Client relations
Just how close should lawyers get to their client? For several years management consultants have been telling lawyers, along with every other professional…
May 14, 2002 at 08:03 PM
3 minute read
Just how close should lawyers get to their client?
For several years management consultants have been telling lawyers, along with every other professional adviser, to build ever-closer relationships with their most valued clients. But then along came Enron and, with the benefit of hindsight, people started questioning the wisdom of the trend.
This month's Global Question highlights two tangible ways lawyers can get close to their customers – by taking shares in a client instead of being paid for legal advice and by becoming a non-executive director of your client company.
Taking shares in lieu of fees is a relatively new phenomenon – joining your client's board of directors, on the other hand, is as old as the hills.
According to The Global Question's survey of leading international lawyers, taking shares for fees has only become common in the US and the UK. Of the countries we surveyed, joining company boards is only unusual in one jurisdiction – England and Wales.
One senior partner at a top London firm said partners had to ask permission from the management before joining a board and permission was only given in exceptional circumstances, for example if the partner wanted to join a local charity. The reason for this is to do with perception. While the top City of London firms would probably argue that they can avoid conflicts of interest, given the intense media scrutiny they are subjected to in London, there is always the danger of being accused of having a conflict when something goes wrong at a company.
But, according to Pierre-Andre Dubois, a partner at Brobeck Hale and Dorr, the European joint venture between Boston-based Hale and Dorr and California's Brobeck Phleger & Harrison, it is still common for partners in the US to help out their clients, either as non-executive directors or in a strictly legal capacity as 'of counsel'. But he agrees that the Enron scandal will probably cause firms to re-evaluate this trend.
As for taking shares for fees, Dubois says it is common in the US and he sees no reason why the practice should not continue. He points out that firms rarely own more than 1% of a client.
Simon Ip, senior partner at Hong Kong firm Johnson Stokes & Master, agrees that there is no ethical obstacle to taking shares for fees – he just doubts whether it is wise. "On the whole I disapprove because I do not think it is very commercial," he says. However, he adds that his firm might consider charging a discount fee to cover its costs and take the profit element of its fees in the form of shares. But he says the practice has yet to take off in Hong Kong and doubts it will unless and until the growth enterprise market takes off again.
As for India, taking shares for fees is unheard of, according to Vijay Goel, a partner at the top Delhi-based firm Singhania & Co. However, he believes the practice will take off in the next couple of years, as India opens itself up to international business. And, yes, Goel thinks it is a good idea. "It will encourage lawyers to be more diligent," he says.
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