Mukesh Ambani knows the importance of a good lawyer. The billionaire head of Reliance Industries employed one of India’s most prominent lawyers to win a case last year against his fiercest competitor – brother Anil.
The dispute between two members of India’s most famous business family involved the interpretation of an agreement between the brothers negotiated more than five years ago. Such was the intensity of the disagreement that Mukesh hired arguably the best legal mind in India – the country’s former Solicitor General, Harish Salve, to win his case.
Family businesses might not need to go to the length of hiring their country’s best lawyer when it comes to legal matters, but knowing how lawyers can help them has assumed an even more important level today then ever before.
“On top of the fact that family businesses in many cases need lawyers for more reasons than non-family businesses, lawyers have assumed an even greater importantance to family businesses in the last few years,” says a family member of a big European business. He adds: “The credit crisis threw many relationships upside down, but for the most part, relations with lawyers remained good.”
This is borne out by research carried out by Campden on family businesses and their relationship with external service providers. In a report released at the end of last year entitled Safeguarding Prosperity – The State of Family Wealth, lawyers were the most used external providers of services to family businesses in the US.
Nearly 80% of those surveyed in the research considered lawyers extremely or very important to their businesses/family offices. Although the survey was conducted in the US, the same sentiment is likely to be found in Europe, where many family businesses have been casting a critical eye on their relationships with external service providers since the credit crisis.
Trust is at the heart of relationships between family businesses and their external advisers. And this assumes an even greater importance with lawyers, who will often work across both the corporate and private sides of family businesses.
The need for corporate and private expertise means those law firms that can provide both are often where family businesses look for legal help. In the UK this often means the mid-sized law firms – practices with around 50 partners, but less than 200. Things might be different on the Continent, where in many cases the biggest law firms still have strong private client practices. For example, the CMS Group has more than 700 partners, but has retained a private client group.
The so-called magic circle of big law firms in London – Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters, and Slaughter and May – have all ditched their private client practices, with Allen & Overy being the last, demerging its private client department in 2009.
“That gives mid-sized law firms like ourselves opportunities to shine with family businesses,” says Charles Gothard, a partner in the private client team of London-based Speechly Bircham. “But they are not just using us because firms like ours have retained their private client practices – less high fees are also a big reason.” Fees are always going to preoccupy the financial director of a family business, and when it comes to external advisers, lawyers will pretty much be the most expensive, with the exception of investment bankers.
Some family businesses report some fee creep from their lawyers in the last years, although lawyers themselves say fees are very competitive given the number of law firms offering family business services. Regardless of size law firms that are servicing family businesses will have to ensure as many links between their corporate and private practices – not least because of the need to avoid conflicts of interests. This puts pressure on them to ensure all parts of their practice are working together, particularly between the corporate and private client teams.
“It’s more than just learning on the job – we have training sessions for our lawyers to make sure this happens,” says Tim Taylor, a partner on the corporate practice side at Withers. For a firm like Withers, which is known externally more for its private client work, the need to ensure links between the two different practices assumes an even more important role.
Links between both practices can often lead to some interesting cases. Speechly Bircham said they recently worked with one client who wanted to ensure there was a structure in place that stopped him from using his personal fortune to help him bale out his business just in case it hit a rough patch.
“He had witnessed colleagues who had got themselves into tricky situations by using private funds to help their businesses and he didn’t want this to happen to him,” says Andrew Collins, partner in the business services department of Speechly Bircham.
Most family businesses are going to want a law firm to offer advice on succession planning. All of the law firms on the list say they can offer this, but a few stood out including Speechly Bircham, German law firm Heuking Kühn Lüer Wojtek and Zurich-based Schellenberg Wittmer.
“Succession or an exit strategy for a family business is an area we have built up considerable expertise in,” says Manuel Liatowitsch, head of the private client group at Schellenberg.
Lawyers with specialist expertise in setting up family offices were also experiencing more demand for their services. Schellenberg and Withers say they have had strong demand in this area as family businesses and ultra-high net worth clients had become disenchanted with their bank. Examples of such work includes one law firm on Campden’s top 10 list working with a Greek shipping family, whose involvement in the shipping industry can be traced back 150 years, on the establishment of a $100 million private family investment business.
Lawyers are doing their best to offer quality and trusted services to family businesses. But some argue that there needs to be a clear understanding of the rules of engagement between the two. Peter Leach, who runs his own consultancy advising family businesses, says it’s important that family businesses have joint instructions with their lawyers.
“In my experience, lawyers will have a relationship with the family principal, not all the family, which often causes problems further down the line. Lawyers create structures and that should be the extent of their relationships with family businesses,” he says.
The trusted aspect of the relationship between family business members and lawyers will always be the most important link between the two.
So, like Mukesh Ambani, family business principals will often talk about their lawyer, rather than their law firm. That said, the increasingly complicated and global nature of family businesses will mean that the law firm is gradually replacing the lawyer in the vernacular of family business members.
Campden looks at the top 10 best law firms for family businesses.
Baker & McKenzie
Baker & McKenzie is by far the biggest firm to make the list with more than 3,700 lawyers across the world. Indeed, it is one of the largest law firms in the world. Nevertheless, despite fees compatible with some of the most expensive so-called magic circle law firms in London, Baker & McKenzie doesn’t just work with corporations, but can offer private client work, particularly tax planning - it boasts more than 150 global tax lawyers. Its array of international offices means that it is often used by multinational family businesses. It has a number of well-known partners that work with family-businesses principals and the ultra-high net worth.
Charles Russell has been associated with some of the UK’s biggest divorce cases, but along with its well-respected divorce practice, the London law firm is strong in providing family businesses and their families with corporate and private client expertise. The firm’s 90-plus partners often get involved in corporate restructuring and shareholder disputes with family businesses and very rich clients. Charles Russell says around 40% of the firm’s work on the corporate side is linked to family businesses. Its private client group works with a large cross section of UK domiciled and non-domiciled families, including in areas like setting up tax efficient ways of passing assets and businesses between generations.
CMS Bureau Francis Lefebvre
Paris-based CMS Bureau Francis Lefebvre is the French part of the CMS group and employs around 90 partners. Known particularly for its tax expertise, the French office benefits from the wider CMS network throughout Europe, which has an additional 600 partners, making it possibly the biggest network of legal tax experts throughout Europe. Works with many of France’s most prominent family businesses in all areas to do with tax, but also corporate work and employment law. A first stop for many French family businesses to deal with the country’s often complicated tax and regulation regime.
Flick Gocke Schaumburg
The German law firm works with many of the country’s family businesses and their families across corporate and private client areas. Located in Bonn, Berlin, Frankfurt and Munich, with around 70 partners, FGS specialises in tax expertise to businesses and individuals. The law firm is structured to provide tax advice through its lawyers, but also employs tax accountants to give extra weight to its offering. Although it has no international offices, FGS has a wide network of contacts it can draw on to offer multi-jurisdictional work.
Heuking Kühn Lüer Wojtek
Heuking is one of Germany’s biggest law firms with more than 200 lawyers spread across nine locations in Germany and Switzerland. There are few legal areas Heuking can’t offer family businesses, with expertise on anything from setting up a trust to providing mergers and acquisitions advice. Like Flick Gocke Schaumburg, Heuking is particularly known for its work with mid-sized firms in Germany, many of them family owned. It also employs tax accountants and has many links with foreign law firms, as well as its office in Zurich.
London-based Macfarlanes says that it can offer the full array of services for family businesses, but in the exclusivity of a smaller firm – it has around 70 partners. The firm has developed a strong reputation for its private client work, particularly around succession and philanthropic planning. It also has a well-respected corporate practice, with private equity expertise particularly highlighted by those who have worked with the firm. It has no international offices, but has excelled in cross-border work, say those that know Macfarlanes. It is also known for its entrepreneurial ethos, which is popular with business clients.
Mishcon de Reya
The London-based law firm might be best known for a number of its lawyers like Anthony Julius, who represented Princess Diana during her divorce with Prince Charles, but it also has an excellent reputation with family businesses and family offices. The law firm has a special department called Mishcon Private that works with ultra-high net worth clients and family businesses. It recently opened an office in New York and says it works with many families with cross-border interests. On its private client side it has strength in succession and real estate planning. Known for its entrepreneurial and growth culture – the firm has expanded rapidly in the last few years. Lawyers who work at Mishcon like doing so – it was voted as one of the top 100 places to work in the UK in 2010.
Zurich-based Schellenberg Wittmer has more than 30 partners with a mixture of expertise, including corporate and commercial, as well as an array of private client services. Schellenberg’s lawyers get involved in giving legal advice on how to structure a business in the larger context of the overall family wealth situation. Specialist areas include governance expertise, with Schellenberg often called upon to help family businesses accommodate a large community of family stakeholders. The law firm says that it has relationships with many of Switzerland’s family-controlled businesses, which comprise around 85% of the corporate sector in the Alpine nation.
Speechly Bircham prides itself on its integrated approach to helping family businesses – linking its corporate practice with its private client group. It works with family businesses in the UK, but also abroad, and recently helped a Greek shipping family to set up an investment office. Its private client practice has respected expertise in succession planning and has many long-term relations with family businesses, including one stretching back 150 years. It also works with family offices and businesses on multi-jurisdictional investment decisions and taxation. No offices outside of the UK, but Speechly says this hasn’t hampered its international business.
London-based Withers is best known for its private client work, but also has a strong corporate practice. It links the two practices particularly well, say family businesses. Its 100-plus partners work with a large number of high-profile family businesses and families, including Benetton and the Barclay brothers. It also has a strong family office team. Withers says it works across areas such as employment law, mergers & acquisitions, asset structuring, funds and investment, philanthropy, succession and inheritance matters for families and their businesses. Withers has eight offices spread across Europe, the US, Asia and the Caribbean. The law firm continues to expand with a new office in Zurich due to open soon.