PROFILE: Kirsty Cooper and Monica Risam – Aviva

Legal Business meets Aviva’s senior lawyers as they discuss the effects of a major restructuring.

For those lawyers comfortable with the status quo within Aviva’s legal team, it has been a turbulent 18 months.

The FTSE 100 insurance giant has been plagued since the start of the financial crisis by poor financial performance, disparate businesses across the globe, and lower capital reserves than its competitors. Shareholders had lost confidence in former chief executive Andrew Moss, which is why Aviva is now run by the man credited with turning round the fortunes of Australia and New Zealand Banking Group.

John McFarlane took the helm at Aviva in May 2012. Within days of taking over, he announced a sweeping strategy review that has led to far-reaching changes across Aviva’s numerous departments, including legal.

Up until 2011, the legal team had reflected the nature of Aviva’s core insurance business: dependable but not dynamic. Longstanding general counsel (GC) and company secretary Kirsty Cooper dependably managed a structure she had inherited when she took over the role in 1991.

The first signs of change predated McFarlane – heralded by Cooper’s hire of GE Capital Solutions UK general counsel Monica Risam in June 2011. With a background in high-performance management within the competitive environment at GE, Risam was always going to be a catalyst for change in her role as GC of Aviva Group.

Strategy review

Following McFarlane’s review, plans to gently push the team towards a more incentive-driven approach were given a fuel injection. Last year, the legal team had to downsize by 10% at the same time as entering one its busiest-ever periods. This included executing the sale of its underperforming overseas businesses and the company-wide redundancies prescribed by McFarlane as a bitter but necessary pill to swallow.

In December 2012 Aviva sold its US business to American insurer Athene Holding for $1.8bn in a deal that was tightly managed by Risam and Aviva’s head of M&A and capital, Neil Harrison. In February, it announced the sale of Aviva Russia to Blagosostoyanie.

Cooper says: ‘John McFarlane felt that Aviva was too bureaucratic and wanted it to be more nimble. He conducted a review of all businesses and functions with the aim of de-layering and restructuring them and that applied to legal.

‘We lost 10% of our headcount last year. We tried to do it by natural wastage but we had to lose a couple of lawyers in the process.’

As part of the restructuring, Aviva’s London and Norwich-based lawyers have been divided between five core centres of excellence (COEs) – M&A and capital; corporate; insurance/reinsurance; employment/dispute resolution; and commercial outsourcing – with the idea that they will be virtually (and occasionally physically) parachuted in on international deals. The aim is not only to provide Aviva with a much more cohesive international legal service, but to reduce spend on external counsel by leveraging off Aviva’s own resources.

Risam comments: ‘We operate in 12-15 jurisdictions so we should be able to share our expertise more easily.’

The team’s jurisdictional focus and operating lines have also been completely shaken up (in line with the overall business), moving away from Europe, Asia and America to ‘mature’ markets on the one hand and ‘higher growth’ markets on the other. Risam is head of the COEs, Spain, Italy and Aviva Investors, while Lee Callaghan is general counsel for high-growth markets, based in Singapore.

These changes are still being bedded down but McFarlane has thrown down a further challenge this year, in the form of top-down performance management. Heads of departments were asked to categorise their employees into the 20% they judge to be outstanding, 70% who are efficient, and 10% who are developing.

Performance management is fairly common among in-house lawyers, where high performers may be singled out through leadership programmes or MBAs. However, the move is a volte-face for a company that has traditionally shied away from change and segregation. Cooper says: ‘Culturally Aviva has been slow to change and everyone is equal – just some more than others. There’s not been the differentiation you see in other organisations.’

`We are trying to get maximum bang for our buck.’
Monica Risam, Aviva Group

Unsurprisingly, the exercise took several attempts as McFarlane pushed managers to be (more) brutally honest. The legal team was faster than others to reach the desired outcomes and Risam says the categorisation is fair and representative.

But not everyone agrees that McFarlane’s performance measures will be a power for good. Meena Heath, founder of Global Leaders in Law (GLL), a GC global thought leadership and learning and development group, says: ‘The downside of categorising people in this way is that it is a self-fulfilling prophecy, known as the “Golem effect”. Low expectations lead to a decrease in performance; it is the opposite of the “Pygmalion effect”, which is what the GLL encourages GCs to use to motivate their global teams. Those who are not in the top 20% of high performers will become demoralised and start to assess their career options.’

For Cooper, managing the team’s expectations has been a priority. ‘We are trying to be as transparent as possible with the team on how we reach our assessment and what members of the team need to do to move to outstanding,’ she says.

It also helps that there is more incentive to be motivated. The status of the legal team – which has traditionally reported to the finance department – has been elevated so that it now stands alone. Instead of reporting to the finance director, Cooper – who has always sat on the executive committee – now reports directly to the CEO.

For Risam, the change is a huge step in the right direction. ‘I see the change as giving us a separate identity, which gives us a seat at the table,’ she says. The big question now is how to boost the legal team’s performance so that it becomes an outstanding, critical part of the business.

Panel reviews

This focus on performance management and efficient restructuring has also had an inevitable effect on the use of external lawyers. The bar has also been raised, both financially as Aviva strives to shave £400m off of costs, and in terms of its performance expectations.

Largely driven by exceptional M&A in the last financial year, Aviva’s annual legal spend was £35m but the expectation – and Cooper and Risam are currently looking at the forecast – is that sum will be revised down.

The recent PLC panel review – to decide which firms Aviva will turn to primarily in the event of critical M&A – saw firms offer a discount of 15-25%. Incumbent firms Clifford Chance (CC) and Slaughter and May were invited to pitch alongside Allen & Overy (A&O) and Linklaters. Slaughters and A&O were successful – an unwelcome result, no doubt, for CC, where head of insurance Katherine Coates recently advised Aviva on its restructuring and the transfer of 13 million insurance contracts.

In order to secure a place on the panel, the firms were required to give assurances that they will act for Aviva when required, including, potentially, against a bank.

While the precise terms of the guarantee are unknown and may provide some wriggle room, the latter assurance is nonetheless a surprise move for finance leader A&O. Aviva’s A&O relationship is led by head of the insurance group, Philip Jarvis, and corporate finance partner David Broadley. At Slaughters meanwhile, Aviva’s relationship partners are Jonathan Marks and Richard Smith.

Cooper says: ‘You can’t sell yourself to a FTSE 100 company and say you are conflicted from acting against any major bank.’

The PLC panel pitch process was particularly rigorous and saw partners put in front of a number of Aviva’s heads of business in order to test their ability to advise the company’s top management. Cooper says: ‘They need to be able to build a relationship with our key stakeholder functions such a finance, treasury and M&A.’

`You can’t sell yourself to a FTSE 100 company and say you are conflicted from acting against any major bank.’
Kirsty Cooper, Aviva

Risam adds: ‘You could see the ones who did well and those who were uncomfortable.’

The last time Aviva conducted a panel review was in 2007 and it was unsurprising given the change in economic landscape since then that firms were pitching aggressively to win appointments.

Aviva’s management did not miss a trick. Cooper says: ‘Some came up with different benefits and value-add ideas to others so we went back and asked if the other firms were prepared to offer the same things. They came in with an initial proposal and we just pushed back.’

One of the more interesting arrangements is a free helpline – complete with a laminated contacts card – that Aviva lawyers of any level can use to ask for help on difficult legal issues.

‘This service builds relationships between our teams and the firm as they get to know lawyers with deep expertise across our teams,’ Risam said.

Risam has now moved on to reviewing Aviva’s UK and European panel, where 25 firms have been invited to pitch, including existing advisers Ashurst, Latham & Watkins, Willkie Farr & Gallagher, Pinsent Masons, Berwin Leighton Paisner, Clyde & Co and DLA Piper. CC and Linklaters have also been invited to pitch again while Risam said Slaughters and A&O will be ‘grandfathered’ into the panel by virtue of their appointment to the PLC panel.

The requests for proposals were sent out to firms in the UK, Ireland, Italy, Spain, France, Turkey, Poland and Asia in April, with the tender taking place in May. Firms have been asked to describe their capability along the lines of Aviva’s COEs, including M&A, general corporate, employment, dispute resolution, insurance, corporate commerce, data protection and fund management. The results are expected to be announced this month.

A number of firms selected in early 2012 for Aviva’s reinsurance panel, which includes Clyde & Co and CMS, have also been asked to re-pitch for an extended advisory role but their place on the reinsurance panel is assured.

Unlike the PLC panel pitch, all the firms are known to Aviva and have already been tested in roles they have undertaken for the company. The panel selection process will largely focus on ways to achieve the best cost arrangements. Risam comments: ‘We are trying to get the maximum bang for our buck.’ LB

caroline.hill@legalease.co.uk