Is it sensible that one law firm, Arthur Cox, acts as adviser to so many competing interests linked to the banking crisis?
THE REMARKABLE events of the past few months in the financial sector have frequently been captured on our news screens by sombre men following Brian Cowen and Brian Lenihan into Government Buildings.
Adviser to Brian Cowen, Eugene McCague (chairman of Arthur Cox), adviser to Brian Lenihan, Pádraig O’Riordan (managing partner of Arthur Cox), teams of Anglo Irish Bank’s lawyers (Arthur Cox), meet Bank of Ireland’s lawyers (Arthur Cox) in conclave to discuss matters of concern regarding the banking crises.
The announcement of the appointment of Arthur Cox as legal advisers to Nama, the National Asset Management Agency, demonstrates that firm’s phenomenal influence over the extraordinary events as they are unfolding in the economy of Ireland.
However, the question must be asked as to whether the best interests of the State are being served by one commercial interest occupying such a pivotal role in the recovery of the economy.
At the very outset, I have no bias against Cox’s in terms of their appointment as legal advisers to Nama. It is a tremendously regarded firm which is quite rightly one of the top in Ireland. The advice of top-tier lawyers is always going to be required when setting up complex institutions such as Nama.
One of the allegations being made against the banking world is that there existed a golden circle of insiders who were perfectly placed to take advantage of loose lending practices to extract money that should never have been lent. Stories abound of chats between developers, politicians and bankers in the tent at the Galway races that led directly to some of the commercial excesses of the Celtic Tiger. So why don’t we look forward a couple of years and see what some of the fallout of Nama being unsuccessful might be?
Is it possible that the naysayers will take a look at the dramatis personae set out above and suggest that perhaps one entity exercised too much influence over the process?
Is it possible that, even with the best intentions in the world, people whose interests are aligned (being partners in a commercial law firm) call an aspect of their advice wrong, which gives rise to dramatic costs to the taxpayer?
Is it possible that the Government will lose even more credibility arising from allowing one commercial entity so much input into a process vital to any economic recovery?
Of course the fact that the lawyers in Arthur Cox work under the same roof does not mean that they are more likely to get matters wrong. In fact, there is an argument that a more cogent policy will emerge given that the antipathy customarily demonstrated by lawyers to each other will not be present.
At the end of the year, the partners of one firm will sit around their well-appointed boardroom table and will congratulate each other on another profitable year. The lawyers in that firm will have worked themselves to the bone, on foot of which they will be paid for two reasons – to represent their clients’ interests, and to get well paid.
Lawyers are often accused of confusing these motivations. Some might raise an eyebrow as to how a single professional services firm can act for a multiplicity of parties to the same transaction, and the transfer of assets from the banks (sometimes advised by Arthur Cox), to Nama (advised by Arthur Cox), at the behest of the Government (advised by Arthur Cox), to deal with large loans taken out by developers (some of whom are advised by Arthur Cox) might give rise to such a reservation.
In this case, clearly there are numerous grounds on which an allegation of conflicts could arise given the multiplicity of roles for one firm to occupy.
Given the availability of expertise in commercial firms across the city, for the Government to expose itself to this charge is simply unnecessary.
The preliminary function of the advisers to Nama is to set up the regulatory framework in which it will operate to deal with the divergent entitlements and interests of the participants about which I have written previously. The failure of regulation in Ireland, including the close relationship between the Financial Regulator, the banks, developers and the Government has given rise to this problem.
In circumstances where the internal governance of business in the State is under external scrutiny, given their role elsewhere in advising the parties to the crisis, the appointment of Arthur Cox to the role as adviser to Nama may be seen by the international business community as one further example of cronyism in Ireland.
Where the framework for the resolution of the banking crisis is being prepared by lawyers who have previously acted for all of the participating parties (principals in the Government, developers, the banks and the bail-out vehicle), it is extremely worrying that their independence could be called into question. It may be said that they are equally conflicted, and so are perfectly positioned.
I am not so sure, and for the sake of the economy, this is one call that the Government must get right to avoid the complete collapse of our international reputation. Any one of the top five law firms in Ireland could have carried out the task of advising Nama.
With our commercial reputation at stake, a panel of the lawyers from these firms should be appointed to fill the specialist roles that are required. We need to be seen to move away from the sins of our past. The appointment of Arthur Cox does little to accomplish that.
Barry Lyons is a partner at Lyons Kenny Solicitors