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In conversation: David Morley, senior partner.

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In conversation: Wim Dejonghe, global managing partner.

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On the firm's 80th anniversary, senior partner David Morley talks about what the future might hold.

Allen & Overy's ultra-modern London office seems a slightly incongruous place to be discussing an event that rocked the world 74 years ago.

But 2010 marks the 80th anniversary of the firm, and senior partner David Morley is reflecting on some of the historical landmarks on A&O's journey - including founding partner George Allen advising King Edward VIII on his famous abdication, just six years after the firm's doors opened in 1930.

So what would the founding partners make of the firm in 2010?

"Mr Allen and Mr Overy wouldn't recognise the firm today, particularly after the growth we've experienced in the last 20 years. Certainly our scale and the speed and complexity of what we do would be alien to them," he says. "But they would recognise key features of our culture - the way clients' interests come first, the way we work together and the way we take a long-term view."

A firm in transition

So remembering the past, as well as looking to the future, is important at a time when A&O's transition from being a UK firm with an international network, to a truly global practice, is at a defining point.

Nearly 60% of the firm's revenues are now earned outside the UK and two-thirds of its work is cross-border. 2010 also saw A&O become the first of the global elite of law firms to open offices in Australia and Indonesia.

The last two years have seen the global economy - and globalisation model - called into question by the financial crisis and the deepest recession for 80 years. But David remains convinced that the firm's bold global strategy remains the right one for the future.

Key future trends

So when he pinpoints six key trends for the future, it's not surprising that the list begins with: globalisation is irreversible.

"When you plan a long-term strategy you have to take a position on globalisation - you can't sit on the fence. We feel strongly that globalisation is here to stay and it feels like we are swimming with the tide of history," he says.

Law firms will also face increasing competition. Firms in emerging markets such as China and India are hungry for work, and new legislation in Britain has opened the doors for non-lawyers to offer legal services - so called 'Tesco Law'. Although consumer law is likely to attract new entrants first, who's to say someone won't come up with a business model to challenge the big international firms?

More importantly, such moves are changing the demands of clients. They want the profession to standardise processes, investigate outsourcing solutions, and look for ways to deliver more for less - the industrialisation of the law. "We can react to this either by retreating into our bunker, or - as I prefer - seeing it as an opportunity to change the way we work," he says.

The recession has proved that the battle for the best people is not just an issue when times are good. It is now a constant priority. "Finding and hanging on to talented people has been even more important during the downturn - these are the people who really make the difference in difficult times. Being complacent about talent would be a serious error of judgement for a business like ours."

Technology still has the power to be a 'game changer' for the profession, he believes. The firm is now providing a range of online services to clients. "How we use technology and bring it to bear in our work will be an important differentiator," he argues.

And differentiation is at the root of the final item on his list: brand - not something to which lawyers have attached great importance in the past.

"Clients say it is almost impossible to draw a distinction between the leading firms in terms of technical expertise - it's a given. But it's only the entry ticket to the game. In future it will be critical to have a well known and distinctive brand - to stand out in a crowded marketplace as a firm with unique qualities and ideas."

So what does A&O's brand tell the world?

David is clear that he is not after slick slogans - or as he puts it, "TV ads and baseball caps".

It's about a philosophy, he says. It's about what you do, not what you say. The firm, arguably known for being rather understated, wants to be more upfront about its advanced thinking on the issues of the day, for working in new and original ways to tackle the challenges clients face.

"That's how we want our clients to think of us. And it's how we need to be thinking about ourselves within the firm," he says. "All of us, not just the lawyers, constantly need to challenge ourselves and ask: can we be more advanced in the work we do and the way we do it?"

Quiet confidence

Despite the inevitable effects of recession, the results for 2010 show that the firm has done pretty well.

With turnover down 4% to £1.05bn, but profit before tax remaining stable and profit per equity partner up 10% to £1.1m, David says the firm can be "quietly confident".

"We've been through a huge economic dislocation. We've survived that, and, in many ways, thrived. That's because we are flexible and we have a lot of smart people who have proved they can adapt quickly to a changing world."

Uncertainty hangs over the pace of global economic recovery. A rise in interest rates and the withdrawal of government stimulus spending could make recovery much slower than hoped. But David refuses to worry over issues he can't control. "We don't live in a bubble, of course, but let's worry about the things we can control - like delivering the best service to our clients and managing this business profitably."

So the focus during the year has been on seizing opportunities and building the firm's global network of offices.

The Australian expansion was a unique opportunity, with A&O able to establish a strong alternative to the dominance of domestic firms by hiring 17 partners in one go. It is all about positioning the firm to tap fast emerging Asian markets, not least in the energy sector where "there is a natural connection between Australia and Asia".

Investment in people

The firm continued to make up new partners during the year, with 18 promoted - 16 of whom were outside London. And strategic lateral hires have bolstered its position in key areas including energy, high yield, anti-trust and IP litigation.

Another objective was to make it easier for talented women to reach the highest positions in the firm. A&O this year introduced a scheme allowing full partners to work part-time, a groundbreaking move welcomed internally and across the profession.

David admits that the scheme is far from the complete answer but insists it's a big step forward.

"It is a very powerful signal - from the top - to our people and those thinking of joining us, that we take this issue very seriously. It says you can aspire to becoming a partner and we will be flexible around how you work and what you need."

And with its education and employability work - including the flagship Smart Start scheme in London - A&O is continuing to address another significant blockage in the talent pipeline - broadening access to the profession for people from different social backgrounds.

Narrow nationalism

Though confident the firm is well placed for the next 80 years of its history, David is concerned that the benefits of globalisation will be squandered in the wake of the financial crisis and recession.

"The world is so interconnected now. Drifting back to a nationalist agenda on trade and regulation is the biggest threat we face. I think most policymakers recognise this but it's hard to deliver when so many powerful vested interests are pushing the nationalist agenda," he says.

"We've just got to hope our politicians have enough vision and authority to resist that pressure and to go for global co-operation.

"Nevertheless, I know one thing," he adds. "This firm can thrive, whatever new challenges and economic conditions are around the corner."

David Morley was interviewed by Simon Beavis, June 2010

Over the next ten years international growth will carry on being a major theme for us - you will see us continuing to evolve into a global partnership, not because London is getting smaller or less important, but because other parts of the world are growing faster and new territories are emerging for us to invest in."

David Morley, senior partner

Growth means building strong, strategic relationships with clients.

"As a commercial lawyer you know when your relationship with a client is on the right footing," says Wim Dejonghe, Allen & Overy's global managing partner. "It's when they've got important strategic choices to make and they call you before they call a banker."

Client relationships are much on Wim's mind. He is certain that building better, deeper partnerships with key clients is the key to the firm's continued success.

"All law firms are under pressure to reduce both legal spend and risk for clients. That might sound contradictory, but it is the reality," he says. "We have to show clients we are concentrating on how we organise ourselves, and that we are providing them with greater value - not wasting the money they spend on us."

Cost control

In the ten years to 2008 the legal industry was achieving average annual growth of around 10%. Since the Lehman Brothers crash, growth has slowed dramatically and is likely to stay that way for some time.

Corporate legal departments are under pressure to rein in spending. Understandably they want more for less from external advisers.

A&O has responded by controlling costs more tightly than ever. That includes day-to-day spending such as travel, communications and IT. But clients have also asked the firm to explore outsourcing and offshoring work to lower-cost markets. This is being done carefully to make sure quality is not compromised.

But the greatest efficiencies come when you work with clients to find savings that will benefit both sides, believes Wim. "Clients are sophisticated and if you engage properly with each other you can both benefit. Building deeper and broader relationships with clients will be the key to growth."

Strategic advisers

To build these relationships, the firm has to move from being a transactional adviser - a provider of one-off legal services - to being a trusted strategic adviser, able to bring its advanced ideas across a wide range of issues that clients face, wherever they operate. It's what he calls: "the global delivery of local knowledge".

To do that better A&O is investing in its networks, people, client relationships, sector expertise, technology and thought leadership.

But what does that actually mean to clients?

He cites one major client, operating in 120 different countries, which is increasingly looking to A&O to manage its complex legal requirements worldwide. "They don't have the resources to find the best lawyers to work with locally every time they sign a new contract - which can be once a fortnight. Really that's our job - they trust us to worry about the detail."

The firm's 36 offices in 26 countries are central to this. But Allen & Overy is also putting increasing work into its network of relationship law firms in close to 100 countries to offer clients first-rate global coverage. This year it will hold its second Global Markets Conference to bring these law firms together with its own teams, with clients and with each other.

The firm also now has 20 international desks staffed by people with the experience, language skills and specialist knowledge required to make us a leading player in parts of the world where the firm doesn't have offices - from Africa and Canada to Turkey and the Ukraine. This year Allen & Overy also launched a new service for clients, the Global Law Intelligence Unit, which provides expert insight into key legal issues in all the 320 jurisdictions that make up the global economy.

Targeting growth

Allen & Overy's international growth strategy has two areas of focus. The first is to build capacity in some established markets such as Germany and France. The second is to build in high-growth emerging markets such as Asia and the Middle East - "the places our clients are going to".

The era of internationalisation - dominated by western companies investing abroad - is over, says Wim. "Globalisation means investment is flowing in all directions, between developing countries and from them to the West. We have to be close to the decision makers in those countries and understand how these markets work. We can't claim to be involved in these economies if everything is run out of the West."

Key sectors are energy, infrastructure, financial services, communications, media and technology, the life sciences and classic industrial activities - areas that are highly regulated and need lawyers. While M&A activity remains muted - and it is likely to do so while there is so much uncertainty over the future of banks - it makes even more sense to concentrate on providing strategic advice. "If we are just transactional advisers, we are not in the picture."

Technology is another area of huge potential growth. Globalisation and the need to comply with increasingly complex regulations are pushing clients towards online risk management systems. Revenues from Allen & Overy's online services for clients, like its new Rulefinder shareholder disclosure system, rose by over 50% last year, and Wim is convinced that those rates of growth can be sustained. "I don't think any of our competitors are even close to us on this," he says.


The current year will be difficult for the firm. "Despite a comfortable start, this year is not going to be any easier than the one we've just had, even though things are far better than at the height of the financial crisis."

Uncertainty over the future regulation of banks will continue to stifle lending to businesses, and companies themselves remain focused on improving the strength of their balance sheets rather than doing deals. Worries over vulnerable countries, for example in the Eurozone, mean uncertainty will continue to hang over capital markets.

It adds up to a continuing picture of risks and pressures that the firm must handle. But Wim is nevertheless confident about the future. "Our great strength is the quality of the people who work here and the efforts we are putting into building strategic relationships with our clients. Ultimately, we want to be known for being a brilliant partner to them. I think we are doing all the right things to make that happen."

Wim Dejonghe was interviewed by Simon Beavis, July 2010

All law firms are under pressure to reduce both legal spend and risk for clients. That might sound contradictory, but it is the reality. We have to show clients we are concentrating on how we organise ourselves, and that we are providing them with greater value - not wasting the money they spend on us."

Wim Dejonghe, global managing partner

Going for low carbon energy

The Deepwater Horizon spill is a turning point for fossil fuels, it is argued.

  • Anne Baldock Anne Baldock Has been a partner for 20 years and is global head of projects, energy and infrastructure at A&O. In 2009 Anne was appointed to the Nuclear Liabilities Financing Assurance Board.
  • Gareth Price Gareth Price Is a partner specialising in all aspects of the energy and utilities sectors. He is currently focused on the power, renewables and nuclear sectors in the context of the opportunities created by the drive to low-carbon economies and improved energy security for nation states.
  • Tim Scales Tim Scales Is a partner and has been based in Paris for 12 years. He has a particular focus on the energy sector in France, Africa and Central and Eastern Europe.
  • Jeremy Parr Jeremy Parr Is a corporate partner with experience in M&A, private equity, privatisations, joint ventures, complex commercial agreements and equity financings. His experience is largely in the energy and natural resources sectors.

For all the talk of a potential low-carbon revolution, progress to date has been slow.

US President Barack Obama, likening the Gulf of Mexico oil spill to a wake-up call as great as 9/11, has called for a renewable energy revolution to free the US from its "addiction to fossil fuels".

At the same time, the UK coalition Government has talked of a third industrial revolution* which will lay the foundations for a prosperous, export-led economy, resilient to oil shocks.

The oil spill in the Gulf of Mexico has certainly reignited the debate about how to build a low-carbon global economy. People are plausibly asking: "Even if you doubt climate change, why not go low carbon as an insurance policy and seek to build a new economy fuelled by sustainable energy supplies?"

Yet progress is still slow. Renewable energy, for instance, still accounts for only a fraction of our overall usage, and industry forecasts do not see that changing quickly.

In Europe, even with the shale gas finds in Poland, many countries continue to be dependent on gas imports, making them vulnerable to market disruption and geo-politics.

In the US, recent finds of reserves of shale gas may change the security equation and cut CO2 emissions - but the US is dependent in the short term on oil imports, and the vast majority of its energy still comes from burning coal.

In this context it is difficult for the developed world to argue that developing economies (particularly China and India) should stop fuelling their rapid growth with fossil fuels - not least because China has moved faster than many to build subsidy-attracting wind turbines. So why has progress been slow?

Strategy versus market forces

To date, the hurdles have been economic and technological. Free market economies have been fuelled by a hunger for cheap power - gas and coal-fired power stations are relatively inexpensive to build and operate. They also provide dependable supplies of electricity on demand. But they are polluting.

Creating cleaner alternatives takes both investment and long-term planning. The journey to a low-carbon economy must be plotted over many years with a goal to rebalance energy supply to a more sustainable and diverse mix of fuel sources - and that will take imaginative approaches and joined-up thinking as to how we pay.

Achieving balance

Wind and solar are becoming more viable and offer huge environmental advantages. We have been involved in some groundbreaking projects over the past year in these areas.

But the technology and the transition present challenges. "Up to now the low-carbon debate has been primarily focused on the question of why should we invest in renewables?" says energy partner Gareth Price. "In future the debate should be focused on how." This, he stresses, involves a critical appraisal of the role of regulators, governments and the market in how to bring forward the huge investment needed to effect a rapid low-carbon transition.

How, for instance, do you store the electricity a turbine makes on a very windy day, so that you can use it when the weather turns calm? Scientists have yet to crack the industrial-scale storage needed, although options are now being discussed, such as using fleets of electric vehicles to store energy and feed it back into the 'smart grid' when needed.

Africa has vast resources of untapped solar power. But how do you incentivise developers and banks to finance not just the acres of solar panels, but also the transmission system to transport the power elsewhere in Africa and beyond to Europe to make such projects viable?

Tim Scales, energy partner in Paris, says international investors remain wary. But one country is very active. "China is getting involved at a number of levels in African economies to secure raw materials and to tap new export markets for its manufacturers and construction companies. We're also seeing increasing activity from Chinese banks and export credit institutions. China will be a significant presence in emerging markets."

Most in the G20 now agree that nuclear must be part of the future energy mix. We are one of the few firms that has advised on all elements of the nuclear life-cycle - from mining through to waste disposal and decommissioning.

Unlike wind, nuclear can provide dependable baseload power of the sort needed, for instance, to run efficient high-speed rail networks, taking freight off the roads and reducing short-haul plane journeys. But uranium itself is a finite resource and, after 60 years of debate, how to dispose of toxic atomic waste remains contentious and in many countries unresolved, as President Obama's wrangle over the Yucca Mountain depository shows.

Building renewable and nuclear capacity will take some form of government action through incentives or intervention in the carbon market. Europe has a mixture of approaches to this, some more successful than others. But there's confusion about how different energy forms are incentivised.

Natural gas, as an intermediate carbon fuel, has a significant role to play in a reduced carbon future. The world's resources of natural gas are in healthier short-term shape. There has been a huge increase in exports of liquefied natural gas (LNG) - indeed we are currently working on the largest ever project financing, 'PNG LNG', in Papua New Guinea - while shale gas provides another source.

It is quite likely that this fuel will be in high demand in Asia and the Pacific Rim and elsewhere throughout the globe while new renewable and nuclear capacity is built. And it is important that subsidies for low-carbon alternatives do not introduce such uncertainties into the market that developers are discouraged from building the necessary gas power stations required to bridge the gap between the current fossil-fuel economy and the low-carbon society of tomorrow.

A vibrant sector

Despite all the question marks that hang so heavily over the energy debate, the sector remains vibrant. Transactions have continued apace in recent years despite the slow-down seen in the rest of the M&A market.

State-owned energy giants and sovereign wealth funds are becoming a powerful driving force behind global deals. They have the confidence to demand a bigger say - not only in their own regions, but across the global energy market.

This year, for example, we advised the Emirates National Oil Company on its £1.2bn cash offer for Dragon Oil by way of a Scheme of Arrangement. And we have acted for the Libyan Investment Authority on its acquisition of Verenex Energy which is listed on the Toronto Stock Exchange and has a discovered resource base and exploration portfolio in the Ghadames Basin, Libya.

"The fast developing countries are very hungry for natural resources, oil and minerals," says corporate energy partner Jeremy Parr. "They will play an important role in sustaining M&A activity in Africa, Australasia, Indonesia, Latin America and Russia. Our strategy is based around this."

This demand reflects how power in energy, as in so many other sectors, is shifting from the developed to the developing world.

Some - including President Obama - see the low-carbon revolution as the way to wrest some of that power back. They may well be right. But major hurdles remain to be overcome.

* UK Energy Secretary, Chris Huhne, speaking during the Budget debate in the House of Commons, June 2010.

Case study

Renewable sources of energy

Allen & Overy has advised on some of the most groundbreaking projects over the past year, closing five major deals in solar energy in southern Europe, including the 24MWp photovoltaic plant in Montalto di Castro, and the 43MWp plant in Cellino San Marco, currently the largest solar park in Italy.

In wind, we have advised on the largest single site wind farm to reach financial close in Italy (Monte Grighine in central Sardinia), as well as working on the Tychowo wind farm, which will generate enough electricity each year in Poland to cover 30,000 households. In Belgium, we have worked on the multi-award winning Bligh Bank, Europe's largest offshore wind farm, which will supply energy to some 350,000 households.

We have also advised the UK's Department of Energy and Climate Change on various options and policies surrounding the commercial delivery of prospective tidal power projects in the Severn Estuary.

Case study


We are one of the few firms that have advised governments, developers, contractors and financiers on all elements of the nuclear life-cycle - from mining through to waste disposal and decommissioning.

We are currently advising on projects across the US and Eastern Europe. In Western Europe we are acting for a national energy champion tasked with delivering a nuclear power plant and related infrastructure in its host country for the first time. We completed, for the client, a comprehensive survey of the laws and regulations relating to six European states. In the Middle East, where there is an entirely new market for civil nuclear power, we advised a shortlisted bidder for the UAE's nuclear programme and have just started work on the Jordanian programme.

About the authors

External sites

In every jurisdiction there is a role for all these types of power. Renewables and nuclear will play a very important role but are not the sole answer. Gas and other hydrocarbons will continue to be vital power sources but we need to look elsewhere and use a mix of technologies."

Anne Baldock, global head of projects, energy and infrastructure


The International Energy Agency predicts global demand for energy will grow by 40% between 2007 and 2030 (World Energy Outlook 2009 © OECD/IEA 2009).

Under scrutiny: the corporate world

When it comes to corporate corruption laws, the ground has shifted for boardrooms and general counsels around the world.


Companies are beefing up their compliance procedures, but many have not gone far enough, and we see all too often the messy results of skimping on preventive steps."

David Esseks, partner

  • David Esseks David Esseks Before becoming a partner at A&O, David was a former Assistant United States Attorney for the Southern District of New York and Chief of its Securities and Commodities Fraud Task Force.
  • Jonathan Hitchin Jonathan Hitchin Is a litigation partner specialising in criminal, regulatory and public inquiries - particularly in investigations by the UK's Serious Fraud Office.

Companies need to work harder than ever to demonstrate they are acting ethically.

While extraterritorial anti-bribery laws have been on the US statute books for over 30 years, the pace of enforcement in the US has recently quickened, and other jurisdictions are increasingly enforcing their own similar statutes.

What started in the US has spread across the globe. The US Foreign Corrupt Practices Act (FCPA) - enacted in 1977 - has recently been vigorously enforced at home and, to an extent, replicated abroad. Since the late 1990s most OECD countries have adopted similar laws.

The UK's own Bribery Act will come into force in April 2011 and will hold companies to account wherever they operate in the world. This used to be difficult in some jurisdictions, like the UK, says litigation partner Jonathan Hitchin. Participation in wrongdoing by a 'guiding mind' of the company had to be proved for any prosecution to succeed.

But with the Bribery Act the burden of proof will shift. If someone associated with a company has been involved in bribery, regulators or enforcement agencies will now be able to prosecute the company - and it can only defend itself by showing that it had put 'adequate procedures' in place to prevent bribery.

"In some cases we were working with laws from the 19th century. In dealing with 21st century businesses, regulators need the right modern tools," Jonathan says. The worry remains that what constitutes 'adequate procedures' could be unclear.

US litigation partner David Esseks - a former Assistant United States Attorney for the Southern District of New York and Chief of that Office's Securities and Commodities Fraud Task Force - also points to concerns in the US.

"We've seen increasingly aggressive enforcement of the FCPA against US and non-US companies in recent years, with a special focus on charging senior officers of multinational corporations for misconduct committed around the globe," David says. "Corporate fines of hundreds of millions of dollars, and prison terms measured in years, not months, are now commonplace."

So, with the reach of these laws now international, with regulators and enforcers working effectively across borders, and with higher fines for wrongdoing, companies need to work harder on their compliance regimes. Increasingly, general counsels are in the spotlight, forced to shoulder a higher level of personal responsibility for a company's ethical policies and procedures.

"Will the new approach make companies more ethical?" asks Jonathan. "The truth is it has already - the risks of not conducting business ethically are simply too high."

Much of David's work involves helping companies in transactions assess, manage and mitigate the anti-corruption enforcement risks that come with buying companies that work in difficult parts of the world. Making sure our clients know what lies inside the companies they are buying, he explains, helps keep them safe from prosecutors who are more than willing to charge a purchaser with the wrongs of the purchased company. "Any company with connections to the US needs to be aware of the new environment. They will come under scrutiny."

But are companies doing enough?

"Companies are beefing up their compliance procedures," says David. "But many have not gone far enough, and we see all too often the messy results of skimping on preventive steps."

About the authors

External sites

Will the new approach make companies more ethical? The truth is it has already - the risks of not conducting business ethically are simply too high."

Jonathan Hitchin, partner

Shedding light on corporate governance

In a wave of new laws and rules on how companies around the world are run, pressure is building on non-executives to manage risk better and curb excessive pay.


Directors' pay, the representation of women on company supervisory boards and the independence of supervisory board directors are three of the hottest topics in corporate governance in Germany."

Hans-Christoph Ihrig, partner

Here, we offer a guide to the main trends and changes in corporate governance around the world.

Pierre-Olivier Mahieu


Pierre-Olivier Mahieu head of A&O's corporate practice in Belgium.

After a major revision of Belgium's corporate governance code in 2009, further changes have been made this year with a new law controlling the pay of executives and senior managers in Belgian-listed companies. Changes include the introduction of a mandatory remuneration statement in the annual accounts, which shareholders must vote on separately; a requirement that all 'golden parachute' compensation arrangements for directors - exceeding certain set limits - must have prior shareholder approval; and demand that shareholders must approve any executive pay deal that excludes variable remuneration tied to long-term performance targets.

These changes are quite spectacular as it is the first time such limits to executive pay are set in legislation. But there are some conflicts between employment law and the new measures on pay, so how the new laws will be enforced is uncertain.

Mark Wippell


Mark Wippell corporate partner, London.

Cadbury, Greenbury, Turnbull, Higgs - over the last 20 years UK corporate governance guidelines have progressively developed, in many cases in response to things having gone wrong.

The banking crisis has unleashed new guidance for financial institutions in the Walker Review, and an update for companies covered by the UK Corporate Governance Code. The UK approach remains influential internationally, and the Walker Review appears to have heavily influenced the thinking behind the European Commission's Green Paper, currently out for consultation.

The main areas of focus are risk management - with boards of financial institutions urged to appoint a senior risk director and a formal risk committee - tighter controls on boardroom and top management pay, and demands for non-executives to take on greater responsibility. The new Stewardship Code will also put more pressure on shareholders to actively engage with boards and to explain their voting policies.

The UK changes are generally well thought through, rather than being knee-jerk reactions to the calamitous events of the banking crisis.

Nobuo Nakata


Nobuo Nakata partner and bengoshi (qualified Japanese lawyer), Tokyo.

Disclosure of executive pay deals has been the major talking point in the market here.

New disclosure requirements demand that companies reveal any director's salary that exceeds ¥100m - just over US$1m at current exchange rates. Elsewhere in Japan, the corporate governance debate has remained relatively quiet in recent months.

Hans-Christoph Ihrig


Hans-Christoph Ihrig corporate partner, Frankfurt.

Directors' pay, the representation of women on company supervisory boards and the independence of supervisory board directors are three of the hottest topics in corporate governance in Germany.

A new law - VorstAG - in 2009 has set new limits on the remuneration of directors, while the Codex Commission has stipulated that companies should set objectives for the composition of supervisory boards to ensure not only the right levels of expertise, but also 'the appropriate degree of female representation'.

Guaranteeing the independence of executives has been the subject of lively debate and changes in the law. No CEO can now move directly from that post to a seat on the supervisory board, while other directors are barred under a new code from holding more than three supervisory board positions.

The expectation is that we will soon see stricter laws on how shareholders hold executives to account, mirroring changes being discussed in the UK.

Eric Shube


Eric Shube partner and head of A&O's US M&A practice.

Corporate governance is once again a hot topic in the US. A series of scandals some years ago - Enron, WorldCom, Tyco and others - brought attention to the issue of how corporations should be managed. This resulted in the Sarbanes-Oxley Act, new listing rules and the widespread adoption of voluntary 'best practices' designed to improve boards' decision-making processes.

The recent financial crisis highlighted the fact that even these improved measures did not protect against excessive risk taking. Weaknesses identified include the failure of risk management systems (and board oversight of risk issues); insufficiencies in accounting standards and regulatory requirements; and a lack of alignment of remuneration systems with strategy and risk appetite of a company and its longer term interests.

This is resulting in a new wave of corporate governance initiatives focused on limiting the power of the board vis-à-vis the stockholders, including intense focus on limiting executive compensation, and proposals to allow 'proxy access' - the ability of shareholders to directly nominate candidates for election as director at the company's expense.

Steven Schuit


Steven Schuit of counsel, Amsterdam.

Banks and financial institutions have been the main focus of a raft of corporate governance changes in the Netherlands, but there are important new rules elsewhere too. On top of a beefed up Governance Code - which includes provisions on corporate responsibility and institutional investors and is overseen by a government-appointed monitoring committee - a new banking code has been introduced.

It sets rigid rules on the composition of boards, the qualifications of directors and the creation of risk committees. Overseen by the Central Bank, the code puts an explicit responsibility on banks to put the interests of customers before those of shareholders and calls for the end of 'perverse' top pay deals.

Parliament introduced a new law enabling boards to claw back executive pay based on short-term, misleading results or takeover premiums and another bill setting rules for those companies that have one rather than the more typical two-tier boards.

Institutional investors are responding to new stewardship requirements urging them actively to engage with boards. But moves to offer higher dividends or increased voting rights to long-term shareholders have been weakened because of a lack of take-up by institutions. Retail shareholders are very active and have had some recent big legal wins in court.

Marcus Billam and Michael Loy


Marcus Billam and Michael Loy partner and consultant, Paris.

Recent important Supreme Court rulings have clarified the individual liability of directors of Société Anonyme companies, when, by their act or omission, they are involved in the board of directors taking a decision which entails a civil wrong, and the strict circumstances under which they can escape liability.

France's corporate governance code for listed companies was amended in April 2010 to include targets for the number of women on supervisory boards. The code recommends achieving 20% representation within three years and 40% within six.

Six of the top 40 listed companies have recently appointed a senior independent director, a post recognised in English but not French law.

Since 2008 companies have been obliged to set up audit committees and in June 2010 the French securities regulator launched a consultation on its draft proposals relating to the composition, competence, independence and responsibility of these committees. A new stipulation is also expected that remuneration committees should be set up in listed companies and in companies of a certain size. Court rulings on granting increased pay and pensions awards to directors of unlisted companies have made it clear that these must be approved by the board and by shareholders.

Iñigo Gómez-Jordana


Iñigo Gómez-Jordana managing partner of A&O in Spain.

Legislation recently introduced in Spain has caused a shake-up of the rules that limit the voting rights of large shareholders to just 10%, irrespective of the size of their stake in a company.

The issue has been hotly debated in the media, with those for and against sharply divided. On one side there are those who see this as a question of proportionality and democracy. On the other side there are those who argue that this change will not improve corporate governance standards or force directors to put the business' interests before their own. The way to do that is to apply governance codes rigorously.

France's corporate governance code recommends achieving 20% representation [of women on supervisory boards] within three years and 40% within six."

Marcus Billam and Michael Loy, partner and consultant

Looking further for people with potential

If we are serious about hiring the very best people...

  • Susan Hazledine Susan Hazledine Took on her current role as head of social investment after 20 years as an A&O litigator, of which five were spent as graduate recruitment partner.
  • Genevieve Tennant Genevieve Tennant Started her career as a graduate trainee at Liberty's of London and ran her own consultancy before becoming A&O's HR director.

Most top organisations describe themselves as 'people businesses' and talk about the importance of recruiting staff from a wide variety of backgrounds to make sure they find people with the greatest potential.

Yet, as a report by the UK Government* claimed last year, it is harder to enter top professions such as law, finance, medicine and journalism than it was 30 years ago if you don't have the right connections or the right financial support.

If this is true, it is not only bad for society but bad for business. Genuinely competitive organisations, serious about investing in the future, cannot afford to take a narrow view of recruitment. If we want the best, we must be prepared to look far and wide for it.

This view is reflected in our graduate recruitment programme, which for some years now has looked beyond the elite institutions. Four years ago we increased the number of universities we recruit from in the UK and Ireland to 40, and our current trainee population was recruited from over 50 universities.

It is also reflected in our work to broaden access to the legal profession. For example, in New York we host a summer internship programme which offers high school students from low income, inner-city communities the opportunity to gain hands-on work experience in the legal world. In the Netherlands this year we doubled the number of our lawyers who act as coaches for the Giving Back Foundation, which supports students with weak social networks or who come from different cultural backgrounds. Our coaches educate students about the legal profession and help them with career planning.

Allen & Overy also ran the second of its Smart Start Experience schemes in July aimed directly at inspiring people from less privileged backgrounds about a career in business.

Each year the scheme offers over 100 young people from disadvantaged London boroughs the chance to attend an intensive week of workshops at Allen & Overy's offices so that they can get a real taste of what it is like to work in the City. For many it is not only the first glimpse they've had of a City career, but the first time they have considered the professions as somewhere they might find employment.

The scheme, thought to be the biggest of its kind run by a law firm, has received widespread media coverage and was recognised by the UK Government as being an example of best practice.

* Unleashing Aspiration - a report by the UK Government's panel on Fair Access to the Professions, chaired by Alan Milburn MP.

Case study

Graduate Recruitment

The success of our graduate recruitment programme has been recognised in all of the major UK league tables and awards this year.

In The Times Top 100 Graduate Employers the firm reached its highest position at 24 - also the highest ever ranking for a law firm - and won the Graduate Employer of Choice for Law. In the Guardian UK 300 - the biggest listing of UK graduate recruiters - Allen & Overy was the highest ranked law firm at 57 - over 50 places above the next law firm. And in the prestigious TARGETjobs Awards we won Most Popular Graduate Recruiter in Law for the fifth year running. These achievements show the excellent reputation we have as an employer in a competitive recruitment market.

Case study

Smart Start Experience

Allen & Overy's Smart Start scheme is in its second year in London.

Students who took part in the first Smart Start scheme in 2009 were overwhelmingly enthusiastic about the experience. 83% said they were more confident as a result and 82% said they were more ambitious. Over 90% had a better idea of what jobs were on offer in the City and knew the sorts of skills they needed to succeed. Not all of the participants will go on to work in the City or, indeed, the law - and wanting to is not a pre-condition of joining the scheme. The focus is on providing an opportunity that these young people might not otherwise have to see the possibilities that exist for them. As one participant in 2009 - Nofisat Akerele - put it, it's about feeling "confident, prepared for life and excited about my future".

Case study

Too few women Making it to the top

Attracting talented young people is a priority for Allen & Overy. But a groundbreaking scheme to allow partners to work part-time shows the firm is serious about retaining talented women at the very top too.

  • Geoff Fuller Geoff Fuller Chairs A&O's steering group on part-time working, and is a partner specialising in debt capital markets issuance, derivatives and structured finance.
  • Susan Howard Susan Howard Is an M&A partner specialising in the infrastructure sector, as well as a member of A&O's steering group that is developing proposals for part-time working.

In January 2010, Allen & Overy hit the headlines for offering partners the option to work part-time. The move, designed to help the firm attract and keep the very best people through to partnership, was hailed in the press as a 'watershed moment' for the legal sector.

Keeping your best people is a challenge for any business. But retaining women and bringing them through to partnership has seemed an intractable problem across the professional services sector.

Law is clearly an attractive career option for women. Last year, 62% of our UK graduate intake were women and currently 45% of associates worldwide are women. But, in representing only 16% of the partnership, women are not staying on to the highest levels of the firm in big enough numbers.

There could be many reasons for this, but those most frequently given are the culture of long working hours and the perception that there is too great a conflict between work and home life at the point when women are thinking of starting a family.

This means many women are unable to fulfil their full potential. That is obviously bad news for individuals. But it's also bad news for the competitive position of the firm. We will be at an increasing disadvantage unless we can choose our future leaders from as deep and mixed a pool of talent as possible.

A strong signal from the top

We have introduced a number of family-friendly policies in recent years: career breaks for associates, greater flexible working options, emergency childcare provision and extended paternity leave, to name a few.

But in 2010 we went further. In what we believe is one of the most advanced packages available for lawyers at any international law firm, we introduced a formal scheme to offer full partners the chance to work part-time.

The new scheme means that partners can elect to work a four-day week or to take 52 extra days' leave a year.

Open to all partners - men and women - the scheme means partners can adjust the amount of time they work while continuing to progress as an equity partner, for a maximum of eight years. Their pay is adjusted pro rata according to the amount of time they work.


It's early days for the scheme, but already it has had quite an impact. Before it was introduced in January 2010, four partners worked part-time. Already this has increased to 12, with many other partners in discussion about moving to flexible working arrangements.

About the authors

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Eight out of ten young people think obstacles exist to future careers."

Read our recent research report

Allen & Overy… has made a landmark decision to allow flexible working for its female partners… it's as radical as dancing naked through the Supreme Court. It's also supremely clever."

Fiona McIntosh, Grazia Magazine, 8 February 2010

I am now tempted to shoehorn in a part-time law degree, if only to get a job at Allen & Overy, the international law practice that [has] announced it now allows full equity partners at the top of their professional game the opportunity to work part-time. Not only is this an enlightened move…a multinational law firm offering the chance to be a 'part-time partner'… is clearly thinking long-term."

Kathryn Flett, The Sunday Times, 22 August 2010


Proportion of female directors on FTSE 100 boards. (Source: The Female FTSE Board Report 2009, Cranfield University School of Management.)


Percentage of female partners at A&O in 2010


Percentage of female associates at A&O in 2010

IP: time to think global

Technological change and fierce competition make it more vital than ever that companies in fast-moving sectors protect their ideas.


Some argue the courts and the regulators have been slow, but, in reality, change is coming so fast that they are being really tested. The system is bursting at the seams."

Geert Glas, head of A&O's global IP practice

  • Geert Glas Geert Glas Is A&O's global head of IP. He studied law in Belgium and Illinois, speaks four languages fluently and joined A&O as a partner in the 2001 merger with Benelux firm Loeff Claeys Verbeke.
  • Nicola Dagg Nicola Dagg Was voted one of The Lawyer's Hot 100 a year after joining A&O as a partner, and is Assistant Reporter General for AIPPI (Association Internationale pour la Protection de la Propriété Intellectuelle) - the world's largest NGO for intellectual property issues.
  • Laëtitia Bénard Laëtitia Bénard One of A&O's newer partners in Paris, promoted in 2009, Laëtitia has two post-graduate degrees: one in Industrial Property and one in Private Law. She has been identified by legal directories as an 'outstanding advocate' in the IP and life sciences fields.
  • Jim Ford Jim Ford Is a partner in London and has been with A&O for 14 years. He is described in legal directories as 'one to watch' in the fields of IP and life sciences.

Increasingly, argue Allen & Overy's IP partners, such protection calls for a global approach.

Six years ago Facebook did not exist and YouTube had yet to post its first 19-second video clip. Twelve years ago, Google was still just the brainchild of two PhD students operating their business from a Californian garage.

The communications, media and technology sectors have brought major change to society in a short time. But these fast-moving sectors have also posed a challenge to lawmakers and regulators to keep pace with change.

In life sciences - another IP-rich sector - there have been major challenges too, such as fierce and growing competition, longer and more expensive drug development programmes, growing demand for cheaper generic drugs, and a shortage of new blockbuster drugs at a time when many patents on existing blockbusters are lapsing.

The result in these fast-moving sectors has been a rapid upsurge in complex, multi-jurisdictional IP disputes.

It is evidence, says Geert Glas, head of A&O's global IP practice, that IP is not just about protecting the rights of inventors any more. "There are far more stakeholders affected and it's becoming more complex all the time," he says.

If a product is a component of a bigger platform, there are all the other component makers to think about - a mobile phone may involve up to 1,000 patents.

Internationally agreed technology standards - like 3G mobile technology - help to make handsets useful and affordable for consumers. But standards often specify the use of a wide variety of patented technologies.

Manufacturers must negotiate cross-licensing agreements with great care to protect the value of their ideas and avoid expensive litigation.

The internet has also made it harder to target specific consumers with specific products. "We might support a life sciences company charging higher prices for a drug in developed markets so that it can be sold at subsidised prices in developing markets. But it's a whole different calculation when that drug finds its way back, at the cheaper price, to the European or US markets. We need to come up with global answers," says Geert. "Country-by-country or region-by-region responses don't work any more."

Fighting across borders

The growth in so-called 'bet-the-company' cases shows how litigants are trying to use conflicting patent regimes to win lucrative settlements. In these we are seeing Patent Trolls - companies set up to own portfolios of patents - seek opportunistic injunctions in a sympathetic court, which, if enforced, could take products off the global market.

Nicola Dagg, lead IP partner in London, has been fighting such actions on behalf of BlackBerry makers Research in Motion for five years. One response is to launch a pre-emptive legal strike in a respected commercial court in the UK or Germany for instance. "Courts only have jurisdiction over national patent law. But if you can win in the country that goes to trial first, it can be persuasive," she says.

The rules have changed

Clearly the rules are changing fast. Take copyright. Once, copyright law protected the rights of a writer or a movie maker. You needed their permission to reproduce their work. But increasingly the assumption is that the rights are given unless the author objects. That appears to be the business model for companies, like Google, offering whole libraries of books online. "From a legal point of view we are moving from an opt-in system to an opt-out one and that's a very significant change," says Geert.

The law is becoming more complex and is increasingly calling for legislators to make difficult moral and political calls. Personal freedoms, as well as corporate fortunes, are at stake. What are the freedoms of a Facebook user with a community of several thousand friends? What are the appropriate remedies against a teenager who simply doesn't recognise illegal downloading as theft? Should companies like eBay be seen as IP gatekeepers - forced to police their networks for infringements - or are they just content carriers?

Geert points to the recent European Court of Justice ruling on Google's Adwords service as an example of the courts trying to keep up. "Some argue the courts and the regulators have been slow, but, in reality, change is coming so fast that they are being really tested."

IP driving consolidation

The patent cliff faced by many big pharmaceutical companies has led to continued battles with makers of generic drugs. Some generic manufacturers test the appetite for litigation by conducting 'at risk' launches of copycat drugs before the patent expires. Others launch on the very day a patent lapses. "Planes are literally loaded and ready to fly the drugs in on that day. The makers know prices will automatically drop by up to 95%, so there is a scramble for market share and the best price," says Nicola.

Litigation between the originator companies seeking to patent their research, particularly in medicines that are hard to copy, is growing too. We are currently defending Novartis in an action brought by AstraZeneca over biotech screening devices.

And with a slowdown in the development of new blockbuster drugs, companies are looking to transactions to secure growth - whether buying their own generic capability or R&D expertise or taking control of smaller companies with a strong product pipeline. How companies protect their ideas and inventions in these deals remains a challenge, and increasingly that is on a global scale too.

Case study

BlackBerry maker Research in Motion

As a top product in a fast-moving technical field, the BlackBerry attracts many opportunistic patent claims.

We have been acting for Research in Motion (RIM) on a number of major, international patent disputes over the past five years - the UK litigation is often a key part of an international patent strategy designed to put RIM in a winning position in the wider global dispute. These are high profile cases in which an injunction to shut part of the BlackBerry service down is being claimed, so there is everything to play for. Most recently, we have been successful in the English courts in major actions both against patent licensing company Visto and against Motorola, following which we have been able to negotiate settlements of the worldwide litigation on terms favourable to RIM.

Case study


eBay, the leading worldwide online marketplace, has been subject to a number of trade mark infringement claims relating to goods being sold on its website by individual users.

The claims against eBay raise topical questions. For example, to what extent is a service provider, such as eBay, liable for trade mark infringements committed by its users? Can eBay be obliged to monitor its users' activities? And what sort of injunction can be granted against innocent intermediaries (under the IP Enforcement Directive)? We are acting for eBay in relation to its submissions on these issues before the Court of Justice of the European Union, and will continue to represent eBay when the case comes back to the UK after determination by the Court of Justice. This is a significant case raising issues that are relevant to the wider internet community.

IP is global because these products are global. In order to maximise their value, either offensively or defensively, a company must have a global development plan - and that includes a global IP litigation plan."

Nicola Dagg, lead IP partner

About the authors

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Banking on tomorrow

Banks around the world face seismic changes to their business models.


Here, a collection of our partners and clients describe what this might mean for the banks of the future.

A tidal wave of new regulation is sweeping the financial services industry. Are the only options as stark as 'jump or be pushed'? If so, choosing which way to jump, and when, will be crucial given the period of uncertainty the industry faces while the new rules take shape.

Tensions are already starting to appear in the debate over reform. How do you curb the excesses of the past and reduce systemic risk without strangling the flow of money to the economy? Global consensus is vital - but how can national interests also be protected?

The wave of new banking regulation being proposed indicates just how huge a task lies ahead.

The bill passed by the US Congress in June, for example, runs to more than 2,000 pages and calls for hundreds more studies and reports before further regulations are drafted. This represents the biggest shake-up of banking since the 1930s.

Elsewhere the task is equally difficult, particularly with the spectre of a double-dip recession hovering over so many big economies.

These changes will affect almost every aspect of how banks operate. The areas for reform are relatively clear. Banks can expect far greater macro-prudential supervision, curbs on executive pay, new taxes, restrictions on risky trading activities, demands to boost their capital and liquidity, measures to isolate systemic risk to end the culture of 'too big to fail' - even enforced break-up to promote competition.

The banks of tomorrow will look very different to the banks of today. Yet what's missing is the 'when' and the 'how', and banks would be unwise to expect change to come either quickly or cleanly.

In the meantime, there is no doubt that banks are carefully considering their appetite for different types of risk, products and even geographies.

Doug Landy

The beginning, not the end

Doug Landy Is a partner based in New York. He started his career with the New York Federal Reserve and is now one of the leading experts on US financial services regulation.

The business of banking in the US will undergo huge change. Institutions will be forced to transform themselves from top to bottom - how they fund themselves, the activities they are involved in, how they compensate themselves, how big they can get. If they thought they were over-regulated before, they haven't seen anything yet.

But it will take up to four years for regulations to be written from the new US legislation. The Volcker rule - banning banks from speculating with their own money and constraining their investments in hedge funds and private equity - will not, itself, be in place for more than five years.

That leaves banks with a massive dilemma. How do you prepare yourself for fundamental change, when you have no clear idea of what shape that change will take?

The adoption of Dodd-Frank in the US represents a fundamental rethinking of the nature of regulation of financial services. There is a redetermination to identify and manage risk structurally by forcing banks to spin it off into separate affiliates or to stop engaging in certain activities entirely. This will force banks to rethink their international business models to ensure optimal use of their scarce funding and capital resources.

But banks know that, with over 100 pieces of new regulation to be written, the devil will be in the detail. Some are hoping the regulators will be more sympathetic than the politicians. The bill is not the end of the story. We are just at the end of the beginning of the process.

Alan Ewins

Asian players, global rules

Alan Ewins Is a partner in Hong Kong and established A&O's Asia Financial Services Group in 1995. He is a former Chairman of the Hong Kong Law Society's Securities Law Committee.

Asian banks, having suffered their own crisis a decade earlier, were better prepared this time and escaped the worst effects of the financial crisis. In recent years the regulatory focus in Asia has been on consumer protection and how banks conduct business, rather than on prudential and capital issues. But the latter remains the primary driver in the context of G20 developments.

So, sheltered from the worst of the financial storm, Asian banks have used the crisis to prepare for global opportunities that may present themselves in the new environment.

This year saw the world's largest ever IPO in the US$22.1bn offering of shares in the Agricultural Bank of China (on which Allen & Overy acted as US counsel to the international underwriters).

We may in the next few years see the emergence of a raft of new global players in the industry with a more Eastern focus.

There is significant emphasis in Asia on risk management and limitation - a core need for banks of the future. A coherent strategy for monitoring and upgrading policies, procedures and businesses - in line with greater senior management involvement - will be key, but only a partial solution. That needs to be combined with enhanced awareness and responsiveness to global, not merely domestic, regulatory trends. The extraterritorial implications of the UK Bribery Act are a case in point here, demonstrating the need for a broader view to be taken.

Banks that can assimilate and anticipate regulatory change across their borders and businesses, with the help of global advisers, will be well placed to look to the future with greater confidence.

Bob Penn

Global versus local

Bob Penn A partner in London, Bob led A&O's substantial work following the implementation of Basel II and on the UK Banking Act. He lectures extensively on these topics.

Everybody agrees there is a case for reform - the system has defects that need to be fixed. But do you use a sledgehammer or a scalpel? Politicians and regulators need to find a way of fixing the system, while causing the minimum of collateral damage.

Banks want to see a global approach to these issues and there were signs of real international consensus at the G20 meeting in Toronto this summer, particularly over bolstering bank capital reserves. But very soon it was clear that individual countries would be left to decide for themselves when to force their own banks to build up their capital bases. In some cases it could be many years - few politicians want to risk prolonging recession by forcing up the cost of lending to hard-pressed businesses.

The imposition of new taxes on bank profits and pay is another example of how hard it is to achieve a global response - everyone is moving at different speeds.

But while much of the focus for reform remains national, its impact will be global.

The UK's newly created Independent Commission on Banking (ICB) has been given a wide remit to investigate how UK banks are organised. Separating retail and investment banking - the utility and the casino - and breaking big banks up to promote competition are both on its agenda.

The recommendations the ICB brings forward could be historic or catastrophic. Splintering a major UK bank into its constituent parts could be a long and bitter exercise, producing institutions that are less efficient, have fewer economies of scale and are unable to compete effectively across borders.

The hope is that any proposed reforms will be measured and based on a proper analysis of the costs and benefits. What's important is that the ICB takes a consistent approach and is non-partisan.

In response to the uncertainty, banks will concentrate on 'operationalising' themselves. They will invest heavily in IT and people to make sure they manage risk rigorously and deliver the sort of transparency demanded by policymakers and the public. That will include getting used to having the regulators working within banks, rather than at arm's length.

Bank boards will also have to be more professional, with non-executives expected to demonstrate a real understanding of the risks faced by the business and how those risks are managed and mitigated.

Harry Baines


Harry Baines Company Secretary and General Counsel - Lloyds Banking Group

The weight of likely changes to the capital and liquidity regime, alongside more intrusive supervision, and ever closer scrutiny of conduct of business issues, is intended to - and will - drive bank behaviours.

Specifically, banks are likely to re-evaluate their business models and product mix. Banks will be incentivised to think about becoming simpler, with narrower focus on particular markets or segments, and less complex structures. The spread of activities within individual institutions will become less. Mainstream retail products are likely to become simpler, with more complex products increasingly available through advised channels only.

If overdone, there is a risk that increased regulation will result in less innovation, and more 'me too' products. Service standards will rise, in part to reflect regulatory expectations, in part as part of banks' rehabilitation - with service standards becoming an increasingly competitive issue. Differentiation between high street banks, serving consumers and SMEs, and banks supporting global corporates and executing own account trades, will increase. In short, increased polarisation of products, and increased polarisation of banks.

William J Mills

Responsible finance

William J Mills Chief Executive Officer, Europe, Middle East & Africa - Citi

The financial crisis has galvanised governments across the G20 to think deeply about financial stability, risk, more and better capital, and governance. The banking industry needs to embrace the best of these changes and work with regulators to make sure we do not see regulatory fragmentation in different regions.

The bank of the future needs to incorporate responsible finance into every aspect of its business. At Citi, it is the core of our mission, part of our culture and the transformative framework around which we build our businesses, engage employees, serve customers and lead the industry.

We understand the special responsibility we have, and aim through all our actions to create economic value and drive opportunity. Whether it's our business practices or our efforts to build a financial system that creates economic value, promotes common goals and harmonises private and public interest both locally and globally, responsible finance is at the heart of all we do.

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Service standards will rise, in part to reflect regulatory expectations, in part as part of banks' rehabilitation - with service standards becoming an increasingly competitive issue."

Harry Baines, Company Secretary and General Counsel - Lloyds Banking Group

Infrastructure: filling the funding gap

Much of the developed world's infrastructure is crumbling and in need of repair.


The spread of PPP around the world has continued unabated through the downturn - even if particular governments have had to refocus their strategies."

David Lee, partner

  • David Lee David Lee Was an original member (and only lawyer) on the UK's Treasury Taskforce - the private sector team credited with improving the PFI process in the UK. He has been a partner at A&O working on infrastructure transactions for 12 years.
  • David Horner David Horner Before joining A&O's New York office as senior counsel in 2009, David was Deputy Assistant Secretary for Transportation Policy at the US Department of Transportation, and Chief Counsel of the Federal Transit Administration.

In both developed and developing economies there is a realisation that investment in infrastructure is essential for long-term economic growth. The bill for this work will be huge - but who will pay?

The World Bank estimates it will cost some US$71 trillion by 2030 to maintain existing infrastructure and, importantly, to invest in the new projects needed to foster sustainable global economic growth.

The issue is not limited to the developing world (Africa, Vietnam, Thailand and Indonesia all have huge needs and ambitious programmes under way). It exists as much in China, India and parts of Latin America, as well as Europe, the Gulf States and, more particularly, the United States.

You need a cool head and strong heart when you start exploring just how big the world's infrastructure bill will be in the next few decades. Whether or not the cost estimates are accurate, the important question is how to pay the bill. Solving the conundrum has grown more urgent following the worst global recession for 80 years. Most governments' budgets are under severe strain, but it is also clear that not investing in infrastructure will have a negative impact on economic growth in years to come.

The growth of Public-Private Partnerships (PPP)

Attention in many markets is turning to PPP schemes as a way to involve private capital and global infrastructure operators. Although PPP is just one approach to funding, it has now become a widespread technique for developing new infrastructure. A&O's Global Guide to PPP, published this year, describes just how many governments are now using PPP, and the range of approaches and levels of sophistication being employed.

Partner David Lee, who led the team that prepared the guide across 20 of the firm's offices, is confident that the new, apolitical, nature of PPP, combined with its stimulus effect, will lead to a further expansion. "The spread of PPP has continued unabated through the downturn," says David. "Even if particular governments have had to refocus their strategies."

The US is a relative latecomer to the PPP market, but currently over 20 major PPP projects worth more than US$30bn are in procurement, led by municipal and state authorities rather than the federal government. Indeed, this year A&O has advised on a number of groundbreaking deals, such as Denver's FasTracks commuter rail project, the monetisation of Chicago's metered parking system, Puerto Rico's monetisation of two toll roads and the concessions of the car parks owned by the cities of Pittsburgh and Indianapolis. The states that get it right - such as Florida, Texas and Virginia - are big markets and already have multiple schemes in place worth in excess of US$1bn. A number of cities are following suit.

Other countries are implementing their own plans, with Indonesia, Vietnam and Malaysia recently announcing new PPP schemes, and New Zealand embarking on its first PPP programme, on which Allen & Overy is currently advising. Few economies, with the possible exception of China, can rely heavily on centrally funded investment to deliver their infrastructure needs. Elsewhere, filling the infrastructure gap will take a feat of legal and financial, as well as civil, engineering.

Funding needs

One potential source of investment, if expectations are correct, is pension funds. Said to have a material percentage of US$16 trillion earmarked for investment in infrastructure, they would look to be ideal financial backers for long-term infrastructure funding. Indeed many have started to invest actively, although largely in existing infrastructure that has an established revenue stream.

Senior counsel David Horner, based in New York, estimates that many big US pension funds are now allocating some 5% of their portfolios to such projects. That remains relatively small compared with many Canadian funds, but is nevertheless significant.

The question is how to attract these necessarily conservative investors to unfamiliar and more risky greenfield projects. Traditionally these projects are structured in such a way that a safe income stream will only come after construction phase risks are out of the way and operating revenues have started to build up. Those who can crack this challenge - to allow income to be earned during the construction phase as, say, an advanced payment for operations - will potentially steal a march on their global competitors. Some development banks are now looking to come in to wrap this period of construction phase risk - but this may well, again, only scratch the surface.

Progress is being made, but it is slow. It is not until we get to the next refinancing stage of current infrastructure projects that there will be more of a shift towards direct investment by the pension funds. That is likely to be two or three years away.

"If governments want to tap this source of funds earlier," argues David Horner, "they will have to be more creative and innovative in the near term."

Case study

Investment funds

We have been involved in forming a number of important new infrastructure investment funds, particularly those being established by public or international bodies.

For example, in Paris and Luxembourg we advised the core sponsors on setting up 'Marguerite', a pan-European infrastructure fund for public and private long-term institutional investors. The Marguerite Fund forms part of the European Economic Recovery Plan, a key aim of which is to reinforce Europe's long-term competitiveness by helping member states with their investment in energy and priority infrastructure. It has a fundraising target of €1.5bn by mid-2011 and will be one of the prime European equity financing vehicles for infrastructure.

We have also worked with the International Financial Corporation (part of the World Bank) on the establishment of various emerging markets funds.

Case study

Public-Private Partnerships

Allen & Overy is one of the leading legal advisers on PPP/PFI projects. In 2009 we closed 17 deals internationally, some of which have been the most challenging and groundbreaking deals in the market.

We acted on the US$1bn Zayed University in Abu Dhabi (which won the Middle East PPP Deal of the Year at the PFI Awards 2009), the Dublin Metro PPP, and we advised the sponsors on the Royal Canadian Mounted Police Division relocation project in British Columbia. We have also started work on New Zealand's first ever PPP programme, and continue to work on several projects in the United States.

About the authors

External sites


World Bank estimate on cost of infrastructure projects around the world to 2030


Jurisdictions covered in A&O's Global Guide to PPP


Worth of PPP projects now in procurement in the US


Estimated investment potential of pension funds

Rebuilding Rwanda

Foreign investment is vital to Rwanda's continued recovery from the horrific genocide of 1994.

  • Paul Crook Paul Crook Was a partner in London and led the corporate practice in Paris before becoming global head of corporate know-how and training.
  • Pallavi Sekhri Pallavi Sekhri Has been developing A&O's work in Rwanda for three years. She is a litigation associate in London and has spent time in A&O's Paris and Hong Kong offices.
  • Chris Marshall Chris Marshall Prior to leading A&O's pro bono and community affairs team, Chris was co-founder of A4ID, which provides access to justice for the developing world, particularly in support of the UN Millennium Development Goals and Make Poverty History campaign.

One thing that Rwanda needs urgently is commercial lawyers.

Paul Crook and Pallavi Sekhri recall standing in the Memorial Garden in Kigali. Looking out across the rolling landscape of Rwanda - 'the land of a thousand hills' - they were suddenly brought up short by their guide telling them that 250,000 genocide victims lay buried beneath their feet.

You cannot visit Rwanda, says litigation associate Pallavi - part of Allen & Overy's team that recently visited the country to help build up its commercial law profession - without being deeply affected by how bravely its people confront the past. And yet there is an overwhelming desire to look forwards. "They are not bound by a sense of vengeance. Instead, they are thoughtful and pragmatic, concentrating on building something great for the future."

Rwanda was left broken and shattered by the 1994 atrocities, in which an estimated 800,000 died. Efforts to rebuild the country - through a programme of reform, reconstruction and reconciliation - continue and have won international admiration.

But the rebuilding effort still has a long way to go.

Take Rwanda's legal system. After the genocide, the country was left with just eight lawyers, its courts were destroyed or abandoned and the rule of law was all but extinguished. Today, there are over 600 lawyers and the country is in the midst of an ambitious programme to move from a civil to a common law legal system. But inevitably the Rwandan legal infrastructure is relatively young, and much work needs to be done to build capacity and the skills to administer a common law system.

There are significant gaps in the legal infrastructure, not least in the commercial law sector which is so vital to Rwanda's hopes of attracting much needed foreign investment to continue the country's economic recovery.

Former head of Allen & Overy's litigation practice and now judge, David Mackie QC, helped identify this gap when working with a group of international lawyers to investigate how the legal profession could help in the reconstruction effort. With aid funding hard to come by, he approached the firm to see if Allen & Overy could help.

As a result, we are now working with the Rwandan Institute of Legal Practice and Development, the National University of Rwanda, the Ministry of Justice and the Supreme Court to give local judges and lawyers a thorough grounding in commercial law.

In May, a 10-person team - led by Paul Crook, global head of corporate know-how and training, associate Pallavi Sekhri, and head of pro bono Chris Marshall - travelled to Kigali to run intensive training courses as part of a three-year effort to help build up the commercial law profession in the country. Most local law practices remain small - meaning it is hard for lawyers to find time to extend their training and experience. So an important objective of the training is to help local lawyers learn how to grow a legal business.

Follow-on training over the next two years is likely to be conducted in smaller more regular blocks, potentially using Allen & Overy alumni, as well as current staff, as tutors. Discussions are also under way with the Central Bank about training its in-house lawyers and the country's cadre of about 50 commercial lawyers.

Allen & Overy also helped launch the first edition of the Rwandan Commercial Law Review, with content from its own lawyers and academics from the National University. Further editions of this valuable resource are planned.

Paul is convinced that building a commercial law profession will not only help attract international investors, but will also cement broader legal reforms. "We're pretty clear that building up skills in the private sector will provide further impetus for development in the public sector," he says.

And it should help Rwanda play a more significant role within Africa. Following recent moves to bring neighbouring East African nations, including Kenya, Uganda, Burundi and Tanzania, into closer economic co-operation, Rwanda has its sights set on being 'a leader among those countries'.

Rwandans, at all levels in society, are hungry to learn, says Chris.

"You feel a tremendous drive towards change happening in Rwanda. This is a country with no great natural resources. To be successful it knows it needs to use the energy and drive of its people to generate income."

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Following recent moves to bring neighbouring East African nations, including Kenya, Uganda, Burundi and Tanzania, into closer economic co-operation, Rwanda has its sights set on being 'a leader among those countries'."

Paul Crook, global head of know-how