Australasian legal business
NEW ZEALAND REPORT * CONSTRUCTION LAW
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com ISSUE 10.12 DECEMBER/JANUARY 2013
DECEMBER/JANUARY 2013 NEW ZEALAND REPORT CONSTRUCTION LAW
What next for private practice?
Managing partners speak out
ISSUE 10.12
2012 ALBERT AWARDS: FULL LIST OF WINNERS
Welcome Polly
The partners at Russell McVeagh are delighted to welcome Polly Pope to the partnership. Polly was formerly a senior associate with the firm. She joins the partnership from 1 December 2012 and will continue to be based in the firm’s Auckland office. Polly joins our team of litigation partners, and specialises in corporate, financial and regulatory litigation.
www.russellmcveagh.com AU C K L A N D V E RO C E N T R E 4 8 S H O R T L A N D S T R E E T P O B OX 8 AU C K L A N D N E W Z E A L A N D DX C X 1 0 0 8 5 T E L E P H O N E 6 4 9 3 67 8 0 0 0 FA X 6 4 9 3 67 8 1 63
W E L L I N G TO N VO DA FO N E O N T H E Q UAY 15 7 L A M B TO N Q UAY P O B OX 1 0 -2 1 4 W E L L I N G TO N N E W Z E A L A N D DX S X 1 1 1 8 9 P H O N E 6 4 4 4 9 9 9 555 FA X 6 4 4 4 9 9 9 55 6
CONTENTS
Australasian Legal Business ISSUE 10.12
1
“Firms have come a long way in terms of developing their billing….but I think where the disconnect is, is that most law firms still measure their internal productivity in terms of hours worked and that creates tension between how the firm measures productivity compared to the client’s view on value.” Michael Vardanega, Challenger
30
NEWS
COVER STORY
ALB MANAGING PARTNER ROUNDTABLE MPs from some of Australia’s leading firms speak out on the burning issues of the day
16
FEATURES Year in review Recap of the highlights of 2012
12
Construction Can the construction industry survive a mining slowdown?
42
Regulation How do regulators design regulation?
60
ALBERT Awards The winners of the inaugural ALBERT Awards
55
DEALS
06
Sponsored update Buddle Findlay
09
ACLA PERSPECTIVE
11
LEAGUE TABLES
14
Profiles In-house perspective Michael Vardanega, Challenger
32
APPOINTMENTS
38
Australasian Legal Business ISSUE 10.12
2
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LEGAL BUSINESS
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EDITORIAL AUSTRALASIAN LEGAL BUSINESS
NEW ZEALAND REPORT * CONSTRUCTION LAW
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com ISSUE 10.12 DECEMBER/JANUARY 2013
DECEMBER/JANUARY 2013 NEW ZEALAND REPORT N
WHAT NEXT FOR PRIVATE PRACTICE? ISSUE 10.12
T
CONSTRUCTION LAW
BEYOND A CHOKE
MANAGING PARTNERS SPEAK OUT
2012 ALBERT AWARDS: FULL LIST OF WINNERS
he New York subway is at capacity. There are too many people trying to squeeze onto rush hour trains and not enough track capacity to add new services. Construction of a new line along Manhattan’s Second Avenue is underway. The line will provide some relief, but is not expected to solve the overcrowding problem across the wider network. Authorities are toying with ideas such as extending platforms and running longer trains, but the costs are prohibitive. It always comes down to the same question: who pays? These problems are not unfamiliar in Australia, where governments are routinely criticised for what is seen to be a timid stance on investment in new infrastructure or pursuing PPPs. The business community has been anxiously awaiting new announcements in this space and it’s easy to see why. The gains for business – increased productivity, not to mention lucrative contracts for those involved in the financing, design and construction of new transport infrastructure – are obvious. But if a city with all the advantages of New York – high urban density, low car ownership, a sophisticated subway network – is still feeling the strain, one has to wonder whether Australian governments will be able to find the answers to the transport woes of our widening urban sprawl. Australia is not only in an infrastructure deficit; the gap itself continues to widen with the pressures of population growth in the major cities. Perhaps the long term solution is not simply to increase the supply of transport services, but to attempt to reduce the demand. Do employees need to be physically present in the CBD in the way they did 10 or even five years ago? Is this a chance for business to rationalise office space and make some important overhead savings in the process? Is “work from home” the final solution to the rush hour madness that we’ve been seeking all these years? It’s not big, it’s not shiny, it doesn’t come with a billion dollar price tag – but, effectively implemented across the business community, it could be just as efficient a solution to congestion as a new motorway or a new subway. For those senior lawyers in private practice, it’s an interesting question to consider before signing your next lease. How much space do you really need? We’re all familiar with the concept of environmentally responsible business practices by reducing the consumption of electricity or paper. Perhaps it’s time to take the next step in this journey and look at reducing the demand for something a little more subtle: the demand for travel. This issue will not go away. Renu Prasad Australasia Editor, Australasian Legal Business, Thomson Reuters
AUSTRALASIAN
LEGAL BUSINESS
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6
deals
Australasian Legal Business ISSUE 10.12
your month at a glance Your month at a glance
Clayton Utz has helped to structure, document and negotiate the APLNG project since 2008.
UNDISCLOSED CONTRACT RIO TINTO POWER AGREEMENT FOR MONGOLIAN OPERATIONS
• Rio Tinto is a long standing client of Allens. Last year the firm acted on a joint venture arrangement with Aluminum Corporation of China (Chinalco) to explore mainland China for world-class mineral deposits.
Deal
Value
Advisor
Client
Lead Lawyer
Australia Pacific LNG (APLNG) financing
US$8.5 billion
Clayton Utz
APLNG and sponsors
Andrew Smith, Graham Taylor, Bruce Cooper
Australia Pacific LNG (APLNG) financing
US$8.5 billion
Allens
Syndicate of 17 local and international lenders
Phillip Cornwell, Nigel Papi,Ben Farnsworth
Whitehaven Coal credit facilities
A$1.2 billion
Herbert Smith Freehills
Whitehaven Coal
Joel Rennie
Whitehaven Coal credit facilities
A$1.2 billion
King & Wood Mallesons
ANZ
Scott Gardiner
Rio Tinto power agreement for Mongolian operations
Undisclosed
Allens
Rio Tinto
Igor Bogdanic, Anna Collyer, Kate Axup
Rio Tinto Exploration’s purchase of Taroborah North Coal Project
Undisclosed
Ashurst
JSK Networks Resources Australia and KORES Australia
Ian Williams, Tony Denholder, Ian Kellock, Bill Cannon
Rio Tinto Exploration’s purchase of Taroborah North Coal Project
Undisclosed
Rio Tinto (in-house)
Rio Tinto
Tom Wilcox
SA Government’s sale of Lotteries contract to Tatts Group
A$427 million
Kelly & Co/ Crown Solicitor’s Office
South Australian Government
Jamie Restas
KKR and Allegro’s acquisition of loans from BOS International
A$350 million (approximate)
King & Wood Mallesons
Ausdrill
Nathan Collins, Nicholas Creed
KKR and Allegro’s acquisition of loans from BOS International
A$350 million (approximate)
Minter Ellison
BOS International
Victoria Mathewson
Ausdrill’s U.S. notes issue
US$300 million
King & Wood Mallesons
Ausdrill and Ausdrill Finance
Nicholas Creed, Nathan Collins
deals
Australasian Legal Business ISSUE 10.12
7
DEALS REPORTED TO ALB, December 2012. Please note that owing to the limited space in this table, only the higher value deals in any given month will be shown.
Your month at a glance Deal
Value
Advisor
Client
Lead Lawyer
Dampier to Bunbury Pipeline Group note issue
A$300 million
King & Wood Mallesons
Dampier to Bunbury Pipeline
Nicholas Creed
Taralga Wind Farm
A$250 million (entire project value)
Allen & Overy
Santander
Adam Stapledon
Taralga Wind Farm
A$250 million (entire project value)
HWL Ebsworth
CBD Energy
Peter Dreher, Paul O’Donnell
Charter Hall & Telstra Super’s acquisition of Bunnings stores
A$207 million
Lander & Rogers
Bunnings
Lisa Zonta, Lisa Gaddie
Charter Hall & Telstra Super’s acquisition of Bunnings stores
A$207 million
Piper Alderman
Charter Hall and Telstra Super
Lexia Wilson
Lynas Corporation notes placement
A$200 million
Allen & Overy
J.P. Morgan Australia
Tony Sparks
Lynas Corporation notes placement
A$200 million
Allens
Lynas Corporation
Evolution Mining corporate facility
A$200 million
Allens
Evolution Mining
Phillip Cornwell
Evolution Mining corporate facility
A$118 million
King & Wood Mallesonst
ANZ and Macquarie Bank
Nicholas Creed
Brookfield Asset Management and Johnson Controls establishment of Brookfield Johnson Controls Brookfield
A$250 million (value of merged company)
Minter Ellison
Brookfield Australia Investments
Callen O’Brien
A$250 million (value of merged company)
Henry Davis York
Johnson Controls
Scott Murray, Kate Gordon
King & Wood Mallesons and Nicholas Creed also advised Ausdrill on its A$150 million revolving credit facility agreement with Commonwealth Bank of Australia in June
Tony Sparks has been a long time advisor to J.P. Morgan, having worked with them at his former firm Freehills
Asset Management Brookfield Asset Management and
Johnson Controls establishment of Brookfield Johnson Controls Asset
A$150 million CAPITAL RAISING
Management
Coca-Cola Amatil capital raising
A$150 million
Ashurst
Coca-Cola Amatil
Paul Jenkins, Teresa Dyson
Coca-Cola Amatil capital raising
A$150 million
King & Wood Mallesons
Westpac
Philip Harvey, Angela Chung
COCA-COLA AMATIL CAPITAL RAISING
• This is first domestic corporate bond transaction for Coca Cola Amatil since 2006.
8
deals
Australasian Legal Business ISSUE 10.12
your month at a glance DEALS REPORTED TO ALB, DECEMber 2012. Please note that owing to the limited space in this table, only the higher value deals in any given month will be shown.
A$100 billion
Your month at a glance Deal
Value
Advisor
Client
Lead Lawyer
A$100 million
Allens
AMP Capital
EMERGENCY ALERTING SYSTEM
Emergency Alerting System PPP hand-back
David Donnelly, David McLeish
• Allens has advised on the Victorian Emergency Alerting System PPP since its inception.
Emergency Alerting System PPP hand-back
A$100 million
Minter Ellison
Victorian State Government
Kylie Diwell, Mitzi Gilligan
Galaxy Resources capital raising
A$81 million
Allion Legal
Galaxy Resources
Stuart Mengler, Phil Lucas
Ridley Corporation’s purchase of BPL Melbourne
A$77 million
Clayton Utz
Ridley Corporation
Michael Linehan
Ridley Corporation’s purchase of BPL Melbourne
A$77 million
Henry Davis York
Baiada
Scott Murray
Aviva Investors wholesale trust and acquisitions
A$65.3 million
DLA Piper
Aviva Investors
Tom Cantwell
Damco’s acquisition of Pacific Network Global Logistics
Undisclosed
Thomsons Lawyers
Pacific Network Global Logistics
Loretta Reynolds
Damco’s acquisition of Pacific Network Global Logistics
Undisclosed
King & Wood Mallesons
Damco
Meredith Paynter
Wolseley Private Equity’s acquisition of Blue Star Group operations
Undisclosed
Herbert Smith Freehills
Wolseley Private Equity
Peter Dunne
Drillsearch Energy’s capital raising
A$50 million
Herbert Smith Freehills
Joint lead managers and underwriters
Philippa Stone
PPP
A$77 million M&A Ridley corporation’s purchase of BPL melbourne
• Clayton Utz and Michael Linehan have advised Ridley Corporation on a number of strategic transactions in the past two years.
Undisclosed M&A wolseley Private equity’s acquisition of blue Star group
• Herbert Smith Freehills has previously advised with Wolseley Private Equity on a number of M&A transactions, including its investments in CoxGomyl, Pacific Services Group, NextMedia, Transonic and Abergeldie
Drillsearch Energy’s capital raising
(approximately)
(approximately)
A$50 million
Ashurst
Drillsearch Energy
Bill Koeck
Firm Profile
NZ Commentary
BIODIVERSITY OFFSETTING Biodiversity offsetting is a hot topic in New Zealand resource management law. Decision-makers expect biodiversity offsets to be proposed in appropriate circumstances in resource consent applications and Councils are increasingly providing for biodiversity offsets in planning documents. This has led to developers establishing comprehensive biodiversity offset programmes for their projects. This article reviews current trends in biodiversity offsetting in New Zealand and considers future developments in this evolving area. What is biodiversity offsetting?
There is no single accepted definition of biodiversity offsetting. However, the definition most commonly adopted is that of the Business and Biodiversity Offsets Programme (BBOP):1 “Biodiversity offsets are measurable conservation outcomes resulting from actions designed to compensate for significant residual adverse biodiversity impacts arising from project development after appropriate prevention and mitigation measures have been taken. The goal of biodiversity offsets is to achieve no net loss and preferably a net gain of biodiversity on the ground with respect to species composition, habitat structure and ecosystem function and people’s use and cultural values associated with biodiversity.” Why has the use of biodiversity offsetting recently grown?
New Zealand has suffered significant loss, and decline, in its indigenous biodiversity. In response, the application of biodiversity offsetting has recently increased due to: developments in ecological best practice (largely aligned to BBOP); the development of a proposed National Policy Statement on Indigenous Biodiversity; the establishment by the Government of a Cross Departmental Research Programme on biodiversity; strong advocacy by the Department of Conservation; the review by regional Councils (in particular Horizons Regional Council) of regional policy statements and plans; and the consenting and designating of several large infrastructure projects. Judicial developments
Judicial consideration of biodiversity offsets is still developing, with several key decisions released in the last year. In summary, the present position on key biodiversity offsetting issues is that: · Decision-makers will recognise, in appropriate circumstances, biodiversity offsetting as promoting sustainable management (the
purpose of the Resource Management Act 1991 (RMA)) and expect it to be proposed · T here is a difference between biodiversity offsetting (which relates directly to the biodiversity values affected) and environmental compensation (which does not directly relate to the biodiversity values affected but is rather a compensatory benefit) · Some uncertainty remains as to whether offsetting is a subset of remedying and mitigating adverse effects, or whether offsetting relates to residual effects after remediation and mitigation (likewise there is some uncertainty as to whether a hierarchical approach, consistent with BBOP principles, applies) ·W hile no-net-loss (or net-gain) outcomes cannot override the sustainable management purpose of the RMA, no-net-loss outcomes may be required as a resource consent condition or provided for in a plan, so long as the offset is designed and implemented to meet the sustainable management purpose of the RMA ·N ot all residual adverse effects have to be offset (rather, thresholds have been established given the significance of the effect) · T he limits as to what effects can be offset need to be considered against the circumstances and the proposed offset - simply because a threatened species or ecosystem is affected, does not mean that offsetting cannot be accepted by the decision-maker.
Future developments
The concept of offsetting adverse effects is starting to be explored in new areas where there is resource constraint, such as water catchments and airsheds. It is likely that the practice of offsetting in these and other areas will also develop over the next few years. Although biodiversity offsetting is still developing, it is now established practice in New Zealand resource management law. It is critical that everyone associated with development projects that affect biodiversity is involved in the bedding down of biodiversity offsetting over the next few years. An international organisation developing best practice on biodiversity offsets – see http://bbop.forest-trends.org/
1
This article was written by David Allen, special counsel, and Julia White, senior solicitor, both based in the Wellington office of Buddle Findlay, a leading New Zealand law firm. David and Julia specialise in environment and resource management law. David can be contacted on +64 4 462 0423 or david.allen@buddlefindlay.com and Julia on +64 4 498 7331 or julia.white@buddlefindlay.com.
Policy developments
Two key national policy documents in respect of biodiversity offsetting are in development: · T he proposed National Policy Statement on Indigenous Biodiversity. The proposed NPS was released in January 2011 and submissions closed in May 2011. While many submissions were received the progress of the proposed NPS has been in abeyance. In the interim the proposed NPS, while not having any legal effect and despite the number of submissions, has been recognised by the Environment Court as ‘worthy of respect as a reflection of considered opinion.’ · T he Department of Conservation’s BestPractice Guidance on Biodiversity Offsetting. This guidance is currently under development and the submission period on a draft recently closed. Depending on the final contents of the guidance it is likely to provide detail on biodiversity offset development and modelling. While this guideline is not a statutory document, it is likely to have a significant effect on the implementation of biodiversity offsetting in New Zealand through being adopted as best practice and applied through planning documents and Court decisions.
david allen
Buddle Findlay
julia white
Buddle Findlay
10
league tables
Australasian Legal Business ISSUE 10.12
Top M&A Firms - Australian announced deals
1
NO.
Top M&A Firms - Australian completed deals
1
herbert smith Freehills llp
13,758.94 Deals: 60
NO.
Value ($Mil)
Market Share: 20.4
Rank Legal Advisor
Value Mkt. Deals ($Mil) Share
King & Wood Mallesons
24,188.04 Deals: 49
Value ($Mil)
Market Share: 34.4
Value Mkt. Deals ($Mil) Share
Rank Legal Advisor
2
Gilbert + Tobin
12,428.60
18.5
37
2
Ashurst
21,216.75
30.2
46
3
Ashurst
10,099.91
15.0
53
3
Herbert Smith Freehills LLP
19,554.51
27.8
66
4
Allens
8,417.32
12.5
54
4
Gilbert + Tobin
19,444.97
27.7
33
5
King & Wood Mallesons
7,585.11
11.3
52
5
Allens
18,832.97
26.8
39
6
Clayton Utz
5,695.63
8.5
34
6
Clayton Utz
17,228.27
24.5
42
7
Baker & McKenzie
4,952.95
7.4
30
7
Corrs Chambers Westgarth
13,292.55
18.9
29
8
Minter Ellison
4,377.76
6.5
57
8
Minter Ellison
9,834.79
14.0
54
9
Norton Rose
3,770.91
5.6
31
9
Allen & Overy
8,196.11
11.7
26
10
Latham & Watkins
3,309.12
4.9
1
10
Baker & McKenzie
7,788.50
11.1
34
10*
Jipyong Jisung
3,309.12
4.9
1
11
Norton Rose
5,476.91
7.8
28
12
Osler Hoskin & Harcourt LLP
3,045.49
4.5
6
12
Cravath, Swaine & Moore
4,351.34
6.2
3
13
Allen & Overy
2,924.32
4.3
16
13
McCullough Robertson
3,661.82
5.2
20
14
Clifford Chance
2,918.63
4.3
9
14
Clifford Chance
3,321.12
4.7
10
15
Blake Cassels & Graydon
2,528.74
3.8
4
15
Baker Botts LLP
2,739.72
3.9
1
16
Corrs Chambers Westgarth
2,327.24
3.5
31
16
Orrick Herrington & Sutcliffe LLP
2,554.96
3.6
2
17
DLA Piper
1,905.15
2.8
28
17
Stikeman Elliott
2,514.57
3.6
4
18
Middletons Lawyers
1,639.97
2.4
5
18
Osler Hoskin & Harcourt LLP
2,338.40
3.3
4
19
Squire Sanders & Dempsey LLP
1,564.50
2.3
7
19
Kirkland & Ellis
2,083.05
3.0
5
20
Johnson Winter & Slattery
1,404.08
2.1
5
20
Cassels Brock & Blackwell LLP
1,351.86
1.9
3
Gowling Lafleur Henderson LLP
21
Werksmans Attorneys
1,334.61
1.9
1
21
1,305.91
1.9
3
21*
CLS Attorneys
1,334.61
1.9
1
22
Simpson Thacher & Bartlett
1,268.95
1.9
2
23
Linklaters
1,294.11
1.8
2
23
Lawson Lundell Lawson & McIntosh
1,118.41
1.7
1
24
Lawson Lundell Lawson & McIntosh
1,220.35
1.7
1
24
GRT Lawyers
959.16
1.4
1
24*
Kalamba & Associes
1,220.35
1.7
1
25
McCullough Robertson
825.77
1.2
20
24*
1,220.35
1.7
1
Subtotal with Legal Advisor
49,907.02
74.2
456
Davies Ward Phillips & Vineberg LLP
Subtotal without Legal Advisor 17,383.03
25.8
1,146
Subtotal with Legal Advisor
59,594.74
84.8
409
Industry Total
100.0
1,602
Subtotal without Legal Advisor
10,650.91
15.2
759
Industry Total
70,245.65
100.0
1,168
67,290.05
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-12-05 08:45:44 EST
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-12-05 08:19:18 EST
Australasian Legal Business ISSUE 10.12
in-house observations
11
REFORM OF THE NATIONAL LEGAL PROFESSION – fact or farce? By Tony de Govrik, Legal Affairs & Communications Director, Australian Corporate Lawyers Association, the professional body for in-house lawyers.
A Tony de Govrik
s we dash headlong into another new year, it is perhaps timely to take stock of the progress that the legal profession has made in reforming itself. To many it will seem very little has changed or is likely to. All we have really been doing is a bit of fiddling around the edges and even then we can’t get everyone on board. We now have the farcical situation where the only truly committed jurisdictions to the reform process (or, more precisely, to the adoption of a new Legal Profession National Law) are NSW and Victoria. The other States and Territories are either sitting on the fence or prevaricating. So why do we think that by stringing together a few Legal Profession Acts from around the country into something called the Legal Profession National Law we have suddenly “reformed” the legal profession? The real problem is not in trying to cobble together a new law that regulates the profession but rather the entire structure of the Australian legal profession itself. Most members of the public when asked can tell you that the AMA stands for the Australian Medical Association. But ask someone in the street what the LCA stands for and you are most likely to be met with a blank stare. Google “LCA” and you come up with The Lutheran Church of Australia - with the Law Council of Australia (LCA) nowhere to be found. The LCA clearly has both a branding issue and a structural issue. The LCA is currently made up of 17 constituent member bodies comprising eight law societies, eight bar associations and, somewhat incongruously, the so-called Large Law Firm Group. In contrast, most modern legal associations which purport to represent lawyers nationally have a centralised administration and national membership base. Members pay fees directly to the association and thus actually feel as if they are a member of their association. There are many good examples of this structure working well – Australian Lawyers Alliance (ALA), Australian Mining and Petroleum Lawyers Association (AMPLA), Australian Corporate Lawyers Association (ACLA) – and the list goes on. And it’s not just legal associations that choose to adopt a centralised national model – take a look, for example, at Chartered Secretaries Australia (CSA) and the Australian Institute of Company Directors (AICD). But with the LCA there is no direct membership – it is all done indirectly through “constituent bodies” – individuals cannot be a member of the LCA only of its various sections. So how can we, as lawyers, feel part of a national legal profession? Unless the LCA and its constituent bodies face up to the fact that a restructure of the legal profession from the bottom up is what is required we will never have a truly national legal profession in this country. While the LCA has produced consultation papers on proposals for structural reform going back to at least 2006, nothing concrete has ever materialised. One structure that has been mooted in the past is for the LCA to become, in effect, the
centralised parent body, with the law societies and bar associations becoming wholly-owned subsidiaries. All Australian legal practitioners would then become members of a national organisation rather than members of their local constituent body. Of course, serious structural reform is painful (arguments will abound about asset divesting, voting rights etc.) and no doubt some constituent bodies will have to be dragged yelling and screaming into the new structure – just as we are seeing with the adoption of the new legislation. Although this may be a minor issue in the scheme of things, from a public perception branding is important. As mentioned above, the acronym LCA is little known and poorly understood. If there is to be a serious restructure then rebranding is a must. A change of name to something a little more relevant, together with a catchy (and pronounceable) acronym, would be a good start. Names such as Australian Legal Association and Australian Lawyers Association are possibilities but the acronym ALA is already accounted for by another legal association. The Australian Legal Profession sounds good but the acronym ALP may not go down too well with some members. As solicitors and barristers will all be known as “Australian legal practitioners” under the national law, why not the Australian Legal Practitioners Society or ALPS – perfectly apt for a “peak” body, n’est-ce pas? Or perhaps the less scintillating Australian Legal Practitioners Association (ALPA) could be considered? Clearly we need a fresh approach commencing with a far-reaching top to bottom review of the structure of the legal profession in this country. Why are we still kidding ourselves that in a country the size of Australia with its eight artificially created jurisdictions everything is sweet? It’s time our “leaders” took charge and led! May I take this opportunity to wish readers all the best for a reformation New Year!
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industry
Australasian Legal Business ISSUE 10.12
2012: The yea 2012 was a watershed year for the Australasian legal profession. Here is a recap of the key events which shaped the market.
JANUARY: Middletons goes to Brisbane Middeltons announces a move into the Brisbane market via a merger with local firm Flower and Hart, effective March 1. MARCH: Official launch of King & Wood Mallesons and Ashurst in Australia King & Wood Mallesons, a Swiss Verein entity comprising the partnerships of Mallesons Stephen Jaques and China-based King & Wood formally launched in March, as did Blake Dawson’s merger with Ashurst. Legacy Blakes will vote on full financial integration with Ashurst in 2014. APRIL: Allens and Linklaters form strategic alliance Allens Arthur Robinson announces an ‘integrated alliance’ with UK firm Linklaters which sees the firms retain their separate identities and partnerships in Australia and the UK, but form an integrated joint venture in Asia and a separate structure in Indonesia for regulatory reasons. However, the joint venture will focus on energy, resources and infrastructure work only and Asia practices outside these areas will continue to operate in their current form. The deal also saw Allens drop the “Arthur Robinson” elements of its brand name.
MAY: S&G settles in England ASX-listed Slater & Gordon acquired UK firm Russell Jones & Walker (RJW) in May. The plaintiff law firm paid £53.8 million (A$80 million) for RJW including £36.4 million in cash and £17.4 million worth of Slater & Gordon shares. The cash component was funded by the Slater & Gordon debt facility, which has been increased to A$160 million to cover the transaction and continued growth of the Australian business. It is the law firm’s largest acquisition to date. Leighton Holdings appoints new group GC Leighton Holdings appoints a new group company secretary and general counsel following the departure of chief risk officer and group general counsel Craig van der Laan in March. Richard Willcock joined Leightons from the Australian Customs and Border Protection Service. Prior to that role he was an adviser on financial services and governance in Australia and in Timor Leste (East Timor). Willcock served 12 years at Westpac Banking Corporation in roles such as head of legal services, general manager of risk for BT Financial Group, trustee of The Westpac Foundation and between 2003 and 2009 he was group company secretary and general counsel.
JUNE: Freehills and Herbert Smith announce fully integrated firm
John Edmond, Clyde & Co
Jason Ricketts, HSF
Freehills joined the international ranks with an announcement that it and international law UK firm Herbert Smith would combine their partnerships to create Herbert Smith Freehills from October 1. The combined firm features 20 offices in five continents and is comprised of 2,800 lawyers, including 460 partners, making it the world’s eighth largest law firm based on total lawyer numbers. The firm later named West Australian partner Jason Ricketts as the firm’s Australian managing partner. JULY: Clyde & Co taps Allens for Australia launch Global law firm Clyde & Co joined the international party in Australia with a team of lawyers recruited from Allens.
Six Allens partners from Sydney, Perth, Hong Kong and Singapore joined Clyde & Co in what is mainly a contentious practice, with a strong focus on insurance and reinsurance. Following the lead of Magic Circle firms Allen & Overy and Clifford Chance, Clyde & Co established offices in Sydney and Perth in late September. Qantas GC retires, Allens partner takes control Andrew Finch, Qantas
Qantas group general counsel Brett Johnson announces plans
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ar in review to step down after 17 years in the role. Johnson was replaced on November 1 by Allens partner Andrew Finch who had been a partner at Allens for the 10 years and specialises in corporate law. SEPTEMBER: Deloitte announces new GC From September 1 Deloitte Australia associate general counsel Rachel Besley took over as general counsel following the retirement of former general counsel, Leslie Moore, after nine years with the firm. Besley joined Deloitte in 2002 as a senior associate from DLA Piper, where she specialised in intellectual property and information technology law. Curwoods acquires Suncorp’s GILD Sydney-based Curwoods Lawyers acquired GILD Insurance Litigation (GILD), a subsidiary of Suncorp. The GILD team includes partner Francesca Menniti, special counsel Timothy Hackett, Karen McMahon, Cathy Hogan, Sarah Henry, Rosslyn Cooke, Lesley Bush and Lynne Organ as well as 30 lawyers and two paralegals. OCTOBER: KWM lures Bakers PE head King & Wood Mallesons recruited former Baker & McKenzie global head of private
joined from DLA Piper, and senior associate Anna Elliott, a labour and employment lawyer who is joined from Holding Redlich. NOVEMBER: Norton Rose announces U.S. expansion
Mark McNamara, KWM
equity Mark McNamara to its Sydney office. In his new role he will lead a team of approximately 60 partners and lawyers. His area of expertise lies across the full range of M&A transactions for private equity clients – MBOs/ LBOs, public takeovers, private M&A and security offerings. Squires launches in Sydney Squire Sanders, which opened in Perth on 1 October 2011, opened its second Australian office in Sydney through the recruitment of a senior Allens partner. Squire Sanders’ initial Sydney-based team includes cross-border M&A specialist Campbell Davidson, most recently a partner at Allens; of counsel Richard Pascoe, a IP and technology practitioner from Truman Hoyle (and previously Gilbert & Tobin); of counsel Louise Boyce, who specialises in taxation and is
Wayne Spanner, Norton Rose
Norton Rose announced a merger with U.S. law firm Fulbright & Jaworski. The UK law firm is set to combine with the U.S. firm on June 1, 2013 to create a new global firm known as Norton Rose Fulbright. The move comes a little more than three years after the firm merged with Australian firm Deacons. Norton Rose Fulbright will continue to operate under the Swiss Verein model that Norton Rose has used in recent years to build a global network of lawyers, whereby partners are not financially integrated across regions. Once joined, Norton Rose Fulbright will employ approximately 3,800 lawyers, 1,250 partners and more than
7,000 staff overall in 55 offices across the world. HopgoodGanim, Q Legal merge Queensland’s HopgoodGanim joins forces with Perthbased Q Legal, with both firms to operate under the HopgoodGanim brand. DECEMBER: Middletons joins K&L Gates in global merger race Middletons announces merger with U.S. firm K&L Gates. From January 1 the firm will be known as K&L Gates and the partnerships of the two firms will be financially integrated from that date. The combination of the two firms will create a firm of more than 2,000 lawyers in 45 offices throughout Australia, North and South America, Europe, Asia and the Middle East.
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news
Technology in practice
Q&A with
Damian Huon Damian Huon is a Legal Technology Strategist and CEO of Huon IT. With over 23 years supporting Australian mid-tier law firms, Huon IT deliver business-wide outcomes with ‘everything technology’.
Facing IT Change - What internal risk could kill your next investment?
Staff attitude toward change can make or break the success of any project, particularly when IT is concerned. Seasoned strategist, Damian Huon, shares his change management tips to ensure your firm’s innovation plans are met with acceptance – not avoidance. upcoming upgrade means major change – how can I ensure staff are on-board? Q1 Our
Too often when announcing new plans, busy managers don’t take enough time to communicate the underlying business rationale - and staff end up disgruntled after an investment that was actually intended to empower. You understand the background, business case and benefits of the change, so it’s easy to assume everyone else will too after sending out a quick ‘All Staff’ email. But that’s not always the case. Take multiple approaches to share your vision with the whole firm; be it via distributing FAQs, sitting in on team meetings, or even holding Friday drinks to present and discuss the plan. Provide opportunities for staff to ask questions and get involved – the more buy in they get, the more they’ll embrace the change.
Q2 But how can we involve those who don’t want a bar of IT? Don’t avoid them. The most sceptical staff can actually become your strongest champions for the project. In a Right Management study (2009), it was found that almost half of all employees struggle with being open to change – big or small. Many may be comfortable with current systems – even if cumbersome - so aren’t keen to risk looking inadequate when learning new tasks. And others, even tech-savvy staff, may complain as it simply goes against their personal preference. These are the very users who should be included in pre-planning brainstorms, pilots, and post-project surveys. Having them participate will give them a chance to give moderated, constructive feedback - rather than voicing their complaints around the water cooler.
Q3 Isn’t offering training enough?
No. Organisations often run one-off training sessions in isolation, with little follow up or explanation in a real business context. Without ongoing support and an understanding of why, when staff eventually hit stumbling blocks it can severely damage morale, productivity, and ultimately – your bottom line. Partners, Practice Managers, HR and IT all play key roles in driving the change ‘top-down’ in a holistic approach. So whether you are migrating to a whole new Practice Management System, or simply giving iPads to your Partners, ensure your investment doesn’t fall on flat ears. Change management isn’t just a “nice to have”, but a necessity. Email your questions to alb@huonit.com.au
Australasian Legal Business ISSUE 10.12
In case you missed it….. The month’s top headlines from www.legalbusinessonline.com
STORY OF THE MONTH HopgoodGanim builds Chinese relations HopgoodGanim has signed cooperation agreements with two of China’s leading law firms, Dacheng Law Offices LLP and Zhejiang T&C law firm. The announcement follows HopgoodGanim’s recent move into the Western Australian market through its merger with Perth-based Q Legal. HopgoodGanim managing partner Bruce Humphrys said the cooperation agreements with Dacheng and T&C are key to the firm building long-term relationships in the Chinese market. “These agreements create a dedicated framework that will help facilitate the leveraging of synergies between our firms in their respective markets,” he said. The agreements outline the ways in which the firms will share information and resources, based on the principles of mutual benefit and understanding; including through secondments, referrals and the joint pursuit of new opportunities. Dacheng Law Offices LLP is one of China’s largest commercial law firms, with 37 offices in mainland China and seven offices overseas. It offers a full range of legal services including M&A, capital markets, mining and resources, construction and infrastructure, real estate and dispute resolution. Zhejiang T&C Law Firm is a founding member of the Sino-Global Legal Alliance, with expertise including capital markets, real estate and construction, international trade and foreign direct investment.
MERGERS K&L Gates and Middletons to combine from 2013 The partnerships of Middletons and U.S. firm K&L Gates have voted unanimously to combine firms effective January 1, 2013. The combined firm will take the K&L Gates name and from the outset the new firm will feature full financial, operational, and technological integration, as well as unitary global governance and a single approach to partner compensation. Through the combination K&L Gates enhances its Asia-Pacific regional coverage to 400 lawyers and 11 offices, of which Middletons accounts for 300 lawyers, including 70 partners, and four offices. Middletons national managing partner Nick Nichola will become K&L Gates managing partner, Australia.
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In-house Q&A
BRANDING ILH announces new firm brand: Rockwell Olivier ASX-listed law firm group Integrated Legal Holdings (ILH) has announced that member firms Argyle Lawyers in Sydney, Rockwell Bates in Melbourne and Talbot Olivier in Perth will be re-branded as Rockwell Olivier by March 2013. The formation of Rockwell Olivier is consistent with ILH announcements in August 2012 which stated that the next stage in the company’s strategic development would be a move towards more consistent branding across member firms.
WESTERN AUSTRALIA WA update: Lawyer numbers remains steady Despite the increased number of legal brands in the West Australian market, the number of registered practitioners in the state remained relatively steady between July 2011 and July 2012. The Law Society of Western Australia reported a total of 3,346 members for the 2012 financial year, up from 3,329 the previous year, equating to an increase of 17 members. However, within that membership, there was a 27 percent increase in government lawyer members between last report and the current report.
VICTORIA
Corrs partner named next president of LIV Corrs Chambers Westgarth tax partner Reynah Tang is to be the next president of the Law Institute of Victoria. Tang was endorsed at the LIV’s annual general meeting last night and will take up his position on 1 January 2013. He is the current chair of the LIV Audit Committee and represents the LIV on the Council of Legal Education. He was first elected to the council in 2007 and recently represented the LIV on Premier Ted Baillieu’s trade mission to China.
NSW PILCH Victoria and NSW to combine The Public Interest Law Clearing Houses (PILCH) of NSW and Victoria will amalgamate to become one integrated pro bono organisation serving both states by July 2013. “We believe the integration will enable us to work more effectively within the changing pro bono landscape,” said PILCH Victoria president, Mitzi Gilligan. “This change means we can present a single entry portal for access to pro bono services in Australia’s largest states.” The combined organisation will retain a physical presence in both states to continue the delivery of services. The combined ability to deploy pro bono resources in the public interest across two states will allow increased flexibility to respond and increased opportunity for members.
Jason Pavy General Manager Legal
Aquila Resources Limited
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Why have in-house lawyers become an increasingly indispensable part of an organisation? Increasingly, corporates recognise the unique value that can be added by an in-house legal function which cannot be replicated through outsourcing. The value proposition is no longer limited to simply controlling and managing external legal spend. Businesses are increasingly subject to more regulatory scrutiny and a litany of legal issues. These compliance and corporate governance risks may not be quickly identified and appropriately managed without an in-house legal function mandated to establish appropriate processes and procedures in this area, including staff training (which can be face to face or on-line). The in-house legal function is increasingly looked upon to play a more strategic role, particularly as lawyers bring an added layer of analytical skills, risk analysis and a rigorous mode of thinking. Consistent with this, there has been a corresponding increase in legal representation on the boards of Australian corporates. These factors have encouraged senior management to embed the in-house legal function within its business units. Aquila is no exception. The value added by the legal function has been recognised through the significant growth in the legal team to 5 lawyers within a short time period of time notwithstanding the challenging economic climate.
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In recent times, the role of the General Counsel has diversified into a multi-faceted role (where the General Counsel can wear the ‘hat’ of a Lawyer, Legal Manager, Compliance Manager and Company Secretary). In your opinion, do you believe this has increased your risk profile? Company secretarial and compliance roles are, given their nature, within the normal realm of things that fall within an in-house legal function. In larger organisations, this may not be the case as the roles are more delineated, particularly between the legal and compliance functions. The legal team is a strong value adding component in the Aquila business, where it is involved in legal cost management, legal risk and compliance management, day to day legal work (dispute resolution, legal advice, contract drafting and review and the like), transactions and project management. However, it is important that in-house lawyers hold the legal line and not cross the boundary into commercial decision-making. Our role should always remain as trusted adviser. With increased functions and accountability, there are of course increased opportunities and risks for in-house lawyers. These risks can be managed by putting in place appropriate compliance measures, reporting lines and checks. However, in light of the recent James Hardie case, the legal industry should consider whether it is appropriate to establish a separate insurance regime to specifically protect in-house lawyers, as there is for the directors and officers of a company.
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In your opinion, what do you consider to be the main challenges you will face in the year ahead? The macro economic climate continues to be challenging. The in-house legal function is a cost centre so my focus remains on demonstrating the unique valued added by it. There is pressure to undertake more work internally, which if not properly managed can lead to performance issues and an impact on job satisfaction. Prioritisation remains the key and this requires an intimate understanding of the business and its short and long term objectives. Value for money must continue to be demonstrated from external legal spend and I’m continuously reviewing our panel of law firms and looking to establish strategic relationships with a limited number of law firms. Getting the fit right is paramount as I see our external lawyers as an extension of our in-house legal team. It’s important to ensure a common understanding of business objectives and expectations of the legal function. At Aquila, we have put in place agreed retainer guidelines, reporting arrangements and regular relationship meetings to foster a partnering approach with our key external legal advisers. We have even explored alternative fee arrangements so there is a sharing with the business in project outcomes (positive and negative). Separate to this, the rapidly changing regulatory environment constantly presents new challenges for lawyers (both in-house and in private practice). The Personal Property Securities Act, Mineral Resources Rent Tax and Carbon Tax are recent examples relevant to Aquila - just to name a few.
JLegal is a global specialist legal recruitment consultancy focused solely on providing recruitment solutions to the legal profession. For a confidential discussion about your career, contact one of our senior consultants today.
www.jlegal.com Melbourne t | +61 3 8102 1900 Sydney t | +61 2 8249 4730
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ROUNDTABLE 2012
Australasian Legal Business ISSUE 10.12
THEPANEL Danny Gilbert
Grant Fuzi
John Nerurker
Juliana Warner
Managing Partner, Gilbert + Tobin
Managing Partner (Australia), Allen & Overy
Managing Partner, Mills Oakley
Managing Partner (Sydney), Herbert Smith Freehills
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ast month, ALB brought together a panel of managing partners from some leading Australian law firms to discuss the burning issues of the day. Are we heading for a prolonged global recession? What will “the new normal” look like for firms? Where does LPO fit into the picture? What will the private practice market look like in 10 years time? In the first of a two part series, we present their responses. Video footage of this event will also be progressively rolled out over December and January online at www.legalbusinessonline.com.
Moderator: Renu Prasad Australasia Editor, ALB Magazine
Mark Pistilli
Teresa Handicott
Tony O’Malley
Chris Lovell
Managing Partner (Sydney), Clifford Chance
Chair of Board, Corrs Chambers Westgarth
Managing Partner (Australia), King & Wood Mallesons
Managing Partner, holding redlich
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ROUNDTABLE 2012 ALB: What is your perspective on the global economy and the future shape of the Australian economy? GRANT FUZI: On the global economy, I think we are in for a prolonged period of slow growth, a difficult and variable time. We’ve lived through a bubble of 15 years, riding off the emergence of Eastern Europe and the rise of credit. I think those shifts back down to a banking market that’s de-leveraged by 40 percent and the volatility we are seeing in Europe, I think they are real long-term changes, not short-term. We are looking at a new norm. I think the people who are hanging on for the glory days of 2007 to come back are mistaken. We’re now facing a new reality that is a long term change. TONY O’MALLEY: The risk factors are there for a prolonged recession, we’ve all heard a lot about the fiscal cliff, the crisis in Europe and the slowdown in China. But if you step back from what we read every day in the press, there is still some growth
Grant Fuzi, Managing Partner (Australia), Allen & Overy
Australasian Legal Business ISSUE 10.12
in the U.S., Europe and the downturn in China is fairly moderate. So I think Grant’s prognosis is right, a slowing in growth globally, but a good hotspot in Asia, in terms of better growth. That plays well of course in terms of the Australian story. Australia still has a relatively positive outlook because of that. Save that, I think we’re all experiencing a slowdown in the resources sector. I think the challenge over the next 12 months is how do you rebalance the growth in Australia as the heat comes out of that sector and we look for productivity and growth in other areas? I think that’s where the government has a big role to play in terms of policy setting. JOHN NERURKER: I think the challenges we are all experiencing in global terms, no doubt also create opportunities. I think there’s a shift to value pricing and I think medium sized firms are well placed to take advantage of that. There is no doubt that business confidence is low, in terms of the fiscal cliff; reforms happening in Europe, leadership transitions in China and that all leads to sluggish business confidence. However, I think firms who keep their eye on the value proposition and keep their clients top and front of mind will prevail. DANNY GILBERT: Well I agree with what the others have said, but the reality is that nobody knows. There is some commentary that seems to suggest greater optimism for an earlier recovery in the UK than was previously thought and some springing optimism about the U.S. If those two were to recover at an earlier time, the prognostications that we are in this slow period of growth and a lot of uncertainty for the 10 years, well those could potentially change. So, apart from that, I do agree with what everyone has said, but I don’t think anyone really knows. I wonder why people are quite so gloomy about China and say it is slowing down and the benefits that flow from China won’t be there. I don’t understand that. China is going to have solid growth and the Chinese government isn’t going to allow anything other than that to occur. JULIANA WARNER: We are still cautiously optimistic. Our firm has had a record year and linking into a new future is quite exciting for us. So we are still positive, I hope not overly positive. ALB: Freehills and Herbert Smith have got a great disputes practice, is that the key driver? Or are you optimistic in relation to other areas? JULIANA WARNER: We are optimistic about what we can do in Asia, optimistic about what the entire merger will deliver. Our firm is quite excited about our opportunities in Asia. That region is performing fairly well, compared to other areas. I think there are still plenty of opportunities for firms who simply focus on doing well in what they do well. MARK PISTILLI: I am in agreement with everyone else around the table, but the one thing we haven’t focused on is the fact that everything is different. We are really, quite possibly, in for a period of a prolonged, global recession. The question around that is, how long is prolonged? People have different views. At the moment there are three main engines that provide world growth. All of them have stalled, but there are signs that each of them will come out of that at some point and I agree with Danny that no one really has any idea about when that is. There is an interesting Middle Eastern saying that is: “if someone says they can predict the future, they’re
Australasian Legal Business ISSUE 10.12
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lying to you, even if they are ultimately proven to be correct.” That’s the major challenge for us, whether or not and when the economies around the world will come out of the period that they’re in. Back to Grant’s comment that this new period could go on forever, I think that’s debatable. I remember the early nineties when we said the eighties will never come back again, then we saw them again in the early part of this century. So, it might be the economist in me but I think it’s just a cycle. In that cycle I would like to be a law firm, rather than anything else, because we are effectively running counter-cyclical businesses, as well as cyclical businesses. But there’s no doubt there are reforms [that are necessary] to have in our market. We are part way through globalising the legal market and I don’t think that process is finished. Even in terms of the products that we deliver, they are becoming largely commoditised. We’ve got to learn how to provide those more commoditised products in a more efficient way.
Teresa Handicott, Chair of Board, Corrs Chambers Westgarth
ALB: Do you think we are witnessing a permanent structural change for the legal industry, or are we simply going through a rough but temporary stage of the economic cycle? GRANT FUZI: If I could comment on that, I think there is [a distinction between] cyclical and structural. I agree with Danny that we could all mention the major economic trends that are impactors of growth and that is the cyclical side. I do think there is also a massive structural change. I think the world’s financial model that existed before the financial crisis is not going to exist again in my work time. That changes the availability of capital, it changes the freedom of capital, it makes capital much harder to come by and that, therefore, changes the way that activities are done. Deals are now harder to do because there is less capital to fund them. We will have ups and downs, whether Greece comes out of a recession, whether Europe comes out of a recession, whatever happens with China’s growth. I agree with Danny there are some very encouraging signs coming out of America, especially in terms of more complex manufacturing moving out of China and back to the United States, but I personally believe strongly that the macro structural effect of the financial institutional crisis and how that’s going to play out will transform the transactional activity around the world. DANNY GILBERT: That’s true and one consequence of that is it creates uncertainty in demand and activity in the business world, so the two are very linked. While you have tightening of capital, the banks are more constrained in their capacity to lend. We’ve seen a significant lessening in the demand for credit as corporates look to de-leverage, so there is a major change in all of that and that will take a long time. Australia has its own set of problems with its high levels of dependency on the wholesale finance market. If the market picks up the amount of money sitting in bank deposits will go back into the equities markets and that would be a big change. However the fact is we’re not going to see such an active or widely dispersed financial sector as we did in those ten years. TERESA HANDICOTT: And possibly that’s a good thing. I remember being quite concerned in the lead up to Lehmans, I was seeing things in practice that really bothered me. People had no idea of risk any more, they didn’t care about it. Everything was about securing the asset or selling the asset. Due diligence was being paid lip service to. Now this wasn’t every organisation, obviously there were many who continued to operate and practice in a very prudential way.
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However, I think Australia always lags a little and luckily for us I think we lagged a little in the silliness, but we were certainly heading there. It was not all luck of course, I think we had been well governed for a very long time; there had been a lot of economic reform in this country and we had the “benefit” of HIH, if I dare say it. So we’d had a very close look at our prudential regulation and our financial institutions were in very good shape. It was the easiest thing in the world to have a government-backed guarantee because there was an understanding of their position. The only things that was going to bring them down was panic, not the economics or the balance sheets of our financial institutions, so we got away relatively unscathed. To have our institutions regulated properly in a way where we don’t have those wonderful highs and horrible lows is probably a good thing. We still are in the recovery period, but once the confidence is back I think no [return] to 2007, but certainly a positive outcome. JOHN NERURKER: There is a bit of a sentiment that law firms follow the trends
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agree with John that there has been huge pressure on rates and this has been a massive change. Price power now lies with the buyer, not the seller. I don’t know how long this situation will carry on, but I expect for quite some time.
John Nerurker, Managing Partner, Mills Oakley
TONY O’MALLEY: I think the first point is that cycles come and go and I don’t think any of us can say that the next cycle won’t end as badly as the last one, but I don’t think we can regulate for it. So the cycles will come and go and we’ll see revenues fluctuate with those cycles. But a lot of the change, in terms of the law industry, has been that profound change we’ve talked about, in terms of what clients want and need, also how law firms are delivering it. The biggest risk for us as managing partners is complacency, or taking the view that the cycle will turn quickly and, therefore, things can stay the same. Unless each of us is close enough to the market and understanding where the shifts are taking place, where capital is going, how funding is going to occur and how risk is going to be managed, we won’t reshape to the new world market quickly enough. The points that have been made about buying power, that has been evolving for about a decade, it just got paraffin thrown on it with the GFC and is now a permanent feature of our market. In terms of law firms, we are all experiencing intense competition for terms of clients and deals. We are all trying to differentiate in different ways, pricing has been pushed down pretty far and I don’t see anything changing in the near future. ALB: And how will this impact lawyer headcount?
of the wider economy, that is, in the good years they tend to do well, in the post-GFC era we won’t do so well. The reality is the GFC came on the back of two decades of unprecedented growth and following the crash, there has been a massive recalibration of the legal services sector. It’s caused a tighter legal spend, it’s caused more intense competition. I think those firms that can recalibrate their service position to benefit their clients will succeed. ALB: Which brings us to the question of “the new normal,” a phrase which now seems to come up a lot. What does it entail - flat revenues, for example? CHRIS LOVELL: Yes, flat revenues have made workflows erratic, very lumpy, it’s very hard to budget these days. It’s also harder to pin down a pipeline of work coming in, things fall away and new things crop up all the time. It’s very hard to look at three months and say ‘this is what’s going to happen’, unless of course you have major litigation going on, in which is also another element, people seem very unwilling to litigate substantially at the moment. It’s a discretionary spend in a lot of ways, sometimes it isn’t, but often it is. I also
TONY O’MALLEY: Well as an opening point there, the market determines the amount of revenue available in it and revenue determines headcount, it’s simple maths. So law firms are riding the cycle just like any other business in the market, with all firms managing it in different ways. Some are managing it through attrition and performance management, capacity management, some are dealing with it more structurally through redundancies, but it’s just about riding those cycles in the market. JULIANA WARNER: It also depends how you’ve got your practice balanced as well. For example, at the moment we’ve got our ER and IR practices booming, our disputes practice is booming, the real estate and projects guys are doing really well. It’s swings and roundabouts across the whole firm and I think that’s a really good business model, so we’re not really too worried about revenue being too flat. ALB: Is anyone expecting to grow their headcount next year? TERESA HANDICOTT: Well we are certainly growing, but in very specific areas where we need people. The truth is you can’t employ an IR lawyer in Perth because there are simply not enough of them. You have to find people who will move. So there are a lot of areas where a lot of work is happening, infrastructure projects for example, people with high specialties are very much in demand. So there still is, in some respects, a war on talent, regardless of what’s happening economically. In this country there is still a battle to recruit people with very high specialisations. However, we are a different kind of business. We aren’t capital-rich, we don’t have machines. Our people are incredibly important to us, particularly our people who are very high quality, very experienced, have been with us for a long time, know our clients well, know our client’s businesses well and know the industries well. You don’t give
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those people up lightly. You keep them, you nurture them and you look after them for the next cycle. We do that probably differently now to how we did before. We are a far more mobile workforce, certainly our firm operates in a way nationally that we couldn’t have imagined, even five years ago, either virtually or with people moving amongst offices for quite extended periods, sometimes permanently. I think firms will get much better at doing that over time. JULIANA WARNER: Historically we’ve always taken the view that you ride out the times that are a bit tougher and you keep your people because they’ve been good to you. We have found over the last couple of cycles that has really been of enormous benefit to us, because when times turn, we have a workforce that is able to be immediately deployed. Also, it builds a great sense of loyalty if you have that kind of approach. I am a big fan of that type of approach.
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but because of the circumstances in Ireland it’s a lower cost jurisdiction. DANNY GILBERT: Poms are very good at exploiting the Irish, they’ve been at it for a long time.
Juliana Warner, Managing Partner (Sydney), Herbert Smith Freehills
MARK PISTILLI: Yes just on that, I think the reality is we don’t have businesses that can turn on and off, so structurally we can’t get rid of lawyers and partners, then expect them to appear when the cycle turns up. Traditionally in our industry we have built loyalty by, during the times when there isn’t enough work, keeping lawyers, which ensures they are there when you need them. Other industries, which I won’t name, do the opposite. They are very quick to cut people during downtimes and then expensively rehire them later. I think you’d find in those industries people move around a lot more than they do in ours. However, overall I think the size of the legal pie is shrinking, I’m not sure that anyone would have the view that financially it’s getting bigger. The economy is apparently growing at 2-4 per cent, but the pie for us is getting smaller and that necessarily means there will be less lawyers around to service it. ALB: How does LPO fit into this equation? Chris, can you tell us how Holding Redlich approaches this issue? CHRIS LOVELL: We wouldn’t do it. I don’t see a real advantage in doing it for us and I’m also opposed in principle, our whole firm is effectively. The reason is that then you send work offshore, it’s not work that’s going to come back in a hurry. It’s a very fertile training ground for young lawyers and you don’t have anything for them to do, so it’s going to be a firm that’s misshapen. You’re not going to have the young people coming up. Frankly the financial benefits wouldn’t be significant for us, but even if they were we wouldn’t do it. GRANT FUZI: I take a fundamentally different view on that one, I think it’s all about clients and what’s the most efficient delivery of legal services to clients. All industries in challenging times have to focus on being efficient and we are no different. Our duty is to provide the best and most efficient service to our clients. CHRIS LOVELL: I think we still can be efficient. GRANT FUZI: As an example Allen & Overy has set up a major office in Belfast. It’s a place where we can have team work done at a lower cost and the quality control that we can provide to that client, we’re all for it. JULIANA WARNER: We’ve done exactly the same. We have an efficient operation in Belfast, which I think has about 60 lawyers. Very highly trained, very motivated, it’s a very well run organisation,
Chris Lovell Managing Partner, Holding Redlich
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ROUNDTABLE 2012 TERESA HANDICOTT: I agree with Grant this can be of enormous benefit to our clients. But it’s not the strategic complex, high-value, premium advice - that can never be outsourced to someone who doesn’t understand your client’s business and the industry in which it operates. But on a massive piece of litigation which, to be frank, a firm of our size probably couldn’t even handle the discovery, we can manage that [via LPO]…that can be done in a time frame and with a level of accuracy, which, probably, we wouldn’t have the person power to produce. So I think there’s benefits to the firm as well, in being able to take on an enormous piece of litigation, with hundreds of millions of documents that have to be discovered, I think that managed properly it can give a very good result. ALB: John, we haven’t heard much about LPO in the context of the mid-sized firms. What’s your view on LPO? JOHN NERURKER: We’ve got our strategies in place and we recognise that there is a trend, particularly from large
Tony O’Malley, Managing Partner (Australia), King & Wood Mallesons
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corporates, to embrace commoditised work and to channel it through efficient and low cost structures. I think firms have nothing to fear from that, but if they have a commoditised practice, it is in their client’s interest to transact that work as efficiently as possible. I think there’s an overriding caveat that firms can position themselves to manage the relationship between the LPO and the client. I think if they fail to embrace that, then the client’s in-house teams will be doing it themselves. CHRIS LOVELL: Just on that, I think you can achieve the same result by clever, sophisticated and carefully applied systemisation. You can have the best of both worlds, you can cut your costs right down to what your clients are looking for – and it seems to work perfectly well. I don’t think there’s a need to offshore it and I haven’t had any client say to me: “can you please offshore this particular work?” It is commodity work. I don’t know if it’s [driven] by clients, but I expect it’s driven by the offshorers more than anybody else, really. TONY O’MALLEY: No, it’s driven by clients. Clients have been driving this for nearly a decade. I mean, there’s no doubt Chris that we could improve process management and project engineering within law firms. We’ll probably have to do that anyway as we get held to particular price points, we’ll probably have to get used to delivering to those price points. But even if we do that, we’re not going to be able to compete with the labour costs that underpin some of that work. My own experience with LPO is that with a couple of big cases with clients, you’ve been talking about savings in the order of around 75 per cent on discovery. So it’s pretty hard to match, for certain pieces of work.
I think there’s an overriding caveat that firms can position themselves to manage the relationship between the LPO and the client. I think if they fail to embrace that, then the client’s in-house teams will be doing it themselves. CHRIS LOVELL: That raises issues about discovery itself, I think, as a process, which I think of as being money for jam, for lawyers for years. It’s probably been well overdone, I mean the amount of documents that are being discovered these days are just ludicrious. JULIANA WARNER: Particularly with email discovery, it’s monumental. CHRIS LOVELL: Just ludicrous! I’ve been saying for some time now, it’s a shame the courts can’t just say: “let’s clean this nonsense up!” TERESA HANDICOTT: I think it’s also just another area of deep specialisation, this is what these providers focus on, this type of work and they’ve got it down to a beautiful art form. I mean, you visit one of these places and you just can’t fail to be impressed. But this is what they focus on, this is their core business and they look to deliver it in the highest quality possible. I think they do it well, I think they do it very well.
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ROUNDTABLE 2012
ALB: Where do you see the Australian private practice market heading in the next few years?
Mark Pistilli, Managing Partner, (Sydney), Clifford Chance
MARK PISTILLI: The industry was really easy to understand until a few years ago. Essentially, the high-end was serviced by a small number of national firms. They felt they had to be full service and offer their services in every capital city. Then there was the mid-tier and also a series of boutique firms who specialised in particular areas in law, of which I was in one. Nowadays, I think from a client’s point of view, you certainly have much more choice. You look around this table, I’m not sure there are any two firms who offer the same service offering generally in lots of product areas. As to whether the industry will re-calibrate in the same model, there’s no doubt that some of the models around the table will fail, or not be replicated. But my sense is that we’ve gone down this route of different models, different horses for different courses and I expect it will stay this way for a while. You may find with the potential entry into the market of, particularly continental, US firms that there will be further choice again. ALB: On the question of the old “top-tier”, does that concept still exist or is it outdated? JULIANA WARNER: I don’t think so because in the domestic market there are still clients wanting a top-tier level of service. MARK PISTILLI: Yes, but that’s changed. The top tier is now defined by the quality of service provided rather than the structure that provides it. JOHN NERURKER: I think that the term “top tier” will still retain some currency, but I think a more contemporary view is to look at the market as having your international firms and your national firms. I think that is the trend that’s evolved now. ALB: There seems to be a theory that the large firms who haven’t merged with internationals, such as Corrs or G+T - well some people are predicting that only one or two of these firms will survive. Teresa and Danny, what do you think of that theory? TERESA HANDICOTT: I can’t imagine why anyone would say that. Certainly the more law firms that end up with an international model, the more that benefits those who choose to stay a premium independent law firm. We are talking about the Australian market, which is a large market. We are in a professional services business, which is a lot about relationships, a lot about people and it’s a lot about service delivery. These are just different ways of delivering a service. Some of my colleagues around the table believe that they can deliver a better service by being aligned with another organisation. We haven’t formed that view, we believe that we can provide a great service to our clients by being able to choose the best lawyer, the best expert in the various jurisdictions where our clients might be operating. So these are really just different ways of delivering a service to clients. That’s what our business is all about, our clients, and delivering a great service to them. DANNY GILBERT: There is, of course, a change, I mean one time, some time ago, I don’t know when it was, there were three
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firms in this country that dominated the top end of the market, with, I believe, a clear gap to the others. I think those days are gone, they’ve been gradually going over a period of time. You’ll see other firms now appearing on panels aside those firms, they often have different kinds of work, but that’s got to do with pricing. I think there will still be top firms and those firms will be defined by the quality of their partners and their capacity to deliver. I think there is the prospect that first tier will become synonymous with global, simply because of the footprint which the combined global firms have in the market and their capacity to produce at the top of the market. So that is a risk for firms like mine, I think, but it’s also a nice challenge. Just because you’re global doesn’t mean you’re number one, that’s my firm view. GRANT FUZI: I actually completely agree with Danny. I think we need to stand back and ask ourselves, what does the market want, what do the clients want and what do the people want from the legal profession. To simply talk about top tier, domestic, global is, in a way, irrelevant. What’s relevant is
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this: prior to 2007 it was easy to get work, you could just sit back and let it come to you. Those days are gone and firms now have to have a clear focus around: “what is my value proposition to clients?” and “what do I offer in the way of service?” and “what am I going to be famous for?” and “what am I doing really, really well?” Now that might be global work, that might be domestic work, that might be top tier work, that might be mid tier work – it doesn’t matter. Every firm that has a clear value proposition and a strategic focus will succeed. CHRIS LOVELL: I couldn’t agree more. Judging firms on groups is an arid past time. DANNY GILBERT: Even so, in my view there will still be a group within the market that are viewed as elite. Just as there is in the London market, just as there is in the New York market. We may well be dominated by the global firms, simply because they’ve got major brands around them. But I don’t think the top will be exclusively global firms. GRANT FUZI: Look there’s no question that there is an emerging global elite and there’s no question that they will be uniquely positioned to transact and pick up Danny Gilbert, Managing Partner, Gilbert + Tobin
certain kinds of work and clients. I do think that the global elite will have an important role in this market. What I am saying, though, is I think our firm has a very strong position and an offering, but I think others do as well. It’s just being very clear about where you fit within the offering in that kind of a market. Clearly we think the globalisation of the brand and the Australian economy is an irreversible trend. DANNY GILBERT: You know the American market is different and the New York market is different. You wouldn’t want to equate the two, but, I mean, the elite firms in New York just laugh at you if you suggest that the global firms will just take over. They may be right and they may be wrong, but they’d just laugh at you. I admit it’s a very different market, over there they are very entrenched, and we can’t really compare the two, but there is some lessons we can learn from that. The global firms that are coming in are not going to get it all that easy, here or anywhere. MARK PISTILLI: Can I just make a couple of points. Firstly, legal firms are not homogenous and that gives scope to the different kinds of structures that arise to service different levels of legal work. That will support a structured market, in whatever form. However, law firms are built by good lawyers and the challenge will be that the top graduates will want to work in the elite global firms, whether they are elite or it is just a perception. So the challenge for firms that are not global is how are they going to recruit the best talent? DANNY GILBERT: I agree with that. TONY O’MALLEY: I’d like to make a couple of points. Firstly, Danny made a very good point about the US firms. The US is 50 per cent of the global legal market, so we talk about the global law firms, but the globalisation is still really yet to come. Secondly, regarding domestic firms and the number that will exist in Australia, the answer is, we just don’t know. However, we can look at other markets and learn from them. If you look at the UK and Germany, fully internationalised markets, there is typically only space for one or two premium domestic firms. That is just the way those markets have developed. So I think there is space in Australia for a couple of those firms, but, going to Danny’s point, they really do have to be the firms that hold onto the very best talent in the market. Looking at broader market structure, my own view is I think there will be four types of firms. There will be the global “shine” brands that are relatively full service in this market. There will be other global firms who are here, but will choose strategically which areas they operate in. There will be the premium domestic we just spoke about, but likely only one or two, because they will be fighting in a heavily contested area with those brands. Then I think we will see a lot of consolidation and potentially tie ups at the mid tier level, not just domestically, but possibly internationally, because we’ve seen that strongly in other markets. I see no reason for that trend not to continue. ALB thanks our managing partners for participating in the 2012 ALB Roundtable. In the next issue, our panel returns to talk about the future of the in-house profession and what will be the hot practice areas in 2013.
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In-house perspective
Providing and looking for certainty Michael Vardanega, Challenger general counsel and company secretary
Challenger provides Australians with retirement income certainty, unsurprisingly, general counsel and company secretary Michael Vardanega would like some certainty of his own when it comes to legal services, discovers Olivia Collings.
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n the coming 12 months Australia’s population and workforce will shift significantly as a growing number of baby boomers enter retirement. For investment management firm Challenger, this is an opportunity and a challenge. “Next year it is expected that A$59 billion will be entering the retirement phase of superannuation,” says general counsel and company secretary Michael Vardanega. “We represent only three percent of the retirement funds, so there is huge potential for us to grow.” As of September 30, Challenger was managing A$35.2 billion of assets and managed funds, which represents an increase of 28 percent on the same time 12 months prior. “Our underlying business continues to grow,” states Vardanega. “The challenge is to make sure we continue to be well resourced to capitalise on that opportunity. There is a lot of work to do in educating the public on what is available to them and the risks involved in those options.”
As general counsel at Challenger, Vardanega is responsible for guiding the senior management on legal issues in an increasingly regulated market. “As an investment corporation we have the privilege of managing other peoples’ money. Ensuring that the money is managed in a safe and reliable manner is critical. And we understand that the legal function plays an important role in that,” he says. Vardanega has held the general counsel and company secretary role at Challenger for the past two years, and joined the company from Blake Dawson (now Ashurst) in 2006. “It is a role that I take very seriously, and was pleased to accept,” says Vardanega. “You spend your whole career building up your technical skills, but then there comes a time when you are also looking for challenges. This role gives me exposure to senior management, to the board and input on the strategic direction of the company.” As the son of Italian migrants living in regional Australia, a career in law - let alone becoming a general counsel - was never an obvious career choice for the young Vardanega. “During my late years at school a career adviser said that I should consider studying law. It was a shock to consider studying law because my parents hadn’t finished high school and no one in the family had been to university at that time,” he recalls. “When I went on
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to study at Australian National University I developed a real love for law. I love the intellectual pursuit and the challenge that a career in law presents.” A love for law and people Along with enjoying the intellectual challenge of a general counsel role, Vardanega also enjoys managing a team of diverse and talented people. “I really enjoy working with people – leading and managing the team; it is something I get a lot of satisfaction out of,” he says. The legal and secretariat team at Challenger consist of 16 staff. “I would describe them as dynamic, committed and diverse,” says Vardanega. The legal team was named ALB’s In-house Banking and Financial Services Team of the Year in May, which was a testament to the of the great work the team has done recently, according to Vardanega.
“My view is that you can provide for career progression in a number of different ways. It is about understanding your team members’ goals are and what will help them grow.” When working in a fast paced financial services environment Vardanega says it’s important to celebrate the wins and has been known to lead the team out for a song or two at nearby Sydney kareoke bars. “We have a classically trained singer in our team, so they set the bar very high,” he says. The other thing Vardanega has been focused on since taking on the head role is the career progression of his team members. “My view is that you can provide for career progression in a number of different ways. It is about understanding your team members’ goals are and what will help them grow,” he adds. This has involved creating new management positions within the team structure, presenting the team with exposure to new challenges and experiences, and providing training and education. 70 percent of the team are female, including two of the three management positions that report directly to Vardanega. As Challenger has continued to grow in recent years, so too has the legal department. Vardanega recently recruited some new tea lawyers and says he was impressed with the quality of candidates in
the market. “We are in a fortunate position where the legal function is valued within the business,” he says of the growth. Indeed, the team was integral in developing the company’s award winning ad campaign called ‘Real Stories’. The team has also been working on product innovation, including a new form of annuity product and the boutique investment management model. Challenger has partnered with a number of boutique investment managers, who effectively run their own investment management businesses, while it provides background support. It now has a stable of 11 boutique managers. In recent years the legal function at Challenger has also had to deal with a fair amount of new regulation. “We have had the Future of Financial Advice (FOFA) reforms, Basel III, LAGIC, the Super review,” states Vardanega. “In part I think that those are cyclical. When you have a near market failure, naturally there is a move to tighten regulation.” Despite the large amount of regulatory and financial legal work, the team does a majority of the work in-house. Vardanega says this is as a result of the legal function not wanting to be seen as a conduit to legal advice, but rather, part of the business. “We tend not to brief out high volumes of cookie cutter work. Instead we brief
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“Firms have come a long way in terms of developing their billing practices and providing alternative fee structures, which I think is great; but I think where the disconnect is, is that most law firms still measure their internal productivity in terms of hours worked and that creates tension between how the firm measures productivity compared to the client’s view on value.” out when we need to supplement internal specialisation, or for larger projects,” he says. Budget proof legal advice When the team does look for external legal advice Vardanega and his team are able to choose from a panel of more than 10 firms. “It’s a reasonably large panel for the size of the organisation,” he says. “Because we are seeking highly specialised advice or additional resources for transactional work, we tend to go for the best lawyer with the most recent and relevant experience… and that is why we feel we should have a range of lawyers available.” Firms on the panel range from international law firms to boutique operators. “The industry is fairly competitive at the moment. We feel that we get high quality advice and good value out of our legal service providers,” states Vardanega. The internationalisation of the domestic legal market has meant new advantages and issues for the legal team. “The biggest advantage is that when we do international cross border work, which we do on occasion, having the one law firm across a number of jurisdictions makes it much easier to coordinate and it allows us
to leverage off our local relationships,” says Vardanega. However, one thing that he has become conscious of when these firms become part of international firms, such as his old firm Blake Dawson, is that as a client Challenger becomes a relatively smaller part of a much larger client base. “One thing we are focused on is ensuring that the firms continue to remain aligned to us, while acknowledging that it is a two way relationship,” he says. Overall Vardanega says he values the law firm relationships the company has and the quality of the work they receive. However, one thing that he sees firms across the board still grappling with is time based billing. “I have a firm view that value is not a function of time,” he says. “Firms have come a long way in terms of developing their billing practices and providing alternative fee structures, which I think is great; but I think where the disconnect is, is that most law firms still measure their internal productivity in terms of hours worked and that creates tension between how the firm measures productivity compared to the client’s view on value.” For a company focused on providing certainty for retired Australians, it’s not surprising Vardanega expects the same certainty from legal providers.
The resources boom is over. Really?
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lessons in THE NEW NORMAL
The dour state of the NZ legal services market may provide some indication of where the Australian market is heading. Report: Renu Prasad
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s you may have gleaned from other articles in this edition of ALB, the new phrase du jour of the Australasian legal profession is “the new normal” – a nod to the growing awareness that the current subdued economic environment may be here to stay. If Australian firms are unsure about what the “new normal” entails, help is on hand from the other side of the Tasman. New Zealanders are uniquely placed to comment on the new normal and they’re only too happy to drop by and tell you about it. The Kiwis have not had the distractions of the mining boom and a two speed economy and accordingly have had a significant head start in coming to terms with the new normal – nearly five years, in
Andrew Poole, Chapman Tripp
Gary McDiarmid, Russell McVeagh
Roger Patridge, Bell Gully
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fact. They’ll tell you everything you need to know about post GFC life in a world that’s not fuelled by LNG, iron ore and rapacious Chinese buyers. “We’ve had longer to lick our wounds and adjust to the new normal - I think we have adjusted pretty well to it,” observes Bell Gully chairman Roger Partridge. So what does the new normal look like in New Zealand? Well, the first thing firms seem to agree on is that flat revenues are now part of life. The realistic goal these
Kevin Jaffe, Simpson Grierson
Peter Chemis, Buddle Findlay
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“Any growth in this market would be extremely good. So I think firms that have achieved a little growth would be pleased with themselves.” days is not necessarily growth, but to avoid sliding backward. “Any growth in this market would be extremely good. So I think firms that have achieved a little growth would be pleased with themselves,” says Partridge. That’s a modest goal, but there is a likeable humility about the way NZ firms are adjusting to the new norm. “There’s no panic, no worry, we’re just pleased to be holding firm – I think that’s a win,” says Buddle Findlay chairman Peter Chemis. Part of the reason for this sanguine outlook is that people realise that things
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could be a good deal worse. The latest IMF growth prediction for NZ is about three percent, which is twice the rate predicted for many other advanced economies. “NZ is still a viable, competitive economy,” says Russell McVeagh CEO Gary McDiarmid. “Three percent growth is pretty good relative to the stagnant period directly after the boom of 06/07. We’re heading upwards and in the right direction. The bigger picture is that we’re better off with a slow, sustainable recovery rather than unsustainable growth.” Another feature of the new norm is a gradual reduction in lawyer headcount, which in most cases appears to have occurred through an attrition process rather than redundancies, which many firms oppose in principle. An ALB survey in April 2009 found that the largest three NZ firms had an average lawyer headcount of about 240 lawyers (241, 237 and 236 lawyers at the largest, second largest and third largest firms). The corresponding survey in May 2012 shows that the largest three firms had 229, 216 and 208 lawyers or an average of 218 – about a 10 percent reduction. Interestingly, partner numbers have remained steady throughout that period. Firms are aware that this is a process which has its limits. “Those are often one time savings; you still got to build your business
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AH, THE GOOD OLD DAYS
Worried that this year’s coverage of the New Zealand market might be a little too pessimistic? We’re getting nostalgic about the good old days too, so let’s take a little trip down memory lane. Here’s how ALB covered the NZ market in 2007: According to law firm managing partners, all practice areas are experiencing increased activity. “Normally, when liquidity is up the activity in litigation is down, but now both are up,” says Gary McDiarmid, chief executive of Russell McVeagh, “There is not one area that is down at the moment, which is very unusual. It’s a good time to be in business.” Most firms confirm the picture that McDiarmid sketches. “This year, every month has been a record month,” says Rob Fisher, chairman of Simpson Grierson. “It’s the result of
increasing activity.” Bell Gully is experiencing exponential growth of their M&A practice. “Last year we had an increase in deal value from NZ$ 7.5bn to NZ$11.1bn. We were number 7 in the Thomson deal tables by value; there is no other New Zealand firm in that table,” says Stephen Macliver, chief executive of Bell Gully. Like Australia, New Zealand has seen a dominant performance of private equity in the M&A market. Much of this activity is driven by Australian funds, but increasingly
there are more off-shore investors taking a look around. The largest transaction so far involved a Canadian pension fund: Telecom sold Yellow Pages to a consortium of CCMP and Ontario Teachers for NZ$ 2.2bn. [During these heady days, NZ firms were noted for their largesse. One ALB journalist visiting a certain top tier firm in Shortland St in 2008 was presented with a gift in the form of a pen bearing the firm’s logo. It broke shortly afterwards.]
Australasian Legal Business ISSUE 10.12
and find good medium term revenue flow,” comments Simpson Grierson chairman Kevin Jaffe. IN-HOUSE Perhaps the most important aspect of the new normal is the increasing size of in-house teams. Chapman Tripp managing partner Andrew Poole describes the growth in in-house capacity as “rapid and phenomenal” and says it has been an understandable response to pressure on GCs to reduce legal spend.
Over last 10 years we’ve seen substantial growth in in-house teams. We’ve all thought it can’t go on forever but it just keeps going.” However, not all lawyers believe that this is a new trend. “I don’t think there has been a radical change,” says Partridge. “I’d say it’s fairly steady. We’ve had big in-house teams here in NZ for a long time now. That’s not a shift.” Partridge agrees that in-house teams might be performing a larger proportion of work, but attributes this to the kind of work on offer. “There is less big ticket transactional work,” he says. “So possibly more legal spend is internal but that’s not a result of the size of the in-house team.” By contrast, Chemis says he would describe the recent growth in in-house teams as “substantial”. If in-house teams are continuing to grow, when will this process
New zealand 2012 end? Andrew Poole believes that the growth trend may already be beginning to taper off. “Talking to GCs, we’re getting near the point where they’re not expecting to see great growth in their in-house team numbers,” he says. “I don’t foresee a significant drop in the size of those teams but the conversations I’m having lead me to think they’ve got the teams to the right size now and they’ve got a bit of breathing space to start to think about how those teams might be structured and what sorts of roles should those team members be performing.” Chemis says that there may be an element of wishful thinking in that analysis. “There might be a couple [that have stopped growing] but overall, it’s not something I’ve seen at all,” he says. “We’ve all been waiting for some time for that trend to reverse. Over last 10 years we’ve seen substantial growth in in-house teams. We’ve all thought it can’t go on forever but it just keeps going.” Jaffe says that he has not seen a significant change in the level of in-house resourcing. He says he has seen a couple of in-house teams gradually slimming down through natural attrition, while others have
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New zealand 2012
been slowly adding capacity. “Overall, I’d say it has been pretty static,” he concludes. Activity Lawyers describe the NZ M&A environment as “patchy”, although there is some suggestion that the current deal environment is improving. “The NZ legal market is slightly better than it was 12 months ago, with more signs of life appearing in the second half of 2012, so far,” says McDiarmid. There are other positive indicators too, such as the NZX breaking 4000 in October for only the second time since January 2008. At the time of writing, it was slightly below the 4000 mark. However, it’s still a lean picture overall.
Australasian Legal Business ISSUE 10.12
According to statistics from S&P Capital IQ, the total deal value of M&A and private placements fell slightly by 8 percent to under NZ$6 billion in FY2012. There have been some significant deals, such as Vodafone’s $NZ840 million takeover of Telstra’s New Zealand operations and Fonterra’s $NZ500 million equity raising. Another deal which has attracted a good deal of interest is Shanghai Pengxin’s bid to buy the Crafar dairy farms, which received final approval in October. This deal was significant because it had been subject to concerns relating to foreign ownership and particularly Chinese investment and was regarded by many as a litmus test for NZ’s FDI environment. “This has the potential to change things quite positively for New Zealand and for the opportunities for Chinese investment,” says Poole. “There is a definite interest in New Zealand [from China]. There was quite a long pause while the whole Pengxin thing was underway. I was in Hong Kong in May and for the first time in many years New Zealand had made the front page of the business section. There we were, saying no to Chinese investment – which
New zealand 2012
Australasian Legal Business ISSUE 10.12
was not correct, there was a process. So I think now we will see more Chinese investment.” Partridge agrees: “That transaction scared off Asian investment for a period,” he says. “However, I think that will be a blip rather than a serious handbrake on investment.” Another significant Chinese deal was Haier’s NZ$927 million takeover bid for whitegoods manufacturer Fisher & Paykel following its cornerstone investment in 2010. As with the earlier investment, Haier called upon Simpson Grierson for advice. “That was probably the best corporate deal of the year,” observed Jaffe. Firms are also eyeing the prospect of more PPPs in the wake of two notable projects this year. The first completed PPP involved the establishment of two new schools at Hobsonville Point, West Auckland. Under the arrangement, the successful consortium is responsible for financing, designing, building and maintaining the schools throughout a 25 year contract while responsibility for educational matters remains with the government. The second PPP is a $840 million, 960 bed prison at Wiri. “The government has announced that every government capital project over $25 million must consider PPPs, and therefore we are likely to see more PPPs appear in education, health, corrections and other core functions of Government,” says McDiarmid. As ALB reported in May, the NZ government has been keen to encourage investment in the resources industry and particularly oil and gas and has pursued a new policy of offering specified exploration blocks to interested parties via a competitive tender process. “Resources are a growing part of the economy,” says Poole. “Our
37
resources clients are upbeat – but of course it is very early days.” Much has been written about the danger of investment dollars being diverted away from Australia into resource projects in other jurisdictions. Could New Zealand be part of this equation? “We have a lower cost of labour in New Zealand and there’s less red tape – we are perceived to have less red tape,” explains Poole. “There isn’t the state/federal complication and it’s very easy to understand the regulatory environment here.”
“The government has announced that every government capital project over $25 million must consider PPPs.” All firms report steady activity in both the litigation and insolvency space, which gives the best indication yet of the general level of business sentiment. “The fact that we’re still talking about insolvency and litigation is an interesting reflection of where the economy is at,” concludes Poole with regret.
Celebrating excellence We’re pleased to announce the appointment of one new partner and two new senior associates in our Auckland and Wellington offices. We’re delighted to acknowledge their range of talents and dedication to client service.
CATHRYN BARBER
VIVIAN CHENG
JARROD MURPHY
PARTNER FINANCE AUCKLAND
SENIOR ASSOCIATE TAX WELLINGTON
SENIOR ASSOCIATE CORPORATE & COMMERCIAL AUCKLAND
T: +64 9 357 9025 E: cathryn.barber@chapmantripp.com
T: +64 4 498 4965 E: vivian.cheng@chapmantripp.com
T: +64 9 357 9074 E: jarrod.murphy@chapmantripp.com
Cathryn specialises in banking and finance law and has particular expertise in corporate finance, syndications and property finance. She acts for both borrowers and lenders on a range of financing transactions, helping them develop innovative funding structures as well as navigate the increasing regulation in the finance sector.
Vivian recently joined our Wellington tax team. She has over ten years’ experience advising on all aspects of taxation law. Her particular expertise lies in corporate restructuring, M&A, cross border taxation and FATCA. She is also experienced in managing IRD investigations/tax disputes and negotiating tax settlements on behalf of clients. Vivian was previously a special counsel at a large New Zealand firm.
Jarrod is an experienced corporate lawyer with broad-based transactional and commercial expertise in the US, European and New Zealand markets, with a particular focus on public and private M&A, joint ventures and capital markets transactions. Prior to rejoining Chapman Tripp in 2011, Jarrod was an associate at leading New York law firm Cravath, Swaine & Moore LLP.
www.chapmantripp.com
38
christchurch
Australasian Legal Business ISSUE 10.12
BACK IN TWO SHAKES Will firms commit to returning to Christchurch’s battered CBD? Renu Prasad investigates.
I
n a scene reminiscent of Cold War Berlin, a large part of the Christchurch CBD has been fenced off and declared off limits – the so-called “red zone.” Streets which you could stroll down two years ago now end abruptly with a wire mesh. Tourists peer through the gaps. An official bus tour – no doubt heavily insured – provides the only public access to the red zone. The city’s best known landmark, the 1881 Christchurch Cathedral, is being slowly dismantled amid a storm of public protest. The building is said to be beyond economic repair. Some engineers with expertise in structural matters have disagreed
and circulated a petition to save the cathedral. Law firm Chen Palmer has been enlisted to provide advice on the legality of the demolition process. Outside the red zone, life goes on. The casino is still open for business, having survived the earthquake unscathed. Vacant lots, dotted randomly throughout the city, provide a reminder of the buildings that once stood there. A shopping precinct has been established using old shipping containers as premises. One even contains a bank, another houses an ATM. Security guards hover nearby, keeping an eye out for suspicious activity from anyone driving a truck, a ute or anything else with a handy towing capacity. Fairfax Media reported in September that a total of 1,350 buildings had been partly or fully demolished in the city centre since September 2010, which gives some indication of the scale of displacement of business activity. Much of this activity has
Australasian Legal Business ISSUE 10.12
relocated to the suburbs, which have generally escaped the devastation wreaked on the CBD. The northwest suburbs of the city near the airport have proven to be the most popular destination, much to the satisfaction of local landlords and motel owners. In the scramble for suitable office space, many businesses have signed 10 year leases in business parks. Go for a short drive through suburbs such as Burnside and you’ll find them there: refugees of the CBD high rise now nestled snugly in two storey office complexes, their cars parked in neat lines out the front, behind a well tended lawn and perhaps a hedge or two. It’s a pleasant but distinctly suburban scene. The absence of a local pub has been duly noted by workers as one disadvantage of working in a business park. No doubt someone’s already developing a solution for this problem. Many law firms have joined the flight to the suburbs. Duncan Cotterill is occupying premises in Sir William Pickering Drive in Burnside and Chapman Tripp has found premises in nearby Riccarton. Buddle Findlay and Simpson Grierson have managed to secure office space on the outer edges of the old CBD. Anthony Harper continues to operate in its central Christchurch premises in HSBC tower after the structure was declared safe last year. In the months immediately following the second earthquake, there was speculation over whether displaced firms would return to the CBD or, in the case of national firms, commit to a future in Christchurch at all. However, that speculation has been quickly laid to rest. Not only do firms want to stay in Christchurch, they want to get back into the CBD. As quickly as possible. “I think most firms will go back to the CBD,” predicts Chapman Tripp managing partner Andrew Poole. “We’re certainly very keen to be back in the CBD from an amenity perspective.” The 17 storey building previously occupied by Chapman Tripp has now been demolished, so a completely new development is on the cards. The firm, alongside a couple of clients, has pledged itself as an anchor tenant in a proposed building which it is hoped will become a reality in two years. This kind of commitment will be crucial to engendering a sense of confidence in the new Christchurch. “We have pledged to go back into the CBD. We were asked whether we’d lend our brand to the campaign and we’ve done that – we made that public commitment,” explained Poole. But Chapman Tripp may not be the first displaced firm to return to the CBD. Buddle Findlay is the anchor tenant in a new building in Victoria St and work is already underway. “We’re building – we’ll be one of the first law firms back in the CBD. The piles are being driven as we speak. It’s very exciting,” says chairman Peter Chemis. “We have a big group [of staff] down there so it’s a commitment to them as part of Buddle Findlay as well as Christchurch, of course.” Understandably, there is little appetite in Christchurch for high rise buildings, so the new developments are unlikely to be more than six or seven storeys high at most. Given the timeframe for these kinds of projects, the general view is that the CBD will not return to its former bustle for at least five years, or possibly longer given that some corporates have committed to long leases in the suburbs. However, firms such as Chapman Tripp and Buddle Findlay have set a two to three year timeframe for their CBD return. Simpson Grierson has managed to find premises which are reasonably close to clients and the firm is not at present in the market for new premises. “We’re not hunting – it’s working well where we are now,” says chairman Kevin Jaffe. “There’s no push to rush into anything.” The firm is keeping an open mind on returning to the city centre. “We’ll just keep our options open and see how it evolves,”
christchurch says Jaffe. “There will be quite a lot of opportunities and the city will change a lot over the next five to 10 years.” Christchurch has proven to be a solid source of work for law firms. Chapman Tripp originally sublet part of its Riccarton premises, only to find that the demand for its services was such that some expansion space would have been welcome. This problem has now been solved as the tenant has given notice. Other firms also report a good level of work. “It does seem like there has been a lot more activity in the last three or four months,” says Jaffe. “We’ve had the settling down period after the earthquake and now the spend is starting to happen.” The earthquake rebuild work is a predictable part of the mix: insurance,
“We’re certainly very keen to be back in the CBD from an amenity perspective.” litigation and construction. However, it is the big ticket items such as the proposed Christchuch Convention Centre which really has firms interested. “Before you know it, there will be major construction projects kicking off,” says Chemis. “And once they go and people get confidence to throw equity in, we think it will be huge.” Poole points out that there is other work on offer which is unrelated to the earthquake rebuild. “There is a good level of corporate and commercial activity,” he says. “There is a healthy business sector on the South Island that flies under the radar. It’s not just a big farm and a place for tourists to go – there is a big infrastructure play around water and energy generation and resources. The Chinese are very interested in investing in the South Island too.” If that is correct, perhaps in time we will see other top tier firms establishing a permanent presence in the South. However, it is also true that Chapman Tripp arrived 15 years ago and Simpson Grierson arrived over 10 years ago. Anyone planning to do the same would presumably have already done so many years back. Perhaps the expanding resources and agribusiness sectors may provide the occasion to reassess the situation.“There may turn out to be a case of first mover advantage,” says Poole. “It’s been an excellent move for our firm.”
39
last issue’s ad
profile
40
aPPOINTMENTS
Australasian Legal Business ISSUE 10.5
Lateral partner appointments Name
Practice area
Coming from
Going to
Kelly Alcorn
Property and projects
Clayton Utz
Holding Redlich
Onno Bakker
Banking and finance
Linklaters
DLA Piper
Charmian Barton
Environment and planning
Consultant
Norton Rose
Mark Beaufoy
Environment, planning and native title
DLA Piper
King & Wood Mallesons
Tim Flahvin
Equity and capital markets
Norton Rose
Thomsons Lawyers
Penny Murray
Planning and environment lawyer
Minter Ellison
DibbsBarker
Doug Stipanicev
Banking and finance
Herbert Smith Freehills
Gadens Lawyers
Sarah Turner
Corporate
King & Wood Mallesons
Gilbert + Tobin
Thomsons adds Norton Rose partner
and infrastructure projects, and has worked on a number of multi-jurisdictional environmental assessment and approval processes involving state and Commonwealth legislation.
Norton Rose
Thomsons Lawyers
Former Norton Rose partner and joint national head of the equity and capital markets practice, Tim Flahvin, has joined Thomsons Lawyers. Flahvin specialises Tim Flahvin, in equity raising and Thomsons Laywers mergers and acquisitions. He advises extensively on all aspects of the Corporations Act and ASX Listing Rules, and in recent years has had considerable exposure in the resources area, working with explorers and junior coal mining companies. He has acted for a number of listed and unlisted companies and has regularly advised on IPOs, rights issues and formal takeovers during a 20 year period. Flahvin is based in the Sydney office of Thomsons.
KWM adds DLA partner DLA Piper
King & Wood Mallesons
King & Wood Mallesons has added environment, planning and native title practitioner Mark Beaufoy as a partner. He joins from DLA Piper where he was the lead environment partner in their Australian practice. Beaufoy has a strong track record advising on and managing legal risks relating to site contamination and brownfield transactions and redevelopment. He is experienced in advising on environmental assessment requirements and planning and environmental approvals for major development
Norton Rose adds climate change partner Consultant
Norton Rose
Norton Rose has expanded its environment and planning practice with another partner hire. Experienced environment and planning partner, Charmian Barton, barton, Charmian Barton, joins Norton Rose Norton Rose in Perth having most recently been a consultant. Prior to her consultancy Barton was a partner at DLA Piper and also led the climate change and environmental law practice. She will be based at the Perth office of Norton Rose. She has 15 years experience working for both public and private sector clients.
DLA Piper adds senior Linklaters partner Linklaters
DLA Piper
DLA Piper Australia has recruited Linklaters partner and head of finance in Amsterdam Onno Bakker. A specialist finance lawyer, Bakker will be based in the firm’s Sydney office as a member of the Asia Pacific finance and projects practice. Bakker is dual Australian and English law qualified, having previously worked at Clayton Utz in Australia before joining Linklaters
in London in 2002 and then Linklaters in Amsterdam in 2004. He specialises in syndicated finance and (leveraged) acquisition finance, as well as trade finance and asset finance. He regularly advises major international investment banks and sponsors on complex cross-border finance matters.
Freehills partner joins Gadens Freehills
Gadens
Gadens Lawyers has recruited Herbert Smith Freehills banking and finance partner Doug Stipanicev to its Perth office. Stipanicev brings to Gadens more than 25 years’ experience in the Perth banking and finance and project and property industries, including 21 years as a partner at Freehills. His experience in banking and finance, property development and construction and insolvency law has seen him lead a number of significant and high-profile transactions. His main practice includes: corporate and institutional financing and debt; securitisation, receivables financing and security trust arrangements; financing of development projects, both senior and mezzanine; and financing of international projects.
Holding Redlich builds in Brisbane Clayton Utz
Holding Redlich
Former Clayton Utz special counsel Kelly Alcorn has joined national law firm Holding Redlich as a partner in the firm’s Brisbane office. Alcorn has experience advising the property, construction and resource sectors on major project approvals and environmental
compliance. She will be based in the firm’s property and projects group. In addition to experience in private legal practice, Alcorn has held in-house project Kelly Alcorn, management, delivery Holding Redlich and compliance roles. She also has experience conducting planning appeals, defending environmental prosecutions and acting for mining clients in the recent Queensland Floods Commission.
G+T grows in Perth King & Wood Mallesons
Gilbert + Tobin
Gilbert + Tobin Perth has added a new partner to the ranks. King & Wood Mallesons associate Sarah Turner has joined the firm as a corporate advisory partner. Her expertise covers a broad range of matters, including securities, takeovers, schemes of arrangement, share acquisitions and general corporate advisory and governance work.
She has advised on a number of high profile transactions including the Brambles PAITREO, various IAG capital raisings, the Spark Group restructure, the IAG takeover defence against QBE and the attempted takeover of Qantas by Airline Partners Australia.
DibbsBarker adds Minters partner Minter Ellison
DibbsBarker
DibbsBarker has appointed planning and environment lawyer, Penny Murray, as a partner in the firm’s property, and energy, resources and Infrastructure practice. She joins the firm from Minter Ellison where she was also a partner. Murray has 13 years of experience advising both public and private sector clients on the legislative and regulatory landscape surrounding planning, as well as environmental issues and compliance. Penny also has extensive experience in resumption, compensation and valuation matters. She will be based in the DibbsBarker Sydney office.
Partnership promotions Firm
Name
Practice area
Office
Holman Fenwick Willan
Dominic Johnson
Maritime and insurance law
Singapore
Nic van der Reyden
Shipping
Sydney
Wine, style & luxury. Explore Australia’s best and rarest wines while enjoying a delectable meal from our internationally inspired Australian cuisine. Our comprehensive selection of over 500 wines (with more than 50 available by the glass) was recognised with a ‘3 glass rating’ by the Gourmet Traveller Wine Magazine in their most recent 2012 awards. When combined with an á la carte menu of fresh local produce served by our knowledgable and professional staff, your next wine odyssey awaits. So whether you are looking to entertain colleagues or clients – al fresco or indoors – we can cater accordingly. Our luxurious Private Bar and Private Dining Room can be booked for your exclusive use.
HFW adds two partners Holman Fenwick Willan (HFW) has promoted associates Dominic Johnson and Nic van der Reyden to the partnership. Johnson deals with the issues arising from all types of marine casualties, including collisions, groundings, salvage, total loss, fire and explosion, wreck removal, piracy, limitation of liability and both civil and criminal liabilities. He also advises on insurance coverage and Nic van der Reyden, HFW other shipping related commercial and contractual disputes. Johnson has previously spent six months on secondment in the in-house legal department of an insurance house and Lloyd's syndicate. Johnson will relocate from London to Singapore in early 2013. van der Reyden specialises in shipping litigation and dispute resolution, acting for shipowners, charterers and Protection and Indemnity (P&I) Clubs (associations of shipowners and charterers). His work involves the full range of charter party, contracts of affreightment, and bill of lading disputes. He will relocate from Melbourne to Sydney and work with the established shipping and transport team there to continue growing the firm's transport capability on the east coast of Australia. Before joining HFW in Melbourne in 2008 he practised in South Africa and England.
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www.wineodyssey.com.au
42
construction
Australasian Legal Business ISSUE 10.12
MULTI-SPEED ACTION For every construction company in distress, there’s another one doing quite nicely. Lawyers have discovered that it’s just a question of servicing the right market. Report: Renu Prasad
construction
Australasian Legal Business ISSUE 10.12
Decreasing Decreasing
OctOct 10 10 NovNov 10 10 DecDec 10 10 JanJan 11 11 FebFeb 11 11 MarMar 11 11 AprApr 11 11 MayMay 11 11 JunJun 11 11 Jul 11 Jul 11 AugAug 11 11 SepSep 11 11 OctOct 11 11 NovNov 11 11 DecDec 11 11 JanJan 12 12 FebFeb 12 12 MarMar 12 12 AprApr 12 12 MayMay 12 12 JunJun 12 12 Jul 12 Jul 12 AugAug 12 12 SepSep 12 12 OctOct 12 12
“It is possibly not accurate to talk about Australian PCI* 3 month moving average the construction industry being in a Australian PCI* 3 month moving average slump, as the industry is characterised by discrete industry sectors.” Predictably, it is the mining sector which is driving much of the activity. “We have observed that our clients involved with major mining and infrastructure projects remain for the most part at full capacity,” says Mead. “We similarly observe that major civil contracting clients for whom we act do not have much in the way of residual capacity. Where we have observed a slowdown in activity is in the mid-market sector other than for those contractors who operate in niche market segments. This is self-evident with a number of failures of mid tier contractors, particularly in NSW.” Other lawyers agree that we are dealing with a multi-speed construction industry. “While it’s difficult to generalise about the state of the construction industry across the country, it’s
AUSTRALIAN CONSTRUCTION INDUSTRY – TURNOVER INDUSTRY AUSTRALIAN CONSTRUCTION – TURNOVER Snapshot of the Australian Industry Group’s October Construction Outlook report,
AUSTRALIAN CONSTRUCTION INDUSTRY – OVERALL TRENDLINE
shows that industry turnover is increasing. However, Snapshot ofwhich the Australian Industry Group’s October Construction Outlook report, thisshows chartthat doesindustry not include residential construction. which turnover is increasing. However, this chart does not include residential construction.
Snapshot of the Australian Industry Group’s October PCI chart, which shows 29 straight months of construction industry contraction. Any reading below 50 represents a decline in activity.
% pa
65 Increasing
60 55
20 % pa 20
45
5 5 Decreasing
10 10
40 35 30
Annual Percentage Change (Current dollars) Annual Percentage Change (Current dollars)
15 15
50
0 0 -5 -5
Australian PCI*
3 month moving average
-15 -15
85-86 85-86 86-87 86-87 87-89 87-89 89-90 89-90 90-91 90-91 91-92 91-92 92-93 92-93 93-94 93-94 94-95 94-95 95-96 95-96 96-97 96-97 97-98 97-98 98-99 98-99 99-00 99-00 00-01 00-01 01-02 01-02 02-03 02-03 03-04 03-04 04-05 04-05 05-06 05-06 06-07 06-07 07-08 07-08 08-09 08-09 09-10 09-10 10-11 10-11 11-1211-12 12/13(e) 12/13(e) 13/14(e) 13/14(e)
-10 -10
25 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12
Diffusion Index
Increasing Increasing
AUSTRALIAN CONSTRUCTION INDUSTRY – OVERALL TRENDLINE AUSTRALIAN CONSTRUCTION INDUSTRY OVERALL TRENDLINE Snapshot of–the Australian Industry Group’s October the PCI chart, construction industry is indeed in a slump. However, malaise which shows 29 straight months of construction industryPCI contraction. of the Australian Industry Group’s October chart, NSW is not universal. which InSnapshot the very same month that Southern Cross Any reading below 50 represents a decline in activity. shows 29 straight months of construction industry contraction. Any reading below 50 represents a decline inannounced activity. brought in the administrators, Leighton Holdings a net 65 (NPAT) for the nine months ended 30 September profit after tax 65 2012 of $31760million. That result compared to a loss after tax of $325 million60in the prior comparable period. Lend Lease upgraded 55 forecast in July after winning key work in the its 2012 profit 55 infrastructure space, a forecast which it reaffirmed in October. 50 So overall,50it’s a picture of mixed fortunes for the construction industry and45with this in mind, ALB approached several lawyers for 45 Is the construction industry in a slump? The answer is their analysis. 40 yes – and no. 40 “It is possibly 35 not accurate to talk about the construction 35 in a slump, as the industry is characterised by industry being 30 discrete industry sectors, some of which remain subject to capacity 30 constraints 25 and others which appear to have experienced somewhat 25 explains Carter Newell partner Patrick Mead. of a downturn,” Diffusion Diffusion Index Index
W
e’ve been hearing a good deal about the slump in construction activity in recent months. That’s understandable, because some of the vital stats emanating from the sector have been grim. According to the Australian Industry Group’s latest PCI, the Australian construction industry has been contracting for the previous 29 consecutive months, although the rate of decline has moderated in recent months. However, remove residential construction from the equation and you get a very different picture. The AIG also produces a twice yearly Construction Outlook survey which measures construction activity in nonresidential sectors. That survey made some positive findings, noting that total turnover from construction work last financial year grew by 14 percent and was expected to grow again by 10 percent this year. The comparison between these two indices provides a useful start to understanding what’s happening in the industry. The overall figures are not great, but some companies are clearly doing better than others. There has been a steady stream of midsize construction companies in distress. In October, Fairfax reported that Southern Cross Constructions (NSW) had been placed in voluntary administration, leaving A$230 million worth of commercial and residential projects in doubt. Stories such as this seem to support the theory that the
43
44
construction
Stephen Pyman, Holding Redlich
probably fair to say that contractors and subcontractors working on committed mining projects - including the LNG projects - are still very busy and likely to stay busy in 2013,” says Minter Ellison partner Ian Briggs. “The property development sector, on the other hand, is very flat and has been for some time.” ALB suggested in July that it might be helpful to analyse the construction industry in two stages – mining and non-mining related construction. Some have suggested that the analysis can be broken down further. Holding Redlich partner Stephen Pyman, for example, identifies five key areas: commercial, residential, mining, infrastructure and sustainable or “green energy” construction. The PCI statistics divide construction activity into four sectors: houses, apartments, commercial and engineering. Given the number of potential drivers behind each sector, it is easy to understand the reluctance of lawyers to generalise about the construction industry at large. A sector by sector analysis seems to be the safest course to pursue. Mining Readers will be familiar with the continuing debate over whether the resources boom has “peaked”. This discussion reached a climax in August when BHP shelved its $30 billion
Australasian Legal Business ISSUE 10.12
Ian Briggs, Minter Ellison
Dan Middleton, Baker & McKenzie
Olympic Dam expansion and since then more moderate voices have warned against drawing hasty inferences. However, there is a serious question over whether the resources industry will continue to drive construction activity to the extent that has in recent years. Leightons CEO Hamish Tyrwhitt said in a statement to the ASX that his company was “experiencing some minor slowdown in activity in the mining sector,” although he noted that this would not affect the company’s profit guidance this year. Similarly, mining and energy services company WorleyParsons was forced to cut some jobs in August. Speaking with the ABC’s Alan Kohler, chairman John Grill said that there was concern over the pipeline of new projects. “I think we’ve got an ever-growing level of export of resources from Australia. Whether we’re going to get new projects to follow the ones that are currently being constructed, designed and constructed, is another question. I think that’s ... with costs in Australia, those questions are yet to be answered and certainly there haven’t been any major commitments to new projects for a while,” Grill said in October. It will take some time for the trends raised by Grill to make their full impact on the front end workflow of construction practices and for the moment lawyers have mixed, but generally optimistic views on where the sector is headed. “Although there have been some media reports of ‘mothballing’ or closure of some mine operations, they are generally existing operations whose economic viability is at any time dependent upon commodity prices,” Mead says. “The development of new mine operations and associated civil infrastructure works continues at a reasonable pace. We suspect that any softening or seeming lack of confidence in this segment will be temporary and with hindsight we are likely to look back and view that last six months as being just a short lived dip in the resources super cycle.” Queensland-based Pyman has been working on LNG projects
construction
Australasian Legal Business ISSUE 10.12
45
AUSTRALIAN CONSTRUCTION INDUSTRY – TURNOVER AUSTRALIAN CONSTRUCTION INDUSTRY Snapshot of the Australian Industry Group’s October Construction Outlook report, – TURNOVER which shows that industry turnover is increasing. However, this chart does not include construction. Snapshot of the Australian Industry Group’sresidential October Construction Outlook report, which shows that industry turnover is increasing. However, this chart does not include residential construction.
% pa
20 % pa 20 15 15 10 10 5 0
Annual Percentage Change (Current dollars)
5 0
-5 -5 -10 Patrick Mead, -10 Carter Newell -15 -15
on Curtis Island, which he says are still proceeding in a robust fashion. However, he has detected a slowdown in other projects. “In coal, we’ve seen some slow down in construction of mining camps accommodation,” he notes, “But LNG – that’s still going ahead, you bet.” A slowdown is a relative concept when you’re coming off a high base. “While mine development has already slowed, it seems likely to continue at a slower pace. That may have a beneficial effect on what was arguably an overheated sector,” says Lander & Rogers partner David Fabian. Government and infrastructure According to the National Infrastructure Construction Schedule, over A$1 billion in infrastructure projects were added to the national investment pipeline between June and September this year. Infrastructure Australia’s website reported that there were six PPPs in the market as at September 2012. These figures demonstrate that the infrastructure pipeline is still producing work, although perhaps not at the level for which the industry may have been hoping. Lawyers are able to point to significant projects underway in their home state, but there is a view that more investment in public infrastructure and initiative on PPPs is needed. “Although public infrastructure has been strong in Queensland for some years, there are few committed new projects. The same probably is true in other states too,” says Briggs. It’s a sentiment shared by Mead: “The next wave of major government projects is being awaited,” he says. Baker & McKenzie partner Dan Middleton describes the Victorian public infrastructure sector as “relatively
85-86 85-86 86-87 86-87 87-89 87-89 89-90 89-90 90-91 90-91 91-92 91-92 92-93 92-93 93-94 93-94 94-95 94-95 95-96 95-96 96-97 96-97 97-98 97-98 98-99 98-99 99-00 99-00 00-01 00-01 01-02 01-02 02-03 02-03 03-04 03-04 04-05 04-05 05-06 05-06 06-07 06-07 07-08 07-08 08-09 08-09 09-10 09-10 10-11 10-11 11-12 11-12 12/13(e) 12/13(e) 13/14(e) 13/14(e)
David Fabian, Landers & Rogers
These figures demonstrate that the infrastructure pipeline is still producing work, although perhaps not at the level for which the industry may have been hoping.
Annual Percentage Change (Current dollars)
buoyant” but notes PPPs could do with more attention. “The upcoming Ravenhall Prison PPP Project is eagerly anticipated, although concerns remain about the pipeline of PPP projects both in Victoria and nationally,” he observes. Middleton adds that a number of projects funded by Federal and State Government stimulus packages are reaching completion, contributing to an overall weaker demand in construction industry. Open the newspaper on any given day and you’ll be likely to read about some ambitious
INFRASTRUCTURE UP, INFRASTRUCTURE UP, BUTAPARTMENT APARTMENT CONSTRUCTION CONSTRUCTION REMAINS BUT REMAINSWEAK WEAK AIG’sOutlook Outlook predicts predicts increased increased spend AIG’s spendon oninfrastructure, infrastructure, but apartments remain the weak link but apartments remain the weak link
2012-13 Forecast Annual Percentage Change (Current dollars) 2012-13 Forecast Annual Percentage Change (Current dollars) Electrical Power Generation & Supply Electrical Power Generation & Supply Transmission and Telecommunications Transmission and Telecommunications Sewerage, drainage & water storage Sewerage, drainage & water storage Roads & freeways Roads & freeways Rail projects Rail projects Other civil projects Other civil projects Pipelines Pipelines Mining, mineral processing plants
Mining, mineral processing plants Chemical, petro-chemical plants Chemical, petro-chemical plants Oil refineries and oil/gas processing facilities Oil refineries and oil/gas processing facilities Other Industrial plants Other Industrial plants Commercial Construction Commercial Construction Apartments Apartments Overseas Business Total Overseas Business
Total -10
-5
0
5
-10
-5
0
5
10
15
% pa 15 10
% pa
20
20
25
25
30
30
35
35
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new infrastructure project far beyond the scale of what is currently on offer – whether it’s Sydney’s now legendary second airport, or facilities on the Gold Coast for the 2018 Commonwealth Games. The demand is there and there is an inevitability in relation to these projects coming to market. It’s just a question of when. PROPERTY The October PCI shows a consistent trend of decline across the property sector. Housing construction has been contracting for 29 consecutive months, apartment construction has been contracting for 30 months and commercial construction for 28 months. “Contractors and subcontractors whose main focus is new buildings are struggling for work,” says Briggs. Pyman says that access to funding is proving to be a challenge.”There is still
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“Contractors and subcontractors whose main focus is new buildings are struggling for work.” difficulty in accessing finance, especially in the apartment and industrial sectors. There are almost no mezzanine debt funders around. Senior debt funders are taking a pretty strict loan to equity ratio requirement,” he says. AIG noted that the rate of contraction across these sectors had eased in recent months. Identifying the bottom of the market is always a tricky exercise, but lawyers believe they have anecdotal evidence of improvement. For example, Middleton can see some positive indicators in Melbourne: “The early signs of a recovery in the local housing market and lower interest rates are encouraging and there are still a number of major residential developments in the pipeline,” he says. “Anecdotally, there are encouraging signs in the retail sector, although it remains to be seen whether this will translate into major new projects coming to market given the generally weak retail conditions.”
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There are several landmark commercial developments on the horizon, such as Sydney’s Barangaroo and Perth’s Elizabeth Quay. This has been a boon for top tier advisors such as Herbert Smith Freehills which have played a dominant role, but it will be interesting to see the impact these developments have in other parts of the city. Some have speculated that the extra office capacity and competition for tenants will dampen rental growth across the market, no doubt a welcome outcome for law firms eyeing their costs. A report from Merrill Lynch recently suggested that, assuming a third tower at Barangaroo proceeded, the result would be a flattening of rent growth across the Sydney CBD to about two to three percent and for incentives of over 20 percent. Freehills, of course, is already a major player in this game of musical chairs, having announced a move further south along Sydney’s Castlereagh St, leaving the 1970s era MLC Centre without one of its key tenants. Another area of interest, both in public and private developments, will be a new emphasis on environmentally sustainable or “green star” buildings. “The Queensland government recently earmarked $1.3 billion for green buildings,” says Pyman. “ You’re not going to get a State or Commonwealth government tenant unless the building is green rated.” The Green Building Council of Australia said earlier this year that it had certified 500 Green Star projects across Australia since 2003. The 500th project was a warehouse and office development in Victoria, which demonstrates that the green star trend has applications across the full range of industrial, commercial and government buildings.
DISPUTES Construction lawyers are reporting a high level of disputation and accordingly an adjustment in their front/back end ratio. “There’s been a big change over the past four to five months in our ratio of front end/ back end work,” says Briggs. “A year ago, for example, our ratio was about 70/30 in favour of front end work – it is presently
“Construction lawyers are reporting a high level of disputation and accordingly an adjustment in their front/back end ratio.” about 60/40 in favour of back end. Many projects are well over budget and behind time, putting severe strain on principal/ contractor relationships – and that’s when disputes arise.” Similarly, Middleton says his practice has seen a “notable upswing” in disputes work over the past year. However, Fabian says that he has not seen a shift in ratio in his practice. Another trend in the disputes space is the growing use of provisions in legislation
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Partner Construction and infrastructure T 61 7 3231 2992 E sean.henderson@cgw.com.au
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‘We expect to see this mode of dispute resolution continue to grow in popularity.” such as Queensland’s Building and Construction Industry Payment Act and its equivalents elsewhere. “This has become an increasing feature of major disputes with which we have been involved,” says Mead. “By way of example eight weeks ago we acted successfully for a major contractor in recovering an adjudicated amount of $32 million with respect to a Queensland project. This was achieved in a very short period of time, whereas historically recovery of such an amount may have involved a period of a number of years prosecuting the matter through the courts. Although the effect of the Act is that the adjudication constitutes an interim determination, the reality is that once the money flows, it changes the entire dynamic of the dispute and most commonly leads to early and final resolution. We expect to see this mode of dispute resolution continue to grow in popularity.” Many lawyers also commented on the prevalence of dispute boards, although Fabian notes that the appropriateness of such a measure varies according to the project. “We are seeing greater emphasis on dispute minimisation and dispute management, both in contract documentation and contract administration,” he says. “However, formal dispute resolution structures such as disputes boards and standing expert panels often fail to find favour because of their perceived unnecessary cost, except on very large projects.” FLIGHT TO QUALITY Several construction companies have gone into receivership or administration this year. Lawyers are waiting to see what impact this will have on the remainder of the industry, with some suggesting that a “flight to quality” may result. “Banks are much more insistent on principals selecting financially stable and capable contractors. This is reflected in a flight to quality contractors, across all sectors,” says Fabian. “The domino effect of mid tier contractor failures on trade contractors and possibly on some owners, is yet to fully wash through and is likely to cause further financial failures. While the larger owners have
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restructured to hold or realise underperforming assets, some less substantial developers may not be so stable. Banks have become increasingly robust in realising security shortfalls, predominantly among smaller developers. The resultant rationalisation of unstable developers and contractors will generate opportunities for stronger, more nimble players and lead to a more robust market in the medium term.” IN-HOUSE TEAMS All lawyers interviewed by ALB agreed that large in-house teams are a feature of this industry, but some were of the view that this was not necessarily a new trend. “The large in-house teams have remained constant, I haven’t really seen an increase,” says Pyman. “And I can definitively say that I haven’t seen mid-tier construction companies suddenly growing [lawyer numbers] or putting in place legal teams.” Briggs agrees with this analysis: “In-house legal teams in the construction sector have been getting bigger over the past seven or eight years - with a momentary pause for the GFC - so it is not really a new trend,” he says. “I get the sense that most have now stabilised in size. There’s much more front end work being done in-house by the major contractors in particular.” By contrast, Middleton suggests that the post-GFC business environment is a factor here. “The increasing size and sophistication of in-house legal teams has been a trend for a number of years, although it is perhaps more evident since the GFC as there is greater focus on managing external legal costs,” he says. There is a view that back end work is more likely to flow to
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law firms: “Major disputes work still tends to be briefed out externally for the most part, reflecting both capacity issues within the in-house legal teams and the reality of the jurisdictional arena in which the dispute unfolds,” says Mead. However, he says it is common for his firm to work collaboratively with a senior in-house lawyers on the front end stage of major projects. Like other practice areas, it all comes down to providing that extra value or element of expertise which can’t be easily found elsewhere. “The challenge for law firms is to identify those areas or market sectors where we can add genuine value to our clients and their in-house legal teams, either through specialist expertise or the network and resources that we can bring to bear,” says Middleton. “Despite larger and more sophisticated in-house teams, I expect that law firms will continue to attract work on novel or complex projects. For example, projects involving international participants, complex project financing, or multi-stakeholder aspects. Law firms are also well placed to advise on major disputes which require specialist expertise and significant resources, often at short notice.”
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regulation
Australasian Legal Business ISSUE 10.12
REGULATION: A FRESH PERSPECTIVE
In-house lawyers in Australia and New Zealand have noted the explosion in the volume of regulation and the need for the business community to engage with government and regulators on this issue. A necessary part of this process is to understand the purpose and common methodologies behind implementing regulation. Aaron Schiff of Covec* explains some of the key principles. Economic regulation involves: • Direct control or capping of firms’ prices or revenues; and/or • Changing the structure or design of markets to facilitate competition. This article gives an economic perspective on the why and how of regulation, provide a roadmap for navigating regulatory processes, and introduce the important economic concepts and tools for applying regulation (highlighted in bold). Why regulate? Economic regulation is founded in welfare
economics. Welfare (also called wellbeing or utility) measures the total benefits that people obtain from all that they value. This includes benefits people derive from consumption of goods and services, their health, participation in community activities, the environment, and so on. The main objective of welfare economics is to maximise total welfare across all people in society, given the constraints imposed by scarce resources and available technology. The relative success of market outcomes in terms of maximising total welfare is often evaluated using three concepts of economic efficiency: • P roductive efficiency: Goods and services are produced using the least possible amount of scarce resources, ie at least possible cost. • A llocative efficiency: The combination of goods and services produced maximises welfare given available scarce resources
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and technology. This occurs if prices equal costs, allowing for reasonable profits given the risks involved. • Dynamic efficiency: Firms invest and innovate so that the pattern of production and consumption over time maximises welfare.
Testing the case for regulation Good regulatory practice involves thoroughly testing the case for and likely effects of any regulation before it is implemented. This is best done as a two-step process.
Competition can deliver all three types of efficiency – it will spur firms to minimise costs, to set prices that reflect costs, and to invest and innovate efficiently. Regulation is useful as a substitute for competition when robust competition is not feasible, or to create the conditions necessary for competition to flourish. The possibilities for competition in a market depend on the “natural” structure of the market, ie the number of competitors that the market can profitably sustain in the long run. A market is a natural monopoly if a single firm can serve the entire market at lower cost than two or more firms. This will occur if there are sufficiently large fixed costs (that do not vary with output) relative to the potential revenues in the market. In such markets, there will be a tendency towards consolidation to achieve economies of scale and economies of scope, and these same forces will act as barriers to entry. Similarly, the natural structure of the market may be two, three or more firms, depending on costs and demand. If the natural structure of a market is only one or a few firms, competition will probably not be very intense. A lack of competition will result in economic inefficiency, typically manifested as high prices relative to cost and risk, ie excess profits. This creates an opportunity for a welfare improvement via regulation. These issues are particularly relevant in network infrastructure sectors, such as electricity, gas, water, and telecommunications networks. The efficient physical structure of such networks generally involves a low capacity, geographically dispersed distribution network, coupled with a high capacity, centralised transmission network. It is often unprofitable and inefficient to replicate the distribution network, leading to a natural monopoly in this activity. In some industries, network effects on the demand side can also affect the natural market structure. Network effects occur when the value of a product to consumers increases with the number of people who use the same product. This often happens when the product enables customers to communicate or interact with each other1. Network effects are particularly important for platform businesses such as credit cards and online auctions, which enable two or more groups of customers to interact. Like fixed costs, network effects mean that scale is valuable, and if these effects are strong then the number of viable competitors may be limited. In addition to the above, some other common reasons for economic regulation are:
Step 1: Establishing the need for regulation The first step in good regulatory analysis is to determine whether competition is failing to deliver productive, allocative and dynamic efficiency, and whether this situation is likely to persist. The objective is to clearly identify the feature(s) of the market that are inhibiting a reasonable level of competition from arising. This involves:
• Consumer protection, stemming from equity concerns about the distribution of welfare between consumers and producers. Primarily this reflects value judgements and choices that economics cannot assist with, aside from estimating the gains and losses of different groups and recognising the diminishing marginal utility of wealth2. • To help undo the legacy of historic decisions, eg introducing competition to markets dominated by state monopolies in post and telecommunications may require regulation to help unravel existing positions.
• D efining the relevant products and determining existing and potential close substitute products. Sometimes this is formalised through a process of market definition, which essentially involves identification of close substitutes. • Understanding the drivers of demand for the relevant products including the importance of network effects (if any). • Analysing costs of production, including the importance of fixed costs. • Understanding the nature of vertical and horizontal supply relationships within the industry. • Assessing the feasibility of new entry and/or expansion of existing firms. • Benchmarking market outcomes (eg prices and quality levels) against similar markets in other countries. If a competition problem is identified, this may justify ex-ante economic regulation. This may be used instead of, or in addition to, competition laws which are often used to prevent or punish anticompetitive behaviour ex-post. The analysis of the need for regulation should be forward-looking and consider current competition as well as how competition is expected to play out over time. This is particularly important in industries that are characterised by high levels of innovation and investment. In such markets, each technological wave can be associated with intense competition, followed by a period of relative calm (and higher profits), until the next generation of technology arrives. Profits in the calm periods serve as an incentive to invest in new technology and are not necessarily a sign that the market is not competitive over time. Step 2: Evaluating effects of potential regulation If a clear problem is identified, the second stage involves evaluating the welfare effects of one or more potential interventions (see the next section for possibilities). This requires forming a reasonable counterfactual (ie the likely market outcomes without intervention) and assessing regulatory scenarios against the counterfactual in terms of their effect on economic welfare. This welfare analysis of regulation requires understanding the effects of regulation on the incentives and behaviour of firms and consumers in the relevant market. This can be informed by the first stage analysis of the characteristics of demand and supply in the market. The objective of such analysis is to determine the likelihood that any proposed regulation will result in a meaningful increase in welfare. The analysis will also help to identify and test the assumptions that must be satisfied for regulation to be beneficial. Economic benefits of regulation In the simple case of downwards price regulation of a single, independent product, the welfare effects will include an
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profits that are regulated by regulation are functional or not. As noted above, some industries are characterised by high levels of innovation and investment over time, and an observation of ‘excess’ profit may simply reflect a risky investment that happened to pay off. Regulation in such cases may harm dynamic efficiency by reducing incentives to invest, leading to welfare detriments over time. If entry barriers are low, the presence of high profits may also serve the function of attracting additional firms to the industry, thus increasing the level of competition without the need for regulatory intervention. In such cases, regulating away the profits of incumbent firms may prevent competition from occurring naturally and instead create the need for ongoing regulation over time. Regulation itself can also create risk for firms and investors, because the outcome of regulatory processes cannot be exactly predicted in advance. Everything else equal, greater risk will reduce incentives to innovate and invest, generating further dynamic efficiency detriments. Implementing regulation The most commonly used economic regulations are: Aaron Schiff, Covec
improvement of allocative efficiency if the new price is closer to cost. A welfare transfer from producers to consumers will also occur, however this is not a net benefit to society. The allocative efficiency benefit must be compared to any potential detriments of regulation (see below). In the common situation where firms produce multiple products with some common costs, and/or where demands for products are interrelated, the assessment of the benefits of regulation is more complicated. This is because a regulated change in the price of one product may also lead to changes in the prices of other products. These connections and implications for welfare of consumers and producers of related products must also be factored into the analysis. Economic detriments of regulation Regulation has economic costs. Direct costs arise from resources consumed by regulatory processes and from implementing and monitoring regulations. In addition, there can be indirect costs that are less visible but may be larger than the direct costs. In general, regulation will reduce profits earned by firms. The issue is whether the
• D irect setting of wholesale, retail, or transfer prices. • Imposing caps on revenues or prices, sometimes across a bundle of products. • Requiring the provision of access services to competitors, and possibly setting prices for access. Access regulation is often used in network infrastructure industries to facilitate competition. For example, in telecommunications, if access to the local distribution network is provided, competition in transmission services, eg long-distance calls, can be viable. Requiring the local access network owner to provide access to other transmission networks can therefore create competition in at least some parts of the supply chain. This may include regulating the price of access services so that the provider of access cannot use its monopoly over this activity to suppress competition in other activities. Multi-sided platform businesses sometimes use internal transfer prices to shift value from one side of the market to another. For example, open credit platforms such as Visa and MasterCard use an interchange fee that transfers value from the merchant side of the market to the cardholder side. Such transfer prices can affect retail prices and the incentive to compete for customers, so they are also of potential interest to regulators. Tools for regulating prices and revenues Asset valuation, cost modelling and benchmarking are commonly used to regulate prices and revenues. Asset valuation Since regulated industries are usually capital intensive, regulation often comes down to determining an appropriate value of the regulated firm’s assets (also known as the rate base), and an appropriate rate of return on these assets. This can then be
Some network infrastructure markets have network effects (eg telecommunications) but some do not (eg water), so demand-side network effects should not be confused with network infrastructure. This means that the additional welfare people attain from additional wealth diminishes at some point, which can justify transferring wealth among people.
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translated into an appropriate revenue cap imposed on the regulated firm. The asset value may be based on the current cost of modern equivalents to the installed assets, or on the historic cost of the assets. Current cost valuations are motivated by a competitive market analogy – if the market were competitive then new entry would mean that existing firms could only earn a return commensurate with modern assets used by their competitors. This may involve a notional optimisation of the regulated firm’s assets, reflecting technological improvements, and this helps to achieve productive efficiency. Regulators also often depreciate current cost valuations in line with the age of existing assets relative to their expected lifetime, so as not to over-value old assets as if they were new. However, if capital costs increase over time then current cost valuations can lead to asset value inflation that could over-reward investors. This can be resolved by treating asset revaluations as income, so that the revenue required from regulated services is lower. The result is that large asset revaluations can have cash flow implications for regulated firms, making upwards revaluation less attractive. During the establishment of a regulated revenue cap based on asset valuation, the initial valuation is of great interest to regulators and producers as, given the existing assets, the size of the initial valuation will determine the size of a welfare transfer between the regulated firm and consumers. After an initial asset base is established, the key question is how this changes over time. As regulated firms invest in new assets, regulators need to decide whether this expenditure is efficient and how much capital expenditure should be rolled in to the asset base. This often involves assessing engineering best practice and evaluating current investment levels relative to expected future growth in demand. Another question is the extent that efficiency gains (for example due to economies of scale) realised over time are shared with consumers by reducing the allowed revenue of the regulated firm.
regulation modelling is often used to set regulated access prices. For multiproduct firms where some costs are common to the production of two or more outputs, the standard concept of average cost (total cost divided by output quantity) is not well defined. For this reason, regulatory cost modelling is based on average incremental cost. The incremental cost of a product is the total additional cost to produce the required output, taking other outputs as given. Average incremental cost is calculated by dividing the total additional cost by the incremental output quantity. Two key issues arise in incremental cost modelling: 1. What is the definition and size of the relevant increment? 2. What is the appropriate treatment of fixed and common costs? The relevant increment is usually aligned as closely as possible with the scope of the regulated service, however this is not always uncontroversial3. Regulated firms must recover their fixed and common costs somehow, and it is generally recognised that regulated services should make some contribution to these. This is achieved by applying some kind of mark-up to the average incremental cost. It is possible to estimate an appropriate contribution to common costs based on economic theiry, however in practice the size of this mark-up is usually determined by regulatory judgement.
Regulation itself can also create risk for firms and investors, because the outcome of regulatory processes cannot be exactly predicted in advance. Everything else equal, greater risk will reduce incentives to innovate and invest, generating further dynamic efficiency detriments. Greater pass-through of efficiency gains to consumers will reduce the incentive to achieve such gains, and productive efficiency may not be maximised. However, regulators may consider that pass-through of some efficiency gains is justified under equity or consumer protection considerations. Cost modelling Cost modelling is similar to current cost asset valuation in that it attempts to determine an efficient asset configuration for the regulated firm and estimate the cost of production based on this configuration and expected volumes. However unlike asset valuation, the objective of cost modelling is usually to estimate per-unit (ie average) costs for individual regulated products or services. These unit costs can then be used to set retail or wholesale prices directly, rather than imposing a revenue cap. Cost
Benchmarking As an alternative to cost modelling, it is possible to set regulated prices based on price or cost benchmarks from other countries. This requires identifying a set of benchmark products that are sufficiently similar, and accounting for differences in country characteristics that may affect costs. If sufficient data are available, crosscountry differences can be accommodated using statistical (regression) analysis to establish relationships between country characteristics and costs. These estimated relationships can then be used to estimate
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a local benchmark, taking into account local characteristics. In practice, the set of available benchmarks is often quite small, and regulators must use their judgement (guided by economic advice) to account for cross-country differences. Retail minus access pricing Regulated access prices are often set by cost modelling and benchmarking. In addition, access prices can be set by reference to associated retail prices, using a retail minus methodology. This involves determining an appropriate discount off the retail price that is used to calculate the access price. A common methodology for calculating retail minus access prices is the efficient component pricing rule (the ECPR). The ECPR says that the access price equals: • The retail price minus avoided cost; or • Cost of providing the access service plus foregone profit.
About the author: Aaron Schiff is a director of Covec, a premium economics consultancy. His expertise includes network industries, regulation and competition economics. He has published research in peer-reviewed international journals, and has consulted for leading corporate and government organisations in a variety of sectors including fixed and mobile telecommunications, land transport, banking, payment systems, and aviation.
It turns out that both of these arrive at the same access price. The first starts at the retail price and subtracts the costs that the access provider avoids by having another firm provide the retail service. The second starts with the cost of providing the access service and adds the profit that the access provider loses if it loses a customer to a competing firm. The first definition is most frequently used, as it is simpler to calculate. The ECPR has the attractive feature that it supports productive efficiency. Facing an ECPR-based access price, a new entrant cannot profitably enter the market unless it has costs equal to or lower than the costs that the access provider avoids by providing access. ECPR-based access prices are also relatively easy to calculate and implement, compared to full cost modelling. On the other hand, the incumbent’s existing profit is baked into the access price, and thus the ECPR on its own does not promote allocative efficiency. Other considerations The structure of costs and prices Costs often have some fixed and variable
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components. Ideally, the structure of regulated prices should align with the structure of costs. Prices that apply on a per-unit basis (ie usage prices) should reflect marginal costs, to give efficient incentives for usage. For example, the price for a litre of water should reflect the marginal cost of producing that litre. However, water distribution networks (and other networks) involve significant fixed costs, and marginal cost usage pricing will not recover these costs. The solution is to implement two-part prices (or, more generally, non-linear prices) with usage prices that reflect marginal costs and use fixed charges (eg monthly or connection fees) to recover fixed costs. Such pricing will give efficient signals for both usage and joining decisions, based on the marginal cost of a unit of output and the fixed costs associated with the relevant assets. Cost of capital Under regulation based on asset valuation, the cost of capital is a very important issue as it is multiplied by asset values to determine the allowed revenue. Similarly, the cost of capital is a significant determinant of outcomes under a cost modelling approach. The cost of capital compensates investors for the use of funds, and needs to reflect the level of risk associated with the regulated business. Capital can be raised from debt or equity, and a weighted average cost of capital (or WACC) is calculated based on an appropriate ratio of debt to equity in the firm’s capital mix. The cost of debt is relatively straightforward to estimate from bond prices in debt markets. The return to equity needs to compensate investors for the contribution of the regulated activity to systematic risk or market risk, ie the risk that an investor takes on by adding the regulated firm to a diversified portfolio of investments. Typically, the capital asset pricing model is used to estimate the appropriate return to equity. Regulatory commitment Regulation is often a dynamic process – regulated prices or revenues are not set forever and must be updated from time to time. Investors in long-lived infrastructure assets need to have confidence that they will recover their costs over time, however once investments have been made, the consumer benefits flowing from these benefits are largely assured. After investment has taken place, regulators may therefore be tempted to change regulations that have been previously applied. Knowing and anticipating this, incentives to invest will be weaker, which may be detrimental to economic welfare in the long term. To avoid these problems, regulators often try to commit themselves not to renege. This may be achieved through the design of the regulatory regime, for example by imposing statutory timeframes within which regulations cannot be reviewed or changed. Regulators often recognise that a lack of commitment and certainty will be detrimental to investment and this is another factor to be considered when applying regulation.
For example, in mobile telecommunications networks, a controversial issue is whether the relevant increment for regulated services of terminating calls from other networks also includes the volume of calls originated on the terminating network. If so, then the incremental cost of termination includes the cost of building the basic coverage network, which is a significant proportion of mobile network costs. If not, then the incremental cost of termination is much smaller.
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Albert Awards
The ALBERT Awards recognise the achievements firms and in-house teams have made in the areas of diversity, pro bono work and environmental sustainability. ALB is proud to present this showcase of the winners of the 2012 ALBERT Awards. Report: Olivia Collings.
Diversity Congratulations to all our winners The business case for diversity in the workplace, as well as social and ethical arguments for diversity has not escaped the legal profession. While much work has been done in recent years in regards to women within the legal profession, particularly in relation to flexible work practices, the move towards a wholly diverse legal profession is still underway. The winners of the ALBERT Awards for Leadership in Diversity show that leadership in managing diversity leads to significant business benefits.
Leadership in Diversity Large Law Firm:
Corrs Chambers Westgarth Leadership in Diversity Small/Mid Tier Law Firm:
Harmers Workplace Lawyers Leadership in Diversity New Zealand Law Firm:
Minter Ellison Rudd Watts Leadership in Diversity In-house Legal team:
AMP
And the winners are . . . Leadership in Diversity
Large Law Firm:
Corrs Chambers Westgarth Corrs Chambers Westgarth has made significant changes to its operations and culture in order to improve diversity within the ranks. In February 2012 Corrs became the first law firm to publicly commit to the ASX Diversity Policy, despite the firm not being publicly listed. The Corrs’ Diversity Policy has three main objectives. The first objective is to increase gender diversity in senior management and partnership roles through the setting of targets for women, similar to the requirements of many of its ASX listed clients. These targets include maintaining that 33 percent of the Corrs board is female, having at least 35 percent of the partnership female and that 40 percent of senior management roles will held by women by 2015. The second objective is to create more flexibility for both men and women, and finally to broaden the diversity agenda beyond gender. Females at Corrs now represent 22 percent of the partnership, 50 percent of special counsels and 54 percent of all senior associates. Corrs has also made changes to its paid parental leave policy. Since January 1, 2011 Corrs has offered staff 18 weeks paid leave
and decreased the qualifying period of service from 18 months to 12 months. Applicants are also not required to re-pay their maternity leave if their circumstances change and they are no longer returning to work. The firm has partnered with the Melbourne Business School to undertake a ‘Gender Equality’ study. The three year study is aimed at identifying and removing barriers to gender equality within business as well as developing strategies to improve gender balance in the workplace. Corrs’ participation in this program has already led to: a roll out of unconscious bias training with partners and senior managers, involvement in research on targets versus quotas and work in the area of Women’s Resilience. Corrs offers coaching for female members of the partnership and partnership candidates. The access to one on one coaching with an external coach is aimed at assisting women at the firm in maximising their career potential. Training is also provided for partners and managers to assist in increasing the acceptance of and maximising the success of flexible working arrangements, including completion of ‘Unconscious bias training’.
Leadership in Diversity Small/Mid Tier Law Firm:
Harmers Workplace Lawyers At Harmers Workplace Lawyers flexible working arrangements are a foundation of the firm’s culture for ensuring diversity and advancement of women into senior roles. Both the CEO and the COO of the firm work part-time to accommodate family responsibilities. Women account for 71 percent of the partner equivalents at the firm. Harmers Workplace Lawyers (formerly Michael Harmer & Associates) was formed in 1996 and is one of Australia’s largest employment and industrial law practices with offices in Sydney, Melbourne and Brisbane. The firm has enjoyed its rapid growth throughout its history and in the previous financial year again posted double digit growth. The firm’s culture has at its heart principles of openness and consultation and this extends to its diversity approach. The firm allows senior staff and management who return from parental leave to commence part-time work or job sharing. This has been implemented throughout the firm’s senior management levels, with six out of seven female legal team leaders working part-
time to care for their families. Another member of the senior team has recommenced work on a part-time basis for a period of six months for personal health reasons, while another staff member has commenced working from home a few hours a day for personal health reasons. Harmers has developed a suite of policies to encourage this balance between a staff member’s work and personal life, including: Paid parental leave for eligible staff members (male and female) of 14 weeks at full pay or 28 weeks at half pay, and six weeks’ special paid leave for illness related to pregnancy or birth; study assistance and paid study leave; carer’s leave; part-time or flexible work hours to accommodate personal circumstances where possible; access to extended periods of leave without pay in some circumstances; an additional paid holiday called ‘Harmers Day’; regular social and sporting events; and access to the firm’s email and voicemail systems from home. The firm also places a strong emphasis on team work and aims to distribute heavy workloads across the firm.
Leadership in Diversity New Zealand Law Firm:
Minter Ellison Rudd Watts Minter Ellison Rudd Watts is a firm which recognises and values what a diverse and accepting environment can bring to a work place. The firm’s principals are based on a fundamental belief that diversity encourages creativity and innovation – which makes better lawyers who can deliver better solutions to clients. Minter Ellison Rudd Watts has a female chairperson, 27 percent of the partnership is female and there are 49 females in senior legal roles, compared to 55 males, which equates to almost 47 percent. Aside from strong female representation in the board, partnership, senior management and senior legal staff, the firm has a number of initiatives which specifically support female progress within the firm. Minter Ellison Rudd Watts also contributes to growing diversity outside of firm by contributing to the New Zealand Global Women Organisation via membership and sponsorship as well as presenting at their leadership seminars. The firm places a strong emphasis on the value of mentoring, including within and outside of the firm. The MentorME program within the firm is designed to assist all employees, not just the mentorees. It aims to develop careers through future-focused planning and supported progression. The firm’s employees also provide guidance for students at Kelston Girls Grammar. In 2012 there are 20 involved in the
program, chosen by the school, because they have the potential to go onto tertiary education. The purpose of the mentoring program is to help the students to achieve their full potential, in particular by providing encouragement and assistance in relation to tertiary education, scholarships, and career choices. Most of the students from previous years have gone on to tertiary study – some have even decided to study law. Many of these students have obtained scholarships for their course of study. As students from a lower decile school this can be a real milestone as many come from families where there is no history of tertiary education. Students have also told the firm that their mentor has given them the skills and confidence to apply for tertiary programs that they may not have considered otherwise. Chair of Minter Ellison Rudd Watts, Cathy Quinn, who was also the winner of the 2010 Veuve Clicquot Business Woman Award (New Zealand), added: “We are absolutely delighted to have been recognised. However, it’s not just about women. It’s about how as a firm we have long encouraged an environment that accepts diversity, appreciates difference and celebrates a diverse range of opinions and approaches. As a result it allows us to approach things in a different way. Diversity encourages creativity and innovation – which makes us better lawyers who can deliver better solutions to our clients”.
Leadership in Diversity In-house Legal team:
AMP
At AMP, diversity is more than just putting women and/or ethnic minorities into senior roles; it is about encouraging a diverse working environment embraces differences such as gender, age, ethnicity, cultural background, education and experiences. The AMP leadership team and AMP board support a diverse workplace because “it makes good business sense”. According to the financial organisation, diversity of thought is a catalyst for innovation, at worst it’s an effective risk mitigation strategy. AMP’s commitment to diversity and inclusion extends to all areas of the business, including recruitment, talent and succession management, leadership development, employee retention, mentoring and coaching. To support diversity and inclusion, the AMP board sets measurable objectives for achieving gender diversity. These objectives are assessed annually. While diversity of thought is difficult to measure, it is possible to measure the number of women in leadership roles across the business. Approximately 54 percent of AMP’s workforce is female and as of March 2012, the percentage of women in level five or six roles at AMP (manager, senior manager or head of) was 38
percent, by 2015, that is targeted to reach 43 percent. Meanwhile, the percentage of women who hold seven plus level roles (director or general manager) was 25 percent as of March 2012, by 2015 the aim is for that to be 35 percent. Within the legal and governance team at AMP the results are even better. The proportion of women at senior executive level (executive legal counsel) at AMP is 50 percent, while the proportion of women promoted as part of senior leader appointments in the past two years in the group legal, financial services legal and secretariat was 78 percent. Some of the initiatives the organisation has put in place to achieve these outcomes include a development/networking program in Sydney aimed specifically at women called ‘Thrive’, the discussion of diversity in all general talent reviews and regular presentations by Helen Conway, director of the Equal Opportunity for Women in the Workplace Agency at the organisation. Senior legal counsel Mellanie Lumby is a member of the diversity workgroup in AMP capital, chaired by the managing director of that division while fellow senior legal counsel Michelle Smyth is participating in the 2012 AMP Business Leadership Program.
COMMUNITY: Congratulations to all our winners Australian lawyers and law firms have been providing pro bono legal services to the Australian and international community for some time, but it is only in the recent decade that firms have taken a more structured approach to pro bono, on the back of growing staff and client interest. It is for this reason that ALB through the ALBERT Awards sought to recognise and reward those firms and in-house legal teams making a concerted effort to excel in the provision of community involvement. “The pro bono work undertaken by the Australian legal profession should be a matter of great pride,� Professor Sally Walker, secretary-general, Law Council of Australia.
Leadership in Pro Bono & Community Large Law Firm:
Corrs Chambers Westgarth
Leadership in Pro Bono & Community Small/Mid Tier Law Firm:
Squire Sanders
Winner of the ALBERT Award for Leadership in Pro Bono & Community New Zealand Law Firm:
Simpson Grierson
And the winners are . . . Leadership in Pro Bono & Community Large Law Firm:
Corrs Chambers Westgarth There are many ways in which national law firm Corrs Chambers Westgarth has excelled in the area of community involvement and in particular pro bono services. The firm is a signatory to the National Pro Bono Resource Centre Aspirational Target of an average of a minimum of 35 hours of pro bono legal work per lawyer per year. In 2011/12 Corrs exceeded the target by nearly 20 percent, performing an average of 43.8 hours per lawyer of pro bono legal work (averaged across the number of full-time equivalent lawyers in the firm). This does not include the work of non-legal employees in giving of their time and skill to pro bono clients or community organisations. During 2011 and 2012, pro bono work at the firm represented 3.5 percent of net fees with a fee value of A$9,086,904. This is an increased percentage when compared to the previous three financial years. Corrs undertakes a variety of pro bono work across three main areas: Matters that address legal issues of public interest; commercial legal work for charitable and not-for-profit organisations; and acting for marginalised and disadvantaged individuals who would not otherwise have access to legal representation. Pro bono matters to address issues of public interest undertaken by the firm included acting for the rights of donor conceived
people. Corrs drafted and made submissions to the Access by Donor People to Information About Donors Inquiry on behalf of Public Interest Law Clearing House (PILCH) proposing this position. For the past three years Corrs has been providing pro bono assistance through PILCH (Victoria) to a number of individuals born as a result of donor treatment procedures who were seeking the consent of their biological fathers to exchange information. The firm’s pro bono work for charitable organisations and not-for-profits assists organisations to strengthen their legal and business structures so they can continue to provide valuable community services without diverting funds from their core objectives. An example of this is the firm’s involvement with Oxfam Australia, an organisation it has worked with more than 20 years. Most recently Corrs provided advice on Oxfam’s AusAid requirements and a corporate restructuring. Corrs has made significant contributions in support of Oxfam’s important work through Workplace Giving, Oxfam Trailwalker fund-raising, emergency support and pro-bono work. Nationally, Corrs is the principal legal partner for the United Nations Refugee Agency in Australia (UNHCR). In addition, the firm has a well established workplace giving program, with employer dollar-for-dollar matching.
Leadership in Pro Bono & Community Small/Mid Tier Law Firm:
Squire Sanders
Pro bono representation is a vital part of the Squire Sanders commitment to the profession and the communities in which its staff work and live. In the financial year ending 30 June 2012, Squire Sanders Australia office gave 815.6 hours to pro bono matters, which equates to 12.23 hours per lawyer. In the past financial year the firm worked on 42 matters for 26 organisations seeking help and assistance devoting, well over their promised target of one percent revenue to pro bono matters in Australia. Since 2006, the firm has been very focused on its community investment program and a pro bono policy encompassing the following four pillars: Pro bono work, the firm gives a minimum of one percent revenue in pro bono work; its partnership with Warnbro High School (WA) through mentoring programs and scholarships for students to Murdoch University; a staff volunteer day, whereby every staff member gets one extra day paid leave to do volunteer work in the community; and lastly the Squire Sanders Youth Arts Foundation, which provides funds to organisations that provide assistance to young artists in all forms of arts. The program is coordinated by partner, Andrew Burnett who oversees the allocation of resources and makes sure all pro bono clients receive the same high level of service as the paying clients.
Examples of the firm’s community investment in 2012 include its participation in the recently formed Corporate Volunteer Council (CVC) which encourages corporates to commit and develop volunteering policies for their organisations. Squire Sanders lawyer Kylie Groves, was this year awarded the 2012 Attorney General’s Community Service Law Award, which recognises outstanding legal practitioners who have made a sustained pro bono contribution for the benefit of the West Australian community. Squire Sanders is also a corporate partner of Many Rivers Microfinance, a not-for-profit organisation that provides aspiring business owners with microenterprise development support and access to finance in order to see them realise their business goals and particularly to improve the outcomes of people in remote communities. Since commencing operations, Many Rivers has supported more than 200 businesses and extended over A$1 million in loan funds as well as operating 11 offices across Western Australia, Queensland and New South Wales. The firm has been providing national and West Australian-specific pro bono legal advice to clients of Many Rivers since 2011.
Winner of the ALBERT Award for Leadership in Pro Bono & Community New Zealand Law Firm:
Simpson Grierson
Every year New Zealand firm Simpson Grierson supports a number of different initiatives which benefit the community, while also reflecting the firm’s values and objectives. The firm’s partnership decided in 2008 to formalise its commitment to providing pro bono legal advice and appointed a pro bono partner, currently Michael Wood, to oversee the provision of legal services. The firm now works with a variety of charities, but has a particular focus on helping New Zealand’s young people reach their full potential. “Our main charitable partner is Youthline with whom we have been closely involved since 2004,” says Wood. In addition to offering pro bono legal advice to Youthline and an annual yearly donation, the firm takes part in a range of initiatives. In 2011 graduates attended a planning session shaping a new donation program, while the previous year they donated the cost of a location fee and the use of our premises for the charity’s TV advertisement. Another recipient of the firm’s services is the Child Cancer Foundation. Simpson Grierson partner Stuart Hutchinson has been a foundation national board member since 2004. Alongside these charities the firm also supports Ronald Macdonald House, Variety – The Children’s Charity and YWCA Future Leaders Program. “While we assist these groups on a regular
basis, we are also flexible and responsive to charity and NPO (notfor-profit organisation) needs when they arise,” says Wood. However, youth-focussed charities are not the only recipients of the firm’s pro bono advice. The firm provides services to a range of organisations and causes. For example the firm’s lawyers assisted the Cats Protection League (Canterbury) with advice on the construction of a new purpose-built facility to replace the earthquake damaged cattery and are providing ongoing assistance for the operation of the cattery. The firm also partakes on pro bono initiatives on a global level. As the only New Zealand member of Lex Mundi independent law firm alliance, Simpson Grierson undertakes work on behalf of the Lex Mundi Pro Bono Foundation. The foundation calls upon Lex Mundi’s network of 160 top-tier commercial law firms to provide legal assistance to select “social entrepreneurs” on a pro bono basis. “Simpson Grierson recognises that some members within the community face difficulties in accessing legal advice which they cannot afford,” says Wood. “The objective of our pro bono program is to assist those members of the community to gain access to legal advice and justice. Pro bono services we provide are important because they principally benefit the community by seeking to effect positive social and economic change.”
SUSTAINABILTY: Congratulations to all our winners
The issue of climate change and environmental sustainability is one which has become central for governments, organisations and individuals in the past decade. Various arguments have been put forward as to why society, and in particular businesses and governments, should become more environmentally friendly. However, despite widespread acceptance of this moral imperative, progress remains slow. The ALBERT Award for Leadership in Sustainability aims to acknowledge those organisations which have endeavoured to make a sustained effort to improve business practice and decrease the organisation’s carbon footprint. Leadership in Sustainability Large Law Firm:
King & Wood Mallesons Leadership in Sustainability Small/Mid Tier Law Firm:
Harmers Workplace Lawyers Leadership in Sustainability New Zealand Law Firm:
Russell McVeagh
And the winners are . . . Leadership in Sustainability Large Law Firm:
King & Wood Mallesons
King & Wood Mallesons is committed to leading the legal and professional services industries in minimising the impact of our activities on the environment. Governed by the seven principles of its Sustainability Policy, the firm has introduced a number of initiatives to promote sustainable workplace practices and reduce our carbon footprint, including: Installing sensor lighting in its offices; installing water efficient taps; overhauling video conferencing system to reduce travel; improving recycling and waste management practices; and reducing taxi use and travel. The firm has also virtualised the vast majority of its server infrastructure, resulting in a saving of more than 30 percent on its server energy bill. The introduction of these initiatives falls within the firm’s efforts to reduce its overall carbon footprint by five percent by 2015. As a founding member of AusLSA, we disclose and benchmark our sustainability efforts against other law firms in Australia. As a firm, we have reduced our carbon footprint from 5.67 tonnes CO2e per employee in 2010 to 5.59 tonnes CO2e per employee in 2011 King & Wood Mallesons was one of the first law firms to become a certified Fairtrade Workplace, with the assistance of its
community partner, Oxfam Australia it has introduced Fairtrade tea, coffee and drinking chocolate to all of staff kitchens. Through our pro bono work the firm has assisted the North Australian Indigenous Land and Sea Management Alliance to develop its Indigenous Carbon Project through making a significant number of submissions to the Patent Office. The firm also actively supports and participates in a variety of initiatives which raise awareness and promote environmentally sustainable practices throughout the community, including Earth Hour and Ride to Work Day. According to the firm’s philosophy, “Good public standing for law firms is the result of the clients you choose to work with, the work you undertake, the way you treat your staff and the way you impact on communities and the environment”. As a result of this, the firm works with a number of clients recognised as a Top 20 Company for Corporate Social Responsibility by the Australian Centre for Corporate Social Responsibility, including BHP Billiton, Westpac Banking Corporation, Stockland and PricewaterhouseCoopers.
Leadership in Sustainability Small/Mid Tier Law Firm:
Harmers Workplace Lawyers Harmers Workplace Lawyers is committed to the simple principle that they should give more than they take from the environment. This commitment involves Harmers being a net benefactor to, rather than a net detractor from, the environment. Harmers recognises that it needs to take positive steps to improve the environment, and as a consumer of goods and services, endeavours to purchase environmentally friendly products and implement environmentally friendly processes in the operation of its business. Harmers has an internal environment committee to promote these objects. As a consumer of goods and services Harmers monitors its level of consumption, use and disposal of materials, energy and transport. Harmers minimises its impact on the environment by maximising the purchase of recycled or recyclable materials as well as reusing and recycling materials that are purchased (including paper, stationery, printing cartridges, kitchen products, furniture and plastic). The firm aims to minimise its use of power in the operation of its business and encourages staff to turn off computers and office
lights overnight to minimise energy consumption. To this effect, a map of the location of light switches has been posted throughout the office. In order to reduce its reliance on petrol powered transport, the firm gives preference to bike couriers (over couriers who use motor vehicles); company cars are not included in salary packages, and there is no designated car park – with the majority of staff (including senior management) travelling by public transport. The firm also sponsors tree planting programs; encourages double sided printing; provides fund raising and donations to environmental organisations; buys recycled products (wherever possible); and provides soft copy corporate profiles to clients and prospective clients rather than hardcopies. The firm is committed to the ongoing improvement of its systems and processes so as to reduce its impact on the environment. In doing so, it will continue to implement projects to reduce its consumption, use and disposal of the key indicators and minimise its impact on the environment for the benefit of the environment and Harmers as a whole.
Leadership in Sustainability New Zealand Law Firm:
Russell McVeagh
Russell McVeagh is committed to running environmentally responsible offices and reducing its carbon footprint. In order to do this the firm has taken a number of practical steps and made some changes to its operations in recent years. All its technical and IT equipment is recycled, the lighting in its offices are zoned and individually controlled, thus reducing wasted power, and the offices also have time-controlled air-conditioning. The firm encourages alternative transport, such as cycling by offering free bike parking. Video and audio teleconferencing is encouraged to eliminate unnecessary travel. The firm’s printers are networked rather than one-perindividual. The printers operate on a power save mode and print settings are set to double-sided print to reduce paper consumption. The firm has also installed desktop faxing on staff computers. In the office kitchens permanent kitchenware is utilised
rather than paper cups and other throwaway items and staff supplies such as coffee and cleaning products are fair trade or chemical free. The firm also encourages staff to recycle all bottles, cans and paper. The firm’s Auckland premises in the Vero Centre were chosen in part as a result of the building’s commitment to conservation and sustainability – as the building has won awards for energy efficiency. The firm also continues to work closely with the building’s management to achieve a responsible approach to the environment. Russell McVeagh also supports broader environmental efforts across the country through the support of community projects and pro bono work. A recent example of this is the extensive involvement and immediate action undertaken by the firm to support the community and facilitate the rebuilding of the city following the catastrophic Christchurch earthquakes.
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