updated on 28 June 2011
QuestionHow has the work of corporate lawyers changed in recent times, and are clients asking for different things from their lawyers?
Corporate lawyers carry out a mix of corporate advisory and transactional work, with the mix being largely dictated by the markets. Clients want corporate lawyers who know their business and who offer commercial and pragmatic advice to help them achieve their objectives - they don't want technical legal advice in a vacuum.
The credit crunch and its impact
Since the collapse of Lehman Brothers in 2008, there has been an increased focus on improved regulation and reporting standards, and greater accountability. So, in the last few years, many companies have been undertaking strategic reviews of their businesses and assets as the recession bit, while getting used to the imposition of greater regulation.
As a result of the recession, the types of transaction undertaken by clients in recent years have changed. As bank funding was withdrawn, banking covenants were breached or facilities were deemed too expensive to renew, companies reviewed their options (often with support from their banks).
For many companies, selling non-core businesses was not an option as buyers remained thin on the ground. M&A activity is now starting to recover, although it is far from being back to pre-recession levels and many transactions are being completed with deferred payment arrangements in place, rather than the entire purchase price being paid up front. Group reorganisations also became more common as companies sought to streamline their operations or deal with financing pressures.
Some companies elected to de-list from public markets due to the cost of maintaining a listing, while others elected to raise funds on the public markets through rights issues and open offers. These were uncommon transactions between 2003 and 2008. However, we saw large numbers of companies electing to undertake these corporate actions between 2008 and 2010.
In addition, many companies have looked to international markets to grow their businesses. While the types of transaction undertaken by clients in recent years may have changed, and whether strategic change has been imposed due to market conditions or planned due to the continued success of the business, clients' requirements of their corporate lawyers are largely unchanged. As this article stated at the outset, clients want lawyers who know their business and who offer commercial and pragmatic advice and who can draw on their experience advising other clients in the relevant sector or marketplace.
Corporate lawyers often need to act as an extension of the client's team. Therefore understanding your client's priorities, as well as having a clear understanding of the issues affecting its sector, is critical.
There have also been numerous changes in the regulatory landscape in recent years. Between late 2006 and October 2009 companies were grappling with the phased introduction of the Companies Act 2006. Intended to be deregulatory in effect, it nevertheless threw up a number of issues which caused companies great difficulties. For example, boards and company secretaries struggled to understand the complexities of the new codified duties of directors, which has led to considerable uncertainty about whether a breach of duty has taken/may take place and so they turned to their lawyers to cut through the legal jargon and explain what the risks were to them and their businesses and how to address them.
The current UK Corporate Governance Code has established a new benchmark of best practice in governance. It applies to companies with a premium listing of equity shares and is persuasive to other public companies whose shares are listed or traded and was published in May 2010 following a comprehensive review to measure the impact and effectiveness of the previous version. The review was ordered in 2009 in response to a number of high-profile business failures and a sense that businesses were ignoring/paying lip service to good corporate governance standards.
This has coincided with an increase in shareholder scrutiny and activism, and changes to the company reporting regulations. Boards and company secretaries need to get this right – institutional shareholders will vote against boards that do not "comply or explain" and there have been several instances this year where shareholders have voted down directors' remuneration policies. Those votes are advisory only, but are embarrassing for the boards concerned.
The Financial Services Authority's more intrusive regime means there is a greater scrutiny of both companies and their directors, with harsh penalties for those to who fail to meet the standard.
The provisions of the City Code on Takeovers and Mergers have also been subject to great scrutiny in the light of Kraft's ultimately successful hostile takeover of Cadbury [see previous Burning Question, "A not-so-Krafty takeover"]. Most recently, clients have been grappling with the implementation of the Bribery Act 2010 [see previous Burning Question, "To bribe or not to bribe, that is the question"], the implications for their businesses generally and the particular risks when carrying out acquisitions or entering into joint ventures. Clients are looking to their corporate lawyers to understand where real risk might lie, to identify it in due diligence and to protect them against the risk contractually to the extent possible.
These regulatory changes have resulted in increased volumes of corporate advisory work, but have also provided lawyers with opportunities to discuss the impact of proposed changes with clients and to respond to consultation exercises putting forward the client's viewpoint.
What does this mean for students wanting to become corporate lawyers?
The regulatory environment in which companies operate is evolving constantly and the range of corporate actions undertaken varies according to the market cycle. Corporate lawyers have the opportunity to work with clients and business influencers over the long term, to help them adapt to business and regulatory change, manage the issues caused by rising and falling markets and help clients through good times and bad times. This results in a career that is interesting, varied and hugely rewarding. If you are interested in a career as a corporate lawyer, you will not be disappointed.
Justine Howard is a legal director in the corporate department at Pinsent Masons, with responsibility for knowledge and practice development.