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Laurence Simons Newsletter March 2014

Posted by: Laurence Simons 24/03/14

Lawyer under fire

It increasingly seems like all you need to excel in the British legal profession is access to a high-quality printer and great deal of chutzpah, with another practising lawyer having been disbarred for falsifying his qualifications.

Sheffield-based Giles Norton was called to the Bar in 2004, claiming to have two undergraduate degrees from Harvard (and a rather less impressive LLM from Staffordshire University).

Mr Norton had supposedly studied Chinese and IT at the prestigious American university; he went on to practice law for nine years, with suspicion aroused late last year when an anonymous tipster told legal authorities his qualifications may be falsified.

Not only was this true, the lawyer had also been in trouble with the law in the past, with two cautions for possessing a CS spray canister and one for obstructing a police constable in the execution of his duty.

BSB head of professional conduct, Sara Down, said: "Our duty as a regulator is, first and foremost, to protect the public. Mr Norton not only failed to disclose serious criminal convictions, but also fabricated his qualifications. In our view, there is no place at the Bar for such dishonesty and we believe the tribunal decision is the right one."

This case has echoes of last year's revelations about Dennis O'Riordan, who was recently struck off after falsely claiming that he had degrees from Harvard and Oxford.

As we at Laurence Simons are far too aware, reference checking is a critical part of the hiring process.  It is not enough to Google the prospective candidate's name quickly and, if no embarrassing Facebook photos emerge, hire them!

Lawyers 'have earned boardroom position'

The last few years have seen many lawyers get offered a Big Seat in the boardroom, with the complex regulatory situation facing multinationals meaning their expertise is called upon to guide companies into new markets and help them avoid time-consuming and expensive litigation.

According to a new study from a group of American law and finance professors, published by the Social Science Report Network, legal workers have become increasingly prevalent on boards recently.

In 2001, 24 per cent of US companies had lawyers in the boardroom; by 2009, this figure was up to 43 per cent, reports the Financial Times.

Interestingly, this seems to go hand in hand with a shift in corporate performance. Companies with lawyer directors seem to pay their chief executives more, but have less volatility in pay, due to lower levels of corporate risk-taking and default.

As would be expected, companies with legal experts avoided getting involved in regulatory issues - stock option backdating litigation, for example, was 94% lower at multinationals with legal directors in place. When there were no lawyers in the boardroom, a 308% jump in the effect of accounting malpractice litigation was recorded.

"The board's primary function as an agency-cost-reducer may have been appropriate in the past, but companies have grown too complex for value-maximising boards to simply act as monitor," said the report. "Greater management by the board ... can increase firm value more efficiently than the standard construct."

You can always count on a group of legal and financial academics for a glittering prose style, but I think what they're saying here is that lawyer directors are effective because they play an active role in managing a business' affairs, more-so than their counterparts from other disciplines.

This is by no means a comprehensive statement of fact; although the study tries its best to delineate the difference between correlation and causation, it's ultimately impossible to tell whether or not lawyers are the determining factor in the success of the boards they sit on.

Nevertheless, the fact that more legal experts are being appointed to boards will provide succour to over-worked paralegals dreaming about the day they get to sit in the Big Chair, smoking a cigar and drinking imported coffee. We all need a dream.

Financial difficulty 'increasing client risk'

There is a clear correlation between law firms entering financial difficulty and the amount of risk faced by their clients, according to a new report from the Solicitors Regulation Authority (SRA).

The study looked at 76 firms that had suffered economic problems, noting that more than a quarter of these companies had misused client money over the last few years.

In nearly 40 per cent of cases, the company's situation was caused by poor financial and business management – examples of this include autocratic management, partner drawings in excess of cash takings and failure to control billing.

While the problems with the legal climate, especially for smaller firms, cannot be blamed on anyone within these organisations, the SRA's study suggests keeping a tighter handle on finances could ensure some of these minnows survive over the coming years.

A lack of diversification was one issue highlighted by the research, which found that firms offering relatively niche services are more likely to fall into arrears than those with a broad, non-specific client base.

In more than a fifth of cases, a precipitating factor in the financial collapse was a key partner leaving the organisation, underlining the need for strong succession plans in lessening the impact of such a blow.

Mike Haley, SRA director of supervision, urged firms not to break the rules simply to avoid money problems, as this can often lead to even greater issues further down the line.

"It is not our job to tell solicitors how to run their firms, but we do need to be kept informed if there are financial difficulties so we can make sure client interests are not put at risk. Our concern is to ensure that when a firm is in financial difficulty that client monies are not misused, and to oversee the orderly transfer or closure of a firm in a way that means client matters are dealt with properly," he concluded.

How is your succession planning?  Contact our Partners team for some advice on the state of the current market

Romanian legal sector 'thriving'

Not only did the horde of Romanian immigrants we were promised by the ever-trustworthy David Cameron appear at the start of the year, but some of them even had the cheek to tell the BBC that they preferred to stay in their own country. Mostly because of the weather, which is completely understandable.

None of the Romanians interviewed by BBC News mentioned the country's thriving legal market, unfortunately, but in fact it is performing rather well, particularly as firms attempt to gain a foothold in the Eastern European resources sector.

Furthermore, Romania's GDP rose by 2.2% per cent and is recovering faster from the economic crisis than many more developed countries, including the UK, reports the Law Gazette.

The Legal 500 lists more than 60 firms in Romania, some of which have partnerships with international firms such as Allen & Overy and Eversheds; furthermore, overseas lawyers could find opportunities in the country as its economy continues to expand.

One area where these roles could arise is in the energy sector, which has ambitions of becoming completely independent of foreign intervention in the future.

This could lead to the creation of positions for corporate and banking lawyers to advise on financing exploration and on building the infrastructure to store and distribute fuel.

Gheorghe Musat, Managing Partner of Bucharest-based Musat & Asociatii, pointed out that the legal market remains healthily competitive and is likely to grow in the future.

"Compared with the Czech Republic, Poland and other former Communist countries, it is the native firms that are dominant in Romania and grow stronger by the year. We have overseas firms here from the UK, Italy, France, the US, Austria and elsewhere. They are doing well, but it is Romanian firms that always come out top," he told the news provider.

Romania is rich in many natural materials, including the controversial fossil fuel shale gas, meaning there is likely to be an increase in corporate activity in the country over the coming years. Lawyers in the right place could be able to find lucrative, interesting roles in the nation.

DLA Piper changes Asia leadership structure

Massive Anglo-American legal services provider DLA Piper surprised analysts last year when it changed its leadership structure in Asia, as it attempts to further develop its role in the potentially lucrative emerging market.

The firm replaced its managing director role, held by finance partner Bob Charlton, with a newly created three-member US-led Asia advisory committee, reports the Lawyer.

As restructuring goes, it isn't quite promoting a horse to lead the privy council or allowing a race of shape-shifting lizards to take control of the British monarchy (with regards to David Icke), but it does represent a new strategy for the legal conglomerate.

The committee consists of global co-chief executive officer Terry O'Malley, Americas co-chair Jay Rains and Australia managing partner Andrew Darwin, reports the Lawyer magazine.

Although DLA Piper has a long-standing UK heritage in Asia, it appears to be moving towards a more US-centred approach for the coming years as it attempts to move ahead of its many rivals in the region.

Mr O'Malley told the news provider the largest flow of work they are experiencing at the moment is between the US and Asia, which is one reason for their shift in management structure.

"It has come to a place where we're now moving quickly to fully integrate our global leadership and make adjustment to allow offices in Asia to have much closer ties with the US business," he explained.

Some 60 per cent of the global Fortune 500 companies are clients of DLA Piper in the US – many of these organisations have operations in Asia, explained the chief executive.

"One challenge was to continue integrating the global leadership and another one was to continue developing and strengthening business in Asia and to do it in a completely joined-up global effort," he concluded.

Mergers 'driving profit growth'

Like lonely herdsmen trying to sleep on the prairie, law firms have been huddling together for warmth in recent years as protection against the difficult economic climate they are facing.

This has been highlighted through new research from the Law Gazette, which indicated that mergers drove strong profit growth among high-ranking UK firms between 2012 and 2013.

By studying UK-based firms' Companies House filings for his period, the news provider worked out that acquisitions strategy is a major factor in how profitable legal organisations are becoming.

Pinsent Masons reported a 39% jump in profits, only rivalled by DWF, which enjoyed a remarkable increase of 60%.

Simmons & Simmons, Norton Rose Fulbright and Clyde & Co also performed well, the Law Gazette found. On average, discounting the positive and negative outliers, UK firms posted a profit of 2% over the course of the year.

George Bull, chair of professional practices group at accountancy Baker Tilly, said bigger firms such as Allen & Overy are doing well, but at the expense of their more boutique counterparts.

"When you take away the masking effect of mergers, you can see even in the top-20 there is considerable turmoil. Some are in the early stages of recovery but others are still having difficulties," he declared.

Law firms 'embrace digital marketing'

In the good old days, law firms didn't need to do too much advertising – they just stuck a big old sign above the door, picked some portentous surnames at random to make a name and watched the money roll in.

However, the global legal market is becoming increasingly competitive, and legal organisations have found that digital marketing is a good way of drumming up new business and keeping their brand in the public eye.

Dez Derry, chief executive officer of mmadigital, recently suggested that social media will be the next platform to be embraced by the legal world.

Writing for the Global Legal Post, he said Twitter company pages are on the up as firms attempt to connect with potential customers as directly as possible.

Smartphone app advertising could also be a big growth area in 2014, predicted the marketing expert, who pointed to the recent success of ridiculously frustrating phone game Flappy Bird as an indicator of how popular this medium can be if used correctly.

"It's not just games that carry advertising either, with a whole host of business, education, finance and productivity apps also helping marketers reach a wider audience," added Mr Derry.

"Of course no one can truly know what the future may bring but forewarned is forearmed and paying close attention to the developments above will help ensure you're ahead of the game when it comes to grabbing new trends," he concluded.

According to the Wolters Kluwer Social Media Survey, 77% of accountants now use these kind of platforms within their organisation, suggesting the long-lasting resistance to Twitter and Facebook within the services industry could be wearing down.