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BUSINESS DAY TV: Hogan Lovells ‘is in SA for the long term’
by Transcript service,
2016-02-10 12:39:29.0
NICHOLAS Cheffings is the global chairman of Hogan Lovells.
BUSINESS DAY TV: A raft of international law firms have fetched up on South African shores in the past few years although the steady weakening economy and the beaten up rand must be proving something of a headache for firms who’ve sought out SA as a growth area and joining me now in the studio is Nicholas Cheffings, he’s global chairman at law firm Hogan Lovells to share his views.
Nicholas ... it’s quite curious to have seen SA become such a hot destination for international law firms, why did Hogan Lovells come here?
NICHOLAS CHEFFINGS: We’re very much client led so our philosophy as an international global law firm is not to just plant flags and be there because other people are and be there because it feels like the right thing to do. It’s very much client led so it’s a demand for our legal services, and Hogan Lovells has been active, not just in SA but across the African continent in most of the 54 countries for a period of time now. And we were increasingly finding that an additional presence on the ground made sense in just adding that extra element to the quality of the service that we could do and deliver to our clients. So what we needed to decide was whether we’re going to open in lots of African countries or should we focus on one particular destination. And for us the decision to come into SA with a sophisticated and developed economy was obviously the right one. The next challenge then was to find out and decide how to go into SA.
BDTV: Yes ... you partnered up with Routledge and there have been a lot of tie-ups between local law firms and international law firms but I guess the question is why SA? We can see the steadily weakening economy and the South African rand must be a real killer to firms that are maybe reporting back to the UK or US head offices, presumably you’d have to have a lot more billable hours here to make targets?
NC: I can understand that point, the first thing is this is not a short-term investment decision, we’re here for the long term and all economies around the world have their ups and their downs, they have their cycles. And we’re very much committed to riding those cycles and taking the long-term view. Secondly, our profit model recognises that there are different issues around the world. If we applied, say, US approaches to how much we charge clients to work and what profits we expected to generate to Vietnam or some of our other locations, then (those) wouldn’t be necessarily appropriate models. So we’re very flexible.... You know we can’t come in and distort the market ... absolutely not, we’re here to respect the market and to apply the market and to approach the market in a consistent manner.
BDTV: Going back to my question about SA, what was it that attracted (the firm), and where do you see some of the activity taking place ... is there going to be a hiatus for a lot of law firms for the next couple of years until the economy hopefully does pick up? Or are there still some spots of vigorous activity as far as commercial work is concerned?
NC: Correct, yes. So SA because it is a hub, it is fundamentally a strong economy in its own right, because it is a hub, it’s particularly a hub for sub-Saharan Africa and a lot of legal services are provided out of SA, traditionally have been and will continue to be. And is it going to be a pressure point? Well, clearly you’re better positioned than I am to comment upon the direction of the economy and the issues there. But the nature of the requirement for legal services tends to adjust. So the mining sector is always going to be fundamentally important to the South African economy. Right now some of the pressures and some of the need for our legal services is not around major M&A (mergers and acquisitions) but it’s around some distressed situations. Those are areas which need quality legal input and what we’re able to bring as a result of having the local expertise on the ground and combined with the international is experience from a range of different scenarios which we can apply in the local context.
BDTV: What about in Africa, where are the countries that you’re seeing a lot of work taking place that would imply that there’s quite a lot of economic activity taking place?
NC: Two countries which spring to mind as well are Nigeria and Kenya.
BDTV: Still?
NC: Yes, the Nigerian economy is obviously challenged by the oil prices and it’s a very oil dependent economy but there’s a lot of activity there and consistently will be. We’re active in a number of other African countries and there’s a lot happening. These are big economies so whilst the headlines suggest there is some pressure on the economy, business still keeps churning.
BDTV: Nicholas, you’ve got a very good vantage point from which to view how firms or companies and countries approach legal budgets ... how does SA stack up, what proportion of their spending do South African firms allocate towards legal departments compared to some other firms in different countries?
NC: That’s a really interesting question and inevitably that is influenced by the economic situations. So I think there’s been a growth in the South African corporate world in in-house legal teams, with a number of corporates having more people in-house and being slightly less dependent upon external legal services, so a lot of people qualifying as solicitors and lawyers and attorneys in the country are going in-house rather than into private practice, so a lot of the spend on legal services is within the corporate so that’s a constraint on how much one might spend externally. I think the inevitability is that a lot of corporates have cut back on legal spend, and the willingness to invest in legal services is something that you just have to decide on. Are you going to get value for money? Are you going to get an appropriate return on your investment? That’s how they apply their analysis of business generally, and frankly that’s how most of them apply their analysis of whether it’s worth it investing in a legal service.
BDTV: So, okay, I guess it’s quite tricky to say a firm will spend X percentage of their budgets on legal services....
NC: Yes.
BDTV: But I guess what I’m trying to get at is in a more complex regulatory environment you find a lot more work taking place and firms having to allocate more to legal spend, and how does SA stack up then against some other countries?
NC: Okay, regulation is a good area where sometimes you just have no alternative at all but to carry out the investigation, carry out the diligence, you can’t do that in-house, you need to employ the lawyers to that. And if you are under intense regulatory scrutiny in the US, then I’m not saying money is no object but it is something that you can’t ignore so you have to a higher spend. A lot of our clients operating in SA are international companies so sometimes they bring that general approach to wanting to make sure that they are covered and protected and so that investment is there. So well in excess of half of our largest international, say our top 200 clients, over half of them are invested in Africa. And those are multinationals who look at SA as an element of their overall international business. And, if their philosophical approach is we need to be fully protected on the regulatory piece, then SA is an important element of that as anywhere else is. And I’m not in a position to give you percentages, it would be great to say SA is 5% and the US is 35% but it seems pretty obvious to me that a corporate that is focused on SA is probably going to spend less on legal spend than necessarily one whose prime business is in the US for example.
BDTV: And then just lastly, do you feel that even though we’re going through an economic tough time you said that you’re here for the long term so is that likely to be the case that you can ride out a potentially weak two to three year period here?
NC: Oh, absolutely there’s really no question about that.... SA is not unique, you’ve seen, heard, read about what’s happened in some of the Mediterranean countries of Europe, Spain, Italy have been through very difficult periods. We were there before it happened, we’ve been through it, we’re there with them as they come out of it. And Hogan Lovells in all its various manifestations of it, whether it’s America, Germany, UK or wherever, it’s been around for 100 years. We plan to be around for another 100 years plus and SA is part of that.
NICHOLAS Cheffings is the global chairman of Hogan Lovells.
BUSINESS DAY TV: A raft of international law firms have fetched up on South African shores in the past few years although the steady weakening economy and the beaten up rand must be proving something of a headache for firms who’ve sought out SA as a growth area and joining me now in the studio is Nicholas Cheffings, he’s global chairman at law firm Hogan Lovells to share his views.
Nicholas ... it’s quite curious to have seen SA become such a hot destination for international law firms, why did Hogan Lovells come here?
NICHOLAS CHEFFINGS: We’re very much client led so our philosophy as an international global law firm is not to just plant flags and be there because other people are and be there because it feels like the right thing to do. It’s very much client led so it’s a demand for our legal services, and Hogan Lovells has been active, not just in SA but across the African continent in most of the 54 countries for a period of time now. And we were increasingly finding that an additional presence on the ground made sense in just adding that extra element to the quality of the service that we could do and deliver to our clients. So what we needed to decide was whether we’re going to open in lots of African countries or should we focus on one particular destination. And for us the decision to come into SA with a sophisticated and developed economy was obviously the right one. The next challenge then was to find out and decide how to go into SA.
BDTV: Yes ... you partnered up with Routledge and there have been a lot of tie-ups between local law firms and international law firms but I guess the question is why SA? We can see the steadily weakening economy and the South African rand must be a real killer to firms that are maybe reporting back to the UK or US head offices, presumably you’d have to have a lot more billable hours here to make targets?
NC: I can understand that point, the first thing is this is not a short-term investment decision, we’re here for the long term and all economies around the world have their ups and their downs, they have their cycles. And we’re very much committed to riding those cycles and taking the long-term view. Secondly, our profit model recognises that there are different issues around the world. If we applied, say, US approaches to how much we charge clients to work and what profits we expected to generate to Vietnam or some of our other locations, then (those) wouldn’t be necessarily appropriate models. So we’re very flexible.... You know we can’t come in and distort the market ... absolutely not, we’re here to respect the market and to apply the market and to approach the market in a consistent manner.
BDTV: Going back to my question about SA, what was it that attracted (the firm), and where do you see some of the activity taking place ... is there going to be a hiatus for a lot of law firms for the next couple of years until the economy hopefully does pick up? Or are there still some spots of vigorous activity as far as commercial work is concerned?
NC: Correct, yes. So SA because it is a hub, it is fundamentally a strong economy in its own right, because it is a hub, it’s particularly a hub for sub-Saharan Africa and a lot of legal services are provided out of SA, traditionally have been and will continue to be. And is it going to be a pressure point? Well, clearly you’re better positioned than I am to comment upon the direction of the economy and the issues there. But the nature of the requirement for legal services tends to adjust. So the mining sector is always going to be fundamentally important to the South African economy. Right now some of the pressures and some of the need for our legal services is not around major M&A (mergers and acquisitions) but it’s around some distressed situations. Those are areas which need quality legal input and what we’re able to bring as a result of having the local expertise on the ground and combined with the international is experience from a range of different scenarios which we can apply in the local context.
BDTV: What about in Africa, where are the countries that you’re seeing a lot of work taking place that would imply that there’s quite a lot of economic activity taking place?
NC: Two countries which spring to mind as well are Nigeria and Kenya.
BDTV: Still?
NC: Yes, the Nigerian economy is obviously challenged by the oil prices and it’s a very oil dependent economy but there’s a lot of activity there and consistently will be. We’re active in a number of other African countries and there’s a lot happening. These are big economies so whilst the headlines suggest there is some pressure on the economy, business still keeps churning.
BDTV: Nicholas, you’ve got a very good vantage point from which to view how firms or companies and countries approach legal budgets ... how does SA stack up, what proportion of their spending do South African firms allocate towards legal departments compared to some other firms in different countries?
NC: That’s a really interesting question and inevitably that is influenced by the economic situations. So I think there’s been a growth in the South African corporate world in in-house legal teams, with a number of corporates having more people in-house and being slightly less dependent upon external legal services, so a lot of people qualifying as solicitors and lawyers and attorneys in the country are going in-house rather than into private practice, so a lot of the spend on legal services is within the corporate so that’s a constraint on how much one might spend externally. I think the inevitability is that a lot of corporates have cut back on legal spend, and the willingness to invest in legal services is something that you just have to decide on. Are you going to get value for money? Are you going to get an appropriate return on your investment? That’s how they apply their analysis of business generally, and frankly that’s how most of them apply their analysis of whether it’s worth it investing in a legal service.
BDTV: So, okay, I guess it’s quite tricky to say a firm will spend X percentage of their budgets on legal services....
NC: Yes.
BDTV: But I guess what I’m trying to get at is in a more complex regulatory environment you find a lot more work taking place and firms having to allocate more to legal spend, and how does SA stack up then against some other countries?
NC: Okay, regulation is a good area where sometimes you just have no alternative at all but to carry out the investigation, carry out the diligence, you can’t do that in-house, you need to employ the lawyers to that. And if you are under intense regulatory scrutiny in the US, then I’m not saying money is no object but it is something that you can’t ignore so you have to a higher spend. A lot of our clients operating in SA are international companies so sometimes they bring that general approach to wanting to make sure that they are covered and protected and so that investment is there. So well in excess of half of our largest international, say our top 200 clients, over half of them are invested in Africa. And those are multinationals who look at SA as an element of their overall international business. And, if their philosophical approach is we need to be fully protected on the regulatory piece, then SA is an important element of that as anywhere else is. And I’m not in a position to give you percentages, it would be great to say SA is 5% and the US is 35% but it seems pretty obvious to me that a corporate that is focused on SA is probably going to spend less on legal spend than necessarily one whose prime business is in the US for example.
BDTV: And then just lastly, do you feel that even though we’re going through an economic tough time you said that you’re here for the long term so is that likely to be the case that you can ride out a potentially weak two to three year period here?
NC: Oh, absolutely there’s really no question about that.... SA is not unique, you’ve seen, heard, read about what’s happened in some of the Mediterranean countries of Europe, Spain, Italy have been through very difficult periods. We were there before it happened, we’ve been through it, we’re there with them as they come out of it. And Hogan Lovells in all its various manifestations of it, whether it’s America, Germany, UK or wherever, it’s been around for 100 years. We plan to be around for another 100 years plus and SA is part of that.
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