While historically relatively untouched by the globalisation of legal services, international firms have continued their recent surge into Switzerland, with Geneva – home to a third of the world’s private wealth – emerging as the most popular hotspot. As recently as January, CMS von Erlach Henrici – the local Swiss member of the global CMS network – merged with Geneva practice ZPG Avocats, adding six partners, including former ZPG managing partner Charles Poncet to the firm, now known as CMS von Erlach Poncet.
In September last year, Speechly Bircham also opened in Geneva – an office led by Michael Wells-Greco and of counsel Francis Rojas, who joined from the Luxembourg-based Maitland. This was the LB100 firm’s second office launch in the country in recent years, having first launched in Zürich in 2011.
Despite questions over the future of Switzerland’s private banking sector because of the erosion of its tradition of secrecy following years of international pressure and increased compliance costs, these launches show that the country has attained an attractiveness to foreign law firms, whether this is through teaming up with local practices or opening greenfield operations.
CMS Zürich partner Patrick Sommer says that the firm has always considered Geneva an important business centre, but in the past the firm believed it was sufficient to service the city from Zürich. Not any more. Recently, the firm’s clients in Geneva as well as its French clients, particularly from Lyon, made it clear they were keen to be supported by the firm in the French-speaking canton. Adding ZPG now provides CMS with dispute resolution, arbitration and corporate/commercial law practices in Geneva.
Meanwhile, Speechlys, which has a well-developed high-net-worth client base and a mature private client practice, had already envisaged that it would open an office in Geneva in due course so as to cover all major private wealth management centres in Europe.
‘Michael and Francis are two international private wealth lawyers with an outstanding reputation in Switzerland and internationally; we were delighted that they wanted to join Speechlys and found the new office,’ says Zürich partner Mark Summers.
And, as regards its recent tie-up with Bird & Bird, BCCC’s Geneva-based managing partner Manuel Bianchi della Porta believes that there are two things that a Swiss law firm needs to do these days: offer full national coverage and become part of an international network.
‘There is strong competition from foreign firms selling their services in Switzerland even if they do not have a physical presence here. This cannot be ignored and local firms must either grow to the appropriate size required by international markets or join an international network to capture work that might leave Switzerland for cities like London,’ he says.
Consequently, BCCC was very eager to partner with a major European firm to gain access to its marketing expertise, business practice knowledge and international clients. Being part of an international network is also very useful in attracting quality candidates who would appreciate future secondments in foreign offices. The BCCC relationship is not exclusive: for matters where Bird & Bird or BCCC do not have the relevant expertise, either may need to use alternative firms.
Feedback on the tie-up has to date been positive internally. ‘We’re spending time getting to know each other and visiting each other’s offices,’ says Bianchi della Porta. ‘Ultimately it won’t work unless personal relations flourish.’
But externally it is clear neither joint ventures nor even non-exclusive tie-ups are for every firm. In all likelihood, no international network would replace the volume of quality work Vischer receives from varied sources, argues Zürich-based partner Benedict Christ. ‘It is more beneficial for large independent firms like us to maintain informal relations with a number of foreign law firms.’
Nor does Zürich-based Beat Walti, managing partner at Wenger & Vieli, believe that all domestic firms need to structure their practices on a global basis through mergers or tie-ups to work on a global level. ‘You can remain free to work with the firms that suit the client.’
Life after secrecy – the evolution of Swiss banking
The US is not the only country targeting banking clients in Switzerland and its Department of Justice disclosure programme is not alone in feeding Swiss law firms with increased work in response to their clients being targeted by foreign tax authorities.
Mandates have also come to Swiss law firms from Asia on tax issues. At Lalive, Zürich partner Simone Nadelhofer recently led the successful representation of Asian clients before the Swiss courts in preventing their banking documents being sent to the tax authorities of their country of origin.
‘This victory shows that contrary to popular belief, Switzerland’s floodgates are not open for the fishing expeditions of foreign tax authorities and the rule of law does still exist,’ says Lalive’s Geneva-based partner, Alexander Troller.
Particular pressure on Switzerland has come from Europe to make the country’s banking market tax-compliant. In October 2013, Switzerland signed up with the Organisation for Economic Co-operation and Development (OECD) multilateral convention on mutual administrative assistance in tax matters to fight tax evasion, which allows for the exchange of tax information upon request.
The OECD convention will have a significant impact on Switzerland. According to BCCC’s Lausanne-based banking and finance head Thierry Amy, this is a real revolution. ‘Switzerland is a country where the banking sector was founded on secrecy – to open an account now, you need to confirm that you have declared all assets in your country of domicile,’ he says.
Moreover, because of pressure from the OECD and the EU and the increased compliance costs, many private banks have seen their margins under severe pressure. This is leading to sector consolidation.
In 2013, Bank Sarasin & Co and Bank J Safra (Switzerland) merged. Homburger’s Zürich-based managing partner Daniel Daeniker acted for Sarasin; Lenz & Staehelin’s Geneva partner Jacques Iffland led the team advising the Safra Group; and Froriep’s Geneva partner Patrick Vogel represented Banque J Safra on banking regulatory matters, including approval of the transaction by the Swiss Financial Market Supervisory Authority (FINMA).
Froriep’s Zürich-based managing partner Catrina Luchsinger Gähwiler expects further consolidation in the banking industry, particularly as a consequence of the US disclosure programme.
During such a consolidation phase, there will be high demand for legal advice and services. But not all consolidation will lead to mergers; in some cases that Froriep has advised on, clients have wanted to hand back their banking licences and continue as asset managers.
Some banks will just give up if it becomes impossible to stay profitable. ‘They will either enter into liquidation or sell off their client portfolios; but finding a buyer prepared to take on the additional regulatory risks is no easy task,’ says Zürich-based Philippe Weber, an M&A partner at Niederer Kraft & Frey (NKF).
Although the death of banking secrecy may affect the appetite for risk, there is life after secrecy. ‘People will still come to Switzerland for wealth management,’ says Christophe Rapin, a Lausanne-based partner at Meyerlustenberger Lachenal.
Tale of two cities
By contrast, the response from local firms to the new Geneva entrants has been largely upbeat. Speechlys’ arrival in Geneva is a particularly positive development, believes Christophe Rapin, a Lausanne-based partner at Meyerlustenberger Lachenal. Notwithstanding the Swiss banking sector crisis leading to high-net-worth clients pulling their wealth out of Geneva banks in significant numbers, it shows that there is still plenty of private client work on offer to law firms.
CMS’ merger with a Geneva firm also shows that the business market in Switzerland remains largely divided between Geneva and Zürich, according to Pierre-Yves Gunter, a partner in Python & Peter’s Geneva office. Unlike countries such as France, there is not one central location in Switzerland for legal business.
Nor are the two cities by any means identical markets. Zürich represents big Swiss business, the Swiss stock exchange (SIX), the financial industry and the all-important German market, while Geneva is home to important private clients, has strong links to the Middle East and international organisations, and is an important location for large Swiss law firms with major clients based in the French-speaking cantons of the country.
According to Mathis Berger, a partner at Zürich litigation/arbitration boutique Nater Dallafior, it has become more evident that it is not feasible to service the Geneva market from Zürich or vice versa, if it ever was.
Consequently, many believe that to attract clients domiciled in the French-speaking part of Switzerland, it is necessary to be seen not only as a Zürich law firm, but also as a Swiss legal practice. This means having native Francophone lawyers – both partners and associates – in the teams.
Law firms from the French-speaking side have also expanded in the opposite direction. In 2013, Lalive hired Philipp Habegger and Marc Veit as partners from Walder Wyss, who are based at its new, larger Zürich offices. The firm opened its Zürich office in 2010 to pick up local litigation mandates and is now full-service.
‘Given that procedures and local laws can differ quite substantially from the German-speaking part of Switzerland, bridging the cultures is easier to achieve by having an office in Geneva than employing a French-speaking person in Zürich,’ says Froriep’s Zürich-based managing partner Catrina Luchsinger Gähwiler.
And although Geneva is an important venue, particularly for international arbitration work, many believe that it remains a challenging market. ‘Because of the language barrier and cultural differences, it’s difficult to integrate a Geneva office with Zürich; most of the firms with presences in both cities are not fully integrated,’ says Vischer’s Christ, although CMS has opted for complete financial integration. ‘We are one firm with a common aim,’ says Sommer.
The CMS merger has the effect of creating a Swiss practice with 78 fee-earners, a slightly smaller challenger to the dominant firms Bär & Karrer, Homburger and Lenz & Staehelin, which average a little over 100 lawyers. ‘The continued internationalisation of the Swiss legal market means that the large Swiss firms must stay focused on being national champions in their core business areas,’ says Zürich-based Philippe Weber, an M&A partner at 100-lawyer Niederer Kraft & Frey (NKF).
According to Lausanne-based Michel Jaccard, founding partner at corporate and technology boutique id est avocats, there are only a handful of leading, full-service firms at the top of the food chain, mostly in Zürich but with a strong foothold in Geneva too.
‘They have served demanding Swiss clients well for a long time and I would be surprised if such clients suddenly offloaded them to switch to the local outposts of international networks,’ Jaccard says.
Nor does Wenger & Vieli’s Walti foresee major changes as a result of international firms landing in Switzerland. In his view, the impact depends on the nature of firms’ client bases. Wenger & Vieli acts for large international companies, but also for small and medium sized enterprises where the relationship between the partners and the clients is of utmost importance. ‘This is unlikely to be affected by external players,’ he says.
‘No big international foreign law firm has a substantial presence in the sense of a full-service law firm with a decent size in Switzerland,’ says Pestalozzi’s Zürich-based chair Michael Kramer. ‘Both our international and domestic clients are more than happy with the current situation and do not see the need for the big international law firms in Switzerland,’ he says.
Nor will the recent arrivals mean a future invasion of law firms. Over the next five to ten years, Daniel Daeniker, managing partner at Zürich firm Homburger, expects one or two more non-Magic Circle firms to establish beachheads in Switzerland, no more.
Although some international firms have set foot in the jurisdiction, it has usually been in the form of a franchising model, with the major domestic players enjoying long-lasting relationships with international law firms. ‘This closeness explains the reasons behind the absence of the most prominent UK or US law firms in Switzerland,’ says Schellenberg Wittmer’s Geneva partner Benjamin Borsodi.
The Legal 500 Switzerland – Recommended firms
Coming clean
The recent US Department of Justice (DoJ) programme for Swiss banks has also underlined the established relationships Swiss law firms entertain with US law practices. ‘I do not believe they feel compelled to open branches in Switzerland in order to serve clients efficiently here,’ says Bär & Karrer’s Zürich partner Eric Stupp.
In August 2013, the US and Swiss governments ended the prolonged tax dispute between Swiss banks and US authorities, agreeing a framework for Swiss banks’ co-operation with the US authorities, and a unilateral US programme in which banks can participate voluntarily.
The first stage of the work required law firms to help the banks decide which category they fell into for the purposes of the programme. Because of legal uncertainties created by the programme, several banks applied under category two: banks that believe they have committed tax-related offences under US law in connection with undeclared US taxpayer accounts.
Category two banks seeking non-prosecution agreements to resolve past cross-border criminal tax violations submitted letters of intent to the DoJ by 31 December 2013 and must deliver the required information by April.
With so many Swiss banks potentially involved, there has been a huge amount of work to be done in terms of Swiss and US law issues, including ensuring that the disclosure of the data required is in full compliance with Swiss banking, data protection and employment law. At DGE Attorneys At Law, the firm has also been busy with the immigration issues surrounding the US programme. ‘This is because a large number of US attorneys have been seconded, or assigned, to assist Swiss banks in connection with these matters,’ Gruber says.
According to Schellenberg Wittmer’s Borsodi, banking activity has been frenzied for law firms in recent months. Homburger had a head start on the DoJ mandates, says Daeniker, as Zürich partner Flavio Romerio, who co-ordinates the firm’s white-collar team, has worked in this area for over ten years. ‘Flavio has a wealth of project management experience in addition to the expertise,’ he says. To cope with the extra disclosure work, Homburger brought in around 20 paralegals on a temporary basis this year.
Pestalozzi was also instructed to navigate the banks through complex proceedings – to manage and review the data collection process and to interview the managers responsible for the banks’ US business.
‘We have received instructions from banks that have been existing clients, as well as from new clients that count on our experience in order to mitigate any potential penalties in accordance with the US programme,’ says Kramer.
The programme also led to substantial additional work for PBK, which assisted a number of taxpayers who engaged in the voluntary disclosure process and who had been heavily encouraged by the banks to do so. The firm also advised certain banks on Swiss law and was also requested to act as an independent examiner under the programme. ‘We considered it to be of particular importance to manage carefully any potential conflicts of interest in performing these services,’ says Boss.
And with both white-collar work and regulatory assistance increasing, the current situation has played to Umbricht Attorneys At Law’s strengths. ‘The banks are happy to send us their ultra-high-net-worth individuals – and asset managers their clients – in relation to voluntary disclosures as this is not advice they are able to give,’ says Zürich-based partner Georg Umbricht.
With so much disclosure work around, involving a wide scope of client requirements all to the same timetable, Swiss law firms have had to manage internal resources carefully. In September 2013, Borel & Barbey set up a team advising several Swiss banks on their participation in the DoJ programme; and Bär & Karrer, which acts for around two dozen banks on the programme, created an internal working group, standardising the documentation to make the process easier.
Some practices have aggressively taken on mandates for what is a one-off event, requiring large numbers of staff to trawl through thousands of e-mails and there are reports of young lawyers disillusioned at spending weeks on end at banks doing repetitive discovery work.
Bär & Karrer limited the number of clients it accepted in the first place, according to Stupp; and Meyerlustenberger Lachenal also decided not to overcommit to DoJ work, says Zürich and Zug-based partner Alexander Vogel.
As for what happens when the disclosure work ends, Swiss lawyers’ degree of specialism has always been modest when compared with the UK. ‘We don’t create a bubble of people doing only one thing and who can do nothing else when that particular stream of work ends,’ says Daeniker. The firm draws its resources from the wider corporate and finance talent pool: after a particular workstream peaks, they go back to doing what they were doing before.
While the DoJ programme is a significant source of work, it only represents a portion of the banking work that Swiss firms handle. Nor is advisory work for compliance programmes and corporate investigations limited to the financial sector – it is also increasing in other industries, such as commodities and trading, according to Schellenberg Wittmer’s Borsodi.
Nonetheless, the disclosure programme is expected to trigger more legal work going forward, even for those Swiss law firms that have not been in the eye of the storm acting for banks. When dealing with foreign clients, Swiss legal practices will need to ensure that they comply with both Swiss and international law.
PLC 2.0 – upgrading Swiss corporate governance
It is not just publicly listed companies’ shareholders who are due to benefit from change. With the erosion of Switzerland’s traditional banking secrecy, a series of reforms are planned to increase Switzerland’s attractiveness as a business location and provide advisory work for the country’s lawyers.
In December 2013, the Swiss Federal Council released a final report on Corporate Tax Reform III.
According to Benedict Christ, a Zürich partner at Vischer, the corporate tax reform discussions are the result of the federal government giving in to EU political pressure and will signify a huge change to how corporations are taxed, particularly at cantonal level.
While it is not yet clear what the reform will look like in detail, it is expected to remove the international pressure that Switzerland faces as a result of its privileged tax regimes, currently provided for by Swiss law.
Most consider the corporate tax reform to be good news. ‘The overall corporate tax rate should go down, meaning that we can keep the foreign multinationals without the special tax deals that anger the country’s foreign counterparts,’ says Lalive’s Geneva-based partner Alexander Troller.
Consequently, Switzerland is likely to remain attractive to foreign investors. Meyerlustenberger Lachenal’s Zürich and Zug-based partner Alexander Vogel expects that corporate migrations to Switzerland will likely grow in the coming years.
Meanwhile, Swiss insolvency law has already been improved. The plan to make Swiss insolvency more restructuring-friendly has been on the table since the 2001 insolvency proceedings of Swissair, Switzerland’s then national airline, together with its holdings and affiliated companies.
In January 2014, a revision of Swiss insolvency law, containing measures to facilitate restructuring, entered into force, the amendments giving more flexibility to debtors in composition proceedings.
According to Zürich firm Homburger’s managing partner Daniel Daeniker, the insolvency law may have a positive impact upon voluntary restructurings but there will not be a wave of insolvencies unless Switzerland’s mindset changes.
‘In the US, it is normal for corporations to dispose of unhealthy liabilities by filing for Chapter 11; in Switzerland many still regard insolvencies as being tantamount to criminal behaviour,’ says Daeniker.
Alternative workflows
While banking regulatory and compliance work and white-collar instructions have thrived for several Swiss law firms, Vischer’s Christ says that the firm’s energy and life sciences practices also had a particularly strong year. At Meyerlustenberger Lachenal, competition law mandates have been especially active.
Homburger’s Daeniker is also especially upbeat. ‘M&A has been booming since last summer and will be tremendous in 2014,’ he says. Homburger partner Frank Gerhard has led the advice to global specialty chemicals company Clariant in a number of key transactions, including the January sale of its detergents and intermediates business to International Chemical Investors Group for CHF58m (€47.6m); the carve-out sale of its worldwide textile chemicals, paper specialties and emulsions businesses to SK Capital, a US-based private equity firm, in October; and its plan to sell its leather services business to Stahl Holdings, which would create a global leader in leather chemicals.
At Schellenberg Wittmer, Zürich partner Martin Lanz led Raiffeisen Switzerland Cooperative on Raiffeisen Group’s (the third-largest banking group in Switzerland) raising of CHF550m (€450m) in regulatory capital under the Basel III regime in May 2013.
IPOs have also returned. In October NKF advised Swiss consumer finance provider GE Money Bank, now known as Cembra Money Bank, on the largest IPO in Switzerland in seven years, with a market capitalisation of CHF1.5bn (€1.23bn).
Homburger partner Hansjürg Appenzeller led the advice as Swiss legal counsel to GE Capital Swiss Funding and Bär & Karrer’s Zürich partners Thomas Reutter and Till Spillmann advised all the banks involved, including Credit Suisse as global co-ordinator, acting with Bank of America Merrill Lynch and Deutsche Bank as joint bookrunners, and Bank Vontobel as co-lead manager.
Several firms’ arbitration and litigation departments are also booming. According to Berger, Nater Dallafior has been especially active in litigation concerning the banking sector, directors’ liability, and patent disputes; and in addition to Python & Peter’s tax department remaining extremely busy, the firm secured an impressive number of appointments as arbitrator, and handled several big-ticket gas arbitration disputes as counsel and co-counsel – one of which is led by Gunter, the other by Geneva partner Marc Iynedjian.
Irrespective of foreign entrants in Switzerland or one-off disclosure programmes, the pipeline for Swiss transactional, regulatory and contentious lawyers is bulging.
The 1:12 Initiative – a relief for Swiss plcs
Although the ordinance allows listed Swiss joint stock companies’ shareholders to have a say on executive compensation and other corporate governance issues, another referendum was held in November 2013 with far more potentially serious consequences. The passing of the so-called 1:12 initiative for fair pay, brought about by the Social Democrats’ youth wing, would have given Switzerland the strictest salary rules in the world.
Executives would have been prohibited from earning more than 12 times as much as the lowest-paid employees at their companies, whether listed or not. The referendum was rejected decisively by 65% of voters.
Benjamin Humm, a partner in BCCC’s Lausanne office, says this was an extremely positive result. ‘Although the Minder initiative will not deter public companies from operating in Switzerland, the limits on remuneration would have been a real disaster for both foreign multinationals and Switzerland,’ he says.
The 1:12 referendum’s passing would even have led to some foreign corporations creating separate overseas entities just to handle the payment of executives, according to Alexander Troller at Lalive.
Many believe that this vote can be interpreted as a clear sign that the Swiss population does not wish for the federal government to interfere in the setting of executive pay. ‘There is a demand for transparency – as can be seen from the adoption of the Minder initiative – but the Swiss population want the private sector to remain autonomous when determining remuneration,’ argues Meyerlustenberger Lachenal’s Zürich and Zug-based partner Alexander Vogel.
Having a say
Significant company law changes will also have a profound effect on the work handled by Swiss and international firms, after Swiss businessman Thomas Minder’s initiative against excessive pay for executives won a referendum vote in March 2013.
The referendum was opposed by several large companies, which argued that it would damage Switzerland’s reputation as a business-friendly environment. Swiss stock corporations listed on a Swiss or foreign stock exchange are now faced with extra administrative challenges, while shareholders will see their influence increase with regard to boards of directors’ remuneration and the management of companies.
However, Switzerland’s leading law firms have the opportunity to win significant work as a result of the ordinance’s introduction, which requires the involvement of experienced partners who understand how corporate governance works for listed companies.
The ordinance contains far-reaching new rules on corporate governance, with direct effects on executive management, shareholders, pension funds and independent proxies. Public listed corporations have to revise their articles of association and regulations, amend employment agreements and adapt shareholders’ meetings’ procedures relating to board members’ election and the vote on remuneration for boards of directors and management.
Besides aspects of corporate law, Berger at Nater Dallafior says that complex issues will emerge as the ordinance’s implementation does not respect certain employment law principles. ‘It’s not only that employment agreements will have to be cancelled/adopted, but also conflicts with statutory principles of employment law are to be expected,’ he says.
Furthermore, voting representation by governing bodies of the company itself and/or custodians has now been abolished in listed Swiss joint stock companies and, as regards the ordinary shareholders meeting, the company may only propose an independent proxy to represent shareholders.
According to Bianchi della Porta, because only independent proxy holders will be allowed, boards of directors will be unable to achieve majorities for their resolutions through their own proxies. ‘It could begin to resemble the US, with board of director campaigns and shareholder activism,’ he says.
The ordinance will bring a lot of work to Swiss legal practices. ‘Swiss law firms have an opportunity to support and assist public listed companies with OAEC’s smooth implementation,’ says Meyerlustenberger Lachenal’s Vogel.
‘Boards had to acquaint themselves with the initiative and take an informed decision on how it would be translated into their corporate landscape,’ says Luchsinger Gähwiler.
Instructions have since moved on to implementing the decisions taken, with board members asking about the risks and options and consequences involved. Although the legislation allows for implementation in several steps during a two-year transitional phase, most public listed companies have opted to introduce the changes in one stage rather than two.
‘Companies want clarity on the future and have been doing their homework on the corporate governance issues and the question of shareholder control and information,’ says Walti.
In response to implementation, Daeniker says Homburger put together a dedicated team that created a model set of documents that suited all its major corporate clients; and NKF has given considerable tailor-made advice to public listed companies, introducing new standards for their internal documentation and procedures, according to Weber.
The ordinance also created a great deal of work for Pestalozzi. ‘Demand has come not only from listed companies but also from top executives and pension funds,’ says Kramer.
Moreover, this is work that is sustainable long-term because of all the corporate governance issues involved and the sensitive questions to be answered concerning the remuneration of board and management members.
It appears that the Swiss legal market in 2014 is balanced, offering opportunities for creative international firms that are looking to take advantage of the glut of work deriving from the private money domiciled in Switzerland and owned by high-net-worth individuals from all over the world. At the same time, most of them are not eating the lunch of the Swiss corporate law firms, which are finding plenty of commercial and regulatory work as a result of legislative changes to company law and greater banking regulation as a result of intense international scrutiny.
The question is how long this will last. The market is contracting, geographically with more Swiss firms offering services in both Zürich and Geneva, and along practice lines, as the private wealth offerings of international firms potentially convert into more mainstream corporate work in Switzerland as the privately wealthy look to invest commercially. It is only when these domestic and international players butt heads more regularly that tensions will really start to show. LB
julianmatteucci@legalease.co.uk