The Executive Newsletter of TheOfficialBoard

by Jean-Marc Albiol, Hogan Lovells

Many fired executives with poor performance records still leave with significant severance packages, creating misunderstanding and resentment among their company stakeholders.

The way the French Soccer Association ended the employment contract of its coach, the now famous Raymond Domenech, can give us some insight on why this happens again and again.

After the dismal performance of the French Soccer team in South Africa, it would have been logical to dismiss its coach for poor performance. Yet, according to Press reports, he has instead been fired on the grounds that he refused to shake the hand of the South African Coach and that he failed to adequately report his verbal dispute with one of his most-talented players, Nicolas Anelka.

The legal reason for dismissing him for misconduct rather than poor performance is simple: in French Law, poor performance does not constitute grounds for waiving the contractual compensation negotiated by Mr. Domenech when he started his employment.

So often, the company strategy is to collect information about actions that could be considered an example of misconduct. Those malpractices do not entitle the executive to any compensation and are used as starting points for negotiating the final indemnities.

Those transactions are not always transparent to the public or stakeholders. In the case of the soccer team, they are generating strong criticism by the supporters already very disappointed by the team’s performance.

This is certainly not the best way to assert a clear diagnostic of what went wrong with the coach and the Federation. Yet, the clock is ticking, because in French Law, you can only punish misconduct within 2 months of its occurrence.

Jean-Marc Albiol is a Partner at Hogan Lovells and a member of  the  Litigation, Arbitration and Employment practice. Hogan Lovells is one of the largest international law firms with offices in the United States, Europe, Asia, Latin America, and the Middle East.

Richard Jadot & Louis-Jérôme Laisney, Lovells

France has recently introduced a new trust and security mechanism transferring the management and the ownership of an asset to the trustee. Those new security tools should help the finance industry to leverage new pools of assets, to contribute to lower borrowing costs and to provide lenders greater diversification. In a cash crunch environment, unleashing a wave of financial innovation is an opportunity for many corporations to free up cash.

How this happened? The law about the trustee or fiducie was first introduced in 2007. It was not judged sufficiently clear and protective by the stakeholders and thus became largely ignored. In January 2009, the regulator introduced rules to organize the management and the security of the assets. For instance, it is now possible for a borrower to provide trade receivables, movable or fixed assets as securities for his loans.

How it works? Pursuant to the fiducie agreement, the asset is transferred to a trustee (which can either be the lender or a third party) as a separate asset. This protects the lenders in case of bankruptcy proceedings against the grantor or the trustee.

When the fiducie agreement guarantees the financing of the transferred asset, a secondary agreement might be introduced, leaving the transferred asset under the control of the grantor. The grantor can then use and manage the financed asset which is now owned by the lenders. Some uncertainties remain regarding this secondary agreement in the context of insolvency proceedings.

The Fiducie concept exists under various forms in several other European countries: in the United Kingdom it is called Trust, in Germany Treuhand and in the Netherlands Bewind.

Despite these uncertainties, Fiducie has been qualified by some commentators as the future “Queen of security rights”. It is in our view premature to make such a strong statement. It is undeniably an interesting concept which will hopefully “find its way” and generate innovative security package schemes in the market.

Richard Jadot and Louis-Jérôme Laisney are respectively Partner and Lawyer at Lovells, in Finance and Banking. Lovells is one of the largest international legal practices with offices in Europe, Asia and the United States.

By Jean-Georges Betto, Lovells

It is commonplace to say that arbitration is the preferred mechanism to resolve international commercial disputes. The growing number and diversity of cases submitted to arbitration together with the use of arbitration clauses in the vast majority of international contracts are particularly convincing evidence of this current trend.

The reasons why international companies keep turning away from national court systems are equally well-known. Arbitration is the most appropriate mechanism of dispute resolution for complex international matters involving a high level of expertise and aspects of foreign law together with a large number of documents to be analysed and handled as exhibits in the course of the arbitration proceedings.

For the past few decades, arbitration has gained strength as a private system able to fulfil the parties’ expectations and needs and strike the most perfect combination between flexibility and efficiency in the resolution of disputes.

Arbitration has evolved and expanded. While it has always been praised for granting parties a great deal of autonomy in the administration of their cases, it is the recent phenomenon of institutionalisation which has contributed to making it so attractive and successful.

Indeed, major arbitration institutions such as the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), International Centre for Settlement of Investment Disputes (ICSID) or the American Arbitration Association (AAA), which handle thousands of new cases every year, have developed a sophisticated set of rules that guarantee a rational, fair and efficient treatment of international disputes. This has contributed to reinforce the confidence placed in the process, arbitration no longer being perceived as an obscure or dubious means of dispute settlement.

Despite this success, some practitioners have recently voiced concerns that arbitration may be on the decline. Among the reasons often cited to support these views are (i) the progressive disappearance of confidentiality motivated by an accrued transparency in cases involving important “public interest” and (ii) the length and rising costs associated to the proceedings, due to the use of increasingly complex procedures sometimes based on national court procedures (e.g. discovery process imported from US litigation model).

Arbitration today faces important challenges which deserve careful consideration. In particular, it is of fundamental importance that a creative approach to the needs of the parties is adopted by providing tailor-made and adapted dispute settlement tools, rather than following the path of imitating other domestic court systems.

The relative drawbacks do not provide sufficient grounds for pessimistic or absolute predictions about the future of arbitration. Rather, some recent moves provide encouraging signs of a strong dedication to still offer innovative and attractive solutions to international companies.

The recent release of reports and guidelines aiming at controlling time and costs and simplifying procedures (such as the 2007 Report of the Commission on Arbitration) are but a few examples of the strong commitment to constantly respond to the concerns of those that are involved in arbitration proceedings.

Jean-Georges Betto is Partner at Lovells. Lovells is one of the largest international business legal practices, with over three thousand people operating from 27 offices in Europe, Asia and the United States.