European General Counsel Seminar Presentation, 24 January 2012

1. European General Counsel Seminar
Champions in Business
Olympic Museum, Lausanne
24 January 2012

2. European General Counsel Seminar
Cross border post merger – winning gold
Robin Johnson, Head of International M&A,
Eversheds LLP
24 January 2012

3. Cross border post merger
Aim of today’s session
– Focus on some examples of deal issues that
can lead to value erosion post transaction
– Look at ways to minimise risk and preserving
value post deal and to share our top 10 tips
for making your acquisition a success

4. THE CASE STUDIES

5. Case Study One
• Large corporate acquiring a group of businesses
from private ownership
• Limited diligence undertaken
• No due diligence done of “minor” subsidiaries but
buyer directors and officers appointed to the
boards
• The deal team was led by the division buying the
business

6. Case Study One (Cont‟d)
• Buyer officer appointed at closing to the
boards of all acquired entities
• Subsequent compliance issue and potential
personal liability

7. Case Study One
Issues
• Lack of focus to due diligence or rather too
focused without overall leadership
• Not understanding who the seller was and their
approach to risk
• Lack of internal controls as the business was run
as a “family business”
• Relied on the seller‟s suggestion of warranty and
indemnity insurance without fully understanding
the risk
• Post deal issues that came out of this approach

8. Case Study One
Issues (Cont’d)
• Lack of understanding of the entities acquired
and potential liabilities for directors
Key Lessons Learnt:
Do not underestimate the importance of
diligence and good governance.

9. Case Study Two
• A large business acquiring a division of another
large business
• Thorough due diligence done but the
pitfalls of buying out of a large
business

10. Case Study Two
Issues
• Transitional services issues
• Tax and legal structuring issues
• Hidden costs
• Stock options and other labour law issues
• Cultural costs
• Ownership of assets
Key Lesson Learnt:
Importance of deal planning and realistic
bid timetable. Focus on the carve out.

11. Case Study Three
Acquisition by a large corporate of an
entrepreneurial private business

12. Case Study Three
Issues
• Cultural
• Understanding what made the target business
“click”
• The original owners role post deal
• Employees view of becoming part of a large
corporate and the organisational changes that
resulted
• Relationship with third party vendors
Key Lesson Learnt:
Integrating culture and incentivisation
package

13. Case Study Four
Fixing the valuation “gap” on a technology

14. Case Study Four
Issues
• Earn out arrangements
• Issues associated with earn out arrangements
including short term focus of vendors against
long term focus of buyers and what happens if
the buyer changes their mind
• What happens when the synergies aren‟t there

15. THE TOP TEN TIPS

16. Top Tip 1
Culture
• Do not underestimate the difference in lifestyle
• Approach, compliance approach, business
approach and history
• Can you manage remotely?

17. Top Tip 2
Process and Timetable
• Scope
• Control
• Communication
• Build in time to reflect distance/travel/time
zones
• Don‟t underestimate the need for physical
meetings
• Disproportionate amount of time and energy
compared to a domestic deal

18. Top Tip 3
Due Diligence
• Don‟t be afraid to due diligence to death to
replace contractual comfort
• Use due diligence for your integration plan
• The value of vendor due diligence
• The difference to disclosure processes
• Ensure you understand the characteristics of the
individual entities acquired and the potential
liabilities for your directors

19. Top Tip 4
The Gap between Buyer and Seller Price
Expectation
• Issues with earn outs
• Issues with deferred consideration
• Issues with non-cash consideration

20. Top Tip 5
Transactional Documentation Approach
• Escrow Accounts
• Completion accounts v locked box
• Approach to disclosure
• Approach to warranties and indemnities
• Approach to financial and other limitations
• Litigation v arbitration – the choice of law clause

21. Top Tip 6
Anti Trust
• Build into the project plan time to assess anti
trust
• Different merger controls in each jurisdiction
• Anti trust compliance going forward

22. Top Tip 7
Taxation
• Structuring deals on tax efficient basis
• Asset deals against share deals
• Transaction costs associated with the deal
• Future repatriation of profits
• Transfer pricing
• Stock options

23. Top Tip 8
Separation Issues
• Issues of selling out of the group
• Licences, permits, consents/real estate, IT
pension plans
• Employment benefits going forward

24. Top Tip 9
The Compliance Programmes going forward
• Bringing the employees into line
• New divisional responsibilities

25. Top Tip 10
Third Party Views
• What do suppliers think?
• What do customers think?
• What does the market think?
• Are synergies there?
• Does the target have a particular style of being
with customers and suppliers?

26. © EVERSHEDS LLP 2009. Eversheds LLP is a limited liability partnership.

27. Eversheds Consulting
Creating a High Performance Team
Paul Smith
Eversheds Consulting

28. Agenda
• A shift in the balance of power
• Issues facing general counsel
• Taking the health check to assess your readiness
• Questions?

29. Lawyer Client Relations
Summary of Developments
• The power has shifted and In-house
Counsel (IHC) are now at the helm
• Firms less able to set direction of industry
• New responsibility of market leadership
presents new challenges for In-house
Counsel

30. Law Firm of the 21st Century
The Client’s Revolution
• In our recent report, Partners and In-house
Counsel told us that:
75% believe
power has
73% of In-house
moved from
Counsel have
firms to
changed or reduced
client 78% believe
the number of
external legal that GFC
advisors changes are
permanent

31. Global Financial Crisis (GFC)
Immediate Impact – Cost
In the USA big firms alone 10,000 lawyers
laid off in 6 months since GFC
Media News Group Inc
1,000 lawyers laid off in USA in single day
Bloomberg Inc
Both in-house & firms have had budgets
cut, salaries frozen and unnecessary costs
removed
Winmark Looking Glass Report

32. Global Financial Crisis
Structural changes
Clients take
centre stage
Legal
services gear Law firm
towards market in
efficiency flux
and value

33. Clients take centre stage
The evolving role of the In-house Counsel
1. Balance of power shifts to clients
– Client rise to take the reigns as legal sector enters modern world
– Change driven by client demand; law firms reactive to change
2. Fee levels set for long term stagnation
– Recession drives efficiency
– Legal services are increasingly unbundled
– Outsourcing and technology dramatically increased
3. Large expansion in In-house Counsel status and role
– 74% of IHCs report that they now occupy a far more senior role within
the business
– CSR increasingly the responsibility of the in-house team

34. Balance of power shifts to clients
The rise of client power
• In-house Counsel have taken the role of business advisor
• Law firms aspire to this role, but are seen as service providers
Over 50% of In-house Collaboration
Counsels said as their Business
in-house capabilities Advisor
increased, they would
look to external lawyers Expertise Trusted
Insight
as a source of highly Supplier
specialised advice only
Expert
for hire
Is this the best model?
Task

35. Change in the balance of power
From firm to client
How much negotiating power do In-house Counsel feel
they have when agreeing fee structures?
Source:
Winmark Looking
Glass Report

36. Client led market
New challenges confront the modern In-house Counsel
In-house Counsel now have a new
responsibility to lead market
Many IHCs are unprepared for this new
responsibility
Law firms have their own agenda
Managing law firms is like herding cats

37. IHC responsible for shaping industry
Opportunity to lead market
Unique opportunity to lead market
But, are you ready and are you equipped
to deal with the other major issues facing
you?
Risk and compliance, need to show value,
decreasing budgets, globalisation,
pressure to generate income

38. Taking a Health Check
Are you making the most of the new market dynamics?
Taking you through a health check measuring your
team performance
Be honest in your appraisal – ensure you score „as-
is‟ and not „hope-to-be‟
Score each step out of ten
0 5 10
I know we do I know we have I am positive
not have some processes we have
procedures in – but we could excellent
place improve protocols in
place

39. 1) Legal Department Strategy
The plan to achieve your goal
0 5 10
• No defined strategy • Clearly defined and
• No alignment to wider communicated strategy
business strategy • Buy-in from team,
• No communication buy-in wider business and
from team senior management
• Ad-hoc reactive - fire • Aligned to wider
fighting business objectives
• Regularly reviewed and
progress measured

40. Strategy case study
Major defense manufacturer
Major defence organisation
with no effective legal Strategy Maturity Model
department strategy
3 year strategy
development and
Best in
implementation program class
Strategically
Benefits: managed
• Large improvement in Developing
customer satisfaction
• Substantial cost Ad-hoc
reduction
• Lower risk 3 year process
• Early engagement

41. 2) Insource versus Outsource
The resource mix
0 5 10
• No processes for decision • Sophisticated decision
making across teams tree
• No decision criteria • Risk/quality/capacity
• Ad hoc requirement for assessment applied to
external counsel different work areas in
different ways
• Rigidly applied across
business teams

42. Decision tree case study
Major global bank
Is the matter
YES NO
Business As
Usual (BAU)?
Is the matter Is the matter
YES National BAU? NO strategic?
Get estimate. Is the matter
Is the fee BAU City?
estimate < NO
25k?
YES NO
NO YES Get estimate. Is the matter Get estimate. Refer to
Get estimate Instruct Is the fee strategic YES Is the fee department
from another Eversheds estimate < estimate < head
BAU panel firm 25k? 25k?
Instruct lowest NO YES NO YES
quote Get estimate Instruct Get estimate Instruct
from another Eversheds from another Eversheds
BAU panel firm strategic firm
Instruct lowest Instruct lowest
quote quote

43. 3) Do you have a formal panel process?
Who to engage
0 5 10
• Business units choose • Defined and structured
law firms tendering process
• Vast array of firms • Defined panel lifespan
providing piecemeal • Tender process aligned
advice with legal and wider
• No consistent rationale business goals
behind firm choice

44. Panel tender case study
Tyco
Old Panel Panel Strategy & Tender New
panel
General contractor model
Implement internal engagement protocol
Review historical work with non-panel
firms
New matters only to be instructed to
panel firms by legal team
Implement service level agreements
Extract value add in line with
organisational goals

45. Panel tender case study
Major Automotive Manufacturer
Old Panel Panel Strategy & Tender New
panel
General contractor model
Implement internal engagement protocol
Review historical work with non-panel
firms
New matters only to be instructed to
panel firms by legal team
Implement service level agreements
Extract value add in line with
organisational goals

46. 4) How are external firms instructed?
Method of engagement
0 5 10
• No process for selecting • Defined engagement
which law firm protocol
• Multiple ways of • Confirmed contact
instructing points
• Ad-hoc decisions on • Regularly reviewed and
when and who to monitored
engage?

47. 5) Managing internal teams
0 5 10
• No KPI’s • KPI linked to objectives
• No management • 1:1 and team meetings
information • Monthly reporting
• No regular meetings • Clear strategy –
• No clear strategy understood by business
• Ad hoc allocation of work units
• Cross team business
integration

48. 6) Alternative fee arrangements
The right price for the right service
0 5 10
• No consideration of work • External work
types or fee structure categorised into types
• All firms bill by the hour • Alternative fee
arrangements used
appropriately:
o Fixed fee
o Conditional fees
o No win / No Fee
o Single firm retainer
o Billable hour
o Volume work / LPO

49. Fee structures case study
Eversheds LLP
Custom models General fee structures
Annual retainer
Major Utility Billable hour Fixed Fee
£800k – all work
Remains 20% Revenue:
important •Corporate
•Litigation
•Real Estate
Major Bank
Review all leases
and share any
revenue from
findings
Tyco / Eversheds Conditional Fee
Model
Sole EMEA supplier
Popular in
Litigation

50. 7) Managing External Firms
Effective supplier management
0 5 10
• No written protocols • Written protocols
• No regular meetings • Regularly reviewed and
• No minimum standards monitored
• Clear strategy –
communicated and
understood by firms

51. 7a) Rank Review Survey
Driving competition
0 5 10
• No monitoring of out • Regular survey of
performance by firms business units
• No firm ranking satisfaction with
external firms
• Ranking solely by % of
work won • Formal external firm
scoring process
• Updated league tables
• Rank regularly
discussed with firms
• Outperformance
identified and
acknowledged

52. 8) Legal Spend Reporting
Visibility over cost, quality and timeliness
0 5 10
• No regular reporting • Regular reports
from external firms • Easily collated (single
• Multiple report formats format)
• Multiple data entry • Closely analysed and
systems for analysing information used
spend • Feedback provided to
• Ad hoc reports firms

53. Reporting example
Easy, effective, and efficient oversight
Target
$ Exposure $ Legal spend vs budget

54. 9) Value add
Leveraging value add offerings
0 5 10
• No value programme • Free secondees
• Different across business • Free training
units • External lawyer report
• Reactive approach – value add
• No defined contact in • Free advice
external firm • Helplines

55. 10) Recoveries Programme
Creating a legally attune and assertive organisation
0 5 10
• No proactive programme • Audit completed –
• Legal and Business units contracts and processes
not aligned • Established programme
• Contract management communicated to
lifecycle broken suppliers
• Generating recoveries
• In-house cultural
change

56. Recoveries case study
DuPont
Total Recoveries:
$1.577 billion

57. 11) Compliance Innovation
Driving innovation within
0 5 10
• Regulation seen as rule • Outcomes focused
compliance compliance
• Ad-hoc response to new • Clear internal and
regulations external review process
• No or unreliable • Value add compliance
management information education from panel
on compliance firms
• Strategic use of
compliance technology
/ outsourcing
• Benchmarked and
regularly reviewed KPIs

58. Compliance innovation case study
Leading UK retail bank
A. AML Probability of compliance
B. Terrorism financing
failure
5
E D
C. Bribery
D. Antitrust 4
B
E. Capital adequacy
F. Health & safety 3
G. Reporting requirements
Findings: 2
Reporting key regulatory
area for this institution 1 F
Increasing complexity
Increasing impact from 1 2 3 4 5
compliance failure

59. 12) Optimising new legal models
Driving innovation in service delivery
0 5 10
• Traditional insource v • National / international
outsource / specialist panels
• No use of alternatives to • RAG rated work
local law firms • Law firm collaboration
• No categorisation of • Use of LPO’s, BPO’s via
work law firm or direct
• Agile lawyers
• Secondments /
Paralegals

60. What did you score?
Where do you stand relative to peers? Industry? World?
0 5 10
What is your score? Where do you want
to be?

61. Conclusion
The future
• The client is now at the centre of the
relationship
• Getting the most out of firm / client relationship
is about deeper integration
• Being ready to take advantage of the
opportunity and meet other challenges

62. Questions?

63. Paul Smith
Paul is a Partner, environmental lawyer and litigator and has defended a
number of multinational companies over the years in relation to criminal
investigations in the UK, Europe and North America. The investigations have
ranged from chemical plant explosions, insider dealing, railway disasters and price-fixing
to environmental incidents and other major crises.
Paul is a recognised expert on law firm partnering and convergence. He began developing
this expertise as client partner for DuPont more than ten years ago. In recent years Paul
has focused on how the law firm and the global corporate law department can work
together effectively across multiple jurisdictions. Paul consults with many global corporate
law departments on their structures, processes and practices to derive greater value from
outside counsel. He is part of the Eversheds team involved in the Tyco convergence
project in Europe, Middle East and Africa, where Tyco used its innovative 'SMARTER'
model to consolidate most of its outside legal services from more than 250 law firms
across 37 jurisdictions to one: Eversheds.
In February 2008, Legal Business magazine honoured Paul Smith as 'Lawyer of the Year',
one of the most prestigious awards in the UK. He was awarded for his pioneering work in
delivering new approaches to global client relationship management. Paul was also
included in 'The Lawyer' magazine's list of the 'Hot 100 Lawyers' for 2008.
Paul Smith
+44 845 498 4464
paulsmith@eversheds.com

64. ©Eversheds Consulting 2010. A division of Eversheds LLP.

65. European General Counsel Seminar
Employee Incentives
Motivating Your Teams to Succeed
Mathew Gorringe, Partner, Eversheds LLP
Tel: 0845 498 4140
mathewgorringe@eversheds.com

66. Employee Incentives
Motivating Your Teams to Succeed
Winning teams are:
• highly motivated
• focussed on key objectives
• driven by success

67. Employee Incentives
Motivating Your Teams to Succeed
An appropriate share incentive plan can
assist organisations:
• drive the performance of employees
towards a shared objective;
• often in a tax efficient way for both
employee and employer; and
• retain employees

68. Employee Incentives
Motivating Your Teams to Succeed
It is important to get the design right in order to deliver the
desired results:
• who should participate?
• what level of award will deliver the appropriate incentive?
• what are the principal objectives/behaviours the company
wishes to motivate executives to deliver?
• what performance measures should be used?
• will participants understand the incentive being offered?
• appropriate communication and explanation of the
incentive

69. Employee Incentives
Motivating Your Teams to Succeed
These objectives are normally relatively
easy to achieve in a single jurisdiction:
Only need to consider that jurisdictions:
• employment laws
• securities laws
• tax laws
.

70. Employee Incentives
Motivating Your Teams to Succeed
Implementation of a suitable incentive plan across borders
presents a host of different challenges as:
• the laws and tax rules of one jurisdiction are seldom the
same as another‟s
• the establishing company will need to take account of all
these laws whilst creating an incentive scheme which is:
– cohesive (similar treatment for employees to create a
sense of “team”/“unity”)
– administratively manageable (20 different schemes for
20 jurisdictions is “unworkable”)
– capable of being understood by employees across the
group, no matter where they reside

71. Recent Case Study
Global Incentive
Large United States based industrial engineering company wanted
to roll out an incentive arrangement in 26 different jurisdictions.
Start the Race – Identify design objectives and parameters:
• who would participate (key executives in each jurisdiction)
• tax treatment was important, but not key driver
• critical however that no tax suffered unless and until incentive
actually paid to participant
• avoiding multiple plans was absolutely critical (one plan
for everyone)
• shares or cash (key decision)
• timing
– legal advice/tax advice
– drafting
– communication

72. Recent Case Study
Global Incentive
Bronze – Assembling the right team to deliver the
design objectives
• need a concrete place to start
• need a nominated project manager
• ensuring all advisers in each of the 26
jurisdictions
– understand the project parameters, timings
– are acting as one

73. Recent Case Study
Global Incentive
Silver – Avoiding pitfalls
• Recognising what‟s at stake:
– criminal liabilities for the company and its officers
– fines/penalties
– potential for expensive claims by employer
– reputational damage
• Focus on problem areas:
– Security laws
– Employment laws
– Taxation
– Exchange control
– Data Protection

74. Recent Case Study
Global Incentive
Issues
• Choice of law provision in the rules in many jurisdictions, especially
South America (Brazil/Mexico) obsolete - the employment laws of that
jurisdiction prevailed.
• Requirement for local law consultation to agree terms:
– Germany (Works Counsel)
– Netherlands (Works Counsel)
– India (Collective Bargaining Agreement)
– Russia (Collective Bargaining Agreement)
• Implied rights to future entitlements if awards made on a
regular basis, even if they are wholly discretionary.
• Company‟s ability to stop making awards without employee
consent comprised:
– Mexico
– Brazil
– Germany
– Canada

75. Recent Case Study
Global Incentive
Issues
• Severance payment enhancements if benefits under the plan become part
of an employees salary or are deemed to be part of it
• Non-enforceability of forfeiture provisions
– Brazil
– Hungary
– Spain
• Discrimination/equality
– Age
– similar role/similar pay
• Taxation
– Canada (huge problems)
– Spain
– India
– China (uncertainty)

76. Recent Case Study
Global Incentive
Gold - A measure of compromise is required and objectives need to
be prioritised
– Canada – abandon the plan as it would simply not work (bespoke
arrangement)
– Germany – onerous employment laws avoided by structuring contract
so that it did not involve the German subsidiary
– Russia – give delegated authority to the Board of Russian subsidiary
to avoid claims against the Parent
– Brazil/Mexico – obtain separate agreements from employees giving
advance permission for company to terminate the plan
– Acceptance that there may be provisions of the global plan that would
not be enforceable against the employee in the context of a claim
– Removal of references to interest accrual for Saudi Arabia
– Changing the language of the Plan so that the Severance Payment
laws in the United Arab Emirates did not apply.

77. Recent Case Study
Global Incentive
Result
• Out of 26 jurisdictions only one country
(Canada) could not be covered by the global
scheme rules
• Easy for the company to administer
• Easy for every executive wherever they are
based to understand the incentive award granted
to him and its value
• Simple to communicate

78. © EVERSHEDS LLP 2009. Eversheds LLP is a limited liability partnership.