Client Profile: John Davidson, SABMiller

The multinational drinks giant’s GC on balancing regulation with refreshment.

A pub crawl or alcoholic supermarket sweep is not typically on the agenda for the average general counsel (GC)’s business trip, but this is exactly what makes SABMiller’s GC and corporate affairs director John Davidson’s job so unusual.

‘When we are in a country, we always make sure we build in what we call a trade visit, but what my wife calls a paid pub crawl, to visit other premises and outlets,’ says Davidson. ‘I spent Wednesday morning last week in Warsaw visiting four different supermarkets. Imagine doing that and getting paid for it.’

Davidson joined FTSE 100 company SABMiller – owner of brands such as Peroni, Foster’s and The Miller Brewing Company as GC and group company secretary in 2006, but had been working almost exclusively with the business for the last two years of his career as an international corporate finance partner at Lovells. Having joined as an articled clerk in 1983, Davidson was established as one of Lovells’ leading corporate partners and held a number of management roles, including managing partner of the New York office. Although he was never tempted away by offers from competitors, leaving to create a new global GC function at a major client was an opportunity too good to miss.

‘In the last two years at Lovells, I was spending between 85% and 90% of my chargeable time on work for SABMiller. I was almost acting as GC on the outside in terms of the range and scope of the things I was being consulted on in addition to regular M&A.’

The group didn’t have an established legal adviser before Davidson joined, but the retirement of the then company secretary, along with the pace of growth and increased complexity of SABMiller, was the catalyst for establishing a new GC function.

‘I got a call from the chief executive asking if I would like to join them and set up the GC office. At that point I had been a partner at Lovells for 15 years; I’d expected to carry on until I retired. At age 46, getting the offer to go and set up a role in a business I knew well and loved working for was a fantastic opportunity.’

When Scots-born Davidson joined SABMiller’s UK-based central legal function, there were only four existing lawyers, split between M&A and commercial and advisory work, with the first lawyer only recruited into the company’s HQ in 2002. ‘Prior to 2002, there wasn’t really a central legal function at all,’ comments Davidson. ‘With the mandate from the chief executive to build it into a functioning legal department, we steadily grew from there to the point where we have a total of 12 lawyers in the UK.’

The team is still split, with six lawyers focused on M&A, banking and treasury work liaising with the company’s internal corporate finance team, reviewing acquisitions. The remainder work on SABMiller’s larger supplier contracts, IT contracts, global and internal policy on issues such as alcohol, marketing, labelling, commercial communications, and supervising the group’s global anti-bribery and corruption compliance. The commercial team are also involved in new product development. ‘If the technical team or guys in our pilot brewery come up with new products or new combinations of flavours and products, it has to go through legal reviews to ensure it satisfies any legal or trading standards requirements in the countries in which it is to be offered,’ adds Davidson.

In addition to its central legal function based in Woking, SABMiller has approximately 140 global lawyers around the group who are embedded in the local businesses doing jurisdictional work with reporting lines to local management in countries or by region. The company achieved global revenues of $22.1bn in 2015 and employed 70,000 staff.

Unsurprisingly, the size of these localised legal teams varies dramatically across the globe, with the biggest and most sophisticated teams in countries including the US, Colombia and Australia. By contrast, Uganda has only two lawyers. ‘Most markets have a legal head, but the head might be a head of one or two people, and very often the head of legal and the head of corporate affairs is the same person, and the teams work very closely together. But it does vary by market,’ adds Davidson.

Although not directly responsible for the work of the wider global legal team, Davidson assumed responsibility for the group’s corporate affairs function in November 2014 and now has SABMiller’s sustainable development team, media and communications department, and regulatory and public policy team under his remit, while relinquishing his group company secretarial role to his deputy GC Stephen Shapiro. He is still working out what his new day job consists of. ‘I have spent a lot of time getting to grips with the new function and understanding more deeply the issues these teams are dealing with day to day. It has been an interesting learning experience for me over the last six months. Being familiar with the issues is not the same as being responsible for them.’

According to Davidson, the most difficult part of his transition from external adviser to head of legal at SABMiller was learning how to work with an executive committee and a board full of independent, shareholder-appointed, non-executive directors. ‘You can be the world’s expert on corporate governance, but until you have actually done it in practice, it is a very different proposition in many ways.’
These days Davidson finds himself doing less day-to-day legal work, only getting involved in the early negotiation stages or on the more strategic aspects of a large deal. He prefers to rely on his two deputy GCs – Stephen Jones, who heads up the M&A team, and Shapiro, who looks after the commercial legal team as well as company secretarial.

Davidson is particularly proud of how the team has developed during his time as team leader, especially in the M&A arena. Standout deals include the 2007 joint venture between SABMiller and Molson Coors Brewing Company, and the 2011 acquisition of the Australian beer group Foster’s, in a deal worth £6.5bn. According to Davidson, part of the team’s success is its ability to build personal relationships across the globe.

‘The Foster’s deal started with an unsolicited approach by us and turned into an agreed deal within three months,’ he says. ‘Part of the fascination with the job is the extent to which it is built on relationships. About 40% of our earnings come from joint ventures or strategic alliance investments. MillerCoors in the US is a 50/50 joint venture and I sit on the board of that company as one of the nominees there. In Africa we have a relationship with the French beer group Castel and we own essentially 20% of its beer business, while it owns 38% of our Africa business. Again, that is a continuing relationship and I am one of the nominees on its board.’

Unsurprisingly, dealing with regulation globally is a challenge for the in-house team. ‘Alcohol in most countries in the world is a heavily regulated industry, in terms of production licences, selling licences, marketing and so forth. There is a maze of regulatory stuff you have to work through,’ says Davidson. ‘Yes, we are a beer company, we produce alcohol and it can be misused. But it is not in our interests for it to be misused because that will just lead to a societal reaction against the industry and against the product. That is the biggest part of the job actually.’

The way in which the group approaches regulation also varies from country to country. In the US, alcohol is the second most heavily regulated industry after nuclear, with each state taking responsibility for its own regulation system. As a result, SABMiller needs to get all of its labels and marketing materials pre-approved by each local state regulator. However, in the UK, the regulatory framework means that the company can practise self-regulation.
‘It is more about making sure you anticipate what the issues are so your advertising or marketing doesn’t give rise to complaint,’ he comments. ‘In the US, you go through a pre-approval process so by the time you are putting a product out, it has already been through a regulatory process. As you go around the world, you can find multiple examples of different ways of regulating or self-regulating in the industry.’

An added complication to the regulatory challenge is that SABMiller works across six continents, with regulation varying enormously between regions. With cultural differences affecting the way products are marketed and perceived, the central legal team has established a number of global policies relating to marketing, commercial, communication and advertising, which are kept under constant review.

‘If you are marketing at a music or sports event, the rule of thumb is that at least 80% of your expected audience are going to be people of legal drinking age. That percentage can vary from country to country, but that is the minimum. If local requirements are higher, then obviously you comply with local requirements. In some countries, like France or India, you can’t advertise alcohol at all. In some countries there are restrictions on the availability of where and when you can buy alcohol as a consumer. In most countries you are not allowed to make nutritional or health-based claims. You have to talk about heritage, taste, refreshment, colour and so on.’

With operations in more than 80 countries, the needs of the company are so unpredictable and fluid that Davidson prefers to rely on a number of relationships with key firms, as opposed to a formal panel. In the UK, SABMiller continues to use Hogan Lovells as its major corporate advisory firm, particularly for banking and securities mandates. The group also uses Linklaters and Allen & Overy (A&O), as well as Herbert Smith Freehills. In the US, Cleary Gottlieb Steen & Hamilton has been SABMiller’s main adviser for many years, with the company turning to the firm when SAB acquired Miller Brewing in a £3.8bn deal in 2002.

‘For the Foster’s bid in Australia, we used A&O’s Sydney office, which was excellent. Hogan Lovells did the banking finance work for the deal and A&O did the Australian bid work for us. We are pretty insistent on our legal firms playing nicely together and working as part of a team. I very much value collaboration, especially on a deal where you have one firm doing the international piece and another firm doing the local piece.’

For Davidson, the biggest attraction of the job is still the unique culture of the company and the passion of those involved for the products and in building a business from a regional base in South Africa to become one of the four largest global brewers. During his ten years in-house, Davidson has not only built up his knowledge of corporate governance and affairs, but can now also call himself a certified beer connoisseur.

‘People in the beer industry tend to be passionate about their product. Toothpaste is wonderful and a great boon to mankind, but it is hard to get passionate about it in the same way. The whole spirit of the company – its “we can take on the world and beat them” attitude – is very attractive. I was not always the connoisseur and sophisticated beer drinker that I might claim to be now in terms of knowledge of the product and the way the product is made, and the difference between beer styles and products. But I was always happy to have a beer.’

kathryn.mccann@legalease.co.uk