Zero. That is the amount of patience allowed for poor service by one general counsel of a private equity firm in the Nordic region.
Thankfully, given the legal industry’s relentless push into the highly competitive private capital sector over the last decade, the GC and others working in the private equity industry do not experience sloppy interactions with their advisers very often.
But that does not mean they are always happy.
“Service is really hot,” says Małgorzata Bobrowska, co-founder and a managing partner at Resource Partners and president of the Polish Private Equity and Venture Capital Association. And in return for excellent service, clients are happy to pay high fees—yet this can be where the problems start.
Clients expect some wiggle room. “If a deal is broken, we get a significant discount,” says the Nordic general counsel. A managing partner at a U.K. private equity firm also prefers firms that are “flexible around helping when you need them”—for example, reviewing documents before a deal is exclusive.
Such requirements may be common in the uncertain world of M&A transactions. But the private equity clients hate uncertainty on one thing in particular: legal fees.
A lack of clarity on how much they will pay and why was mentioned by several clients when asked about frustrations with legal advisers. “Transparency is the important thing,” said the Nordic general counsel. “If I know it is going to cost me £1 million to do something, that is fine and I can put it in the budget, but then I call up the lawyer a week later and it’s £1.5 million… I have yet to see a project that goes beneath budget. Lawyers are terrible at estimating their costs and always end up low-balling. Whatever they say, we increase that number by 50%.”
He also thinks lawyers need to be more helpful. “Some even seem to take pride in not knowing what the price is going to be, [which is] a terrible way of doing business.” He adds that some of the largest U.K.-led firms are “the worst” in this regard, with historically American firms “much better”.
Bobrowska wonders “whether a question I ask increases my fees or whether it’s already part of the price.” Thanks to uncertainties like this, she thinks fees can become a frustrating “cat and mouse” game.
The U.K. private equity executive added that his lawyers generally “agree [fees] upfront and stick to it”, but says that in the past he has “saddled up for the pre-completion meeting and [his lawyers] have said ‘we need £50,000 more'”.
‘Not Very Difficult’ Work
The pain of uncertain fees bites hard for private equity clients because they feel the work their lawyers are doing for them is not very unpredictable—and not even that hard.
It is “filling out templates”, says the Nordic general counsel, while for Bobrowska it is “producing standardised documents”, with “not much negotiation” needed. The U.K. managing partner added that “we’ve got our documents set up, a debt covenant suite and an equity document. It’s not very difficult, to be frank, it’s just a question of how [the lawyers] organise themselves.”
The work is “a nice little train set that [the lawyers] can tinker with—there are only a few variables that people are going to argue over,” adds a partner at a U.K. lower mid-market private equity firm. Given these views, all believe that lawyers agreeing to fee caps early on and sticking to them ought to be achievable.
Maurice Allen, who held senior positions at law firms including Weil Gotshal & Manges, White & Case, Freshfields and Ropes & Gray and now runs his own legal recruiting and consulting businesses, defends lawyers against these charges.
“A client may say a matter is going to be very straightforward and suggest it’s a rehash of a previous deal” he says. “You then quote a fee, and it turns out to be something completely different. There is a lot of bad communication throughout a deal, both by lawyers and their clients around why the deal has changed and then in turn why fees may change.”
There is also some sympathy for lawyers from the partner at the U.K. lower mid-market private equity firm. “It is always the most stressful bit, getting a deal over the line, and [lawyers] get pulled in just as it begins to heat up. So I think, as a profession, it’s really tough for them.”
“I think lawyers have an incredibly important job,” he adds, “having to go through these documents in painstaking detail where the downside risk for them—personally—if they miss something, is really great. So I respect them and that’s why I don’t have any resentment about fees, because I recognise the importance of the work they do.”
But Allen says there is “resentment” and even “unhappiness” on the part of some clients at just how much money private equity lawyers are making now. Private equity, after all, has had to tone down its flash, for a range of reasons.
Clients see private equity lawyers today as “status-driven”, says Allen. Lawyers “used to want to be anonymous and did not project themselves as personalities, but there is more of that happening now… There is increasing interest in being members of [U.K.] private clubs like Annabel’s or 5 Hertford Street, and having a country home in the Cotswolds or Sussex.”
In fact, he suggests, “lawyers are starting to behave in a way more akin to the typical fund managers of old”.
Hard or easy, clients know their lawyers often have to put in long and unpredictable hours to get the work done. “Deals are large, complex, and typically involve a lot of different time zones so it’s really hard to find a good working balance—it easily becomes a 24/7 gig,” says the Nordic general counsel. In particular, the challenges of repeated late night (or all night) work is, he says, “something we think about”. But, for him, “it’s the partners’ responsibility to make sure that associates get sufficient rest, and support when things are overwhelming.”
Bobrowska thinks that different attitudes held by today’s junior lawyers will eventually change unhealthy ways of working across the legal industry, a shift she endorses.
Entertaining
Private equity clients do not think that their lawyers should spend much of their time away from their desks entertaining them. “We do deals for a living, so we’re completely uninterested in closing events, deal toys, signing ceremonies, whatever,” says the Nordic general counsel. “We don’t care about any of that stuff and are super happy to do Docusign, anything as long as I don’t have to fly to London.”
He is equally indifferent to being entertained. “I work a lot. I have small kids. The last thing I want to spend my free time on is going to a soccer game with my lawyers. It sounds boring, though I don’t tell them that to their faces. It’s reminiscent of something from the 60s or 70s, you hear stories of clients then going golfing with their lawyers. It’s completely out of my world to even think about it. My wife would kill me.”
The U.K. executive is also happy for relations to be mostly online, with the odd lunch or dinner. Bobrowska prefers to get to know lawyers through working together rather than social activities, but thinks that, in the wake of Covid, relations need to be a “healthy mix” of online and in-person.
Bribery rules are also a factor. “An occasional lunch is fine, but anything more can become messy,” says the Nordic general counsel. This is another reason why he would not attend a Premier League football game as a guest of his lawyers. “I take the budget responsibility I have seriously and want to steer away from being influenced.”
Finally, the Nordic general counsel warns that firms should be on their guard as they grow through international mergers. “McDonalds has the most restaurants in the world, but it is not my favourite place to dine,” he says.