Just six months into the job British American Tobacco (BAT) general counsel Jerome Abelman has overseen the biggest overhaul of its legal team in the FTSE 100 company’s 114-year history.
Abelman officially became legal chief of the tobacco giant on 1 May 2015 after a four-month stint as BAT’s corporate and regulatory legal head. But his work to create an entirely new global department over which he would preside from its headquarters at London’s Globe House began five months before.
Known internally as ‘Project Vanguard’, the aim of the restructure was to merge BAT’s corporate and regulatory affairs function with legal and security, to create a single big group named legal and external affairs (known as ‘Lex’ internally).
The project got under way on 1 January and was completed by the time Abelman stepped into the top job.
“We completed it more quickly than any of these projects have ever been done before by BAT, and ran it completely internally with no external consultants, just a small team of people from across all our regions working with the HR department,” Abelman says.
This was the “fairest way” for BAT’s legal and corporate affairs staff around the world, he adds, as some of them lost their jobs in the transition.
“Now it’s about integrating the two teams,” says Abelman, with the colossal new 800-staff and 350-lawyer department now responsible for the entire legal and corporate scope of the 60,000-employee business with offices in every major jurisdiction worldwide.
The nature of BAT’s work – “controversial” and, at times, “dangerous” Abelman says – makes this an even more daunting task.
“Moving tobacco is like moving gold in much of the world,” he says. “We operate in jurisdictions where terrorism is rife and where tobacco is an incredibly lucrative asset, so protecting our people and our business is key.”
There’s also a constant flow of bad press to contend with – one of the main reasons behind the decision to bring communications under Abelman’s wide remit – and a steady stream of billion-dollar litigation to run and defend.
“Tobacco is fascinating but you have to be pretty tough to work in this industry as there is so much hyperbole and misinformation,” he says.
After the business overhaul, the departments Abelman oversees are: litigation (which incorporates product liability litigation, corporate litigation, commercial litigation), government affairs (regulation, lobbying, illicit trade, excise and trade, scientific engagement), corporate affairs (communications, sustainability), company secretarial (corporate governance, business conduct, reputational issues), security (information security and IT), corporate legal (M&A, treasury, tax) and commercial legal (IP and contracts).
“How do I handle it all – by prioritising and having the right team in place,” Abelman says, adding he has eight people who directly report to him on a daily basis and five further senior but indirect reports.
“The Lex function is much more complicated and nuanced than a straight legal team,” he says. “We had two competent functions but there were overlapping areas which slowed down decision-making and was inefficient.”
The previous set-up was subject to increasing pressures, particularly in regulatory and lobbying, and he was constantly coming up against the question – at what point does legal get involved?
“Corporate affairs would typically get involved at the start of an issue or dispute to try to engage, then legal would come in at the end and say ‘let’s litigate’, Abelman adds. “It’s much more complicated than that in reality – both functions need to be involved early, with everyone feeding in to one judgement on the best course of action.”
Battle-tested
Abelman is not alone in thinking this tie-up is the best plan of action. A number of US corporations have pursued the same integration of legal, comms and corporate affairs teams, such as Apple, Google, IBM and Microsoft. The set-up is becoming popular worldwide too, with the BBC and Rio Tinto understood to have adopted similar ways of working.
“It’s big multinationals working in highly contentious areas that want to operate this way,” says Abelman. “It makes sense when you are disliked as much as we are and always under attack.”
Indeed, the amount of large-scale litigation taking up Abelman’s time has increased since he took on the job, as the company looks to protect its IP rights in the face of plain packaging laws in Europe and Australia, and fights a number of legal battles elsewhere.
Take the recent Canadian litigation, for example, which resulted in a $15bn (£10bn) judgment against the industry (including $10.4bn against BAT). The June 2015 ruling was the culmination of a 17-year class action in Quebec in which more than a million claimants sought damages on the grounds that BAT and other tobacco companies concealed the risks of selling harmful products.
Handling the repercussions of the decision was one of the first big challenges for Abelman’s Lex group.
“It required just as much of my time working with our communications staff as it did with lawyers,” he says. “Everything happened so quickly and efficiently on an operational, strategic and tactical level.”
The same thing happened following the UK Government’s announcement in January that it will introduce plain packaging. BAT launched an application to bring a judicial review of the plans in June alongside Philip Morris International and Japan Tobacco International. The judicial review hit the High Court in December (see box, right).
“Handling such a big dispute puts a lot of accountability and pressure on the team, but it’s rewarding,” says Abelman. “There was friction over the years between corporate affairs and legal but that seems to have gone away now we’ve nailed down what the priorities are when a decision needs to happen quickly.”
Litigation is run on a relatively minor scale internally at BAT despite its global headline-grabbing reach. Although the legal impact of the Canadian suit and others like it has been huge for the tobacco industry and for BAT, Abelman has just six product liability litigators in his team operating out of a “centre of expertise” for the practice area in London.
“As product liability is so technical we have it boiled down to one group in London,” he says, though he adds that the team relies heavily on its roster of external advisers. “Some of our other markets have built up their own centres – Brazil, for example – but generally all our product liability work comes out of the UK.”
Innovative work in patents
Disputes is just one part of the job, however. Lex’s work on IP and patents is where BAT showcases some of its most “innovative legal work”, according to Abelman.
“The vast majority of our IP work is done in-house,” he says, adding that BAT has 70,000 trademark registrations, putting it in the top three companies by trademarks worldwide.
Together with IP executives from Coca-Cola, Ford, Kimberly-Clark and Microsoft, BAT developed a piece of software called Anaqua that manages the registrations and renewals alongside trademark agents in various jurisdictions.
BAT’s patent team of just three lawyers works out of its office in Southampton, where the rest of its R&D team sits. The function is particularly important in terms of BAT’s “next-generation products” (NGP), says Abelman, a part of the business increasingly dominating his time.
“The function has to really develop on NGP: e-cigarettes, tobacco heating products, medicinal products. We’re the first tobacco company in the world to be granted a medicines licence, which took place in the UK,” he says.
The licence, granted in 2014, will allow BAT subsidiary Nicoventures to produce a nicotine inhaler, Voke, from its base in King’s Lynn.
“We’ve made a subtle shift in our focus on both the legal and non-legal sides in terms of NGP, IP, contracts and managing the complicated supply chains for these things,” adds Abelman, “Running it all is a huge component for Lex.”
Creating an internal legal product framework around NGPs will be hugely important for BAT to stay ahead of a market increasingly aware of the risks of smoking.
“It makes sense to operate this way when you’re disliked as much as we are, and always under attack”
“It’s a completely different way of thinking,” he continues, “the law is only just catching up with these products. It’s a hi-tech business in a sense, not just a retail one – it requires a different type of lawyer.”
How the legal team drives forward BAT’s progression in the e-cigarette and non-combustible tobacco business is a key indicator of how well the function works within the business as a whole. In simple terms, BAT’s future depends on the work Abelman’s team is doing in the NGP space now, and the company is ploughing billions into developing and delivering the less risky alternatives to regular cigarettes.
When it comes to liaising with BAT bosses on such issues, Abelman knows his voice will be heard. Lex is “integrated and respected”, he says, adding: “My boss is the CEO and he has nothing but the strongest respect for good governance and reputation – we don’t have the margin of being lax in those areas.”
Of course, the nature of the tobacco industry, which demands such focus on regulation, means the legal boss is perhaps better integrated into the board than at other multinational retailers. As general counsel, Abelman is the main sounding-board for BAT executives, which, he says, means there’s “nowhere to hide” when it is time to make an important decision, but that it comes with the territory.
“Governance, transparency, reputation – these are key priorities for BAT,” Abelman says. “We recognise that smoking is an adult choice, even if many of us don’t smoke, but it’s still a controversial product. That’s all the more reason for us to emphasise strong governance, strong practices and good corporate behaviour. That’s why it is important that I have a strong voice in the company.”
Nuanced approach to external advice
The approach Abelman took to his overhaul of the legal team has also been rigorously applied to BAT’s relationship with its external law firms: innovation and value are key.
“We don’t do panels the way banks do panels,” Abelman says. “We have a much more nuanced approach to choosing the firms we work with and how we work with them.”
BAT traditionally turns to Baker & McKenzie, Herbert Smith Freehills (HSF) – which is running the plain packaging judicial review in the UK, Hogan Lovells, Shoosmiths and on occasion, Addleshaw Goddard, Linklaters, and Lawyers on Demand for specialised work during restructuring contracts.
“My philosophy is a bit anti-panel,” says Abelman. “We require expertise and a deep understanding of our issues, which usually means a lengthy history.
“Within those relationships we’re strict on cost. We use sophisticated software to manage billings, work out advance billing plans and estimates – we drive hard bargains on rates and have to get the lowest amount a law firm can give. In fact, we often go beyond that.”
“The Lex function is much more complicated and nuanced than a straight legal team”
Typically, any piece of work set to cost more than £50,000 is tendered out to firms. And though litigation spend is, of course, among the highest costs for BAT’s legal team – which has an annual budget thought to top £30m – Abelman adds contract work is one of its major areas of legal spend.
Lex has a team of project and IT managers that sit within legal to work on pricing, electronic billing and generally manage relationships. The group also conducts biannual reviews of the roster, with one in-house lawyer assigned to review the work done by one firm that year, liaising with BAT’s offices around the world to gauge a firm’s success on a deal or other piece of work and how they worked with the team.
“It’s an ongoing process and we’re always looking at what we need to do next with a firm. Whatever steps we need to take after the review, we will take,” says Abelman, who conducted his first review of BAT’s roster of external advisers last autumn.
Abelman himself managed some of its bigger contracts, working to review its magic circle advisers, particularly its relationship with HSF, given the scope and value of the work it sends out. He also took a big role reviewing the M&A, regulatory and product liability litigation work BAT ships out to firms.
Abelman’s short time at the helm has seen a monumental amount of change to BAT’s formidable legal team, and he will be hoping for a big win on the UK plain packaging litigation to add to the creation of the Lex function as his legacy.
But how successful have the changes to the legal team been?
“The benefits of how effective merging the legal and corporate affairs team was show themselves every day,” he says. “It’s a great job. The issues are tough but that keeps us going. I really can’t imagine what it would be like to work at a cereal company now.”
BAT goes head-to-head with Government over new tobacco packaging rules
British American Tobacco is one of three global players waiting for a High Court ruling on plans to judicially review Government changes to tobacco packaging.
Freshfields Bruckhaus Deringer, Herbert Smith Freehills and Skadden Arps Slate Meagher & Flom were lined up by Japan Tobacco International, BAT and Philip Morris International respectively to file the applications in the middle of last summer.
The tobacco giants claim the UK Government changes breach intellectual property laws and deprive them on their registered trademarks. They are seeking compensation that could extend to billions of pounds if they succeed.
The rules, which became law in March 2015, require all tobacco products to be sold in packaging of uniform colour and font and without trademarking. Cigarette companies have until 2017 to comply with the rules and replace packs with dark brown or green boxes without logos or design features, except health warnings and a brand name in a regular type face.
The judicial review applications were heard in December over the course of a week before Mr Justice Green. A ruling has been deferred though is expected imminently.
Lawyers for the claimants argued plain packaging has not reduced smoking levels in Australia, the only country to adopt the policy, and that the UK legislation violates European IP laws.
BAT also made the individual argument that it was not adequately consulted by the Government before the vote. However, in
the past the UK Government has been
criticised for its close relationship with the tobacco industry after it emerged 38 MPs received £60,000 in gifts from tobacco companies since plain packaging was first suggested in 2010.
“We believe the UK government made a serious error of judgement by failing to properly take into account the Australian government’s own data, which shows that plain packaging is not achieving its public health objectives,” a statement by BAT said at the launch of the judicial review application.
A similar challenge against plain packaging in Australia failed because tobacco businesses could not prove the government had benefited from their intellectual property loss.
But under UK law, companies are not required to prove the government benefited from the policy, just that rights were removed.