The word of Susskind is still not heard in corporate land
It appears that private equity lawyers haven't been keeping up with their Richard Susskind, according at least to the angry head of one prominent buyout house. The cause of his irritation is what he claims is foot-dragging and resistance to a five-year-old attempt to create generic documents for venture capital.
March 10, 2010 at 07:04 PM
4 minute read
Five years on and the debate over generic documents remains at a standstill
It appears that private equity lawyers haven't been keeping up with their Richard Susskind, according at least to the angry head of one prominent buyout house. The cause of his irritation is what he claims is foot-dragging and resistance to a five-year-old attempt to create generic documents for venture capital.
It is an understandable reaction. The pilot, which was overseen by the British Venture Capital Association (BVCA), was aimed at creating model documents for smaller deals, covering articles of association, the shareholders' agreement and the subscription agreement. Though initially modest, the move was sold on the basis of cutting legal costs for clients and was seen as an early attempt to usher in boilerplate or generic documents in the corporate area.
After all, standard documents have been around in law for a long time, with the International Swaps and Derivatives Association master agreement having become industry standard for derivatives deals, and Loan Market Association (LMA) documentation being widely used in smaller acquisition finance deals. The International Federation of Consulting Engineers also backed a standard form for construction and engineering contracts. And for lower level work, conveyancing and personal injury became commoditised years ago.
Yet there is little sign of the BVCA project being developed or even that widely used in the private equity community. The BVCA's generic documentation was rolled out in 2006 but it remains restricted to venture capital deals, and, more specifically, typically only those with a value of up to £30m. Within this market it has had modest success, but it is a small sector and one that has become increasingly dominated by a handful of firms such as Taylor Wessing, Orrick Herrington & Sutcliffe and Osborne Clarke. The bottom line is that its use is very limited.
Where other firms are involved, some argue they are often not using the documents to anywhere near the same level as the West Coast venture capital industry, which has embraced generic docs. As one VC partner notes: "There's in-built inertia – people still tend to think their own documents are best. It would make everything much easier if people did use it but it still isn't like the US."
And talking to private equity partners operating on mature buyouts rather than venture capital work, it is clear that there is still huge cultural resistance to the concept of generic documentation, with most corporate practitioners arguing it is bespoke all the way outside the smallest deals.
The same resistance from private equity houses is also affecting the uptake of leverage documentation from the LMA, which, while in existence for more than 10 years, is still used primarily for deals of less than £100m.
One City banking partner comments: "The leverage document hasn't been sold to private equity houses as well as it could have been but the reality is that because you're looking at a relatively small volume – even at the top end of the market – there's much less need. Banks would probably prefer it if it were used more but private equity houses are still getting what they want – which is bespoke documentation."
This is hardly in line with what Susskind argues in the much-touted 2008 book The End Of Lawyers: that there is an unchallengeable evolution from bespoke work, through five stages, towards commoditisation. All of which leaves the case for standardisation at a bit of standstill, which seems bizarre given an economic climate in which there has been so much talk of re-engineering the legal services model. Lack of client demand or industry resistance? Well, clients seem to be looking for change in a host of other areas…
Click here to view Richard Susskind's interview with CPA Global strategy director Leah Cooper on the first six months of Rio Tinto's work with the outsourcing provider.
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