Who acts for Corporate Asia-Pacific?
Last issue, we went in-house at Australia's top ASX-listed companies to uncover the views of legal counsel on fees, relationships and service. Here, Stephen Mulrenan investigates where the legal spend of Asia-Pacific's top 25 companies goes - and what measures firms are taking to attract more of it
On 2 April last year, UK firm Norton Rose made a successful return to Hong Kong after a three-year hiatus - so much so that managing partner David Stannard walked off with the 'Managing Partner of the Year' award at the inaugural Asian Legal Business Awards in November.
Not long after the Hong Kong re-opening, Norton Rose's Singapore-based Asia managing partner Paul Giles told ALB the firm was acutely aware of the initial financial burden associated with setting up a new office, but believed the Hong Kong office could, and would, recover those costs within its first year.
"We have been planning for this return and the investment that it requires for some time," he said.
Giles and Stannard were keen to convey the importance the firm placed on Hong Kong in the context of the wider, global picture. "[It] is a major market in its own right and an important part of the global market," said Stannard.
"People talk about the market here getting smaller," added Giles. "I think that is a view of a market - it may be a Hong Kong view of the Hong Kong market - but it is not necessarily the view of a global law firm of the global market."
Acting locally but thinking globally was the motto of a key client from whom the firm had immediately targeted more billable hours.
Central to the success of Stannard - with ALB's judges - and Giles - at the firm's worldwide partner ballot box in April this year (following which he assumed the chairmanship of the UK firm) - was the return of Norton Rose to HSBC's Hong Kong panel just four months after returning to the jurisdiction.
In March of last year, Giles told ALB: "We do work for Hong Kong Bank all around the world. It is a major client of the firm and, quite naturally, we hope we'll be able to develop that practice ... further. We still have good friends at Hong Kong Bank and I hope we will have an opportunity to represent them."
The firm has been true to its word. Norton Rose's recent transactions for HSBC have included: advising it on a US$100m Islamic lease financing for a LNG carrier for Brunei Gas Carriers Sd Bhd; advising it and Bangkok Bank on the US$53m refinancing of a 120MW co-generation power plant in Thailand; and acting as UK and Hong Kong counsel to HSBC Holdings plc on its US$15bn acquisition of Household International, Inc.
The latter was last year's largest cross-border deal in the US and the second-largest acquisition worldwide.
Key to what?
With a market capitalisation of nearly US$130bn - making it the largest company in Asia - HSBC is a major buyer of legal services. The strategy of Norton Rose's revived Hong Kong office to deliberately target HSBC raises interesting questions about what constitutes a key client for a firm and how a firm goes about managing and nurturing such an important relationship.
Latham & Watkins' Hong Kong managing partner Mitchell Stocks says: "We try to cultivate long-term deep relationships with people who are active in the markets where we have something strong to offer them.
Additionally, we're following the development of individual infrastructure projects with the projects work that we do and we use those as opportunities to represent new people that might be active in that particular transaction."
Despite the fact that larger companies almost certainly possess deeper pockets, many are exerting greater pressure on their external legal spend - becoming far more discerning customers in the process as they seek to handle more and more matters in-house. Fee and billing arrangements are under greater scrutiny, with fee caps, volume discounts and panel use, now the norm.
The net result is that firms are often getting briefed only when workloads peak, such as for litigation, or when very specialised work is involved.
For many of the large international law firms in Asia that rely on big-ticket deals, staying close to key clients and being sensitive to their concerns has become imperative. The alternative is a rather humble exit from the region: just ask CMS Cameron McKenna, Cravath Swaine & Moore and Dewey Ballantine, among others.
Of ALB's 'Top 25' companies, US firm Lathams has acted for Hang Seng Bank and ANZ Bank, as well as HSBC, on a range of project financing matters.
"Those are definitely good corporate clients in the region and we're grateful to have the opportunity to work with them," says Stocks.
Like Norton Rose, he adds, Lathams adopts a deliberate strategy of pursuing specific clients.
"We follow various projects and try to see how the projects develop. We try to find out who the actors are and then try to contact those people with whom we already have an existing relationship - so we go from a point of strength in terms of our marketing effort."
He adds: "Each of our offices in different regions of the world pursues relationships with various clients who are active in that market. We do try to keep track of our good clients who are moving who we have worked closely with on an individual basis. If they happen to be returning to Europe or the US, we certainly try to smooth their transition by introducing them to our people. Likewise, we get those kind of referrals for people that are moving into Asia."
Lathams' relationship with ANZ, says Stocks, dates back to when the firm worked across the table from it on a number of prior transactions. "And sometimes the best way to get to know somebody is actually being on the other side of a deal or representing a different party on the same deal."
Stocks led the Lathams team that advised the commercial lenders on the US$4.3bn Nanhai Petrochemicals Project in China. The US firm acted for China Development Bank, The Bank of China, and Industrial Commercial Bank of China on the renminbi side; and ANZ Banking Group, Bank of Tokyo-Mitsubishi, Crédit Agricole Indosuez, Mizuho Corporate Bank, HSBC, IntesaBci, Sumitomo Mitsui Banking Corporation and WestLB on the US dollar side.
"That really came out of our efforts to secure a role on a particular project," says Stocks. "It was a combination of project orientation and thinking strategically about clients who are active in the areas we see ourselves as being competent in."
Allen & Overy is another firm that has strategically targeted specific clients and is yet another beneficiary of HSBC, this time in the area of tax-driven structured financing - and at the expense of Baker & McKenzie.
Partner Joseph Tse says: "The general syndicated loan market was extremely competitive last year. A&O has, in some cases, consciously lost some plain vanilla deals because of pricing. It has decided not to play the game of low-balling."
Recent work for HSBC includes advising the Bank: as coordinating arranger on a HK$24bn (US$3.08bn) term loan and revolving credit facilities for Cheung Kong Finance Company; on a US$75m term loan facility for Indian Railway Finance Corporate Limited; on the issue of A$800m (US$526m) guaranteed floating rate notes, due 2008, by Hutchison Communications Australia; and, in relation to an off-balance-sheet receivables financing for Nanjing Ericsson Panda Communications.
Says Tse: "Clients know that the top-tier firms are not the cheapest in town and are looking for technical ability and overall service quality."
Although these firms are subject to market forces, low-balling is not a game that they want to play, he adds. "But there is still a lot of interesting, good work out there and it's a question of trying to identify those opportunities and position oneself properly to try and capture that work."
Strengths and weaknesses
Just as law firms are becoming increasingly sophisticated at positioning themselves strategically to capture work from preferred clients, so too are clients reciprocating.
Many have not bought the one-stop-shop propaganda so prevalent in this age of globalisation, and have sought specialised advice from specialist advisers.
Of ALB's in-house 'Top 25', Denton Wilde Sapte can count CLP Holdings, Hutchison Whampoa, Kookmin Bank and Samsung Electronics as key clients. But it is the work the UK firm has completed for China National Offshore Oil Corporation (CNOOC) that has perhaps grabbed the headlines.
In the last 18 months, Denton has acted on the last four cross-border transactions for CNOOC which, when including CNOOC's acquisition of an 8.33% interest in the North Caspian Sea Project (including the Kashagan field, one of the largest oil and gas discoveries over the last 30 years) in Kazakhstan for consideration of approximately US$615m, takes the UK firm to almost US$2bn worth of deals.
"So obviously we're doing something right," says Denton partner Tom Deegan.
"CNOOC was exactly the sort of client we were after," he says. "It would have seen our literature before and would have known of our reputation. It was, and is, a sophisticated buyer of legal services. Just because it did not have a history of cross-border deals ... it still knew who did what in the market. It understood who could provide it with the necessary services."
And it was Denton's familiarity with an Indonesian asset [oil interest], says Deegan, that initially attracted CNOOC's attention. In 2002, CNOOC asked the firm to get involved in the Repsol deal - where Denton advised it on the acquisition of nine companies owning working interests in five oil and gas assets in Indonesia from Spanish oil giant Repsol-YPF group for approximately US$585m.
"And they've kept coming back since," says Deegan. "The CFO told me only last week that they like the product that they are getting."
So much so that, following Repsol, Denton was retained for CNOOC's acquisition of an interest in the North West Shelf Project in Western Australia for the consideration of approximately US$348m, and its acquisition of a 12.5% interest in the Tangguh LNG Project in Indonesia for an estimated US$275m.
"We make sure we deliver a standard of service to them at a very high level that is very partner hands-on," says Deegan. "You do need a high degree of partner involvement. It's not the sort of relationship where you can have a junior team with partner supervision."
As a very sophisticated spender of legal services, CNOOC also demands a streamlined team that advised on all aspects of their needs, says Deegan.
"We're very much focused on delivering a product that is obviously fundamentally sound legally, but is also very commercial in its approach," he says. "The team I've got basically has to be 24/7 during the deal, not just at the completion of the deal."
But even housing such virtues is not enough to secure certain other types of work from CNOOC. Secretary, general counsel and senior vice-president of the company, Cao Yunshi, lists 'high reputation and achievement', 'type of industry', and 'price', as his top criteria for selecting external counsel.
And this has resulted, in the past, in CNOOC turning to the likes of Freshfields for its IPO and Skadden Arps Slate Meagher & Flom for a series of listings.
Rather than operating a formal panel, CNOOC has a number of favoured firms and, says Deegan, it recently turned to Sidley Austin Brown & Wood - due to its New York capability - for a relatively small separate listing of a subsidiary.
"So it recognises what we're best at and what we can provide a service for," says Deegan. "It knew we didn't have a New York office therefore we didn't get involved."
Panel use is common among other 'Top 25' clients, particularly those that originate here in Australia. Gilbert + Tobin has recently been officially appointed to the Westpac panel; Corrs Chambers Westgarth is on Telstra's panel for IP, property and disputes; while Freehills was re-appointed to Telstra's legal panel this year.
Stocks says: "Some projects you get because you've got a long-standing relationship with a particular client and they have a preference for using you and they try to ensure that you're retained in some capacity on a particular transaction on which they're involved.
"In other cases, the sponsors have a preference for both their counsel and for lenders' counsel." He adds: "Although some clients have panels of preferred lawyers in any given region, they are allowed to deviate from that if they've had a good experience. So there's still work to be had even if you're not on the panel. But it's always of course better to be on the panel."
Know your client
With increasing pressure on their legal spend, in-house counsel are, more than ever, re-evaluating the way in which they use outside counsel. Many law firms have responded to this challenge by adopting more of a 'sector focus' to their practice - almost a move away from the 'one-stop-shop' model advocated by so many so recently.
Allens Arthur Robinson was recently forced into making such a call with a team of patent attorneys. The firm identified a potential problem between one of its long-standing originator pharmaceutical clients and a generic pharmaceutical company that one of its attorneys had advised before joining Allens in 1999.
To avoid any conflict, Allens chose to act for originator companies only, leaving the patent team - including patent attorney Wayne McMaster and partner Robert Cooper - to join Mallesons Stephen Jaques' patent practice, where it will be free to act for the unnamed generic pharmaceutical company.
If a key client is one that is prepared to spend a lot of money - over time - for the service that you offer, it pays to know who you are and what you're good at.
UK firm Bird & Bird has successfully expanded its operations in Hong Kong by adopting the same industry-specific approach that has served it so well in London.
It now provides a range of corporate and commercial legal services to clients in the communications, e-commerce, information technology, intellectual property, life sciences, sport and media sectors.
Partner Edward Alder says that with almost half of its lawyers now outside the UK, the firm is more a multinational firm rather than a London firm. "We've moved a long way from the days when we compared ourselves to firms like Bristows," he says. "From that group of small London IP firms, we're the ones that have really surged forward."
He adds: "We were viewed as a boutique operation in Hong Kong until 2001. But now, half the firm is doing corporate and half is doing CMT work."
Denton Wilde Sapte's practice, meanwhile, focuses on energy, banking and finance, TMT, and real estate, deliberately targeting clients in these areas.
"That's absolutely what we're doing," says Deegan. "I hate to use clichés, but we are 'sector focused'. We've realised that we are not all things to all men."
He adds: "When you analyse which of your 'Top 25' clients we have acted for it actually neatly fits into the sectors where we see ourselves."
In-house counsel at the Top 25 companies in Asia-Pacific by market capitalisation (ex-Japan):
HSBC (HK)
Name: Kenneth Ng
Title: head of legal
Notable deal: Among the lead arrangers on the US$2.7bn PRC ethylene cracker deal - instructed Allen & Overy (Mitchell Silk) and Haiwen & Partners (Ma Chen)
China Mobile (Hong Kong) Ltd
Name: David L Krieder
Title: general counsel
Top five commercial law firms to whom you have outsourced most work over the past 12 months: Linklaters & Alliance; Sullivan & Cromwell
Top three criteria for selecting external counsel: the right firm 'brand'; the right 'team' of lawyers on the ground in Hong Kong; quality of work
Notable deal: Acquired China Mobile Hong Kong (BVI) for US$10.34bn - instructed Linklaters (Celia Lam, Candice Woo, Wei Jie, Patrick Chan, Anna Hung, Roman Cheung, Jerry Tse, Riva Chung, Irene Poon, Teresa Lui) as HK counsel and Shearman & Sterling (Matthew Bersani) as US counsel.
Samsung Electronics (Kor)
Name: Jaehyun Kim
Title: vice president - legal department
Top five practice areas outsourced to commercial law firms: litigation; investment; bankruptcy
Top three criteria for selecting external counsel: quality of work; efficiency of service; reasonableness of legal cost; reputation of the lawyer
Telstra (Aust)
Name: Will Irving
Title: director, legal directorate/deputy group general counsel
Top five practice areas outsourced to commercial law firms: customer contracts, trade practices (antitrust); M&A; dispute resolution; wholesale/regulated services
Top five commercial law firms to whom you have outsourced most work over the past 12 months: Mallesons Stephen Jaques, Blake Dawson Waldron, Freehills; Corrs Chambers Westgarth; Davies Collison Cave
Top three criteria for selecting external counsel: quality of lawyers; knowledge of telecoms; client service focus
National Australia Bank (Aust)
Name: David Krasnostein
Title: chief general counsel
Top five practice areas outsourced to commercial law firms: acquisitions; litigation; property; competition law; capital markets
Top five commercial law firms to whom you have outsourced most work over the past 12 months: Mallesons Stephen Jaques; Freehills; Linklaters; Sullivan & Cromwell; Cameron McKenna
Top three criteria for selecting external counsel: experience; excellence; service
Taiwan Semiconductor (Tai)
Name: Dr Richard L Thurston
Title: vice-president and general counsel
Top five practice areas outsourced to commercial law firms: patents and trade marks; US securities law; litigation; foreign investment laws and regulations; immigration
Top five commercial law firms to whom you have outsourced most work over the past 12 months: Duane Morris (Philadelphia, Pa., US); Haynes and Boone (Dallas, TX., US); Slater and Matsil (Dallas, TX., US); McKool Smith (Dallas, TX., US); Lee and Li (Taipei, Taiwan); White and Case (Washington, DC., US)
Top three criteria for selecting external counsel: capabilities, competency, value-adds; responsiveness and team-oriented; cost-effectiveness
BHP Billiton (Aust)
Name: John C Fast
Title: chief legal counsel
Top five practice areas outsourced to commercial law firms: M&A; litigation; shipping; revenue; employment; large commercial matters
Top five commercial law firms to whom you have outsourced most work over the past 12 months: Allens Arthur Robinson; Blake Dawson Waldron; Mallesons Stephen Jaques; Minter Ellison; Skadden Arps Slate Meagher & Flom; Slaughter and May
Top three criteria for selecting external counsel: world class and best in class expertise; commercial approach; teamwork; responsiveness
Commonwealth Bank of Australia (Aust)
Name: Leslie Edward Taylor
Title: chief solicitor and general counsel
Top five practice areas outsourced to commercial law firms: mergers and acquisitions; trade practices; infrastructure transactions; commercial litigation; industrial law
Top five commercial law firms to whom you have outsourced most work over the past 12 months: Freehills; Minter Ellison; Mallesons Stephen Jaques; Allens Arthur Robinson; Henry Davis York
Top three criteria for selecting external counsel: quality of legal advice; standard of service provided; cost effectiveness - in that order
Notable deal: On the debt side of the Southern Cross consortium (successful) US$3.2bn bid for Sydney Airport - instructed Allens Arthur Robinson (Phillip Cornwell, Diccon Loxton, Larry Magid, Adrian Chek, David Clifford).
ANZ (Aust)
Name: Tim L'Estrange
Title: group general counsel
Notable deal: Among a group of lead arrangers on Vietnam's Phu My 2.2 project - instructed Clifford Chance (Huw Jenkins, Russell Wells, Stephen Webb) as international counsel and VILAF (Hong Duc) as Vietnamese counsel.
Sinopec (PRC)
Name: Xu Zhi Yuen
Title: group head legal counsel
Notable deal: An indirect subsidiary of Sinopec (a.k.a China Petroleum & Chemical Corporation), Shanghai SECCO Petrochemical Company Limited, was project company on the US$2.7bn PRC ethylene cracker deal - instructed Skadden Arps Slate Meagher & Flom (Gregory GH Miao) as international counsel and King & Wood (Shaun Lee) as PRC counsel.
CNOOC (PRC)
Name: Cao Yunshi
Title: secretary of CNOOC Limited, general counsel and a senior vice-president
Top five practice areas outsourced to commercial law firms: litigation and arbitration; IPO; bond issue; JV contract negotiation; downstream project negotiation
Top five commercial law firms to whom you have outsourced most work over the past 12 months: Herbert Smith; Freshfields Bruckhaus Deringer; Skadden Arps Slate Meagher & Flom; Commerce & Finance Law Offices; Haiwen & Partners
Top three criteria for selecting external counsel: high reputation and achievement; type of industry; price
SK Telecom (Kor)
Name: Jason Sheets
Title: corporate counsel
Top five practice areas outsourced to commercial law firms: US litigation; patent prosecution; due diligence; JVC formation
Top five commercial law firms to whom you have outsourced most work over the past 12 months: Ashurst Morris Crisp; Skadden Arps Slate Meagher & Flom; Cleary Gottlieb Steen & Hamilton; Bae Kim & Lee; Kim & Chang
Top three criteria for selecting external counsel: competence in field of practice; long-term relationship; service
Bank of China HK (HK)
Name: Isabelle Tsang
Title: head of legal division
Notable deal: Among the lead arrangers on the US$2.7bn PRC ethylene cracker deal - instructed Allen & Overy (Mitchell Silk) and Haiwen & Partners (Ma Chen). Issuer on its US$25bn IPO - instructed Clifford Chance (Roger Denny, Christina Choi) as HK counsel; Shearman & Sterling (Jonathan Weld, Hsiao chiung Li, Richard Price) as US counsel; and Jun He Law Offices (Wei Xiao, Yanshi Zhao) as PRC counsel.
KT Corp (Kor)
Name: Chan-ho Park
Title: head, legal affairs team
Top five practice areas outsourced to commercial law firms: (under KT's monitoring) M&A; foreign investment; antitrust; labour; litigation*
Top five commercial law firms to whom you have outsourced most work over the past 12 months: Bae Kim & Lee; Lee & Ko; Shin & Kim*
Top three criteria for selecting external counsel: expertise; comprehensiveness of service; trust*
*no particular order
Kookmin Bank (Kor)
Name: Chang Eun Ko
Title: general manager / attorney
Top five practice areas outsourced to commercial law firms: (1) litigation 2) general legal opinions
Top five commercial law firms to whom you have outsourced most work over the past 12 months: (1) Row & Yang (Hwa Beak) (2) Yoon & Partners (Woo Bang) (3) Woo Yun Kang Jeong & Han (4) Shin & Kim
Top three criteria for selecting external counsel: (1) propriety (2) cost (3) balance of distribution