View
659
Download
1
Category
Tags:
Preview:
DESCRIPTION
European General Counsel Seminar Presentation, 24 January 2012
Citation preview
European General Counsel SeminarChampions in Business
Olympic Museum, Lausanne
24 January 2012
European General Counsel Seminar
Cross border post merger – winning gold
Robin Johnson, Head of International M&A, Eversheds LLP
24 January 2012
Cross border post merger
Aim of today’s session
– Focus on some examples of deal issues that can lead to value erosion post transaction
– Look at ways to minimise risk and preserving value post deal and to share our top 10 tips for making your acquisition a success
THE CASE STUDIES
Case Study One
• Large corporate acquiring a group of businesses from private ownership
• Limited diligence undertaken
• No due diligence done of “minor” subsidiaries but buyer directors and officers appointed to the boards
• The deal team was led by the division buying the business
Case Study One (Cont‟d)
• Buyer officer appointed at closing to the
boards of all acquired entities
• Subsequent compliance issue and potential personal liability
Case Study One Issues
• Lack of focus to due diligence or rather too focused without overall leadership
• Not understanding who the seller was and their approach to risk
• Lack of internal controls as the business was run as a “family business”
• Relied on the seller‟s suggestion of warranty and indemnity insurance without fully understanding the risk
• Post deal issues that came out of this approach
Case Study One
Issues (Cont’d)
• Lack of understanding of the entities acquired and potential liabilities for directors
Key Lessons Learnt:
Do not underestimate the importance of diligence and good governance.
Case Study Two
• A large business acquiring a division of another large business
• Thorough due diligence done but the
pitfalls of buying out of a large
business
Case Study Two
Issues
• Transitional services issues
• Tax and legal structuring issues
• Hidden costs
• Stock options and other labour law issues
• Cultural costs
• Ownership of assets
Key Lesson Learnt:
Importance of deal planning and realistic bid timetable. Focus on the carve out.
Case Study ThreeAcquisition by a large corporate of an
entrepreneurial private business
Case Study Three
Issues
• Cultural
• Understanding what made the target business “click”
• The original owners role post deal
• Employees view of becoming part of a large corporate and the organisational changes that resulted
• Relationship with third party vendors
Key Lesson Learnt:
Integrating culture and incentivisation package
Case Study Four
Fixing the valuation “gap” on a technology
Case Study Four
Issues
• Earn out arrangements
• Issues associated with earn out arrangements including short term focus of vendors against long term focus of buyers and what happens if the buyer changes their mind
• What happens when the synergies aren‟t there
THE TOP TEN TIPS
Top Tip 1
Culture
• Do not underestimate the difference in lifestyle
• Approach, compliance approach, business approach and history
• Can you manage remotely?
Top Tip 2
Process and Timetable
• Scope
• Control
• Communication
• Build in time to reflect distance/travel/time zones
• Don‟t underestimate the need for physical meetings
• Disproportionate amount of time and energy compared to a domestic deal
Top Tip 3
Due Diligence
• Don‟t be afraid to due diligence to death to replace contractual comfort
• Use due diligence for your integration plan
• The value of vendor due diligence
• The difference to disclosure processes
• Ensure you understand the characteristics of the individual entities acquired and the potential liabilities for your directors
Top Tip 4
The Gap between Buyer and Seller Price
Expectation
• Issues with earn outs
• Issues with deferred consideration
• Issues with non-cash consideration
Top Tip 5
Transactional Documentation Approach
• Escrow Accounts
• Completion accounts v locked box
• Approach to disclosure
• Approach to warranties and indemnities
• Approach to financial and other limitations
• Litigation v arbitration – the choice of law clause
Top Tip 6
Anti Trust
• Build into the project plan time to assess anti trust
• Different merger controls in each jurisdiction
• Anti trust compliance going forward
Top Tip 7
Taxation
• Structuring deals on tax efficient basis
• Asset deals against share deals
• Transaction costs associated with the deal
• Future repatriation of profits
• Transfer pricing
• Stock options
Top Tip 8
Separation Issues
• Issues of selling out of the group
• Licences, permits, consents/real estate, IT pension plans
• Employment benefits going forward
Top Tip 9
The Compliance Programmes going forward
• Bringing the employees into line
• New divisional responsibilities
Top Tip 10 Third Party Views
• What do suppliers think?
• What do customers think?
• What does the market think?
• Are synergies there?
• Does the target have a particular style of being with customers and suppliers?
© EVERSHEDS LLP 2009. Eversheds LLP is a limited liability partnership.
Paul SmithEversheds Consulting
Eversheds Consulting
Creating a High Performance Team
Agenda
• A shift in the balance of power
• Issues facing general counsel
• Taking the health check to assess your readiness
• Questions?
Lawyer Client Relations
• The power has shifted and In-house Counsel (IHC) are now at the helm
• Firms less able to set direction of industry
• New responsibility of market leadership presents new challenges for In-house Counsel
Summary of Developments
The Client’s RevolutionLaw Firm of the 21st Century
• In our recent report, Partners and In-house Counsel told us that:
75% believepower has
moved from firms to client
73% of In-house Counsel have
changed or reducedthe number of external legal
advisors
78% believe that GFC
changes are permanent
Immediate Impact – Cost Global Financial Crisis (GFC)
In the USA big firms alone 10,000 lawyers laid off in 6 months since GFC
Media News Group Inc
1,000 lawyers laid off in USA in single dayBloomberg Inc
Both in-house & firms have had budgets cut, salaries frozen and unnecessary costs removed
Winmark Looking Glass Report
Structural changesGlobal Financial Crisis
Clients take centre stage
Law firm market in
flux
Legal services gear
towards efficiency and value
The evolving role of the In-house Counsel Clients take centre stage
1. Balance of power shifts to clients– Client rise to take the reigns as legal sector enters modern world
– Change driven by client demand; law firms reactive to change
2. Fee levels set for long term stagnation – Recession drives efficiency
– Legal services are increasingly unbundled
– Outsourcing and technology dramatically increased
3. Large expansion in In-house Counsel status and role– 74% of IHCs report that they now occupy a far more senior role within
the business
– CSR increasingly the responsibility of the in-house team
Balance of power shifts to clients
• In-house Counsel have taken the role of business advisor
• Law firms aspire to this role, but are seen as service providers
The rise of client power
Expertise
Task
Collaboration
Insight
Expert
for hire
Trusted
Supplier
Business
Advisor
Over 50% of In-houseCounsels said as theirin-house capabilitiesincreased, they wouldlook to external lawyersas a source of highlyspecialised advice only
Is this the best model?
From firm to client Change in the balance of power
How much negotiating power do In-house Counsel feel they have when agreeing fee structures?
Source:
Winmark Looking Glass Report
Client led market New challenges confront the modern In-house Counsel
In-house Counsel now have a new responsibility to lead market
Many IHCs are unprepared for this new responsibility
Law firms have their own agenda
Managing law firms is like herding cats
IHC responsible for shaping industryOpportunity to lead market
Unique opportunity to lead market
But, are you ready and are you equipped to deal with the other major issues facing you?
Risk and compliance, need to show value, decreasing budgets, globalisation, pressure to generate income
Are you making the most of the new market dynamics?
Taking a Health Check
I know we do not have procedures in place
I know we have some processes – but we could improve
I am positive we have excellent protocols in place
0 105
Taking you through a health check measuring your team performance
Be honest in your appraisal – ensure you score „as-is‟ and not „hope-to-be‟
Score each step out of ten
The plan to achieve your goal
1) Legal Department Strategy
• No defined strategy
• No alignment to wider business strategy
• No communication buy-in from team
• Ad-hoc reactive - fire fighting
• Clearly defined and communicated strategy
• Buy-in from team, wider business and senior management
• Aligned to wider business objectives
• Regularly reviewed and progress measured
0 105
Major defence organisation with no effective legal department strategy
3 year strategy development and implementation program
Benefits:
• Large improvement in customer satisfaction
• Substantial cost reduction
• Lower risk
• Early engagement
Ad-hoc
Developing
Strategically managed
Best in class
3 year process
Major defense manufacturer
Strategy case study
Strategy Maturity Model
The resource mix
2) Insource versus Outsource
• No processes for decision making across teams
• No decision criteria
• Ad hoc requirement for external counsel
• Sophisticated decision tree
• Risk/quality/capacity assessment applied to different work areas in different ways
• Rigidly applied across business teams
0 105
Major global bank
Decision tree case study
Is the matter Business As Usual (BAU)?
Is the matter National BAU?
Is the matter BAU City?
Is the matter strategic?
Refer to department
head
Get estimate. Is the fee
estimate < 25k?
YES
Instruct Eversheds
NO
Get estimate from another strategic firm
Instruct lowest quote
Is the matter strategic
Get estimate. Is the fee
estimate < 25k?
YES
Instruct Eversheds
NO
Get estimate from another
BAU panel firm
Instruct lowest quote
Get estimate. Is the fee
estimate < 25k?
YES
Instruct Eversheds
NO
Get estimate from another
BAU panel firm
Instruct lowest quote
NOYES
YES NO
YES
NO
YES NO
Who to engage
3) Do you have a formal panel process?
• Business units choose law firms
• Vast array of firms providing piecemeal advice
• No consistent rationale behind firm choice
• Defined and structured tendering process
• Defined panel lifespan
• Tender process aligned with legal and wider business goals
0 105
Tyco Panel tender case study
Old Panel
General contractor model
Implement internal engagement protocol
Review historical work with non-panel firms
New matters only to be instructed to panel firms by legal team
Implement service level agreements
Extract value add in line with organisational goals
Panel Strategy & Tender New panel
Major Automotive Manufacturer Panel tender case study
Old Panel
General contractor model
Implement internal engagement protocol
Review historical work with non-panel firms
New matters only to be instructed to panel firms by legal team
Implement service level agreements
Extract value add in line with organisational goals
Panel Strategy & Tender New panel
Method of engagement
4) How are external firms instructed?
• No process for selecting which law firm
• Multiple ways of instructing
• Ad-hoc decisions on when and who to engage?
• Defined engagement protocol
• Confirmed contact points
• Regularly reviewed and monitored
0 105
5) Managing internal teams
• No KPI’s
• No management information
• No regular meetings
• No clear strategy
• Ad hoc allocation of work
• KPI linked to objectives
• 1:1 and team meetings
• Monthly reporting
• Clear strategy –understood by business units
• Cross team business integration
0 105
The right price for the right service
6) Alternative fee arrangements
• No consideration of work types or fee structure
• All firms bill by the hour
• External work categorised into types
• Alternative fee arrangements used appropriately:
o Fixed fee
o Conditional fees
o No win / No Fee
o Single firm retainer
o Billable hour
o Volume work / LPO
0 105
Eversheds LLP
Fee structures case study
Billable hour
Remains important
Fixed Fee
20% Revenue:
•Corporate
•Litigation
•Real Estate
Annual retainer
Major Utility
£800k – all work
Tyco / Eversheds Model
Sole EMEA supplier
Conditional Fee
Popular in Litigation
Major Bank
Review all leases and share any revenue from
findings
Custom models General fee structures
Effective supplier management
7) Managing External Firms
• No written protocols
• No regular meetings
• No minimum standards
• Written protocols
• Regularly reviewed and monitored
• Clear strategy –communicated and understood by firms
0 105
Driving competition
7a) Rank Review Survey
• No monitoring of out performance by firms
• No firm ranking
• Ranking solely by % of work won
• Regular survey of business units satisfaction with external firms
• Formal external firm scoring process
• Updated league tables
• Rank regularly discussed with firms
• Outperformance identified and acknowledged
0 105
Visibility over cost, quality and timeliness
8) Legal Spend Reporting
• No regular reporting from external firms
• Multiple report formats
• Multiple data entry systems for analysing spend
• Ad hoc reports
• Regular reports
• Easily collated (single format)
• Closely analysed and information used
• Feedback provided to firms
0 105
Reporting example
Easy, effective, and efficient oversight
$ Exposure $ Legal spend vs budget
Target
Leveraging value add offerings
9) Value add
• No value programme
• Different across business units
• Reactive approach
• No defined contact in external firm
• Free secondees
• Free training
• External lawyer report – value add
• Free advice
• Helplines
0 105
Creating a legally attune and assertive organisation
10) Recoveries Programme
• No proactive programme
• Legal and Business units not aligned
• Contract management lifecycle broken
• Audit completed –contracts and processes
• Established programme communicated to suppliers
• Generating recoveries
• In-house cultural change
0 105
DuPontRecoveries case study
Total Recoveries:
$1.577 billion
Driving innovation within
11) Compliance Innovation
• Regulation seen as rule compliance
• Ad-hoc response to new regulations
• No or unreliable management information on compliance
• Outcomes focused compliance
• Clear internal and external review process
• Value add compliance education from panel firms
• Strategic use of compliance technology / outsourcing
• Benchmarked and regularly reviewed KPIs
0 105
Leading UK retail bank
Compliance innovation case study
A. AML
B. Terrorism financing
C. Bribery
D. Antitrust
E. Capital adequacy
F. Health & safety
G. Reporting requirements
1 2 3 4 5
5
4
3
2
1
Probability of compliance failure
B
DE
F
Findings:
Reporting key regulatory area for this institution
Increasing complexity
Increasing impact from compliance failure
Driving innovation in service delivery
12) Optimising new legal models
• Traditional insource v outsource
• No use of alternatives to local law firms
• No categorisation of work
• National / international / specialist panels
• RAG rated work
• Law firm collaboration
• Use of LPO’s, BPO’s via law firm or direct
• Agile lawyers
• Secondments / Paralegals
0 105
Where do you stand relative to peers? Industry? World?
What did you score?
0 105
What is your score? Where do you want
to be?
Conclusion
• The client is now at the centre of the relationship
• Getting the most out of firm / client relationship is about deeper integration
• Being ready to take advantage of the opportunity and meet other challenges
The future
Questions?
Paul SmithPaul is a Partner, environmental lawyer and litigator and has defended a number of multinational companies over the years in relation to criminal investigations in the UK, Europe and North America. The investigations have ranged from chemical plant explosions, insider dealing, railway disasters and price-fixing to environmental incidents and other major crises.
Paul is a recognised expert on law firm partnering and convergence. He began developing this expertise as client partner for DuPont more than ten years ago. In recent years Paul has focused on how the law firm and the global corporate law department can work together effectively across multiple jurisdictions. Paul consults with many global corporate law departments on their structures, processes and practices to derive greater value from outside counsel. He is part of the Eversheds team involved in the Tyco convergence project in Europe, Middle East and Africa, where Tyco used its innovative 'SMARTER' model to consolidate most of its outside legal services from more than 250 law firms across 37 jurisdictions to one: Eversheds.
In February 2008, Legal Business magazine honoured Paul Smith as 'Lawyer of the Year', one of the most prestigious awards in the UK. He was awarded for his pioneering work in delivering new approaches to global client relationship management. Paul was also included in 'The Lawyer' magazine's list of the 'Hot 100 Lawyers' for 2008.
Paul Smith+44 845 498 4464paulsmith@eversheds.com
©Eversheds Consulting 2010. A division of Eversheds LLP.
European General Counsel Seminar
Employee Incentives
Motivating Your Teams to Succeed
Mathew Gorringe, Partner, Eversheds LLP
Tel: 0845 498 4140
mathewgorringe@eversheds.com
Employee Incentives
Motivating Your Teams to Succeed
Winning teams are:
• highly motivated
• focussed on key objectives
• driven by success
Employee Incentives
Motivating Your Teams to Succeed
An appropriate share incentive plan can assist organisations:
• drive the performance of employees towards a shared objective;
• often in a tax efficient way for both employee and employer; and
• retain employees
Employee Incentives
Motivating Your Teams to Succeed
It is important to get the design right in order to deliver the desired results:
• who should participate?
• what level of award will deliver the appropriate incentive?
• what are the principal objectives/behaviours the company wishes to motivate executives to deliver?
• what performance measures should be used?
• will participants understand the incentive being offered?
• appropriate communication and explanation of the incentive
Employee Incentives
Motivating Your Teams to Succeed
These objectives are normally relatively easy to achieve in a single jurisdiction:
Only need to consider that jurisdictions:
• employment laws
• securities laws
• tax laws.
Employee Incentives
Motivating Your Teams to Succeed
Implementation of a suitable incentive plan across borders presents a host of different challenges as:
• the laws and tax rules of one jurisdiction are seldom the same as another‟s
• the establishing company will need to take account of all these laws whilst creating an incentive scheme which is:
– cohesive (similar treatment for employees to create a sense of “team”/“unity”)
– administratively manageable (20 different schemes for 20 jurisdictions is “unworkable”)
– capable of being understood by employees across the group, no matter where they reside
Recent Case StudyGlobal IncentiveLarge United States based industrial engineering company wanted to roll out an incentive arrangement in 26 different jurisdictions.
Start the Race – Identify design objectives and parameters:
• who would participate (key executives in each jurisdiction)
• tax treatment was important, but not key driver
• critical however that no tax suffered unless and until incentive actually paid to participant
• avoiding multiple plans was absolutely critical (one plan
for everyone)
• shares or cash (key decision)
• timing
– legal advice/tax advice
– drafting
– communication
Recent Case StudyGlobal Incentive
Bronze – Assembling the right team to deliver the design objectives
• need a concrete place to start
• need a nominated project manager
• ensuring all advisers in each of the 26 jurisdictions
– understand the project parameters, timings
– are acting as one
Recent Case StudyGlobal Incentive
Silver – Avoiding pitfalls
• Recognising what‟s at stake:
– criminal liabilities for the company and its officers
– fines/penalties
– potential for expensive claims by employer
– reputational damage
• Focus on problem areas:
– Security laws
– Employment laws
– Taxation
– Exchange control
– Data Protection
Recent Case StudyGlobal Incentive
Issues
• Choice of law provision in the rules in many jurisdictions, especially South America (Brazil/Mexico) obsolete - the employment laws of that jurisdiction prevailed.
• Requirement for local law consultation to agree terms:
– Germany (Works Counsel)
– Netherlands (Works Counsel)
– India (Collective Bargaining Agreement)
– Russia (Collective Bargaining Agreement)
• Implied rights to future entitlements if awards made on a
regular basis, even if they are wholly discretionary.
• Company‟s ability to stop making awards without employee
consent comprised:
– Mexico
– Brazil
– Germany
– Canada
Recent Case Study Global Incentive
Issues
• Severance payment enhancements if benefits under the plan become part of an employees salary or are deemed to be part of it
• Non-enforceability of forfeiture provisions
– Brazil
– Hungary
– Spain
• Discrimination/equality
– Age
– similar role/similar pay
• Taxation
– Canada (huge problems)
– Spain
– India
– China (uncertainty)
Recent Case StudyGlobal Incentive
Gold - A measure of compromise is required and objectives need to
be prioritised
– Canada – abandon the plan as it would simply not work (bespoke arrangement)
– Germany – onerous employment laws avoided by structuring contract so that it did not involve the German subsidiary
– Russia – give delegated authority to the Board of Russian subsidiary to avoid claims against the Parent
– Brazil/Mexico – obtain separate agreements from employees giving advance permission for company to terminate the plan
– Acceptance that there may be provisions of the global plan that would not be enforceable against the employee in the context of a claim
– Removal of references to interest accrual for Saudi Arabia
– Changing the language of the Plan so that the Severance Payment laws in the United Arab Emirates did not apply.
Recent Case Study
Global Incentive
Result
• Out of 26 jurisdictions only one country (Canada) could not be covered by the global scheme rules
• Easy for the company to administer
• Easy for every executive wherever they are based to understand the incentive award granted to him and its value
• Simple to communicate
© EVERSHEDS LLP 2009. Eversheds LLP is a limited liability partnership.
Recommended