Another review of David Cheyne's visit to the Commercium Colloquium

Tom Mason (the Commercium Colloquium's Treasurer, GDL 2012/3) reviews the 01/10/2012 visit of David Cheyne, former senior partner of Linklaters LLP:

‘Understand the bigger picture and you’ll have fun.’

As a junior lawyer you will be doing a lot of due diligence, which is boring.

Commercial awareness means looking up accounts, gearings, price/earnings ratios and so forth. More importantly it is understanding what your commercial clients are after. Do they want a contract, a loan? What is the size and nature of the deal?

The fundamental principle of commercial awareness is ‘the whole way you handle the deal’. This includes how you work with people in groups, as well as dealing with the client.

It is how you deal with the client. Can you talk to them about their business? A limited understanding of the economy of the issue is an asset. Mr Cheyne said that he had worked a great deal with mining interests, and while he didn’t have a detailed knowledge of the area he knew all the fundamental principles, and could at least tell the difference between copper and iron.

When negotiating on behalf of the client it is not a good idea to play cards you don’t have. Your client will not thank you for ruining a deal by being too aggressive.

It is also important that the client should understand your trade. Explain what you are doing to them in a way that means they appreciate the way you work. If they understand what you’re doing they’re likely to trust you a great deal more.

The hours are very long. On the Mannesmann deal his team was working for 100hrs/week for 5 weeks, and they were still volunteering for more.

‘If you never ask a stupid question then you’re a rotten lawyer’ – Mr Cheyne doesn’t trust people who don’t occasionally ask a stupid question. It shows that they’re small minded.

An expert is ‘someone who knows more and more about less and less’. They are increasingly less valuable in an organisation. Aim towards being more of a generalist.

‘Don’t be beastly to the people at the bottom. They have influence, and may rise.’

Don’t associate with people you don’t like more than you have to. ‘Get busy with people who appreciate you’. Get a client you’ll like.

Regarding bubbles
• We are probably not in a tech bubble this time.
• ‘Buy on hope, sell on reality.'
• These days more investments are done by hedge funds, who dump the investment quickly after making a profit. Traditionally investment was done by insurance and pension companies, which are more likely to keep their investments.

Are there too many lawyers?
• Mr Cheyne has always thought it would be rather nice if there were only three or four firms.
• However, there is not a ‘fundamental oversupply’; they are now far better managed. It used to be that a partner wouldn’t have to do much work, this is now impossible.
• ‘We exaggerate the difficulty’ that the legal sector is in.
• Disclosure has had an enormous impact on the sector – people now know how much people are paid.
• Clients now like to hire more than one law firm.

The collapse of the eurozone?
• Mr Cheyne doesn’t think the eurozone is going to collapse. There will be a ‘limping crisis’ for a long time, but no actual collapse. He referred to the fact that the 70s were a period of continual crises. Lawyers need people to ‘do things’, and a looming crisis tends to paralyse. However a constant crisis produces the expectation that there will not be an imminent disaster, which means that they get used to it. Every time the market fluctuates upon hearing bad news from the eurozone it fluctuates less. Business will begin to return to normal.
• He commented that inflation might save the eurozone. Governments pretend to hate it but actually love it, as long as it is slow enough for them not to be blamed. It ruins creditors.

Investment banker v lawyer
• Investment bankers are in first, involved in pricing, presentation and basically work like estate agents.
• Lawyers are involved in the mechanics and drafting.
• All mergers and acquisition deals need both.

The alternative business structure
• Mr Cheyne doesn’t care, although while he was at Linklaters he was often tempted to sell it for enormous amounts of money.
• Lawyers are quite neurotic, and are hard to manage – their temperament is unlikely to be improved by someone else taking their profits. The creative lawyers won’t work well in that environment.
• Alternative business structures will do well with ‘volume’ work, which doesn’t require much imagination.

The most important quality of a lawyer
• ‘Willingness to give advice’
• You have to have the nerve to say ‘This is the answer.’
• Mr Cheyne is very proud that he once managed to deal with a client by saying ‘No, No, Yes’ to a sequence of three questions.
• You need to be able to say ‘This is the problem; this is the solution.’
• It’s probably the case that if you’ve written a memorandum which is 32 pages long you probably won’t understand.
• Being willing to give a direct answer promotes loyalty in the client.
• You have to be willing to put your ‘head on the block’ and express a view.
• If you don’t know, say so (perhaps not when you’re a junior lawyer). When Mr Cheyne says he doesn’t know people seem to be impressed since they assume it’s an indication that the area is very complicated.

Commercial barristers
• Commercial solicitors tend to go to them for an authoritative opinion if they’re at a loggerhead between two opinions. They are excellent advice and are great at finding the legal answer.
• The Bar is now quite commercial – they want to know about the background of an issue is, and understand the market significance.
• Barristers' is strength in advocacy – they know how to present a case and how to get it through court.
• Barristers don’t negotiate, and don’t do due diligence.

What makes a great trainee?
• Enthusiasm – enjoy it.
• Commitment – hard work is essential.
• Listen, accept everything, and do everything you can.
• Being enthusiastic and committed will mean that you get interesting work.
• You must be keen and interested.
• Work long hours.
• Someone who does really ‘rotten’ (unpleasant) work will be rewarded with interesting work.
• Volunteer for the hard work keenly.
• Trainees used to be idle but badly paid. The learning curve was extreme and based around being thrown into things. In his first year Mr Cheyne was given a £25m deal and given a week to draft a £250m loan agreement, as well as a solo private acquisition job.
• These days trainees are given far more help, but it is now ‘too easy’, which leaves people doing far more work than you need to.

On being teetotal
• Mr Cheyne doesn’t drink.
• Most lawyers don’t actually drink much, and only an idiot gets paralytic drunk. When you’re drunk you make stupid comments that you think are funny.
• Once in Korea Mr Cheyne was negotiating with a man so exhausted that he was reading a document upside down. He settled rather fast.

English law
• US litigation is mostly domestic.
• English law is the biggest law for finance and contracts in Europe, partly because it’s very predictable.
• If Spain is lending money to Poland it is likely to use English law.

Chinese law
• Chinese Law Firms are likely to be working for mostly Chinese clients.
• No Chinese lawyer can say with certainty what their law means.
• European contract law would be an absolute disaster.
• English law is very good for cross border deals.

Secondment
• Secondment to a client is often a reward and a form of making someone’s departure ‘gentle’.
• International secondment helps give an insight into the ‘big picture’, but there is an (untrue) perception that it hinders the chance of being partner.

'Preconceptions are invariably wrong.'

(Terms referred to included greenshoe and grey market.)

One review of David Cheyne's visit to the Commercium Colloquium

Robin Porter (GDL 2012/3) reviews the 01/10/2012 visit of David Cheyne, former senior partner of Linklaters LLP:

David Cheyne, "the most senior corporate lawyer in Linklaters", outlined the common misconceptions that would-be solicitors suffer from regarding the important features and acquisition of 'commercial awareness'. He stressed that commercial awareness should stretch beyond simply being able to comprehend a company's accounts, explaining that a large client firm will be far more interested in your ability to spot holes in a contract, and your comprehension of the size and nature of deals it is involved in. Commercial awareness means having an understanding of what factors the client is concerned with and looking for in a deal, not necessarily what you are interested in personally, understanding the personality of a client, what they hope to achieve, and the strength of your client's position so as you are able to negotiate on their behalf with good knowledge and full confidence. Knowledge of the business of a firm, for instance what materials it produces and how, is certainly of benefit to both of you as an understanding of the client's business will help you understand their negotiating position.

Cheyne also explained that a strong grounding of commercial knowledge would also aid the solicitor in situations where he may have to explain why a deal may take a long time to be executed, thus enhancing understanding between solicitor and client and perhaps leading to higher respect from the client as well as increased client loyalty and perhaps better remuneration for the lawyer's firm. An understanding and interest in market forces would also, according to Cheyne, make you a more innovative and therefore a far more valuable lawyer. With a wide experience of commerce, a solicitor might spot new ways to meet clients' needs which might not have occurred to him or her if they had merely followed the law.

Cheyne pressed home the importance of good commercial awareness by emphasising how it could personally benefit the solicitor. He explained that with full understanding of the subject matter of a case one is working on comes a greater sense of fun and excitement at the prospect of the completion of the deal. Good knowledge allows for great engagement with the deal and an excitement which you will remember long afterwards with a sense of pride and that your client will remember with a greater sense of loyalty to a solicitor who is genuinely interested in their business — something that the client is naturally very interested in too.

Cheyne kindly went on to answer a number of questions posed by the audience: -

One such question was an enquiry as to what Cheyne believed to be the most important quality of a lawyer. He answered by explaining that a lawyer should be able to provide advice in a succinct but honest and informative fashion. A model he put forward was that when informing a client, a solicitor should state that "the problem is this", "the solution is/probably is this" and then write a paper going into further detail. As a lawyer you should be able to put your head on the block and express a view, Cheyne suggested, and most clients do not want a two-handed lawyer, but rather one willing to take a risk if they think they are right and if they are then it is these lawyers who will achieve great loyalty from the client. A lawyer who ums and ahs and hedges their bets will have their answer devalued as the client will perceive that the solicitor has not considered what the answer to their query actually is. On a cautionary note however, Cheyne warned that if a lawyer genuinely does not know an answer then they should not be afraid to state as such.

Another member of the audience questioned the value of secondments in large firms. Cheyne was quick to rise to the defence of secondments against the perception that lawyers who are sent on secondments for any great length of time are often forgotten about by their firm, thus dashing their hopes of career progression. He pointed out that the practice gives a solicitor a better perspective, even as a trainee (although the real value may come when a solicitor is a little more experienced). Anything out of the office is helpful in broadening the experience of the solicitor, allowing them to see the world from somewhere other than London and invariably proving perceptions to be wrong.

Finally, Cheyne left his audience in with no uncertainty as to the two key features that make a great trainee: enthusiasm and commitment. According to Cheyne, a great trainee never turns down anything they're offered and tries to do everything, thus contributing to a good office environment and meaning the trainee is well liked in return. Cheyne emphasised the resulting benefits for the trainee, as enthusiasm and commitment are more likely to be met with more interesting work later on, handed to them by grateful partners. These two simple personality traits, coupled with strong commercial awareness and a willingness to pick up as much information as possible along the way, seem to make up the kind of trainee that would find a happy home at Linklaters.