Brexit fall

The Brexit countdown clock on Alessandro Galtieri's iPad served as a constant reminder of the uncertainty that loomed larger with every tick of the clock. Not that he needed another reminder.

Brexit and the possibility that the U.K. would leave the European Union without having a deal in place had been dominating the news in London, where Galtieri spends his days as deputy general counsel of global telecom company Colt Technology Services.

“I used to be very optimistic, but we're now at the stage where there seems to be an impasse,” says Galtieri, who also serves as U.K. country representative of the Association of Corporate Counsel.

Galtieri—and undoubtedly many other similarly situated in-house counsel—hoped that “cooler heads would prevail” and the March 29 deadline for the U.K. to leave the EU would be extended or a deal would be made to define the U.K.'s relationship with the EU in a post-Brexit world. Neither had happened as February came to a close.

A no-deal Brexit could spawn many complications and headaches: The U.K. would abruptly exit the EU without the benefit of a transitional period. Border checks could be reintroduced. There might be major disruptions in supply chains. Companies and legal departments in the U.K. might have trouble recruiting talent from the EU. References in contracts to EU law, which “have been inserted in every contract under the sun for the last 20 years,” would no longer be relevant, according to Galtieri.

“The no-deal Brexit is the darkest possibility,” says Reid Whitten, a London-based partner at Sheppard, Mullin, Richter & Hampton who has an international business practice. “No one's prepared for it. No one has a plan. It's pretty grim at this point.”

He adds, “Everyone's glued to the news of Brexit, but none of the updates are substantive.”

'Lose-lose situation overall'

As a management consultant for international law firms and global corporate legal departments, E. Leigh Dance, president of ELD International LLC, has been hunkered down with in-house leaders on both sides of the Atlantic since the U.K. voted by a narrow margin in 2016 to split with the EU.

“Corporate counsel and the multi-disciplinary corporate teams dealing with Brexit are fed up with lacking answers to even the most basic questions posed to regulators,” says Dance, who also serves as executive director of the Global Counsel Leaders Circle.

“For legal departments in Europe's larger companies, it's a huge issue,” she adds, “and you'll find that all have recently reviewed their scenario planning and taken a hard look at how they can best be ­prepared for a no-deal Brexit as they hope for better outcomes.”

Brexit is an “aggravating topic” for the majority of legal departments outside the U.K., Dance says, “because it will create so much extra work for their companies and nothing has been clear since the referendum vote.”

“Brexit is generally viewed by most global in-house counsel as a lose-lose situation overall and so a waste of busy corporate counsels' precious time,” she says. But savvy in-house counsel at companies bracing for negative effects of Brexit could leverage the situation and demonstrate “their value by better identifying and preparing for possible Brexit outcomes and even uncovering competitive opportunities,” Dance says.

For instance, she's aware of a major U.K.-based company that has considered using what it learned in preparing for Brexit through collaboration involving cross-disciplinary teams to “raise its profile with key clients and position itself higher in their sector globally.”

Alessandro Galtieri, Deputy General Counsel of Colt Technology Services in London.

She notes that it's important for in-house counsel preparing for the various Brexit possibilities to consider multiple perspectives, including the views of advisers outside the U.K., as their perspectives tend to be “markedly different.”

Based on her discussions with corporate counsel, Dance suspects that U.S.-based “legal departments that have less business in the U.K. and Europe or that have gotten most of their information from the U.K. may be ill-prepared.”

But general counsel of “prominent continental Europe companies” on the other side of the English Channel appear to be far more prepared, according to Dance. She says those GCs have “scenario plans including no-deal Brexit that go back two years.”

“They are ready,” she says.

Preparing for the unknown

Galtieri says part of his legal department's prep work for Brexit included analyzing the company's supply chain for potential issues that could arise if there were disruptions at border crossings.

He adds the company also bulked up its stock of equipment in the U.K. “If you're a fast-moving consumer goods company and you have a factory here, but the ingredients you need to make your product are difficult to store, what would happen then?” he says.

In the event of a no-deal Brexit, Britain is expected to become a so-called “third country” under the GDPR, which could stem the flow of data between the U.K. and EU members, the latter of which are not allowed to transfer personal data to countries that are outside the EU and lack adequate data protection.

Relocation and recruitment woes

Brexit has prompted some companies and financial institutions, including Sony, Panasonic and Bank of America, to move their European operations outside the U.K. And Whitten, the London-based partner at Sheppard Mullin, is bracing for more departures. He says the “big prediction is that a lot of the high-end clients are going to be gone.”

“The multinationals are just going to re-headquarter,” he says. “If there's going to be a cost of moving capital from your London branch to Frankfurt, you're going to want to shift that.”

But for U.K.-based in-house ­counsel, relocating can be difficult, according to Dance. She notes the U.K. follows a common law legal system, unlike Europe's other main economies, which are governed by civil law. That fact, when combined with “different currencies, pay scales [and] cultures,” makes it challenging for U.K.-based in-house lawyers to pack up and leave.

“A rough analogy is that if NAFTA disappeared, would in-house lawyers from the U.S. take jobs in Canada or Mexico or vice versa? Unlikely,” Dance says. “There is not much if any movement of corporate counsel due to Brexit uncertainty—an uncertainty likely to continue long after March 29.”

That uncertainty also is having a chilling effect on corporate counsel recruitment in the U.K., says Rebecca Garland, a member of Barclay Simpson's legal team in London who recruits in-house talent.

“I was much busier this time last year than I am now. Normally, this time of year we would get quite a big influx of people after the Christmas period wanting to look for a new job,” Garland says. “European candidates are worried to a certain extent because there's been nothing agreed to yet as to what will happen.”

Garland says many large U.K.-based banks have opened offices in the EU, primarily in Dublin, Frankfurt, Switzerland and Paris, as they prepare for Brexit-related regulatory changes, even though the details of those changes remain murky.

“It's created a lot of work for contract lawyers,” Garland adds. “Regardless of what happens, I think there are going to be new regulations in place and they'll have to hire lawyers to put those regulations into practice. From a legal perspective, there will be work coming out of Brexit.”

Meanwhile, as countdown clocks ticked toward the Brexit deadline and rumors swirled about what waited on the horizon, life and business carried on in London, where, Whitten observed, it seemed as if “nothing is going to happen.”

“Business continues in the city and we'll just have to see if it crashes out,” he says.

Phillip Bantz is a reporter for Corporate Counsel. Follow him on Twitter @PhillipBantz.