Close to the wind

Possibly the most striking example of how the will to make the best of a legal situation and, in doing so, shield against potential risks that can harm the firm’s and clients’ reputations are the dividend stripping cases. Two legal advisors are at the center of these. Freshfields Bruckhaus Deringer also attracted attention as a former proponent of the deals: only the Federal Court of Justice (Bundesgerichtshof) was able to thwart the Berlin investigative committee’s attempt to search the firm’s premises.

The dividend stripping affair is, for many lawyers, symbolic of a greater trend: the growing competition and cost pressure globally is putting a certain strain on legal advisors. It is not about skewed expert opinions or even illegal activities. It is about the fact that the willingness to push the limits of what is legally possible is growing – ostensibly in the client’s interest. But profitability expectations in firms will play a role as well.

Dealing with conflicts of interest is thus landing firms in hot water time and again. White & Case received a fine from the Solicitors Regulation Authority in London. The allegation: the firm failed to disclose a conflict. Most cases, however, concern merely a slight suspicion. CMS Hasche Sigle, for example, had to ask itself how it could cleanly separate its work for the Niedersachsen state chancellery from its work for VW in the diesel scandal. The firm stressed how there was never any overlap in relevant instructions. The case shows once again that huge risks lie in wait for advisors where politics and economics collide.

Adequately interpreting the term “conflict of interest” in potentially image-damaging, but prestigious instructions is a task that calls for self-discipline. It is unlikely that any firm would have turned down work in the diesel scandal purely because of a reputational risk. And no pressure comes from the clients: they value advisors who are particularly close to a topic or sector. For most in-house lawyers, conflicts of interest are a problem for the law firms – they only become their problem when the collision harms them.

It is not only large firms finding out that the term “conflict of interest” should not be interpreted too formally. Two more traditionally oriented German firms, CBH Rechtsanwälte and Luther, also hit choppy waters when they were caught in the crossfire in the scandal surrounding the Federal Chamber of Physicians. Although in the end there were no accusations against them, their dirty laundry was aired in public nonetheless.

Find out how globalization is affecting litigation risks

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