues. "Effectively, I see myself as having five principal clients," he says. "The board, the CEO, the CFO, the head of sales and marketing and the head of strategy. They're the principal executive management that I work with. The balance of the legal work in the organisation - and there's a lot of it - gets managed by the deputy general counsel and the legal team."

Budgeting
The vagaries of life as a listed company also make it difficult to set legal budgets. Says Westfield's Tuxen: "Obviously it's a combination of history and anticipation of what's ahead. But really, legal budgets are notoriously difficult." Particularly when big deals crop up. Tuxen cites Centro Properties' recent A$1.3bn bid for AMP Shopping Centre Trust, in which Westfield Trust holds a stake, as an example. "A transaction like that, which involves a concerted effort over a significant period of months, will make nonsense of any budget you may have created at the start of the year," says Tuxen. "But that's a fact of life, and people recognise that."

Westpac's Willcock says the bank similarly sets an annual legal budget by reference to "both historical data and projected needs". But it is also subject to change. "Legal spend on both internal and external legal support is monitored against plan on an ongoing basis, and necessary adjustments made to accommodate unforeseen variances," he says.

Leighton Contractors spent around A$10m on legal fees in 2002. Says Simpson: "We're not sure what this figure will be this year - but it will be less than last year, as we won't have as many major projects". He describes fees as "over-priced". "The top ten firms are charging A$500-600 an hour for some partners, and that's ridiculous when you consider that a QC costs A$650," he says. "The problem is that if you want an experienced lawyer from a good firm, they can charge what they want."

Legal team structure
Pressure on legal spend means more work is being retained in-house, which calls for tightly-focused and highly-skilled legal teams.

Westpac's team consists of a number of practice groups, each of which supports a key business stream or the Westpac group as a whole on "overarching legal issues", says Willcock. He is supported in his role as general counsel by the head of legal services, Justin Moses, and the executive manager for the legal function. Both are responsible for the day-to-day running of the overall practice, which enables Willcock to "focus more closely upon strategic legal issues affecting the group".

Under the current business structure, the largest practice groups service the institutional bank, business and consumer banking, and the wealth management business conducted by BT Financial Group.

Willcock says the speed and magnitude of changes to the legal team's overall practice is dictated by the direction of the bank's key business strategies. "In recent years, for example, the bank has variously focused upon outsourcing and strategic sourcing, wealth management and development of new product distribution channels for wholesale bank products," says Willcock. "The current focus on corporate governance and the compliance implications of the financial services reform agenda make this a likely area of practice focus, if not growth, in 2003/04."

Johnson says the in-house team at Qantas aims to provide a full service function for the group. "Qantas is a bit different to a National Australia Bank or a lot of companies that have got divisions," he says. "It's basically one business and then you've got a number of business units that hang off it, like freight and Qantas Flight Catering."

There are three main areas in which Qantas briefs out work, says Johnson. "We brief out the overflow of the day-to-day work that needs to be done in-house - and we tend to do that predominantly through secondees," he says. High-volume, low-value work - such as property and leasing matters - is also given to external lawyers.

"Qantas has over 1000 leases throughout Australia, and it's impossible to have in-house resources in every state to manage that," he explains. "We also outsource litigation because, again, it's very difficult to resource that." Work is also briefed out in specialist areas.

Civil Aviation Services Authority and regulatory related work goes to Norton White (Johnson names Ben Martin and Mark Mackrell). The airline also uses Middletons in Melbourne - particularly Mark Dobbie "who we very highly regard" - for litigation. But work mainly goes to Blake Dawson Waldron and Minter Ellison. "I'd say Blakes is our strategic partner," says Johnson, "and Minter Ellison does a lot of the remaining work." Corporate, competition, IR and aircraft financing work generally goes to Blakes, while Minters handles property and IT-related work. "For example, at the moment, we're working through an outsource of our data centre and Minter Ellison is working with us on that." The firm is also representing Qantas in defending litigation relating to deep vein thrombosis (DVT), led by the firm's new chairman, Peter Bartlett, whom Johnson considers "very good".

"To be honest, we pick the lawyers as much as anything," he says. "We find partners and senior lawyers who we're comfortable with, and we work with them."

Personal relationships
Johnson singles out John Field and Bill Koeck of Blake Dawson Waldron as two "very, very good" lawyers who meet this criteria. "But to be blunt, I started the corporate work at Minter Ellison, and then I went to Blakes, and then I went back to Minter Ellison, and then I went back to Blakes to Bill. So you have a little bit of to-ing and fro-ing from time to time."

He'd move firms to follow a particular lawyer. "If Bill Koeck went off to set up Bill Koeck and Partners - assuming they had the resources to do what was required - I'd go with him," he claims. He has followed lawyers in the past - such as Gerard Brown, a former partner of Minter Ellison Rudd Watts in New Zealand who moved to Russell McVeagh. "And all our corporate work is going to Russell McVeagh," says Johnson. "And it's got nothing to do with the fact that I don't think Minter Ellison's a good firm. It's just that there's a lot of history and investment in developing relationships."

Simpson would similarly follow a lawyer who was backed by the appropriate resources. To him, personal relationships in this business are paramount. "It's extremely important," he says. "I would probably rank it as number one - to have a trusting relationship with the person who's running your legal matters &because they do have a broad spectrum of autonomy". Legal expertise and cost effectiveness rank a close second and third.

Tuxen says expertise and cost effectiveness are "givens" when Westfield seeks external legal advice. He expects something more. "Essentially, it's the creativity and the ability to do work in a Westfield context," he says. "We're a demanding client. We manage transactions intensively, and so, for us, availability as and when we want people is a big issue. Firms or individuals within firms who aren't able to deliver on that will always have a problem with us."

Willcock says it is not critical to have 'big name' firms on the Westpac panel "for the sake of name alone". "The external legal environment has matured to the point where the name of a firm involved in a matter has far less relevance than the name of the lawyer[s] involved," he says. "Having said that, it remains the case that many of the 'big name' lawyers work with the 'big name' firms."

While engaging a big name firm is important to Simpson for "complex and aggressive litigation", that is not the case in niche areas such as OH&S. In that area, Leightons uses Carroll & O'Dea "because there's a partner there called Gerard Phillips who's exceptionally good at it," says Simpson. "And we think: 'Well, why pay big firm fees when you get better service for that niche area from a partner of a small firm?"
By "better service", Simpson means partner access. He singles out Peter Megens of Mallesons in Melbourne, and Arch Fletcher, a construction and major projects specialist based in Clayton Utz's Brisbane office, in this regard. "Arch Fletcher gives us that attention all the time," he says. And as client relationship partner, Megens provides "24-hour, seven-days-a-week, 365-days-a-year attention". "So they're probably the two very big exceptions to the rule, which is why we use them."

Who the big companies are using
Simon Tuxen, group general counsel at Westfield Holdings, describes as an "interesting mix" the company's preferred legal advisers.

"Probably at the top end of town, we'd use Mallesons, Minters and Freehills. But we have a range of firms - Speed and Stracey for instance. Robin Speed does a lot of our commercial litigation. So we're not afraid to use smaller firms in particular areas where we think there's an individual there that we have particular respect for."

Westfield also has a long-standing relationship with Tom Watts from Perth-firm Watts & Woodhouse. "Tom's a tremendous resource. [He] was in-house here for a while and just works through the due diligence and acquisition process in conjunction with the internal team."

Around Australia, the company regularly uses "up to 10 firms" for various work. "There's a bunch of firms that would all say 'oh, we act for Westfield'. And of course, I'm just talking in an Australian context. When you look at it in a global context, there are many more firms in the US and again, in the UK and New Zealand as well."

Westpac's Australian panel combines top-tier firms with a selection of boutique or smaller practices that have recognised expertise in certain areas, particularly banking and finance. Allens Arthur Robinson, Freehills, Mallesons and Minters are briefed, as well as Gadens, Corrs Chambers Westgarth, Gilbert + Tobin and Henry Davis York.

Leighton Contractors uses Mallesons for construction, litigation and finance, Minters for construction and litigation, and Freehills for corporate commercial work. For major projects, Clayton Utz in Queensland and Deacons in Melbourne are briefed. General counsel David Simpson says deciding which firm to use depends on the matter. "If it's a major project that we're financing or we're involved with the banks on, we would look at the ability within that firm to manage the entire process," he says," and the ability of that firm to efficiently manage that entire gamut of issues. And that comes back again to your relationship with them. Is that management going to work in well with your management?" It is also a question of having the right attitude. "The attitude towards legal work, towards clients, and towards us needs to be positive to us winning the deal, but also protecting our risks." Giving the best legal advice, says Simpson, is not enough. "We also want them to be a little bit commercial and to understand our needs and our drivers."

The word on fees:

David Simpson, general counsel, Leighton Contractors
Fees are definitely over-priced. The top ten firms are charging A$500-A$650 an hour for some partners, and that's ridiculous when you consider that a QC costs A$650. The problem is that if you want an experienced lawyer from a good firm, they can charge what they want

Brett Johnson, general counsel, Qantas
Previously, we briefed out and paid the bills. Today, we won't brief out until we get a quote. We want a cap on it

Janice van Reyk, group general counsel, Orica Limited
Legal fees are no different to any other costs we incur; they are expected to result in a business outcome. If we achieve our business objectives, then it is seen as value for money because we obtained a 'return' on the amount we 'invested' in legal fees. But if we don't achieve our business objectives, then inevitably there is disappointment

Peter Horton, general manager, legal, WMC Resources Limited
This varies from firm to firm, with situations where it's possible to get good value for money. But there's also an element of over-charging. When using bigger firms, there is a tendency to over-service

The word on conflicts:

David Simpson, general counsel, Leighton Contractors
On the whole, they handle conflicts of interest pretty well. We have personal relationships with our lawyers, and if they are getting work from a competitor, they'll tell me straight out if there's a problem

David Krasnostein, chief general counsel, National Australia Bank
Some handle them appallingly, and others handle them well. There are legal and commercial conflicts. There [may be] no legal conflict, but commercially, you don't want someone acting against you. That's a big limitation in terms of where you go and how you develop your relationships

The word on preferred method of billing:

Paul Frederiks, company secretary, Billabong International
Fixed fees - we like to control costs and know what the cost is going to be upfront. It also means the brief doesn't blow out of control

Peter Horton, general manager, legal & company secretary, WMC Resources
Usually hourly rates, as it is the most practical method of charging, although where possible, fixed rates are used to control costs

David Simpson, general counsel, Leighton Contractors
Hourly rates. It gives us more control and we share the risk of over-billing

Making the move - from private practice to in-house

Not that long ago, leaving private practice for a position with an in-house legal team was considered the soft option. If you couldn't cut it in a big firm, you went to a corporate - where the hours were kinder and the pressure less.

Now, not only is competition for in-house roles extremely tough but big-name partners are being lured to some of the top corporate counsel positions on offer in the country, which are thin on the ground. Later this year, Freehills M&A stalwart John O'Sullivan will officially step into Les Taylor's shoes as group general counsel at the Commonwealth Bank, when Taylor retires after nearly 50 years of service. Meanwhile, ANZ recently hired former Allens Arthur Robinson executive partner Tim L'Estrange as its legal chief.

They join a growing number of general counsel in Australia's largest companies who have notched up several years in private practice before moving across to the corporate sector. National Australia Bank chief general counsel, David Krasnostein, was groomed at two US firms, Sullivan & Cromwell and Sidley & Austin, before stepping into his current role after time as Telstra's top legal advisor. John Fast at BHP Billiton is ex-Arnold Bloch Leibler, while Duncan Ramsey at QBE Insurance is part of the Freehills alumni and AMP's current legal counsel, David Cohen, is ex-Allens Arthur Robinson.

Westfield's group general counsel, Simon Tuxen, spent the early years of his legal career at Mallesons - and had his first taste of life in a corporate legal team when sent on secondment to Jardine Matheson in Hong Kong. "I was the group legal manager there and I stayed for seven years," he says. He ended up resigning from the Mallesons partnership mid-way through his stint, "because I felt at that stage that I wasn't coming back". A couple of years in Singapore with the company BIL International followed, before the Westfield role. And Tuxen hasn't looked back.  "The beauty of it is being close to the business and having a real understanding of it," he says. But while he prefers his current role, he also enjoyed private practice. "Particularly working in any of the larger firms, there's a tremendous professional pride and camaraderie there, and that's what you look for in a different way in a corporation, I guess. You're looking for that sense of purpose in a business context."

Tuxen says the stigma that was once attached to in-house roles is no longer. "People see real careers - and exciting careers - in an in-house context," he says. This is a noticeable shift away from the traditional view of corporate legal roles. "People saw that it was an easier life and you got away from time sheets, and away from all those sorts of pressures - a sense that you didn't have to fossick for clients," he says. "Of course, all that you find when you actually [go in-house] is that you have a very real and immediate client and they're demanding - and entitled to be demanding - of you."

Anil Sharman, legal counsel and company secretary at Incitec, says in-house legal teams by their nature have to be more commercial. "We have to balance the risks as we have to action our decisions. Therefore [we] take greater risks." Recruiting quality lawyers is not an issue. "It's a buyer's market," he says. "There are plenty of people out there who are good at what they do."

Young lawyers are also looking to make the leap from private practice at an earlier stage in their careers. And although hotly contested, there are quality roles on offer. The Nine Network and Australian Consolidated Press recently advertised for a corporate counsel and litigation lawyers, while a "leading marketing and distribution company operating in the food and FMCG sectors" - with a A$6bn annual turnover - is also searching for a head of legal.

Leighton Contractors is looking to take on another member of its legal team, while Qantas has no problem recruiting "excellent" lawyers, according to Johnson. "I've just recruited a competition lawyer who basically said that the only company she'd work for in Australia to do competition work is Qantas," he says. "The approach I take when recruiting is I want someone who's got big firm experience, and my view is that all the lawyers in the Qantas legal department could easily go back to one of the big firms tomorrow."

Richard Willcock says Westpac has no plans to expand its legal team in the next year, but describes market conditions as "favourable" for recruiting quality lawyers. This is more so given changes in the "strategic direction" - as he euphemistically puts it - of a number of firms which has prompted "very high-quality lawyers" to consider moving in-house. "Coupled with the pool of excellent in-house lawyers looking to expand their career opportunities with a move to a larger corporate, there is a very strong candidate base for most in-house roles."

The word on measures taken to address the economic downturn:

Peter Guttormsen, general counsel, Suncorp-Metway
The company always strives to keep its costs under control, and in doing so handles as much work as possible internally. Subsequently, no changes have been made to the legal panel in light of the economic climate, but the in-house team has expanded, with the appointment of one new lawyer

John Fast, chief legal counsel, BHP Billiton
Maintaining a continuous focus on internal staff quality and costs; ensuring that external advisers used are the best in their respective fields and are utilised efficiently; managing outsourced work more actively

Les Taylor, chief solicitor and legal counsel, Commonwealth Bank of Australia
[Achieving] a more appropriate mix in respect of internal work and that sent to external firms

Will Irving, deputy group general counsel, Telstra
More focus on where we're adding value to the company and less focus on areas where legal was less needed. Tight cost management via on-line fee estimate process for all externally briefed matters

Bert Guy, company secretary, Amcor Ltd
Anything we can get away with not sending to Allens [Arthur Robinson], I'll do myself or send to a smaller, cheaper firm