Three years ago, Norton Rose ended its long standing joint venture with Hong Kong law firm Johnson, Stokes and Master. Under the terms of the agreement, Norton Rose was prevented from practising on its own in Hong Kong for three years. The day that agreement was over - April 2 2002 - Norton Rose announced the reopening of its Hong Kong practice.
In the three years since it has been away, the firm's Hong Kong managing partner David Stannard has been seconded to Hong Kong's Securities and Futures Commission. As one of the few private sector professionals to work in both the private and public sector, Stannard has something of a unique profile in Hong Kong's financal community. Here he talks about his time as a regulator, his plans for Norton Rose as well as triggers, squeezes, hurdles and creeps.
So Norton Rose is back in Hong Kong. What is the thinking behind the re-opening?
Stannard: We didn't want to be out of Hong Kong. We originally opened in Hong Kong in 1976. We established an extremely successful association with Johnson, Stokes and Master, which worked very well. But as time moved on, the legal market and the business needs of Norton Rose and JSM changed and Norton Rose wanted to have a much bigger presence in the Territory, which we could not do under the terms of the association. So the option left to us was to end the association, which meant we had to be out of the market for three years. But now we're back and ready and raring to go.
Was the split amicable?
Stannard: Yes, absolutely. The JV ran for over twenty years, which is a very long time for any JV. We worked together with JSM very well for a long time and we remain good friends.
Is there any truth to the suggestion that your experiences with the JSM JV led you to decide against setting up a joint law venture (JLV) in Singapore?
Stannard: No. There are a number of firms who have gone into JLVs but it's not that many. I am not sure what the future will hold on that front.
Is now a good time to be reopening in Hong Kong? There does not seem to be that much business going on in the market.
Stannard: A lot of people have asked if it's a good time to be coming back. I actually think that it is not at all a bad time to be re-opening. Looking at it from a macroeconomic standpoint, we are starting to see green shoots of recovery coming through in the US and Europe. I think we might just have got the timing spot on. If we have, it's purely by accident, not planning, because our overriding timing issue was to reopen as soon as we were able to under the terms of our agreement with JSM.
Has the legal market changed in the three years you have been out?
Stannard: It has changed a certain amount, but not hugely. There are more people in the market, although I think we have seen one or two US firms draw back from the market a bit. But our major global competitors are all here and it is the same firms going after the same business everywhere we go.
The capital markets have been very quiet. Are you seeing any corporate appetite for money and deals?
Stannard: It is quiet but I think that needs to be put in perspective. I've been in Hong Kong since 1983, and I can assure you that 1983 was a very quiet year. We are just after an eight-year boom during which there was a phenomenal amount of activity. Now we are seeing a contrast to that. Last year there was a huge slowdown. Deals are not now being sold and there is not the appetite. But it will pick up as the investor appetite picks up. If one looks at what the bankers are saying, there are deals that are looking easier to do and more attractive.
As a regulator and a lawyer, what do you think of the suggestion that the new high levels of corporate governance expected of public companies are dissuading companies from involving themselves in the capital markets? Also the risks if they get it wrong are much greater. Do you think this is a contributory factor to the slow down in capital markets activity?
Stannard: No, not really. I think if people want to raise capital and get a public listing, the director's obligations have always been there. And they are quite onerous. I think perhaps not enough attention has been paid to them in the past and people haven't thought about them as much. There is now a push to improve corporate governance and it is something that needs to be done. The government is leading the push to do that.
The stock exchange has issued a consultation paper. The SFC has been active. China has also been doing a lot to improve corporate governance. The standard of corporate governance is now seen as being one of the markers that people look at in a publicly traded share market. As a regulator I used to attend a lot of conferences in Asia and Europe on the subject. There is now an enormous push worldwide because it is very important.
What other lessons did you learn in your time as a regulator? What new ideas do you bring back to Norton Rose?
Stannard: One of the aspects of going from the private sector into regulation is that it gives you a wider perspective. You not only see things from a narrow legalistic standpoint but also the policy issues, such as why the regulation is what it is. For instance I was involved in the creation of regulation with the overall review of the Takeover Code.
It was very interesting as a regulator to be working with the regulators, the government and the policy makers on regulatory policy and it gave me a greater understanding of why things are rather than just what they are. If you look at other jurisdictions, Hong Kong has been quite slow in having private sector personnel move to the regulators. The London Takeover Panel has a permanent programme of secondments from law firms and investment banks. The US SEC also has a number of people rotating through.
Hong Kong has been slow but it is not through want of trying by the regulators. Regulators were banging on the doors of law firms and banks for years asking for secondees. But the firms have been so busy that they have been unable to lend the staff. It was a happy stroke of fate that I was able to join the SFC. The fact that my successor, Ashley Alder is also from the private sector is very good.
Being one of the architects of the new Takeover Code in Hong Kong, what effect do you think it will have on the M&A market in Hong Kong?
Stannard: Very little effect actually. Essentially we were just doing an upgrade. The last time it was looked at was 1991-1992. The market moves on and what we were trying to do was make sure the Takeover Code was up to date and matched what people needed.
One of the changes between the early 1990s and now is that in those days you had very few cross border transactions and very few international corporations involved. This was brought to the forefront in the PCCW/Hong Kong Telecom deal. It was a very big deal and had a lot of international players involved. So what we did was look at what bits the Hong Kong Code didn't really cover. We then worked out with the people involved what the right way forward was - looking very much at the London Code.
The London Code has been tried and tested over many years and is continually updated and works well. I think we now have a first rate Takeovers Code here. It's designed to make Hong Kong a first-rate regulatory system. That means that the market for corporate control is much easier to operate. And that's a very healthy thing for the market.
Your meetings discussing squeezes, hurdles, triggers and creeps must have been fun - it sounds like a 1970s pop group convention.
Stannard: It was very interesting. It was very important that Hong Kong gets in line with the rest of the world. And I think it is now pretty much there. 30% appears to be the magic figure for triggers - China has 30%, Singapore has 30% and the UK has 30%.
The UK also has one super regulatory agency in the FSA. Do you think that is something that the fragmented regulatory system of Hong Kong should move towards?
Stannard: That is one of those vexed questions people will debate for a long time. It is sitting out there as an issue. It has been raised during the passage of the Securities and Futures Bill. I know that people in government have looked at it. I don't know what the answer is. You can be like the UK and have a super regulator, or be like the US and not have one. I'm not sure there is any one right answer.
Coming back to Norton Rose, what is your China strategy?
Stannard: What China does about allowing foreign lawyers to practice local law, I am not able to guess. I think that it is highly likely that that day will come, as it has in other jurisdictions. As to when, I don't know. We are going to look very much at Hong Kong and China being integrated. It is one country and a lot of the market overlaps. The only issue is who we put where.
So could one country two systems mean one cost base but double the fees?
Stannard: That would be very nice, but is unlikely. But it is not a question of either Shanghai or Hong Kong. It has to be both. It is just a question of what order you do them in. We have opened again in Hong Kong. In Beijing we have applied for a license and we are hopeful that we will get one soon. China is a major legal market, although we will not be providing legal services to the whole of China. You have to get your market segment right.
Where do you stand on the debate over UK firms offering US law capabilities in Asia?
Stannard: We provide US law capability in London and will be looking to provide it in Asia. If we need it immediately we will be flying people out from London, but we will be adding it in Asia in the reasonably near future.
Do clients really want you to provide US legal services or will they just go to the US firms themselves?
Stannard: It depends on the deal. If you are doing a registered deal, often the client will have US counsel and global/UK counsel. But on a 144A deal it often doesn't make sense for them to have two sets of counsel. And when one looks at the deals where UK firms have provided US advice, there are very few registered deals but 144A deals are much more common. In Asia a lot of the deals are 144A rather than registered deals and so we can do the work for those deals.
