Regulation, regulation, regulation – that’s the mantra chanted by many in the financial services sector as the reaction of governments around the developed world to the global economic tsunami start to take effect.
Less than a year remains on the countdown to January 2013, when the US implements the Foreign Account Tax Compliance Act – anti-evasion legislation that will force global financial companies to report details to the US taxman of any clients linked to the US holding more than $50,000 in an account. Worryingly for asset management businesses, a far greater onus will be placed on the advisers and managers actively to inform the authorities at Washington’s feared Internal Revenue Service.
Across the Atlantic in the UK, another form of regulation looms – the Retail Distribution Review, which has been created by the Financial Services Authority as a tool to boost confidence in the retail investment market. But it is viewed with widespread suspicion within the sector as potentially causing more confusion than clarity.
Barings Asset Management is certainly familiar with the need for rules and regulations. Now under the umbrella of US-based Mass Mutual Financial Group, it is the only surviving remnant of what was the oldest merchant bank in the City of London until, in 1995, Nick Leeson went Awol in Singapore, leaving a £827 million hole in the esteemed business’s coffers.
Regulation, therefore, has real meaning for BAM’s general counsel, Sandie Okoro. Nonetheless, she is not blinkered by the past to the point where she can’t see the future in the round. Ms Okoro also chairs the Chief Legal Officer Network, a group of legal directors form the top UK and US corporations. That network recently produced a survey showing that general counsel had instructed London-based global law firms less for each of the last three years running. As The Times newspaper asked in reporting the findings: ‘Are big companies falling out of love with the magic circle?’

Have general counsel at multi-national corporations fallen out of love with magic circle and white shoe law firms?

The feeling I get from the general counsel ‘industry’ is that they are putting quite a lot of pressure on the magic and silver circle firms in relation to costs, delivery and efficiency. The relationship is shifting in that there is now a general recognition that GCs hold impressive legal work budgets. And they’ve got to be very careful in the current circumstances with those budgets. So GCs are shopping around for value for money and that’s having a knock-on effect at law firms.
Some of the long-held relationships aren’t necessarily going to remain if the law firms don’t deliver what their customers want – as opposed to what they think their customers want. Clients want value for money, certainty regarding fees, good turn-around times; they want their law firms to be commercial and to understand the client’s business and industry and to provide added value, such as market intelligence. It will vary from GC to GC, but overall they want value for money, commerciality and responsiveness.

It sounds as though you are implying that a degree of complacency has set in at the top firms.

I wouldn’t say that the magic circle and other top global firms have been complacent – many of them have been looking at the way in which they do business and are engaging quite a lot with GCs to find out how to deliver services better.
Any resistance is a generational thing – there are some lawyers at law firms who are of a particular generation that stick their heads in the sand and don’t want to know about this at all. But they are getting fewer and farther between as they march towards retirement. So there aren’t law firms that as a whole don’t get it – but there tend to be pockets of partners who come from that older Clients want value for money, certainty regarding fees, good turn-around times; they want their law firms to be commercial and to understand the client’s business and industry and to provide added value.’ www.globallegalpost.com The Global Legal Post 30 March 2012 15 Corporate star generation. However, there is also a newer and fresher generation that’s coming through. Part of the problem is that people didn’t go into the law to run a business. They went into the law to be lawyers – and then they end up running a business because they are in a partnership.

Has the recent economic downturn triggered a re-evaluation by law firms of their service offerings?

What the financial crisis did was accelerate the need to do all of these things. It wasn’t a spark that ignited change because that change had already begun, but it has accelerated it. When the crisis hit, everybody suddenly started looking at budgets and systems, and seeing things from a risk perspective as well.
I have seen some UK firms really changing the way they think and approach matters. They may not necessarily be firms I use normally, but they still reach out to me to ask my views on practice. They are approaching the in-house community generally and not just their clients – there is a new atmosphere among some firms of wanting to find out what clients want in a way that there wasn’t five years ago.

There is more talk now than ever before about the continuing viability of the billable hour. Is it on the way out?

It’s got to go. There are very few services generally that are charged for by the hour these days. Although I appreciate that, in the legal sector, law firms are all structured towards the billable hour.
And they tend to work in silos, as well, meaning that when you have to call in someone from the tax department or the employment department, the firms are not structured in a way where you don’t have to pay for those two people talking to each other. That is really annoying – it is one of my pet hates when you see on a bill that two partners have been talking to each other and you are paying for both sets of time. Similarly, thinking time is irritating – I’m paying for these people to know the answer, not to think about it.
But those approaches are increasingly unsustainable. There is more and more pressure on law firms to provide an estimated quote and then to work within that quote. So the billable hour will naturally die away – it has to.
There are very few fields where it is impossible to give and stick by quotes – litigation is perhaps one and mergers and acquisitions work is another. The feast is very moveable in those two areas.
But there are other areas that are very easy to cost. And the fact is that the law firms do this work all the time – so why can’t they get the price right in advance? I find it extraordinary that it still seems really difficult for some law firms to do that.
In terms of this department, we have arrangements with our firms that allows for a mix of hourly billing and alternative structures. But we always talk about costs up front – it is the first conversation I have. And it is almost the last conversation I have as well.
I tell the law firm: this is generally how much I’m prepared to pay for incremental advice. That gives firms an idea of how detailed their advice is going to be. It automatically indicates the depth of advice you are looking for.

What other aspects of law firm structures do you find irritating – and is change on the horizon, as so many other predict?

Something that really annoys me is paying law firms to train people. Why do we pay for trainees?
But the environment is changing and the advent of alternative business structures will speed reform. As soon as someone comes into the market with an attractive alternative system, the others are going to have to play catch-up quite quickly.
The next five years or so are going to be very interesting times for law firms. ABSs will cause some surprises – I think people will be quite innovative. The legal profession is about to change a lot, not least because there will be a different generation of managing partners coming through – lawyers who have grown up in a different environment.
Also, it is really and truly a global world now. UK law firms are some of the best in the world and it is their opportunity to make sure they don’t lose out on that global playing field.

Financial services have been in the line of fire ever since Lehman Brothers collapsed and the global financial crisis began. Regulation has been coming in waves since then. Is there too much?

It’s too early to tell if the pendulum has swung too far in favour of increased regulation. The legislation hasn’t yet bedded in properly, although we can definitely say there has been quite a lot of it. You can regulate and regulate all you want, but there is still the cultural point of inculcating the right attitudes in people.
It’s ultimately people who make things go wrong. You can have as many rules and regulations as you like, but there are still going to be some people who are basically a bit naughty and do what they want to do. The question is how to make sure that those people are weeded out of your organisation, how they are stopped from doing what they shouldn’t do at an early stage. That is about procedures and about controls.

CV -- Sandi Okoro

2007 – present: General counsel at Baring Asset Management. She heads a team of two lawyers in London, two in Boston and one in Hong Kong.

Career background: Read law and politics at Birmingham University before being called as a barrister in England. Joined the in-house legal team at investment management company Schroders, where she requalifed as a solicitor. Remained in the trust and private client department at Schroders for 15 years before moving to Baring.