TUESDAY 5 DECEMBER 2023 USA $2.

50

ESG backlash throws investors off balance An anxious world weighs heavily on Biden
BIG READ, PAGE 15 GIDEON RACHMAN, PAGE 17

Rates hunch Coining it in Briefing

Bets on cuts $ per bitcoin (’000)
i White House warning
against ‘kneecapping’ Kyiv
boost bitcoin 60
The Biden administration has
fired a blunt warning to Congress
that the US is set to run out of
Bitcoin hit its highest level in 20 months funds for Ukraine. Cutting the
yesterday while gold reached a record flow of weapons would “kneecap
peak, as investors bet that interest rates 50 Ukraine on the battlefield”, it said.
were likely to start falling early next year. — PAGE 2; GIDEON RACHMAN, PAGE 17
The cryptocurrency, which soared to
more than $42,000, was also lifted by i Kerry defends gas record
hopes that the worst of the industry’s 40 John Kerry, the top US climate
crisis was over. It fell back to $41,644, up diplomat, has defended the surge
7.4 per cent on the day. in American LNG production,
Gold rallied as much as 3 per cent to saying Washington remains
$2,135 per troy ounce, before slipping 30 committed to phasing out fossil
back to $2,046. fuels.— PAGE 4; BIG BUSINESS, PAGE 9
The market moves are fuelled by
growing expectations that the Federal i Ship strikes raise tension
Reserve will soon cut borrowing costs. 20 Attacks on a US warship and
“You look at bitcoin and gold and you three commercial vessels in the
see a very similar kind of evolution,” Red Sea have raised fears over a
said Luca Paolini, chief strategist at worsening in the fallout from
Pictet Asset Management. “All the asset 10 Israel’s fight with Hamas.— PAGE 4;
classes that tend to do well when the Fed Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct TUNNEL FIGHT, PAGE 3; LEX, PAGE 18
cuts rates aggressively are doing well.”
Gold surge page 6
2021 2022 2023 i Maduro hails Guyana vote
Cash floods into money funds page 10
Source: LSEG The Venezuelan president has
Pic: Chris Ratcliffe/Bloomberg
trumpeted “overwhelming”
backing in Sunday’s referendum
for Caracas’ claim to an oil-rich
swath of its neighbour, marking a

Spotify to axe almost a fifth of staff new phase in the dispute.— PAGE 4

i Reprieve for Evergrande

A Hong Kong judge has delayed a
decision on the liquidation of the

despite soaring subscriber growth world’s most indebted property

developer, giving it until January
29 to formulate a restructuring
plan.— PAGE 8; LEX, PAGE 18

i Irish asylum crisis

3 Efficiency drive brings more cuts 3 Mounting expenses worry investors 3 Long quest for profitability
DANIEL THOMAS — LONDON
ANNA NICOLAOU — NEW YORK
Spotify is axing almost a fifth of its
workforce after warning that it needs to
cut costs as the music streaming group
struggles to turn rising subscriber num-
bers into consistent profitability.
In a memo to staff yesterday, chief
executive Daniel Ek said Spotify would
cut about 17 per cent of its staff, or about
1,500 people. Spotify employs more
than 9,000 people worldwide.
“I recognise this will impact a number
of individuals who have made valuable
contributions,” Ek said. “To be blunt,
many smart, talented and hard-
working people will be departing us.”
Spotify’s share price was 9 per cent
higher in midday trading in New York.
The company added 85mn users, incl-
uding 21mn paying subscribers, in the
first nine months of this year, despite
raising prices in many countries. Spotify
now has 226mn paying users and more
than half a billion total users globally.
Despite its popularity, Spotify has
wrestled with profitability throughout
its history. Activist investor ValueAct
acquired a stake in Spotify in February
and raised concerns that its expenses
had “exploded”.
Combined with earlier rounds of cuts
‘Many smart, talented
and hard-working people
will be departing us’
Daniel Ek, chief executive
this year, Spotify has fired more than
2,000 staff, or a quarter of its workforce,
while its user growth has soared.
“The knock on Spotify from investors
for so long was: amazing service, amaz-
ing platform, not a great business,” said
Rich Greenfield, analyst at LightShed.
“This is demonstrating to investors that
this can be a great business. People lost
faith in that over the past few years.”
The latest job reductions come just
over a month after Spotify’s cost-cutting
drive showed signs of paying off. In Oct-
ober the group pointed to cost cuts and
price rises for helping it report its first
quarterly profit in more than a year.
Ek acknowledged that the size of the
job cuts would be a surprise, given rec-
ent improvement in earnings. He said
the group had debated making smaller
cuts next year and in 2025 but opted for
a bigger restructuring now. Staff at risk
of losing their jobs were told yesterday.
Spotify has set a goal of reaching long-
term gross profit margins of between 30
and 35 per cent. Gross margins stood at
26 per cent in the most recent quarter.
“Considering the gap between our
financial goal state and our current
operational costs, I decided that a sub-
stantial action to rightsize our costs was
the best option to accomplish our objec-
tives,” Ek said.
Spotify’s financial results had bene-
fited from an earlier round of cost cut-
ting after unwinding an expensive bet
on podcasts, which included axing
about 600 jobs at the start of this year
and a further 200 in the summer.
Bank of America analysts said in Oct-
ober that Spotify had reached an “infl-
ection point” for profits, stating that
“management’s recent commentary
and actions on expenses should drive
continued improvement”. But Ek said
Spotify was facing new realities, incl-
uding a higher cost of capital, and that it
needed to become more efficient.
In Spotify’s early days, “our ingenuity
and creativity were what set us apart”,
he added. “As we’ve grown, we’ve
moved too far away from this core prin-
ciple of resourcefulness.”
In the past year Spotify has cancelled
a number original podcasts after spend-
ing heavily on exclusive shows with
celebrities such as Michelle and Barack
Obama. One deal with the Duke and
Duchess of Sussex was reported to have
cost $25mn for just 12 episodes.
Dublin has warned it has run out
of accommodation for asylum
seekers. Ireland has witnessed
anti-immigrant incidents in
recent months, including rioting
in the capital last month.— PAGE 2
i Origin investors kill bid
A $12.7bn takeover bid for
Australia’s biggest energy group
has been defeated. Canadian
asset manager Brookfield had
intended to buy and break up the
business.— PAGE 8; LEX, PAGE 18
i Horta-Osório jet sold
UBS has sold the Credit Suisse
corporate jet that the collapsed
bank’s then-chair, António
Horta-Osório, used when
breaching Covid lockdown rules
to attend Wimbledon.— PAGE 6

Ex-Freshfields partner ‘highly likely’

Big business finds room to
talk on sidelines of COP28
Scores of big companies, from finance,
energy, health and many other sectors,
have flocked to Dubai for COP28 and
its newly expanded agenda. Their part
in realising solutions to climate change
means they can rub shoulders with
officials from nearly 200 governments
while touting for business. ‘What really
happens is the backroom deals,’ says
one COP observer, with the ‘real stuff’
happening away from climate talks in a
setting he likens to a giant trade show.
Geopolitical mix i PAGE 9
to be convicted in tax fraud, says judge
OLAF STORBECK — FRANKFURT
Freshfields Bruckhaus Deringer’s
former global head of tax is “highly
likely” to be found guilty of aiding and
abetting tax fraud, a senior German
judge said yesterday.
Ulf Johannemann, who was the “magic
circle” law firm’s most senior tax part-
ner until 2019, has been on trial in
Frankfurt since September over his
advice to Maple Bank, a defunct Ger-
man unit of Canada’s Maple Financial.
From 2006 to 2009, Maple conducted
complex share-swapping deals that
tricked the German tax authorities into
refunding more than €388mn in divi-
dend taxes that had never been paid.
Johannemann could face a multiyear
jail term if found guilty by the panel of
five judges in Frankfurt. In a previous
trial, Maple’s former head of Germany
was sentenced to four years and four
months in prison over the transactions.
Presiding judge Werner Gröschel yes-
terday gave the court’s interim view of
the evidence against the former senior
lawyer, saying it was “highly likely”
there would be convictions on four out
of five charges.
Maple relied on legal opinions issued
by Johannemann stating that so-called
“cum-ex” transactions were legal under
Germany’s tax law. The lender was
closed down by Germany’s financial
watchdog BaFin in 2016.
According to Maple’s former head of
trading, the lawyer’s opinion was crucial
to the bank’s embarking on the trades.
“If Johannemann had said that this
strategy is fraud, I would like to think I
would have said that the strategy will
not be executed,” he said.
Freshfields was one of several high-
profile law firms that argued cum-ex
deals were legal. The law firm avoided
direct prosecution over its advice to
Maple in a 2021 deal that involved a vol-
untary payment of €10mn to the Ger-
man tax authority. Freshfields also paid
€50mn to Maple’s administrator.
Frankfurt prosecutors allege that
Johannemann deliberately gave
improper advice to Maple, as it was evi-
dent to him that it was illegal to claim
back taxes never paid in the first place.
Johannemann has not yet addressed
the allegations in court, aside from a
short statement by his lawyer at the
start of the trial arguing that the tax
question at the time had been more
complex than prosecutors allege. Law-
yers for Johannemann declined to com-
ment on the judge’s assessment in court.
Freshfields said it was “not a party to
these proceedings”.

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Budget impasse
White House warns funding for Kyiv to end
Failure by Congress to
agree aid will ‘kneecap’
Ukraine, says official
JAMES POLITI — WASHINGTON
The White House has issued a blunt
warning that the US is set to run out of
funds to aid Ukraine by the year-end,
saying that a failure by Congress to pass
new support would “kneecap” Kyiv.
The alert from Shalanda Young, the
White House budget director, in a letter
to congressional leaders yesterday, rep-
resented the most specific assessment
yet of Washington’s waning financial
and military support for Ukraine.
Icy stare
Heavy snow
covers Moscow
A man poses for photos next to
cardboard cutouts of Chinese
President Xi Jinping, left, and
Russian President Vladimir Putin
in a wintry Moscow yesterday after
25-30 per cent of the monthly
average amount of snow fell in
one day.
A huge operation to clear the
Russian capital’s streets involved
about 25,000 people and 18,000
pieces of snow removal equipment,
according to the office of the
Moscow mayor.
Yuri Kochetkov/EPA/Shutterstock
Poland’s central bank turns to ECB in spat with Tusk
Incoming PM has called for
removal of institution’s chief
in bid to oust PiS loyalists
RAPHAEL MINDER — WARSAW
MARTIN ARNOLD — FRANKFURT
Poland’s central bank is seeking support
from the EU to defend it from Donald
Tusk, claiming the incoming prime
minister’s calls to remove its governor
harm its independence.
The plea threatens to pull EU institu-
tions, including the European Central
Bank, into another fraught handover of
power in Poland, with appointees of the
outgoing rightwing government —
which clashed with Brussels for years —
now seeking help from Europe.
Tusk has repeatedly demanded the
removal of National Bank of Poland
president Adam Glapiński — a long-
standing personal friend of Jarosław
Kaczyński, whose ruling Law and Jus-
tice (PiS) party lost to a three-way coali-
tion led by Tusk this year.
Tusk, a former European Council
president, accuses Glapiński of acting in
the interests of PiS, including through a
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Published daily except Sundays, New Year’s Day,
“Without congressional action, by the
end of the year we will run out of
resources to procure more weapons and
equipment for Ukraine and to provide
equipment from US military stocks,”
Young told the leaders of both parties.
“There is no magical pot of funding
available . . . We are out of money, and
nearly out of time,” she said.
President Joe Biden’s request for
$106bn in emergency funding for his
foreign policy priorities, including
Ukraine, Israel and the Indo-Pacific,
remains mired in stalemate on Capitol
Hill, driven by mounting Republican
opposition to helping Kyiv.
Some lawmakers, especially in the
Senate, where backing for Ukraine runs
Monetary policy. Independence
large cut to interest rates shortly before
the October vote. He wants the governor
probed by a tribunal, in effect suspend-
ing him while the case is under review.
The NBP has now turned to the ECB,
arguing that moving to oust Glapiński
would undermine the independence of
monetary policymakers across Europe.
“We are in contact with the ECB and
we are discussing now this suspension
issue with them,” said Marta Kightley,
first deputy governor of the Polish cen-
tral bank.
Poland sits outside the euro area, but
the ECB is responsible for overseeing the
European System of Central Banks,
which lays down operating principles
for all of the EU’s central banks. “An
attack on [the] independence [of the
National Bank of Poland] may set a
precedent and undermine the ESCB as a
whole,” Kightley said.
Christine Lagarde, the ECB president,
replied to the Polish central bank in a
letter published yesterday that “any
measure affecting your ability to per-
form your duties as governor of the
National Bank of Poland may, if not law-
ful, affect your independence and by
extension the [ECB] general council”.
Glapiński is a member of the ECB’s
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FINANCIAL TIMES
INTERNATIONAL
deeper, are trying to negotiate a biparti-
san deal that would contain aid for Kyiv
alongside new immigration and asylum
procedures to reduce the number of
undocumented people arriving in the
US through its southern border.
Even if an agreement is reached in the
Senate, it is unclear if it can pass the
Republican-led House, whose new
speaker Mike Johnson has been scepti-
cal of funding for Ukraine. He indicated
yesterday that Congress could pass
extra Ukraine aid if Democrats agreed
more for US-Mexico border security.
“The Biden administration has failed
to substantively address any of my con-
ference’s legitimate concerns about the
lack of a clear strategy in Ukraine, a path
general council along with all heads of
EU national central banks. Lagarde told
Glapiński that if this scenario did hap-
pen, “you could refer such resolution to
the Court of Justice of the EU and ask for
the assessment of its lawfulness”.
The Polish central bank’s call for ECB
help contrasts with years of disparaging
comments by PiS officials about EU
institutions, including the central bank,
which PiS accused of encroaching on
‘I don’t know of another
case where a governor is
being threatened [with
suspension] by politicians’
Polish sovereignty. Glapiński has him-
self been an outspoken critic of the euro,
recently claiming that Tusk would push
Poland in to the common currency.
Tusk and his coalition have outlined
plans to bring Glapiński before Poland’s
state tribunal, which would force his
suspension while his case was under
court review.
Tusk’s coalition, expected to take
power on December 13, will hold a
majority in parliament — the body
Business survey
German companies cut investment plans amid economic gloom
MARTIN ARNOLD — FRANKFURT
German companies have slashed their
investment plans for this year and
next, adding to the challenges plaguing
Europe’s largest economy.
In a benchmark survey published yes-
terday based on responses from 5,000
businesses, the Ifo Institute in Munich
said it had found they had “significantly
reduced their investment plans”.
The institute’s index of net invest-
ment plans fell from 14.7 in March,
when it carried out its last survey, to
2.2 in the poll carried out in the first
three weeks of November.
For next year, the index, which meas-
ures the difference between the per-
centage of companies planning to
increase investments and those plan-
ning to cut them, fell even lower to 1.2.
“The investment climate has deterio-
rated noticeably,” said Lara Zarges at
Ifo. “This is the result of increased
financing costs, weak demand and eco-
nomic policy uncertainty.”
The findings came only weeks after a
German constitutional court ruling left
the government with a €60bn hole in its
budget, complicating the ability for Ber-
to resolving the conflict, or a plan for
adequately ensuring accountability for
aid provided by US taxpayers,” he said.
“We believe both issues can be agreed
upon if Senate Democrats and the White
House will negotiate reasonably.”
Young warned Congress that cutting
the flow of US weapons and equipment
would “kneecap Ukraine on the battle-
field, not only putting at risk the gains
Ukraine has made, but increasing the
likelihood of Russian military victories”.
“Already, our packages of security
assistance have become smaller and the
deliveries of aid have become more lim-
ited . . . while our allies have stepped up
to do more, US support is critical and
cannot be replicated,” she added.
responsible for triggering intervention
by the tribunal.
If the tribunal suspends Glapiński,
“an appeal will be made to the European
Court of Justice because this suspension
would breach the treaty on the function-
ing of the EU and statutes of the ESCB
and of the ECB”, Kightley said.
“Central bankers are under public
scrutiny and are often even verbally
attacked, but I don’t know of another
case where a governor is being threat-
ened by politicians that he or she would
be suspended for no legitimate reason,
without having breached neither the
constitution nor any law.”
In 2022 Glapiński was re-elected to a
second term of six years. ECB rules state
a governor of an EU national central
bank can be dismissed only “if he no
longer fulfils the conditions required for
the performance of his duties or if he has
been guilty of serious misconduct”.
The ECB can intervene by issuing a
non-binding opinion on whether a move
to remove a governor is legal, as it did as
part of successful efforts to prevent the
ousting of Ilmārs Rimšēvičs as head of
Latvia’s central bank in 2019.
Tusk has said no final decision has
been made about whether to seek to
lin to provide companies with state sup-
port next year.
Chancellor Olaf Scholz’s government
is still trying to agree a new budget for
2024. It said last week that the court rul-
ing would force it to wind down its
€200bn Economic Stabilisation Fund,
which has been subsidising electricity
and gas prices for households and busi-
nesses, rather than rolling over the
funds into next year.
The court’s decision was announced
on November 15, in the middle of the Ifo
survey. Zarges said she had been sur-
prised that companies responding after
the ruling were “slightly more optimis-
tic” on investment than those that
responded before it. But she said this
showed that this year’s investments are
unlikely to be affected by the budget
upheaval.
She said extra pressure on govern-
ment spending was likely to have more
of an impact on companies’ investment
plans for 2024 and predicted this could
show up in next March’s survey
“depending on how the budget turmoil
will develop”.
The largest cut in investment plans
was found in the manufacturing sector,
The warning comes as the EU strug-
gles to reach a budget deal in Brussels
that would send €50bn to Ukraine, peo-
ple close to the discussions said.
Young said Ukraine also needed eco-
nomic support: “If Ukraine’s economy
collapses, they will not be able to keep
fighting, full stop,” she wrote. “Putin
understands this well, which you can
see in its attacks against Ukraine’s grain
exports and energy infrastructure.”
Young also said money for Ukraine
would bring benefits to the US economy.
Since the start of Russia’s invasion in
February 2022, Washington has
approved $111bn in aid to Kyiv.
Additional reporting by Alex Rogers
Gideon Rachman See Opinion
bring Glapiński before the tribunal. “I
have no doubt that we will not do any-
thing that would disturb stability or
undermine the reputation of the Polish
state in Europe,” he added.
Glapiński represents one of the most
difficult challenges for Tusk as he seeks
to oust PiS loyalists. Until 2025 Tusk
must rule alongside President Andrzej
Duda, a PiS appointee with veto powers.
In September, Poland’s central bank
rocked markets with a big cut in interest
rates, shortly before the election. At the
time, Polish inflation was falling but it
was still above target in double digits,
which would typically point to small
rate cuts, if any at all.
The NBP cut benchmark rates by
0.75 percentage points, well beyond
economists’ expectations for a cut of
0.25 percentage points.
Kightley said the cut was “not a deci-
sion by a single person” but instead
approved by a majority vote in the
bank’s monetary policy council.
Adam Bodnar, a former ombudsman
who is expected to become Tusk’s jus-
tice minister, said it was important to
probe whether Glapiński misused his
central bank powers in an effort to influ-
ence October’s election.
where the investment index has
dropped from 21.4 in March to 6.8 in the
latest study.
Within this sector, there were even
bigger falls noted among the most ener-
gy-intensive industrial groups, such as
chemical producers, suggesting they
would sharply reduce capital expendi-
ture this year.
German industrial energy prices are
double those in the US and China,
according to a recent study by research
group Prognos for the Bavarian employ-
ers’ association VBW.
Retailers also signalled heavy cuts to
Outliers: automotive groups aim
to maintain high investment levels
Tuesday 5 December 2023
Immigration
Ireland says
no housing
remains for
those in need
of asylum
JUDE WEBBER — DUBLIN
Asylum seekers face having to sleep
rough on Irish streets after the govern-
ment in Dublin said it had run out of
accommodation — a situation humani-
tarian groups say puts people at risk of
anti-immigrant violence.
The government — which had stressed
that its unlimited compassion for
Ukrainian refugees was not matched by
its capacity to house them — yesterday
said it no longer had space for asylum
seekers.
“Despite intensive efforts to source
emergency accommodation, the [gov-
ernment] is currently not in a position
to provide accommodation to all [asy-
lum seekers] due to the severe short-
age,” the department of integration said.
Ireland has taken in 100,000 people,
three-quarters of whom are refugees
from Ukraine and the rest asylum seek-
ers from other parts of the world.
Dublin witnessed a night of street
clashes between gangs of youths and
police last month when far-right agita-
tors urged supporters out on to the
streets after a foreign-born man stabbed
three children and a crèche worker out-
side a school.
The rioting came after multiple anti-
immigrant incidents in recent months,
including the burning of makeshift
camps and attacks on asylum centres.
Some protests have continued since the
riots, with police investigating potential
arson at a hotel that was being prepared
for asylum-seekers.
“We believe that international protec-
tion applicants would be targeted if they
had to sleep rough,” said Nick Hender-
son, chief executive of the Irish Refugee
Council. “Given the risk to people on the
streets, this is now more important than
ever and a matter of basic safety.”
Despite yesterday’s announcement,
the government said it would still
accommodate women and children.
Drop-in services — including hot show-
ers, tents and sleeping bags — will be
available to asylum seekers who have
nowhere to stay.
Ireland has no far-right political party
but anti-immigrant sentiment has
soared as the country battles severe
housing and infrastructure shortages.
Ireland faces a general election by
March 2025 and an opinion poll on Sun-
day put immigration as voters’ third-
highest priority, behind housing and the
cost of living. That was a 9 point increase
on the previous month’s poll. The rise of
the far right emerged as respondents’
fourth-biggest concern.
Since August, Ireland has experi-
enced one of the highest rises in num-
bers of Ukrainian refugee arrivals,
according to EU data. Taoiseach Leo
Varadkar has said “there is a limit on
our capacity” to continue offering gen-
erous level of support.
In January, the government urged
asylum seekers not to travel to Ireland if
they were in a safe place because of a
“severe shortage” of accommodation.
The European Migration Network
reported last week that asylum applica-
tions in Ireland last year jumped 415 per
cent to a record 13,651.
In the 10 months to the end of Octo-
ber, official data shows 10,386 applied
for international protection, down 7 per
cent on the same period in 2022.
their investment plans, which have
turned negative for this year and next,
Ifo said.
However, automotive manufacturers
said they aimed to maintain their
investment at a high level.
Carsten Brzeski, head of global macro
research at Dutch bank ING, said the
recent court ruling had caused “self-in-
flicted damage to the German econ-
omy”, adding that it “will weigh strongly
not only on investments but also on con-
sumption”.
It prompted him to slash his forecast
for German gross domestic product to
shrink 0.4 per cent next year.
German investment has rebounded in
recent years, according to figures from
the World Bank showing gross fixed cap-
ital formation as a share of GDP has
risen from a low of 19 per cent in 2009 to
23 per cent last year — catching up with
the EU average.
However, a growing number of Ger-
man companies plan to shift parts of
their activities abroad, particularly
energy-intensive manufacturers,
according to a recent study by consul-
tancy Deloitte and the business lobby
group BDI.
Tuesday 5 December 2023
Israel pins hopes
on destroying
Hamas’s vast
tunnel network
Labyrinth said to be larger than London’s
Tube is seen as key to rooting out fighters
NERI ZILBER — TEL AVIV
JOHN PAUL RATHBONE — LONDON
The small Israeli army drone inside an
arched concrete corridor flew for sev-
eral minutes, along a 300-metre tunnel
large enough for a tall man to walk
through unbowed.
Along it were rooms with air-condi-
tioning, toilets and kitchens, electrical
and communication cables and a now-
demolished blast-proof door Hamas
fighters could shoot through.
The tunnel the Israel Defense Forces
said it filmed last month below Gaza’s al-
Shifa hospital was a substantial military
capability. But it is also only a small part
of Hamas’s vast subterranean domain
experts say will define the strategic out-
come of Israel’s campaign.
The drive to root out fighters in
Hamas’s tunnels and demolish the net-
work is one reason the Israeli military is
pressing on with its punishing offensive
after a week-long truce, despite increas-
ing global pressure over the bloodiest
Israeli-Palestinian conflict in decades.
“Destroying Hamas’s tunnels is the
most difficult aspect of the Israeli mili-
tary’s mission . . . and among its most
important,” said Daphné Richemond-
Barak, a professor at Israel’s Reichman
University and author of a book on tun-
nel combat. “It will take time.”
The web, said to be bigger than the
London Underground train network,
enables Hamas’s most senior leaders
and fighters to take shelter. Most are
thought to have survived weeks of
Israeli attacks.
The tunnels, immune from drone sur-
veillance and many of Israel’s other
capabilities, including air strikes, are
also where Hamas is thought to keep its
arsenal of rockets, as well as more than
130 hostages it still holds after seizing
them from Israel in its October 7 attack.
One former Israeli security official
said the word “tunnels” did not do jus-
tice to what Hamas has under Gaza, call-
ing them “underground cities”.
Yocheved Lifshitz, an 85-year-old
hostage released by Hamas in October,
called the network a “spider web” that
was “kilometres long” with “large
hall[s]” big enough to hold 25 people.
Jewish rebels used tunnels in a revolt
against Roman rule 2,000 years ago, as
did the Viet Cong fighters who beat US
forces in the Vietnam war. But after bur-
rowing through Gaza’s soft sandstone
since taking over the enclave 16 years
ago, Hamas has taken it to a new level.
“The modern battlefield is seeing a
fusion of ancient and digital capabili-
ties,” said Anthony King, an urban war
expert at the University of Exeter. “And
sometimes it is the ancient techniques
[such as tunnels] that can beat the rest.”
The tunnels’ destruction is an IDF pri-
ority, but it has not detailed how it plans
to achieve it. So far it has located more
than 800 shafts, destroyed 500 of them
and collapsed what Israel’s military has
described as “many miles” of tunnels.
“Wherever our soldiers [above
ground] manoeuvre we have a high suc-
cess rate destroying tunnels,” said one
person familiar with Israeli military
planning. But the network is estimated
to be more than 500km long, and many
★ FINANCIAL TIMES
INTERNATIONAL
Israeli soldiers shafts emerge in civilian buildings, said Gaza, at least above ground. Yet IDF sol-
inside a tunnel, the IDF. diers still face attacks by Hamas fighters
and below, at a It said on Sunday that its jets and heli- popping up from tunnels behind them
shaft entrance, copters had “struck terror targets in the and retreating. This has helped to pro-
both said to be Gaza Strip, including tunnel shafts”, long the fighting, increase the death toll
beneath al-Shifa after the breakdown of the truce that led of Israeli soldiers and erode interna-
hospital in Gaza to the exchange of some Israeli hostages tional support as Palestinian civilian
Victor R Caivano/AP; Ronen
Zvulun/Reuters
for Palestinian prisoners. casualties mount.
Israel now controls much of northern The IDF said four soldiers were killed
on November 10 at one tunnel entrance
in Gaza’s north-east. More than 70 sol-
diers have died since the IDF launched
its ground attack on October 27.
“The tunnels are a massive chal-
lenge,” one Israeli official said. “They
[Hamas] have also placed things inside;
booby traps, obstacles to our move-
ment, that raise the risk [for us].”
The IDF last week blew up the tunnel
under the al-Shifa hospital, amid con-
cerns the rest of the network was
primed with explosives. Hamas had
learned from previous attacks, Israel
said. That includes the 5,000lb “bunker
buster” bombs Israel reportedly used in
a 2021 offensive, with limited success.
“The lesson Hamas learned from the
3
‘They [Hamas] have placed
things inside; booby traps,
obstacles to movement,
that raise the risk [for us]’
2021 air strikes . . . was to dig deeper
and to encase the tunnel system with
reinforced concrete,” said Yehuda Kfir,
an Israeli civil engineer and captain in
the IDF reserves.
“Hamas [has] likely built different
layers,” Kfir added. “An upper ‘defen-
sive’ level with booby-traps, narrow
[tunnels], blast-proof doors we’ve al-
ready seen, and a lower ‘offensive’ level
that holds things like logistics centres,
living quarters and weapons stores.”
The militant group has also built
smuggling tunnels into Egypt.
Israel has received $320mn of US mil-
itary aid since 2016 to develop anti-tun-
nel techniques, yet none is a silver bul-
let. It also has anti-tunnel engineers and
underground commandos equipped to
probe and try to collapse them. But to
preserve soldiers’ lives, the IDF has used
tunnel dogs, robots and drones. “The
government is pouring more resources
into finding a solution,” said an official.
The first step is to locate the tunnels.
A simple tactic, called “purple hair”, in-
volves throwing a smoke grenade into a
tunnel entrance and sealing it with foam
to see if smoke emerges elsewhere.
‘The The next step is to demolish a tunnel,
experts said, requiring explosives set
modern along long portions of the passageways.
battlefield Kfir said one method was to use liquid
explosives that fill the tunnel space and
is seeing a then detonate. Another, he said, was
fusion of thermobaric weapons, which suck in
oxygen to generate a high-temperature
ancient and explosion that flows around obstacles.
digital But these are controversial because of
the broader impact of the explosions.
capabilities’ Pumping in seawater at high pressure
is a third option, and one that Israel is
said to be using. Richemond-Barak said
this had the advantage of already being
used in the oil and gas industry. But the
problem is “you don’t know how much
you have achieved”.
Another possibility is to dig tunnels
that intercept Hamas’s control nodes.
“Israel should . . . get to the heart of
the system from below,” Kfir said.
Such approaches highlight the diffi-
culties and time needed and why some
officials regret that Israel did not com-
plete the task years earlier.
Gideon Rachman see Opinion
4 ★ FINANCIAL TIMES Tuesday 5 December 2023

INTERNATIONAL

COP28 Border tension

Kerry defends US over surging gas output
Envoy says legislation
by Biden makes country
a global climate leader
AIME WILLIAMS — DUBAI
JAMIE SMYTH — NEW YORK
John Kerry has defended the surge in US
gas production to record levels, main-
taining that Washington is a global cli-
mate leader after the launch of the Infla-
tion Reduction Act last year.
The US’s top climate diplomat is
attending COP28 in Dubai at a time
when Washington’s attention is con-
sumed by two wars and the possibility of
a second Donald Trump presidency. But
he said even Trump could not roll back
the centrepiece of president Joe Biden’s
economic strategy, with $369bn in clean
energy subsidies and tax breaks.
Speaking to the Financial Times as
officials met in Dubai to hammer out a
deal to limit global warming, Kerry said
that while the US had boosted LNG pro-
duction because of Russia’s war in
Ukraine, it was still committed to phas-
ing out all fossil fuels where emissions
were not captured.
“We have signed up to the phaseout of
unabated fossil fuels, we have signed up
and we voted for it at the G7,” said Kerry,
referring to an agreement to boost the
effort to reach net zero in energy sys-
tems by 2050.
“The increased production is a reflec-
tion of Ukraine, the effort to come back
from Covid and the reflection of what
happened with Russia cutting off all the
gas to Europe . . . we are sending a lot
over there and other places to try to help
them out.”
This year, the US overtook Qatar to
become the world’s largest LNG
exporter. Its seven terminals can proc-
ess as much as 11.4bn cubic feet a day,
according to the Energy Information
Administration — enough to satisfy the
combined gas needs of Germany and
France.
Five more LNG projects are under
construction, which would add another
9.7bn cf/d. The US oil and gas industry is
US. Foreign policy
proposing to build dozens more plants,
which it says will generate hundreds of
billions of dollars in investment and cre-
ate tens of thousands of jobs.
US oil production is also at a record
high, with output of 13.2mn barrels a
day in September. It is producing more
oil than any country in history even as
Opec+ countries curb supply in a bid to
bolster prices. But Kerry denied that
this made the US position at the UN’s
annual climate summit more difficult in
urging other countries to back an agree-
ment for the phaseout of fossil fuels.
“We are on a pathway to keep 1.5
alive,” said Kerry, referring to the goal to
limit global warming. “The bigger prob-
lem is the 550 gigawatts or so of coal-
fired power that is unabated, that is
coming online in Asia, so what we need
to do is find a way to accelerate every-
one’s transition.”
He added: “We are not trying to point
a finger at one country or one place. We
are ready to hold ourselves accounta-
ble.”
Biden did not make an appearance at
the climate summit this year, against
the backdrop of the Middle East war and
the looming presidential campaign.
Xi Jinping, leader of China, the world’s
biggest emitter, was also absent, after
meeting Biden in the US last month,
when they agreed to accelerate the roll-
out of renewable energy to displace fos-
sil fuels.
Venezuela says
referendum
backs claim to
oil-rich parts
of Guyana
JOE DANIELS — BOGOTÁ
Venezuela’s socialist government has
trumpeted what it says is an “over-
whelming victory” in a referendum on
its claim to an oil and mineral rich
stretch of neighbouring Guyana.
The plebiscite, which Guyana has
described as a pretext for “annexation”,
marks a new phase in a dispute over the
Esequibo region, which has escalated
since ExxonMobil made one of the
world’s biggest recent oil discoveries in
the Stabroek block off its coast in 2015.
“We have to give a standing ovation to
the Venezuelan people,” said Nicolás

Republicans debate insular era under Trump
Party members wrestle with
legacy of Reagan’s global vision
as some oppose military aid
FELICIA SCHWARTZ
SIMI VALLEY, CALIFORNIA
At an annual gathering of national secu-
rity leaders at the Ronald Reagan Presi-
dential Library over the weekend, the
spectre of Donald Trump loomed large
even as his name was barely mentioned.
The Republicans in attendance
argued for the kind of muscular foreign
policy no one expects to see should
Trump — who has criticised the US’s glo-
bal alliances and its foreign wars — be
re-elected in 2024.
Stephen Hadley, George W Bush’s
former national security adviser, urged
a global posture that advanced the
nation’s founding principles, including
democracy, freedom, human rights and
the rule of law.
“We should be confident that our
principles are the right ones and they
will win out,” Hadley said. “We should
have some underlying confidence in our
system and our people”.
At the same time, Trump was in Iowa
reiterating his 2024 campaign theme
that the American dream is a thing of
the past. “Joe Biden is the destroyer of
American democracy . . . the American
dream is dead with them in office,” he
said. “If you put me back in the White
House . . . America will be a free nation
once again.”
As Republicans look likely to nomi-
nate the isolationist Trump next year,
they are wrestling with the legacy of
their former standard bearer — Reagan
— and whether his hawkish foreign pol-
icy still has a place in the GOP. Reagan
believed US security and prosperity
were enhanced through the expansion
of freedom throughout the world, while
Trump has embraced a turn inward.
As part of his re-election bid, the
former president has vowed to negotiate
an end to the war between Russia and
Ukraine within 24 hours and promised
to “fundamentally re-evaluate” Nato’s
purpose and mission.
At the same time, the Republican
party is split over whether the US should
continue to fund Ukraine in its war
against Russia. A group of Trump aco-
lytes in the House of Representatives
has opposed further military aid.
Republican attendees at the Reagan
forum insisted that opposition from
Campaign trail: their party’s own lawmakers to further
Donald Trump support for Ukraine, Israel and Taiwan
arrives at a rally was not reflective of the wider GOP.
in Ankeny, Iowa, “So many Americans and Republi-
at the weekend. cans still support the principles of Ron-
Below, Ronald ald Reagan even when they’re not being
Reagan — Matthew advocated to them,” Marc Thiessen, a
Putney/AP
former speechwriter for George W Bush
said during a panel about US global
engagement ahead of the 2024 election.
Several recent polls have indicated
declining support for Ukraine in the US,
especially among Republicans. But a
Ronald Reagan Institute poll released
before the weekend conference indi-
cated widespread support for the US’s
global alliances and for military spend-
ing — findings that the institute’s direc-
tor Roger Zakheim urged Congress to
consider as it debated the very un-
Reaganite proposition of slashing
defence spending.
While the participants publicly
skirted Trump, privately many whis-
pered about how the US’s coalition to
support Ukraine and other foreign pol-
icy priorities might be abandoned
should Trump return to the White
House in 2025.
Some former senior Trump adminis-
tration officials milled about the confer-
ence in Simi Valley, California, but most
who were there had left his orbit.
The buzz behind the scenes was spec-
ulation that Trump, now at odds with
many of the foreign policy hands who
served in his first administration, might
take bolder steps in his second tenure in
the White House. This could include
withdrawing the US from Nato or nego-
tiating an end to the Ukraine war with
Vladimir Putin, moves that would be at
odds with the sort of role on the world
stage Reagan envisioned.
“How would Reagan react?” one dip-
lomat attending asked. He pointed to
how congressional Republicans who
have adopted Trump’s “America first”
ideology — such as Matt Gaetz, Andy
Biggs and Marjorie Taylor Greene —
have placed future funds for Ukraine in
jeopardy.
While Reagan advocated peace
through strength, the diplomat ascribed
the US’s increasingly inward turn,
whether on trade or security assistance
for Ukraine and other allies, to “a lack of
self-confidence”.
While the setting was serene, with
industry, military and congressional
‘If you put officials mingling to the backdrop of
rolling hills and blue skies, several
me back in attendees said the mood was gloomy.
the White Jack Bergman, a Republican congress-
man from Michigan and a retired
House . . . Marine Corps lieutenant-general, sup-
America ports funds for Ukraine but wants to see
more transparency about how they are
will be a spent. Asked whether he feared Trump
free nation would stop supporting Kyiv, he said:
“Congress needs to take a stand.”
once again’ “A president has ideas but a president
is only the executive. Our country is run
Donald Trump by separate powers . . . Congress has to
step up, others have to step up and stop
being afraid of their own shadow and
actually do the job and don’t worry if
they don’t get re-elected.”
Some of the tensions bubbled out into
the open at the day’s end, with former
CIA director Leon Panetta calling for the
next US president to “unify” the US.
Pointing to Trump’s former national
security adviser Robert O’Brien, Pan-
etta said: “Your president hasn’t unified
the country, he’s split the country . . . If
the next president wants to save our
democracy, he better damn well unify
this country.”
Gideon Rachman see Opinion
Maduro, the authoritarian president, in
Caracas on Sunday after the electoral
authority’s official results said it had
counted more than 10mn votes.
“[We] have taken the first steps of a
new historic phase of fighting for what is
ours, and to recover what the liberators
left us: Guayana Esequiba,” as the dis-
puted region is known in Venezuela.
Maduro did not mention what steps
Caracas might take next but he cele-
brated what he claimed was a strong
turnout. In his speech, he referred to the
referendum as “consultative”.
Jorge Rodríguez, president of Vene-
zuela’s National Assembly, posted a
video on X showing a small group of
indigenous people lowering a Guyanese
flag in a mountainous region, which he
said had been put up by Guyana’s presi-
dent Irfaan Ali the previous month, and
raising a Venezuelan flag in its place.
“On November 23, that slave of
ExxonMobil who acts as president of
Guyana, in a display of provocation,
went to the Sierra de Paracaima and
raised a Guyanese flag and left,”
Rodríguez wrote. “Well, I want you to
see this video.” Maduro quickly
retweeted the video, whose filming date
and exact location were not clear.
Sunday’s vote was despite an order on
Friday from the International Court of
Justice for Venezuela to refrain from
“taking any action” that would alter the
status quo of the region, over which
Guyana “exercises control”. The court,
which is considering the issue, stopped
short of saying not to hold the ballot.
The 160,000 sq km of land claimed by
Venezuela is home to about 200,000
Guyanese, who mainly speak English
and indigenous languages. It represents
about two-thirds of Guyana’s territory.
Tensions flared ahead of the vote,
with Guyana claiming Caracas was pre-
paring a military build-up in case it
wanted to enforce the referendum’s out-
come. Venezuelan government officials
said its troops were deployed to carry
out operations against illegal mining.
Brazil, which borders both countries,
said it had “intensified” defence meas-
ures near the territory ahead of the vote,
“promoting a greater military pres-
ence”.
Observers and opposition politicians
inside Venezuela have said the vote is an
attempt by Maduro to buoy domestic
support as the country prepares for
elections in the second half of 2024.
Maduro, who won re-election in 2018
in a vote regarded by the US as fraudu-
lent, has yet to announce his candidacy,
but is widely expected to run. To try to
entice Maduro into allowing a “free and
fair” poll next year, the US last month
eased sanctions on oil, gold and second-
ary financial markets for six months.

Trade corridor FT-Schroders prize

Red Sea attacks fan fears of war spreading
OLIVER TELLING — LONDON
SAMER AL-ATRUSH — DUBAI
ALEX ROGERS — WASHINGTON
The attacks on a US warship and three
commercial vessels in the Red Sea have
raised concerns over a potential wors-
ening in the fallout from Israel’s con-
flict with Hamas.
The US defence department cited
reports of strikes on Sunday on com-
mercial ships and the USS Carney, a
destroyer that had been operating in the
vital trade corridor and had shot down
drones and missiles fired from Yemen in
recent weeks, according to officials.
The Houthis, an Iran-backed rebel
group that controls part of Yemen, sepa-
rately claimed it targeted two ships with
a drone and missile. The group claimed
that the ships were linked to Israel.
US Central Command said the
Houthis in Yemen, “fully enabled by
Iran”, had targeted three commercial
vessels, connected to 14 countries, with
ballistic missiles or drones. The UK-
owned cargo ship Unity Explorer and
two other bulk carriers were struck and
reported damage but no casualties.
The USS Carney had responded to the
ships’ distress signals and shot down
drones heading its way, said Central
Command. There was neither damage
to the ship nor injuries to the crew.
“These attacks represent a direct
threat to international commerce and
maritime security,” said the depart-
ment. “They have jeopardised the lives
Houthi rebel forces ‘have
jeopardised the lives of
international crews [from]
countries around the world’
of international crews representing
multiple countries around the world
. . . The US will consider all appropriate
responses in full co-ordination with its
international allies and partners.”
The attacks underline fears the mili-
tary conflict between Israel and Hamas
could spread across the Middle East,
which would have serious implications
for regional stability and global trade.
The Red Sea and the waters dividing
the Middle East and Africa make up one
of the world’s most important trade cor-
ridors, offering a shortcut for ships trav-
elling between Asia and Europe.
In recent weeks, the industry has
been shaken by the growing threat to
ships in the region, after Houthi forces
boarded and hijacked a car carrier
linked to Israeli businessman Abraham
Ungar in November, diverting it to a
nearby port under their control. But
until Sunday, the relatively small
number of Israeli-owned ships had been
though the most exposed, with some
operators choosing to avoid the region.
Among the reported victims on Sun-
day was a Japanese-owned bulk carrier
that “experienced heavy vibrations”
from a nearby explosion and may have
been “struck by an unidentified object”,
said maritime security group Ambrey,
which offers consultancy and armed
protection to owners. It added a South
Korea-owned crude oil tanker had
“sighted an explosion above the vessel”.
Owners have voiced concern over the
Houthis’ ability to determine which ves-
sels are Israeli-owned.
Additional reporting by Felicia Schwartz
See Lex
Study of failure wins book of the year award
ANDREW HILL — LONDON
Amy Edmondson has won the Finan-
cial Times and Schroders Business
Book of the Year Award for Right Kind of
Wrong, about how to learn from failure
and take better risks.
Her book won over the judges with its
systematic, richly illustrated explora-
tion of how to build on “intelligent fail-
ure” and its critique of the craze for fail-
ure that often hypnotises entrepreneurs
and innovators.
Harvard Business
School p ro f e s s o r
Edmondson is best known
for her research into “psy-
chological safety”. Hers is
the first mainstream man-
agement book to win the
£30,000 award, now in its
19th year.
Roula Khalaf, the FT’s
editor and chair of judges,
said Right Kind of Wrong
was “a highly readable and
relevant book, with impor-
tant lessons for leaders and
managers everywhere”.
The book illustrates its point with world; Walter Isaacson’s Elon Musk, a
important cases, from early heart trans- biography of one of the highest-profile
plants to the Boeing 737 Max crashes. proponents of a “fail fast, fail often” phi-
Peter Harrison, Schroders’ chief execu- losophy; Bent Flyvbjerg and Dan Gard-
tive and another judge, said it provided ner’s How Big Things Get Done, which
“clarity and practical prescription to focuses on why megaprojects almost
address the issues businesses face every invariably run over time and over
day”. budget; Cobalt Red, by Siddharth Kara,
This is the first year of a new three- which investigates the human rights
year business book award partnership abuses that taint the mining of that
between asset manager Schroders and essential raw material; and The Coming
the FT. Previous winners include Chris Wave, by DeepMind co-founder Mustafa
Miller’s Chip War last Suleyman (with Michael Bhaskar),
year, and Nicole Perl- which lays out how to contain the threat
roth’s This Is How They posed by new technologies. Each
Tell Me the World Ends received £10,000.
in 2021. The other judges were Mimi Ale-
The winner of the mayehou, founder of Semai Ventures;
award, also supported Daisuke Arakawa, Nikkei’s managing
by FT owner Nikkei, director for global business; Mitchell
was announced in Baker, Mozilla Corp chief; Herminia
London last night. Ibarra, professor of organisational
The other 2023 behaviour at London Business School;
finalists were: Material James Kondo, chair, International
World, by Ed Conway, House of Japan; Randall Kroszner, pro-
which explores the fessor of economics at University of Chi-
origins and uses of six cago Booth School of Business; and
minerals that under- Shriti Vadera, chair of Prudential and
pin the modern the Royal Shakespeare Co.
Tuesday 5 December 2023 ★ FINANCIAL TIMES 5
6 ★ FINANCIAL TIMES Tuesday 5 December 2023

Ballot battle Shareholder vote rejects Brookfield-led $13bn takeover of Origin, Australia’s largest energy group y COMPANIES & LEX

Bitcoin and Aircraft deal UBS sells Credit Suisse jet used
by Horta-Osório during Covid rules breaches
Roche to buy
Carmot as
gold surge on weight-loss
race heats up
bets that rates DONATO PAOLO MANCINI

Roche has agreed to buy anti-obesity

drug developer Carmot Therapeutics

are set to drop for up to $3.1bn, as the Swiss pharma-

ceuticals group joins the charge into
the market for weight-loss treatments.
The acquisition of Carmot, which is
based in Berkeley, California, hands
3 Hopes of Fed cut fuel cross-asset rally Roche a series of assets based on gluca-
gon-like peptide 1 (GLP-1) agonists,
3 End of crypto criminal cases lifts mood which were developed to help control
blood-sugar levels in diabetics.
GLP-1s now underpin a weight-loss
SCOTT CHIPOLINA, STEPHANIE STACEY est level since March 2022 last week, drug, Wegovy, developed by pharma-
AND GEORGE STEER — LONDON although it fell 0.6 per cent midway ceuticals group Novo Nordisk. The Dan-
Bitcoin surged to its highest price in through yesterday’s session. ish group and Eli Lilly dominate the fast-
nearly 20 months while gold hit an all- Recent US economic data has been growing market for weight-loss treat-
time peak yesterday, as frenzied inves- resilient even while inflation has fallen, ments that analysts have estimated
tor speculation that interest rates will further boosting risky assets like stocks. could be worth as much as $140bn.
fall next year rippled through assets Max Kettner, chief multi-asset strate- Under the terms of the deal, Roche
across the globe. gist at HSBC, said that markets were in said that it would pay Carmot’s share-
The cryptocurrency soared to more the grip of an “everyone-is-happy- holders an initial $2.7bn and a further
than $42,000, also boosted by optimism Goldilocks rally” across “virtually all $400mn, dependent on whether the
that the toughest regulatory punish- asset classes”. start-up achieved certain milestones.
ments for the industry have passed. It Traders said the momentum to buy In May, hedge fund Millennium Man-
later fell back to $41,662, up 7.4 per cent bitcoin, whose value has climbed by agement and asset manager Janus
on the previous day. more than a fifth in the past month, was Henderson were among investors who
Gold rallied as much as 3 per cent to also driven by growing interest among backed a $150mn Carmot fundraising.
$2,135 per troy ounce yesterday, a new investors after the closure of two of the Roche’s chief executive, Thomas Schi-
record, before slipping to $2,025 per highest-profile criminal cases that had necker, said: “Obesity is a heterogene-
hung over the market for the past year. The Dassault Falcon 7X has been bought by a Société Générale subsidiary for an undisclosed price — Robert Buche /Alamy ous disease, which contributes to many
Last month the US successfully prose- other diseases that together comprise a
‘You look at bitcoin and cuted Sam Bankman-Fried, the ex-chief significant health burden worldwide. By
gold and you see a very executive of FTX, and Binance, the OWEN WALKER
EUROPEAN BANKING CORRESPONDENT
ta-Osório’s use of the bank’s jets as tional expenses had been repaid. combining Carmot’s portfolio [with
world’s largest crypto exchange. well as at least two breaches of Covid Among other owners of the Falcon ours] . . . we are aiming to improve the
similar kind of evolution’ Bankman-Fried was convicted of travel curbs — including on the Lon- 7X are Taylor Swift and former For- standard of care and positively impact
UBS has sold the Credit Suisse jet that
Luca Paolini, Pictet strategist fraud and Binance paid $4.3bn in penal- the collapsed bank’s then-chair, don trip — led to his departure as chair mula One boss Bernie Ecclestone. patients’ lives.”
ties after pleading guilty to criminal António Horta-Osório, used when at the start of last year, after nine Credit Suisse was still the registered The potential size of the market for
troy ounce, according to LSEG data. The charges related to money laundering breaching lockdown rules to attend months. owner of another private aircraft, a obesity treatments has left other drug-
moves follow a recent rush into stocks and financial sanctions breaches. sporting events. Flight records show that the Falcon Bombardier Global 7500 — once the makers hurrying to catch up with Novo
and bonds, fuelled by expectations that But despite many traders’ fears, US 7X was used on another trip investi- most expensive corporate jet and Nordisk and Eli Lilly, which have so far
the Federal Reserve will soon cut bor- authorities did not shut down Binance. The Dassault Falcon 7X was sold to a gated by the Credit Suisse board, dubbed the “Ferrari of the skies” — developed drugs that can only be
rowing costs despite chair Jay Powell’s “The message from many institu- German subsidiary of French bank where Horta-Osório accompanied which was bought two years ago for injected. AstraZeneca and Pfizer are
assertion on Friday that it was “prema- tional investors was that they needed Société Générale that specialises in more than $75mn, according to peo- pursuing treatments in pill form.
ture” to conclude that the central bank two things before looking at the space aircraft leasing, ownership docu- ple familiar with the transactions. Analysts have said that it will prove
has won its battle with inflation. again: closure on FTX and clarity ments seen by the Financial Times
The then-chair used the People close to the company said difficult for pills to achieve the same
“You look at bitcoin and gold and you around Binance,” said Henri Arslanian, show. The price was not disclosed. plane to fly to London to Credit Suisse held the title to the air- efficacy as injectable treatments, but
see a very similar kind of evolution,” co-founder of Nine Blocks Manage- People with knowledge of the deci- craft through its aviation leasing divi- Roche said it believed Carmot’s assets
said Luca Paolini, chief strategist at ment, a crypto hedge fund manager sion said the sale in recent weeks had
watch the Wimbledon sion as security against financing pro- had “best-in-class potential to achieve
Pictet Asset Management. “All the asset based in Dubai. been planned by the Credit Suisse finals and the Euros vided to a client. and maintain weight loss with differen-
classes that tend to do well when the Fed Investors are also hopeful the SEC will team before its rescue by UBS this The Global 7500 is owned by celeb- tiated efficacy”, as well as the ability to
cuts rates aggressively are doing well.” approve an exchange traded fund for year. UBS executives have pushed another executive on a flight from rities including reality TV star Kylie be combined with other medicines it is
Traders are betting the first rate cut bitcoin in coming weeks. through the sale after criticising Singapore to Zurich 10 days after the Jenner, who has a pink model. developing.
could come as soon as March after a The SEC has refused for a decade to Credit Suisse’s high-risk-taking and London trip. Horta-Osório suggested The aircraft — which has four living Roche first tried to develop a drug
sharp decline in government and corpo- approve spot bitcoin ETFs, stock mar- high-reward culture. the jet stop in the Maldives on the way spaces including a private bedroom, using GLP-1s more than a decade ago,
rate borrowing costs as US bond mar- ket funds that invest directly in the Flight records obtained by the FT for refuelling, where he disembarked seating area, dining room and cinema before ditching the attempt. The pur-
kets enjoyed their biggest monthly rally cryptocurrency. show that Horta-Osório used the jet to to join his family for a holiday. — can fly 7,700 nautical miles at a chase of Carmot is the latest step by
in nearly four decades in November. The market has long viewed spot bit- fly to London to watch the Wimble- While his use of the company’s jets time, reaching altitudes higher than Schinecker, who took over as Roche
Lower yields on ultra-safe US Treas- coin ETFs as a way to wrest control of don finals and the final of football’s angered some board members, an commercial jets, allowing for longer chief earlier this year after previously
ury debt have made other assets rela- digital assets from scandal-ridden European Championships on the internal audit report seen by the FT and faster flights. leading the company’s diagnostics divi-
tively more attractive to investors. crypto groups in favour of mainstream same day in July 2021. found that it was in line with his UBS and Société Générale declined sion, to replenish its drug pipeline.
The S&P 500 index closed at its high- businesses such as BlackRock. Credit Suisse board probes of Hor- predecessor’s use and that any addi- to comment. See Lex

Contracts & Tenders

Europe’s zombie banks are grappling with distinctive drawbacks
ble. Even among the few banks that
INSIDE BUSINESS have enjoyed substantial share price
recoveries (UniCredit stock has doubled
FINANCE this year), valuations remain well below
book value. (UniCredit’s price-to-book
Patrick ratio is 73 per cent.)
The break-up rationale, then, should
Jenkins still apply. It doesn’t.
There have been involuntary, govern-
ment-mandated break-ups — the UK’s
more fractured as a result of the failure
to create a proper EU single market. The
EU’s “banking union” remains only half-
delivered and a proposed “capital mar-
kets union” is largely just a blueprint.
This has ensured that even the most
ambitious European group only has a
significant presence in two or three EU
countries.
A fourth differentiating drawback —

T
he seasoned banker said:
“At business school they
teach you a simple lesson. If
a company is trading for a
sustained period below the
value of its net assets, it should be closed
down or broken up.”
A study by Boston Consulting Group,
due to be published next month but
Imagine your advert here foreshadowed at the FT’s Global Bank-
ing Summit last week, shows that an
extraordinary 73 per cent of Europe’s
banks are trading below their book
value. The vast majority have been
doing so for more than a decade.
Welcome to the realm of Europe’s
zombie banks.
These are no ordinary zombies.
Unlike standard undead companies,
Business for Sale, Business Opportunities, Business Services,
Business Wanted, Legal Notices, Company Notices, Public Notices, Floating Rates Notes, sustained by years of ultra-low interest
Shareholder Messages, Property For Sale, Tender Notices rates but now struggling with normal-
......................................................................................................................................................................................................................................................................... ised funding costs, the opposite should
Classified Business Advertising
be true of banks: margins on lending
Tel: +44 20 7873 4000 | Email: advertising@ft.com
have been boosted by interest rates that
have not been this high for 15 to 20
years.
Many European lenders have indeed
Notice to Advertisers been delivering healthy profits. Share-
Calls to the Financial Times Advertising Department may be monitored. holder payouts relative to the banks’
Acceptance of any advertisement for publication will be subject to the then current terms and conditions of insertion stubbornly low share price are running
of advertisements in FT publications. at more than 15 per cent, according to
A copy of the terms and conditions of insertion of advertisements in FT publications can be obtained from
Mediobanca analysts, once you factor in
+44 (0)20 7873 3000, or viewed at www.FT.com/advertising share buybacks as well as dividends.
Yet investors are unmoved, seeing
banks’ current returns as unsustaina-
Northern Rock and Belgo-Dutch Fortis
in 2008, for example. There have been
some attempts at break-up by investors,
particularly in the UK: HSBC was tar-
geted by Knight Vinke more than 15
years ago and more recently by minor-
ity shareholder Ping An, the Chinese
insurer. Later, Barclays was attacked by
Edward Bramson’s Sherborne. But
nothing has come close to following the
business-school textbooks.
It is not a wholly
European prob- The cocktail of causes
lem. BCG’s study
shows that the low includes economic
valuation problem anaemia; but while the
afflicts more than a
third of US banks bear case is easy to make,
and nearly all there are reasons for cheer
banks in parts of
Asia. However, there is a particularly
toxic cocktail of causes across the EU
and in the UK.
The first weakness is the region’s
anaemic economic growth.
The second is the region’s quixotic
policymaking. Bank supertaxes have
been imposed in several countries, as
prolonged punishment for the damage
they wrought in 2008 (as in the UK), or
as a more recent response to higher
profit margins (as in Spain). Italy’s plan
to impose a tax was revised to allow
banks to boost reserves instead, but it is
still blamed for spooking investors.
A third issue is breadth of operations.
Their home European market is far
relatively weak investment capacity —
flows from the other three, but as the
need to overhaul business models with
artificial intelligence tools and other
technology infrastructure intensifies,
US banks are dwarfing their European
rivals in terms of tech investment. All of
this renders the bear case for Europe’s
banks easy to make, especially as loan
defaults rise at this stage in the eco-
nomic cycle.
Among the reasons for optimism
is the apparently solid state of Europ-
ean bank capital, liquidity and supervi-
sion that prevails at UK and ECB-regu-
lated banks. The springtime regional
banks crisis in the US and the collapse of
Credit Suisse did not infect the UK or
eurozone.
Some opportunistic investors, such as
London-based Toscafund, have made
decent money on selective European
bank picks.
“It doesn’t matter that they’re still
below book value,” says one investor. “If
they go from 35 per cent of book value to
70 per cent of book, you still double
your money.”
If, over time, investors steadily see
that balance sheets are solid and that
the policy environment remains stable,
and memories of past disappointments
fade, Europe’s banks may one day make
it back to book value, finally expunging
the zombie phenomenon.
patrick.jenkins@ft.com
Tuesday 5 December 2023 ★ FINANCIAL TIMES 7
8 ★
Pharmaceuticals
Purdue to shape bankruptcy law
US Supreme Court ruling
on opioid crisis settlement
will hang over other cases
SUJEET INDAP — NEW YORK
The Supreme Court yesterday ques-
tioned the Department of Justice’s effort
to invalidate a settlement in the bank-
ruptcy of Purdue Pharma that would
shield members of the group’s founding
Sackler family from future civil liability
in exchange for a $6bn contribution.
“For 30 years bankruptcy courts have
been approving plans like this . . . Why
is [this settlement] categorically inap-
propriate?” Justice Brett Kavanaugh
asked a lawyer for the DoJ, Curtis Gan-
non, who had argued that the compre-
hensive liability releases granted to the
Sacklers could not be justified under
existing US law.
Gannon argued that the Sacklers
Unplugged
Shareholder
power turns
off Origin deal
Origin CEO Frank Calabria, left,
and chair Scott Perkins talk to
journalists after the vote rejecting
the Brookfield-led takeover
Brendon Thorne/Bloomberg
Property
Evergrande gains time on debt restructuring
KAYE WIGGINS AND CHAN HO-HIM
HONG KONG
A Hong Kong judge has delayed a deci-
sion on Evergrande’s liquidation, an
unexpected move that gives the Chi-
nese developer until next month to
come up with a restructuring plan that
satisfies creditors.
Judge Linda Chan said yesterday that
the proceedings would be adjourned
until January 29 after a lawyer for Top
Shine Global, an offshore creditor that
brought a winding-up petition against
the Chinese developer, said it would not
oppose such a move.
Lawyers for Evergrande, the most
indebted property developer, said in
court that the group was considering a
deal that included handing “certifi-
cates” to creditors. They would be “nei-
ther a share nor a bond but a right to dis-
tribution based on certain assets”.
Neil McDonald, a restructuring law-
yer at Kirkland & Ellis who represents a
group of offshore creditors, said: “We
are very surprised by the develop-
ments.” He added that the creditor
group had “firmly rejected” the pro-
posal that Evergrande outlined and he
should not get such a release, no matter
the size of their contribution, unless
they filed for bankruptcy themselves.
“The Sacklers are saying they want
global peace, they would pay a lot for
97.5 per cent,” Gannon said, arguing that
nearly all claimants wanted to be paid
soon and thus would bring the Sacklers
to the bargaining table for a deal even
without a comprehensive release.
But lawyers for Purdue, the Sacklers
and the creditors committee, which
includes claimants, have argued that
the full liability release is a condition for
the Sacklers making any financial con-
tribution to the settlement pot.
Legal experts say a decision in the
case, which will probably come by the
summer, will influence Chapter 11
bankruptcies for years, ranging from
mass torts to cryptocurrency blow-ups
and private equity-centred restructur-
ings.
“I think the case is the most important
Shareholder opposition has thwarted a
multibillion-dollar deal in Australia for
the second time in two months, with a
takeover bid for the country’s largest
energy company being voted down in
Sydney yesterday.
Origin Energy shareholders were not
won over in sufficient numbers to clear
a $12.7bn offer from a consortium led
by Canadian asset management
company Brookfield, which intended
to buy and break up the business.
After a protracted battle that lasted
more than 400 days, only 69 per cent
of shares were cast in favour of the deal
in a vote at the city’s Shangri-La hotel.
A level of 75 per cent was needed for
approval.
It is the second big deal to fail due to
shareholder resistance in recent weeks,
with US lithium miner Albemarle
abandoning a A$6.6bn ($4.2bn) bid for
Liontown Resources in October after
billionaire Gina Rinehart built a large
stake in the Australian lithium
company.
The result also follows the successful
intervention last year by Australian
tycoon Mike Cannon-Brookes to block
the demerger of Origin’s rival AGL.
had expected the company to be wound
up yesterday.
Evergrande shares rose as much as 13
per cent, though they trade 99 per cent
below their 2017 peak.
The developer’s woes highlight the
cash crunch in the sector, which made
up about a quarter of China’s economic
activity before it was engulfed by crisis.
Evergrande had more than $300bn in
liabilities when it defaulted in 2021.
The developer is looking at
a deal handing creditors
‘certificates’ representing
a right to distribution
A previous plan was derailed in Sep-
tember when the group said it could not
issue the “new notes” required under
the proposal because its mainland busi-
ness was being probed by authorities
over alleged disclosure rule breaches.
Judge Chan said “crucial details” of
the plan were missing and suggested
that Evergrande engage in “direct dis-
cussion with relevant authorities” to
make sure the plan was “in fact do-
FINANCIAL TIMES
COMPANIES & MARKETS
corporate bankruptcy case to come to
the court in at least the last 30 years,”
said Anthony Casey, a law professor at
University of Chicago.
An initial deal struck and approved
in 2021 by the New York federal court
overseeing Purdue’s bankruptcy called
for members of the Sackler family
who had long controlled the group to
put up $4.3bn to fund payments to
users of the painkiller OxyContin, as
well as treatment programmes run by
states and cities. In exchange for the
contribution, the Sacklers insisted that
the deal would permanently bar any
civil lawsuits over Purdue’s alleged mis-
deeds, although it would not foreclose
potential criminal proceedings.
The Office of the US Trustee, a divi-
sion of the justice department that
oversees the bankruptcy, has said that
those releases are unlawful since the
Sacklers themselves did not file for
Chapter 11. Further, the US Trustee said,
Brookfield had planned to use Origin
to help lead the country’s transition
from coal-powered electricity to
renewable energy. Origin, with 4.5mn
customers, is one of the largest
integrated electricity generating and
retail companies in the world. This
made it a prime target for Brookfield’s
transition fund, led by former Bank Of
England governor Mark Carney.
Private equity group EIG was to take
over offshore gas assets in the break-up
of the company.
However, some investors argued that
Brookfield was buying on the cheap,
citing Origin’s rising profitability and
the increase in value of its stake in UK
energy company Octopus. They said
Origin should be able to fund its energy
transition as an independent company.
The country’s largest pension fund,
AustralianSuper, was Origin’s biggest
investor and opposed the sale,
describing the bid as a “low-ball offer”.
It raised its stake to 17 per cent to
narrow Brookfield’s chances of victory.
The Origin board had recommended
approval of the offer, but its chair Scott
Perkins said after the vote that the
arduous bidding process had not
able”. Evergrande’s lawyer responded:
“We will try our best.”
The certificates could allow creditors
to be repaid when some of the com-
pany’s assets were sold, a “possible solu-
tion” to its inability to issue notes, said
Evergrande’s lawyer. He said it would
“refine” its proposal to creditors.
A resolution has been delayed several
times since the case began in June 2022.
During the previous hearing in October,
Judge Chan said Evergrande would be
granted “one last opportunity” to for-
mulate a concrete restructuring pro-
posal or a liquidation order was “very
likely” at the December 4 hearing.
The adjournment gives Evergrande
more time to avoid liquidation, which
could leave international creditors with
little or even no return. It was hard to
see them achieving “meaningful recov-
ery if the company is placed into liqui-
dation”, said James Wood, a Hong Kong
barrister specialising in insolvency who
is not involved in the Evergrande case.
Top Shine Global filed the winding-up
petition last year, alleging that Ever-
grande had failed to honour HK$863mn
(US$110mn) worth of claims.
See Lex
those proposed releases would stop
those who said they were harmed by
Purdue from exercising their constitu-
tional right to sue the family.
The independent managers that have
taken control of Purdue, along with the
Sackler family, have argued that the set-
tlement — which was eventually raised
to between $5.5bn and $6bn — has been
agreed by well over 90 per cent of Pur-
due creditors and that a bankruptcy
deal is the fairest and fastest way for
money to reach needy victims.
“[W]ithout the releases, there is no
settlement, the debtors likely would be
forced into a Chapter 7 liquidation, and
unsecured creditors would probably
recover nothing from the debtors’
estates,” Purdue wrote in its brief to the
Supreme Court.
“Purdue goes to the core functioning
of Chapter 11,” said Casey, warning that
pending settlements could be unwound
depending on the ruling.
disrupted the company’s
momentum and would not change
its strategy. “There’s been a contest
over value but not a contest over
strategy,” he said.
Some shareholders disagreed.
Jamie Hannah, deputy head of
investments at VanEck, which holds
more than 5mn shares and voted in
favour of the takeover, said Origin
now needed to set “more aggressive
targets” for renewable power
generation to match the ambition of
the group that tried to buy it.
Key to the Brookfield
consortium’s plan was a pledge to
invest up to A$30bn in renewable
energy to transform the country and
the company into a leader in the
transition to greener energy.
AustralianSuper said it was open
to providing capital to assist a
transition. Perkins said he
welcomed the statement given the
scale of the opportunity to invest in
renewable energy.
Origin shares closed 4 per cent
lower at A$7.86, or 17 per cent below
the Brookfield offer. Nic Fildes
See Lex
Energy
RWE warns over European gas supply risks
RACHEL MILLARD AND SHOTARO TANI
Europe is vulnerable to gas supply
shocks despite progress in cutting its
reliance on Russia, the chief executive
of one of Germany’s largest energy
companies has warned.
RWE chief executive Markus Krebber
said Europe needed to boost its capacity
to import gas to make sure it could cope
with unexpected outages on pipelines or
import terminals.
The warning came despite Europe
entering winter with gas stocks about 99
per cent full after an effort to fill them
up over the summer to cope with cuts to
supplies from Russia following the inva-
sion of Ukraine.
Krebber said: “Continental Europe is
in a much better position than last year.
Gas storage is at maximum capacity and
we have built some infrastructure. But
we are not where we need to be because
we shouldn’t have an energy supply sys-
tem which is without any margin or
buffer.
“So it also needs to be able to cope
with the situation where you have an
‘N-1 event’— problems with one of your
big suppliers because the pipeline fails,
Financials. Venture capital
Tech funds adopt
private equity
strategies in race
to repay investors
Continuation vehicles enable
Silicon Valley firms backing
start-ups to ‘reset the clock’
TABBY KINDER AND GEORGE HAMMOND
SAN FRANCISCO
WILL LOUCH — LONDON
Silicon Valley venture capital firms are
rushing to create private equity-style
structures in a race to protect their port-
folios and return money to investors.
VC funds that invest in tech start-ups
typically run for 10 years with an option
to extend for two years — at which point
their backers expect a return on invest-
ment, without which they can force a
sale of portfolio companies or shut them
down.
Providing those returns has become
problematic, as a funding boom in fledg-
ling tech companies during the pan-
demic has been followed by an uncer-
tain economic environment that has led
to start-ups staying private for far
longer.
In response, dozens of tech investors
— including $25bn venture firm New
Enterprise Associates and New York-
based Insight Partners — have set up or
are establishing “continuation fund”
vehicles, according to people advising
on the plans.
Continuation funds, which are com-
mon in private equity but rare in ven-
ture capital, are a secondary investment
vehicle that allows them to “reset the
clock” for several years on some assets
in old funds by selling them to a new
vehicle that they also control. This helps
a VC fund’s backers, known as “limited
partners”, to roll over their investment
or exit.
“It’s a good time for this kind of struc-
ture,” said Hans Swildens, founder of VC
firm Industry Ventures. “During the
next year, if the IPO market doesn’t
function and M&A is light, the only way
for VC firms to [distribute funds back to
investors] is . . . secondaries.”
Others are undertaking “strip sales”, a
form of restructuring in which a slice of
a fund’s assets are sold to new investors,
as pressure increases to return money to
limited partners.
“Unless you have been really conserv-
ative in your reserves . . . every venture
firm is in need [of liquidity],” said the
chief operating officer of one multibil-
lion-dollar Silicon Valley firm. “It is a
real problem. Most funds are 10 years
old and have scraps left they can’t fund.”
Financial institutions, including
Goldman Sachs and Jefferies, and large
private investment managers such as
Industry Ventures, StepStone Group
and Coller Capital have also been in
talks with the venture groups with
offers to fund secondary transactions,
venture capitalists said.
Secondary funds have raised $64bn
this year in order to buy up stakes in
portfolio companies from venture and
private equity investors, according to
Jefferies — more than the combined
total raised in 2021 and 2022.
“For a lot of folks we are now having
exploratory conversations with, they
have an absolute need to generate distri-
butions,” said Matt Wesley, head of pri-
vate capital advisory at Jefferies. “Given
the dearth of exits for companies owned
or a liquefied natural gas terminal fails.
We are not there yet, so I think more
import capacity is needed to replace the
full [lost] Russian gas.”
Gas prices soared last year as Europe
scrambled to replace lower Russian
pipeline supplies, climbing above €300
per megawatt-hour in August, more
than 10 times its normal level. Prices
have since fallen, trading at €43 per
MWh on Friday, but markets remain jit-
tery and sensitive to events, with strikes
at terminals in Australia leading to a
surge in prices in September.
EU gas storage alone can meet about
two to two-and-a-half months of peak
winter consumption. But depleting it
too much during the winter heating
months could make it much harder to
refill storage ahead of next winter.
RWE, which has its headquarters in
Essen and is listed in Frankfurt, trades
and stores gas and runs a fleet of gas-
fired power plants, alongside a growing
portfolio of wind, solar and battery
plants. It plans to close its coal-fired
power plants by 2030.
Last week RWE said it planned to
invest €55bn between 2024 and 2030.
Just over one-third of that will go to off-
Tuesday 5 December 2023
by venture firms, certainly the groups
who are registered [as investment
advisers] are actively exploring contin-
uation funds.”
UK chip designer Arm, US grocery
delivery app Instacart and San Francis-
co-based market automation group
Klaviyo listed on New York exchanges in
September, ending an 18-month
drought in tech initial public offerings.
However, trading has been mediocre at
all three companies, prompting start-
ups to delay their listing plans.
“The performance of the handful of
companies that have gone public has
intensified some of these conversations
among venture firms,” said Joe Binder, a
private funds partner at law firm Debev-
oise & Plimpton. “People had hoped
there would be a lot more enthusiasm
[for tech listings] but it has waned and
so people are turning to alternative solu-
tions.”
However, continuation funds can be
unpopular with limited partners which
must decide whether to continue to
back a VC fund for several more years,
or sell their stake, typically at a dis-
count. There are also regulatory restric-
tions that make it difficult for venture
‘The performance of the
handful of companies that
have gone public has
intensified conversations’
firms that are not registered investment
advisers (RIAs) to set up such vehicles.
Insight Partners’ continuation fund
allowed it to shift 32 companies from its
funds into a new vehicle over a five-
week process, according to a letter from
Jefferies advertising its services to ven-
ture clients. The transaction resulted in
$1.3bn being distributed to Insight’s lim-
ited partners, the letter said.
In May, Tiger Global, which manages
more than $50bn, hired secondary
investment advisers Evercore to launch
a sale of parts of its venture portfolio,
with a strip sale being one option for a
deal. Offers from buyers did not meet
the valuations that Tiger expected and a
transaction has not been completed,
according to people close to the plans.
Quiet Capital, whose early invest-
ments included Airbnb and Robinhood,
raised $100mn in such a “multi-asset
tender offer” in late 2021, according to
the Jefferies document.
The transaction allowed Quiet Capital
LPs to sell half or all of their stake in the
fund to new institutional investors at
Goldman Sachs Asset Management and
Blackstone Strategic Partners — both
secondary investors — at a premium,
according to a person with knowledge of
the deal.
Dozens of large venture funds such as
Sequoia, Andreessen Horowitz and
General Catalyst have become RIAs in
recent years. The regulatory designa-
tion made it easier for them to trade in
cryptocurrencies, debt and in secondar-
ies, in which they can trade stock.
“There used to be clear lines between
what a venture capital fund and a pri-
vate equity fund was, but now all these
strategies are converging,” said Binder.
“Venture funds . . . are doing the sort of
thing you could never have imagined 10
years ago.”
shore wind projects, in a boost for the
technology that has struggled this year
because of rising costs.
“We see an attractive overall invest-
ment environment,” Krebber said. “The
energy systems where we operate are
underinvested. And I think it is without
doubt that the investments have to go
into clean energy.”
He said Germany would struggle to
meet its goal of “ideally” phasing out
coal-fired power plants by 2030 unless
the government designed the electricity
market to incentivise development of
hydrogen-ready gas-fired power plants.
These will be needed as part of the
future energy system to step in on wind-
less days, but may only run for short
periods so are difficult for developers to
justify unless they are compensated for
the back-up role they provide.
“In Germany we have a problem
because we are relying for security of
supply on nuclear and coal, and both are
exiting. So we need to build a full new
fleet of flexible generation capacity, but
the coalition has not yet presented a
framework for that. If we don’t get it this
year or next year, I think it’s going to be
difficult to phase out coal by 2030.”
Tuesday 5 December 2023 ★ FINANCIAL TIMES 9

COMPANIES & MARKETS

Big business mixes with geopolitics

Banks

Pictet will pay

US authorities
at expanded UN climate conference $123mn after
aiding clients
Bosses in sectors from energy to banking attend COP28 as critics call the Dubai event a ‘trade show’ to evade tax
SAM JONES — BERLIN

Swiss private bank Pictet has agreed to

pay $123mn to US authorities after
admitting to helping clients illegally
shield more than $5.6bn of assets from
tax in secret accounts from 2008 to
2014.
The Geneva-based bank, Switzerland’s
oldest and most prestigious private
money manager, yesterday entered into
a deferred prosecution agreement with
the Department of Justice.
The lender has agreed to co-operate
fully with ongoing investigations into
the clients in question and their
accounts.
“Today [Pictet] admitted to actively
helping US taxpayers use coded
accounts, foreign trusts and entities,
nominee beneficiaries and other deceits
to conceal their income and assets
abroad,” said acting deputy assistant
attorney-general Stuart M Goldberg.
“For this criminal conduct the bank
will be paying nearly $122.9mn in resti-
tution, disgorgement of fees and a finan-
cial penalty.”
Taxes worth over $50mn were
avoided in 1,637 accounts as a result of
the bank’s efforts, the DoJ said.
A range of measures were used by the

‘[Pictet] admitted actively

ATTRACTA MOONEY — LONDON
KENZA BRYAN — DUBAI
Scores of major companies have flocked
to Expo City on the outskirts of Dubai
for the world’s biggest UN climate sum-
mit, to rub shoulders with some of the
near-200 governments there and tout
their business.
The attendance of prominent bank
and energy bosses has risen, including
the first-time visit by ExxonMobil chief
executive Darren Woods, but the lead-
ers of a host of other enterprises are also
present for the first time after the
COP28 agenda was expanded for health,
food, water and nature.
Speaking from Dubai, Reckitt CEO
Kris Licht said he was “delighted” that
health had finally been given a formal
place on the agenda. Reckitt came to
prominence at COP26 in Glasgow, where
it supplied its Dettol disinfectant to the
organisers during the pandemic.
“By collaborating to unpack how cli-
mate impacts health and how health-
care impacts the climate, we can find
solutions to both problems,” he said of
the event that has also drawn drug com-
panies such as AstraZeneca.
From the oil and gas industry, UAE
guests included Oxy CEO Vicki Hollub,
Eni head Claudio Descalzi and German
energy group RWE’s Markus Krebber.
But the wider range of attendees this
year includes EY CEO Carmine di Sibio,
Microsoft president Brad Smith, Lloyd’s
of London boss John Neal and Volvo
deputy CEO Javier Varela.
“Business has an integral role to play
in both finding and implementing the
solutions to climate change,” said
Varela. He added that COP28 was “an
invaluable opportunity” for Volvo,
which has begun sourcing “green” steel
for its vehicles. It was a chance “to listen
and learn from other companies and
experts that like us” believe that limit-
ing global warming to “1.5C above pre-
industrial levels is a limit rather than
just another target.”
Power company bosses were also well-
represented as talks took place about
the shift from coal and methane emis-
sion cuts, bringing French group’s
Engie’s chair Jean-Pierre Clamadieu and
CEO Catherine McGregor, as well as
NextEra’s Rebecca Kujawa.
Professor Bobby Banerjee, professor
of management at Bayes Business
School at City University in London,
said oil and gas companies had been
attending the COP for years despite
being on the sidelines of the agenda.
“But it’s become a lot slicker now,” he
said, likening it to a “trade show”.
In many cases, he says, the “real stuff”
happens away from the official climate
negotiations at the COP, with businesses
meeting with each other or with officials
from countries or states.
“What really happens is the back-
room deals,” he said. “They have these
side events. That’s where you will find
the oil companies talking about [tech-
nology such as] carbon capture and
storage.”
For smaller businesses or those with
interesting technology, the COP was a
big opportunity to showcase their prod-
ucts, he said.
The cohort of senior bankers at the
summit has also swelled, as finance for
Almost 200 climate-related projects moves into the
governments front lines, growing since Glasgow’s
are attending COP26 when the financial alliance was
the COP28 launched with Bank of America boss
summit at Brian Moynihan and Standard Char-
Dubai’s Expo tered’s Bill Winters.
City. Below, Steven van Rijswijk, the CEO of ING,
Emmanuel who is also in Dubai, said the Dutch
Macron with bank was keen to part of the financing of
Engie chair the energy transition.
Jean-Pierre “[COP] is always the place where all
Clamadieu relevant players come together, so it is
Amr Alfiky/Reuters
good to be there too, to be part of the
conversation, to hear what the develop-
ments are, what everyone thinks about
it and to make clear what we can con-
tribute and what we expect,” he said.
But Paul Morgenthaler, managing
partner at venture capital group Com-
merzVentures, said COP was little more
than “a business conference where oil
deals are struck”.
Concerns about the fossil fuel indus-
try’s roles at the summit have been
amplified this year, because host coun-
try the UAE is one of the largest oil and
gas producers. COP28 president Sultan
al-Jaber is also the boss of the Abu Dhabi
National Oil Company.
The UAE has been linked to about
$200bn in deals, largely in green energy,
in the run-up to COP28, according to FT
analysis. At the start of the summit, it
announced a £30bn climate-focused
investment vehicle, working with asset
managers including Brookfield and
BlackRock. Both Brookfield’s Connor
Teskey and BlackRock’s Larry Fink
were in Dubai.
The size of the COPs has ballooned in
recent years, with registered attendees
upwards of 80,000.
Some have called for COP to be
slimmed down, refocusing on the cli-
mate negotiations. Morgenthaler
believes the present COP format has
“proven ineffective at addressing the
challenge we are up against”.
Others, including Jaber, have argued
‘Business the business world should be at the
has an annual climate summit, because it has a
integral role chief role in shifting economies to
become greener.
to play in The private sector will need to pro-
both vide trillions of dollars in financing for
the shift to greener economies if the
finding and world is to meet its goals of limiting glo-
[executing] bal temperature rises.
Lloyd’s Neal said he would welcome
solutions to an agreement between countries on
climate whether or not to phase out fossil fuels
as this would provide more “certainty”
change’ to the business world. The leading
insurance market sent Neal along with
its chair Bruce Carnegie-Brown.
“They’re going to have that conversa-
tion at some point, so why not have it
now?” he said, describing the climate
transition as “the biggest single oppor-
tunity we will have ever seen.”
Acknowledging that Lloyd’s does not
require its own members to stop under-
writing new oil and gas projects, he said
this type of decision was best left to poli-
ticians and negotiators.
“I don’t think the private sector
should turn around and say we will stop
insuring fossil fuels in 2035. That’s for
governments to determine.”
“In a strange sort of way, it’s trying to
get the government and leadership to
think, why don’t you just get in front of
the story?” he added. “Because you’ve
got a private sector that will help with
the financing, help with the transition.”
Banerjee said that businesses play a
role in influencing whatever agreement
countries reach.
“The COP people love to say: ‘Oh look,
a small country can veto an agreement’.
Sure they can. But those agreements are
pointless because the real deals are hap-
pening somewhere else.”
He added: “There is a geopolitics, but
the geopolitics is always being influ-
enced by big business.”
helping US taxpayers use
deceits to conceal their
income and assets abroad’
Swiss bank to help its clients avoid
detection by US authorities, including
pseudonyms, anonymous numbered
accounts and accounts held in the name
of “sham” corporate entities set up as
fronts.
According to the DoJ, Pictet also
provided services to divert and hold
mail, to avoid account information
being sent to the US, and offered clients
preloaded credit cards issued by
a third-party so the origin of funds could
be hidden.
The DoJ said Pictet’s management —
the bank’s circle of eight partners,
known as “the salon” — approved the
client relationships concerned and were
aware of undeclared accounts.
In a statement yesterday, Pictet said it
was “pleased to have resolved this mat-
ter and will continue to take steps to
ensure its clients meet their tax obliga-
tions”.
Pictet manages assets of SFr638bn
($713bn) for wealthy clients and large
institutions.
The bank said it had begun clamping
down on tax evasion by its clients before
US authorities publicly launched a
crackdown on abuses in 2008 — with a
particular focus on Switzerland — after
leaked documents revealed UBS was
shielding clients from paying taxes.
UBS admitted guilt and paid $780mn
to US authorities in a deferred prosecu-
tion agreement in 2009. Other Swiss
banks have followed suit over the years.
“The agreement acknowledges Pictet
began evaluating and enhancing its poli-
cies and practices for conducting busi-
ness with US taxpayer clients in
2008 . . . It also recognises that the
group then took additional steps,
beyond those required by US law, to pro-
mote the tax compliance of its US tax-
payer clients,” Pictet said.
The settlement will not impact the
bank’s capital position, it added.

Construction Technology

Japanese housebuilders hunt for deals in US
LEO LEWIS AND DAVID KEOHANE
TOKYO
Three of Japan’s biggest developers are
“aggressively” shopping for house-
builders to buy in the US as they hunt
for growth outside their shrinking
domestic market.
Daiwa House, Sekisui House and Sumi-
tomo Forestry are all actively searching
for US acquisitions and have
approached multiple potential targets,
according to four M&A bankers and
lawyers familiar with the matter.
The Japanese groups have market
capitalisations ranging from ¥770bn to
¥2.7tn, or $5.3bn to $20bn, making
numerous large US companies potential
targets. However, two of the people said
that the companies might initially opt
for smaller acquisitions.
“More and more we are seeing US
housebuilders being aggressively
courted by would-be Japanese buyers,”
said one banker familiar with the com-
panies involved. Another said they
expected at least one deal before March
when Japan’s financial year ends.
US homebuilders have seen their
stocks rise in recent weeks, recouping
most of the losses in the previous four
months, according to BCA Research.
US house prices rose for the eighth
consecutive month in September, as
lean inventory continued to boost
demand despite high mortgage rates.
‘We will consider
acquisitions in the future
if we can find a partner
that offers good terms’
“To the extent that elevated mortgage
rates are damping existing homeown-
ers’ willingness to sell, they are also
reducing the supply of existing homes
for sale on the market. At the same time,
a shortage of housing is providing a floor
beneath construction activity. The lat-
ter could limit homebuilders’ pain amid
a recession next year,” said the BCA ana-
lysts in a recent note to clients.
Faced with a declining population and
glut of domestic housing, the Japanese
groups are willing to act despite the fact
that the weak yen would make US acqui-
sitions relatively expensive.
Empty houses in Japan are expected
to swell to 20mn over the next two dec-
ades. The three groups already have
operations in the US.
Sumitomo Forestry said: “We believe
that demand for housing in the US will
continue to be strong, therefore, in addi-
tion to the organic growth of our exist-
ing affiliates, we will consider acquisi-
tions in the future if we can find a part-
ner that offers good terms and shares
our philosophy, while carefully moni-
toring market trends and the timing.”
Daiwa said: “We will consider M&As
in the US if we have the opportunity, and
we are considering various projects.”
Sekisui said it was hunting for acquisi-
tions in the US but no deal was at an
advanced stage.
IBM hails advances in quantum computing
RICHARD WATERS — SAN DIEGO
MICHAEL PEEL — LONDON
Quantum computing is starting to fulfil
its promise as a crucial scientific
research tool, IBM researchers claim,
as the US technology group attempts to
quell fears that the field will fail to
match high hopes for it.
The company was due to unveil 10
projects yesterday that point to the
power of quantum calculation when
twinned with established techniques
such as conventional supercomputing,
said Dario Gil, its head of research.
“For the first time now we have large
enough systems, capable enough sys-
tems, that you can do useful technical
and scientific work with it,” Gil said in an
interview.
The papers presented are the work of
IBM and partners including the Los Ala-
mos National Laboratory, University of
California, Berkeley, and the University
of Tokyo. They focus mainly on areas
such as simulating quantum physics
and solving problems in chemistry and
materials science.
Expectations that quantum systems
would by now be close to commercial
uses prompted a wave of funding for the
technology in recent years. But signs
that business applications are further
off than expected have led to warnings
of a possible “quantum winter” of wan-
ing investor confidence and financial
backing.
IBM’s announcements suggest the
technology’s main applications have not
yet fully extended to the broad range of
commercialisable computing tasks
many in the field want to see.
“It’s going to take a while before we go
from scientific value to, let’s say, busi-
ness value,” said Jay Gambetta, IBM’s
vice-president of quantum. “But in my
opinion the difference between research
and commercialisation is getting
tighter.”
The IBM researchers said recent
advances had reinforced their confi-
dence in quantum computing’s longer-
run potential, although they made no
prediction about when it would enter
the commercial mainstream. Instead,
they have laid out a 10-year timetable
for reaching far more capable, “error-
corrected” systems.
Quantum computing harnesses prop-
erties of subatomic particles that make
it possible for them to be in many differ-
ent states at the same time. This enables
quantum machines to carry out large
numbers of calculations simultaneously
— and potentially solve problems
beyond the scope of traditional comput-
ers. But the qubits on which the systems
are based are unstable and only hold
their quantum states for very short peri-
ods, introducing errors, or “noise”, into
the calculations.
IBM said the new scientific applica-
tions for its systems marked an end to
the first, experimental, phase of devel-
opment linking qubits to carry out
calculations, working out how to con-
trol the qubits and developing the first
algorithms.
10
Retail investors to the fore as
cash floods into money funds
US buyers take advantage of
highest yields in years before
interest rates start falling
HARRIET CLARFELT, KATE DUGUID
AND BROOKE MASTERS — NEW YORK
Money market fund managers see no
end in sight to the record inflows they
have garnered in 2023, as cash contin-
ues to pour in from investors hoping to
take advantage of the highest yields
available in years.
Almost $1.19tn has flooded into US
money market funds since January 1,
according to flow tracker EPFR,
fuelled by the Federal Reserve’s aggres-
sive campaign of interest rate rises. That
is a far cry from negligible inflows in
2022, and well above the average full-
year net inflow figure of $179bn for
2012-22. The comparable figure for
2021 was $429bn.
Money funds typically hold short-
term assets including government debt,
whose yields have climbed rapidly as
the central bank has turned the screws
on monetary policy.
More than $257bn poured in between
October 31 and November 30 alone,
according to the latest available data —
the biggest monthly inflow since bank-
ing ructions in March sparked a flight
from ordinary deposit accounts. Those
inflows have persisted even as markets
Derivatives
US regulator to float guidelines for ‘wild west’ carbon emissions offset market
STEFANIA PALMA IN — WASHINGTON
PATRICK TEMPLE-WEST — NEW YORK
US regulators will propose the first
federal guidelines for voluntary carbon
credit derivatives, as Washington tries
to bring order to a market for the off-
setting of emissions described as the
“wild west”.
The Commodity Futures Trading
Commission was yesterday set to
announce standards that call on
exchanges to verify the quality of volun-
tary carbon credit derivatives, which
base their prices on those of financial
instruments bought by companies to
offset emissions.
The value of the carbon trading mar-
ket worldwide could expand to $100bn
by 2030, up from $2bn in 2022, accord-
ing to Morgan Stanley. The fledgling vol-
untary carbon derivatives sector, mean-
while, includes just three contracts with
meaningful trading volume, while 15
more are listed but have limited trading,
according to the CFTC.
CFTC chair Rostin Behnam told the
Financial Times that the guidance was
“the first of its kind from a US market
regulator” that creates standards for
derivatives exchanges in relation to vol-
untary carbon credits.
Asset management. Record inflows
are pricing in bets that the Fed will not
raise interest rates again this cycle and
will cut borrowing costs as soon as the
spring.
Money market fund assets hit an all-
time high of $5.8tn last week (Novem-
ber 29), as investors continue to har-
bour doubts about long-dated debt.
Fund houses including Goldman
Sachs and Federated Hermes are pro-
jecting that the torrent will carry
through to 2024, fuelled by institutional
investors trying to lock in returns as
interest rates stabilise, and before the
Fed starts to cut.
“I’m not looking at a big springback”
from money market funds, said Chris
Donahue, chief executive of $715bn-in-
assets Federated Hermes.
“It’s more likely they’re going to
get another trillion in than there’s
going to [be] a trillion out. If we’re right
that these rates are going to be here
longer term, and that is the way it’s
going to be for a while . . . then you’re
going to get paid for being in the money
fund.”
According to data from the Invest-
ment Company Institute, a selection of
government retail money market funds
was yielding as much as 5.02 per cent as
of November 30. A selection of govern-
ment institutional funds was yielding
5.23 per cent — squarely in the middle of
the Fed’s current target range for inter-
est rates of 5.25 to 5.5 per cent.
The latest available yield was even
The guidelines seek to clamp down on
manipulation and to foster accurate
pricing by pushing exchanges to ensure
that the terms of listed contracts are in
accordance with US federal laws and
CFTC regulations.
The move comes as agencies world-
wide try to craft frameworks to oversee
a nascent market that faces scant regu-
latory oversight.
It comes a day after the International
Organization of Securities Commis-
sions, the top agency representing secu-
rities watchdogs, launched a consulta-
tion on standards for voluntary carbon
markets at COP28 in Dubai.
Voluntary credits are typically bought
by companies looking to offset their
emissions, and differ from those that are
part of mandatory programmes such as
the EU’s emissions trading scheme.
Environmentalists have argued they
give businesses a way to keep polluting
and do little to arrest global warming.
Behnam said there was a “legislative
vacuum in this space”, and that Con-
gress was not expected to authorise an
agency to police voluntary carbon mar-
kets “anytime soon”.
He added that there was a “lack of
integrity” and “issues around standard-
isation” in the market, and said some
★ FINANCIAL TIMES
COMPANIES & MARKETS
higher for “prime” institutional funds,
which can hold riskier commercial
paper, at 5.43 per cent.
Much of this year’s cascade into
money market funds in the US has been
driven by retail investors rather than
corporate treasurers, mutual funds or
insurance companies. The latter typi-
cally invest directly in Treasury bills
and other short-dated debt instruments
as interest rates are on the way up,
because they can capture the rise in
yields more immediately.
But that changes “once the Fed stops
and goes on a pause, and that interest
rate has levelled out . . . Then institu-
tional investors are attracted to money
market funds, because they do have the
same yield as the underlying short-term
instruments [and] they offer a lot of
diversification for institutional inves-
tors”, said Shelly Antoniewicz, ICI’s dep-
uty chief economist.
Shaun Cullinan, global head of liquid-
ity solutions at Goldman, said it was
likely that institutional investors would
join the surge into money market funds
in 2024, driving additional inflows.
“You typically find that as the easing
cycle begins . . . it’s very likely that the
yield on money market funds will
exceed the yield on the direct market
investments,” he said. “You can see
institutional investors pivoting into
funds to achieve that higher return,
because those funds have some embed-
ded duration in them.”
products were susceptible to fraud and
manipulation.
The CFTC’s guidance puts the onus on
exchanges registered with the watch-
dog. But Behnam believes a “larger
pool” of operators will look to it “as a
baseline standard”. The guidance is not
Bustling: almost Money market fund inflows in the US
$1.19tn has this year have far outpaced those in
flooded into Europe, where retail investors have a
money market much smaller presence in the asset
funds since class. But Cullinan said the same
January 1, dynamic might play out in the region
compared with next year if policy cycles aligned.
an average full- “We certainly haven’t seen the same
year inflow amount of retail flows in Europe as we
figure of $179bn have in the dollar market, or in the
Spencer Platt/Getty Images
States,” he said. “But we do see investors
in the European markets, particularly
institutional investors, engaged in
direct markets. And if we see the Euro-
pean Central Bank embark on an easing
cycle and European money fund returns
exceed those of the direct market . . . I
definitely think you could see the same
rotation occur. I don’t see this being a
US-only phenomenon.”
Cullinan said that “the trillion that
came in this year was surprising, so we
could certainly be surprised again next
year”.
‘It’s more While the Fed has not suggested that
likely it intends to cut interest rates anytime
soon, slowing inflation and some signs
they’re of weaker economic data have
going to get prompted investors to bet on declines
early next year. But those bets have
another been shifting rapidly as traders weigh Our global
$1tn in than the Fed’s official commentary with hints team gives you
of cooling off elsewhere in the economy. market-moving
there’s going For Cullinan, the amount of cash that news and views,
to [be] pours into money market funds 24 hours a day
“depends on the pace of the easing ft.com/markets
$1tn out’ cycle.”
the same as agency regulation, which should consider whether a carbon
has more teeth. derivatives contract includes “addition-
Behnam added this may be a first step ality”, which ensures that a project cre-
to crafting new rules. The regulator in ates emission reductions that would not
June called on whistleblowers to submit occur without it.
tips on misconduct in carbon markets. The CFTC is also trying to minimise
According to the proposal, exchanges “double-counting”, which occurs when
The regulator in June
called on whistleblowers to
submit tips on misconduct
in carbon markets
multiple carbon credits are backed by
the same trees, for example.
Todd Phillips, assistant professor at
Georgia State University, described the
carbon credit market in the US as “the
wild west”.
“We need someone to show the mar-
ket that they are . . . going to ensure
that offsets that are sold in the United
CFTC chair States are high quality and believable,”
Rostin Behnam Phillips said. “In other jurisdic-
says some tions . . . the price of carbon is $50 [or
products are higher]. The fact that you can buy car-
susceptible to bon offsets in the United States for $2
fraud and just shows that they are of laughable
manipulation quality.”
Ting Shen/Bloomberg
In addition to derivatives, Behnam
Tuesday 5 December 2023
Fixed income
Harvesting in
vogue as bond
rally dims US
tax perks hope
WILL SCHMITT AND JENNIFER HUGHES
NEW YORK
The November bond market rally has
come as a relief for many investors, but
weak debt markets over the previous
two years have still left many nursing
losses that can be used to lower tax bills.
US rules allow investors who sell
poorly performing securities to offset
the realised losses against taxes owed on
other capital gains. Known as tax loss
harvesting, it is often blamed for a lot of
late-year selling in beaten-down assets.
The Bloomberg US Aggregate Bond
index is down more than 10 per cent
since 2021. In contrast, the S&P 500 is
nearly back to where the equity index
was at the start of 2022, when it suffered
its worst year since the 2008 crisis.
Investors who harvest losses can rein-
vest in similar, but not identical, invest-
ment strategies. In recent years, this has
increasingly involved mutual fund
investors reallocating to exchange
traded funds, which also hold stocks
and bonds but enjoy preferential tax
treatment in the US.
While the amount of “harvesting”
depends on individual investors’ portfo-
lios, investment advisers said the new
interest in bonds as a tool for offsetting
gains marked a big shift in thinking.
“Most investors typically don’t think
of fixed income as an area to harvest,”
‘They think of equities as
where they should look to
tax loss harvest. But this
year, fixed income is first’
said Allison Bonds Mazza, head of pri-
vate wealth management and inde-
pendent wealth management with State
Street Global Advisors.
“They typically think of equities as
where they should look to tax loss har-
vest. But this year, fixed income is the
first place investors should look,” she
added.
Like their far bigger rivals, ETFs hold
securities but can be traded like stocks
and enjoy tax advantages over mutual
funds in the US besides those gleaned
from harvesting losses.
Investors who sell their existing hold-
ings may find it easier to reinvest in
ETFs to avoid “wash sale” complica-
tions, where the IRS bans investors from
selling investments to realise a loss and
then buying back a substantially identi-
cal security within 30 days.
While ETFs have long been associated
with passive strategies, issuers have
steadily pumped out new active fixed
income ETFs in recent years. Asset
managers have launched 58 active fixed
income ETFs so far in 2023, with only 26
mutual funds joining them.
“People who were sitting on gains for
years now are seeing the merits of mak-
ing a change,” said Todd Rosenbluth,
head of research at VettaFi, a consul-
tancy.
“We just have more choices that can
fit the bill [and] you can keep your
risk-on bet, and save money, and get the
tax loss harvesting benefits,” he pointed
out.
believes the CFTC is well-placed to
police the carbon credits spot market,
an argument he has made to Congress in
relation to cryptocurrencies.
“We have futures in both markets and
we have interest in ensuring that the
underlying market is healthy because
that has a direct impact on our deriva-
tives market,” he said.
Behnam has discussed with members
of Congress broadening the CFTC’s
authority to capture spot carbon credits
“but I don’t think there’s an appetite and
you don’t see the scale . . .[and] sensa-
tionalism in this space as you do in the
crypto environment”.
US Treasury secretary Janet Yellen
told the FT in a statement that the pro-
posal was an “important step by the
CFTC toward promoting the integrity of
carbon credits and enabling greater
liquidity, price discovery, and responsi-
ble product innovation for credits that
underlie derivatives products listed” on
exchanges registered with the agency.
The Treasury earlier this year had
warned of challenges in the voluntary
carbon markets linked to transparency
and credit integrity.
The CFTC’s proposal will face a public
comment period before its final imple-
mentation.
Tuesday 5 December 2023 ★ FINANCIAL TIMES 11

COMPANIES & MARKETS

The day in the markets US deficits begin

What you need to know
to test patience
3 Global equity rally pauses, knocking
of investors
Tech stocks slip after a broad-based rally in November
off stocks from multi-month highs
Nasdaq Composite index (’000)
3 US dollar rises 0.5% against basket of
six peer currencies after prior sell-off
3 Stoxx Europe 600 index slips 0.1%
from Friday’s four-month high
15
Nathan Sheets
Global stocks slipped from multi-month
highs on Monday as November’s broad-
14
Markets Insight

U
based market rally took a pause.
Wall Street’s benchmark S&P 500 stood 13
0.8 per cent lower by midday in New S fiscal performance has rates have retreated to the mid-4 per entitlements and defence, which com-
York, having closed on Friday at its reached new depths of dys- cent range, as Fed rhetoric has become prise roughly three-quarters of US fed-
highest point since March 2022. The function. In recent months, more balanced and inflation readings eral spending. Republicans are broadly
tech-dominated Nasdaq Composite shed 12 the country has endured a have moderated. unwilling to entertain discussions of tax
1.2 per cent. stressful debt-ceiling Our research on the US public debt rises, while Democrats are similarly
All of the so-called “magnificent seven” episode, Fitch has downgraded the US situation from historical and interna- unwilling to contemplate entitlement
large technology stocks — Apple, 11 sovereign credit rating and the risk of a tional perspectives suggests several reforms, so the fiscal situation has
Microsoft, Meta, Amazon, Alphabet, government shutdown remains on the conclusions. First, the question of who remained in stalemate. The headwinds
Nvidia and Tesla — declined. table. will buy the newly issued debt is inher- to growth that would probably accom-
The moves came after US stocks in Equally concerning, the federal gov- ently speculative. But, in our view, the pany fiscal retrenchment are a further
November enjoyed their best month since 10 ernment is swimming in a sea of red ink, desire of the ageing population to hold source of reluctance.
July 2022, boosted by confidence that Jan 2023 Dec with budget deficits near 6 per cent of safe, long-duration assets as a store of Third, last year’s UK gilt crisis offers a
interest rates have not only peaked, but gross domestic product likely in the value for retirement is likely to be the cautionary tale. The hallmark of an
Source: Bloomberg
are also set to fall early next year. years ahead. main source of demand. Such pur- adverse scenario in the Treasury mar-
Against a backdrop of slowing inflation, As a result, the government’s debt is chases, either directly from retail inves- ket would be a sharp, unexpected dete-
markets are now pricing in the first US target without triggering recessions. European stocks also retreated, with poised to rise to 115 per cent of gross tors or through their intermediaries, are rioration in investor demand for securi-
rate cut for May, with four more quarter Weaker than expected US factory the region-wide Stoxx Europe 600 domestic product over the next decade, ties. The result would be surging Treas-
percentage point cuts expected before orders underlined some investors’ slipping 0.1 per cent from the four-month surpassing its peak after the second ury yields and rising risk premiums in
the end of 2024. concerns about the state of the world’s high it notched up on Friday. It was pulled world war. The prudent path for credit and equity markets. Given the
Corporate and government bonds, gold largest economy. Orders slipped 3.2 per lower by poor performance in energy These large deficits and rising indebt- fiscal policy is to not dollar’s status as a global reserve cur-
and bitcoin are among the other assets to cent in October after expanding 2.8 per stocks as oil prices slipped. France’s CAC edness pose risks to the economy. On rency, these stresses would be transmit-
have surged over the past five weeks. cent in September. Economists polled by 40 shed 0.2 per cent, as did London’s reasonable estimates, the Treasury will push debt ratios further ted to financial markets abroad.
Some investors, however, believe markets Reuters had forecast a 2.8 per cent fall. energy-heavy FTSE 100. need to issue $20tn of debt in the com- upward from today’s levels Nevertheless, the most likely scenario
have now grown overly optimistic. Prices for US government debt slipped, In India, stocks rallied to all-time highs ing decade. The magnitude of this issu- is that investor discomfort regarding the
John Plassard, senior investment with the yield on rate-sensitive two year after Prime Minister Narendra Modi’s ance is not lost on market participants. debt eventually recedes, and the situa-
specialist at Mirabaud Group, said the Treasuries up 0.08 percentage points at ruling BJP triumphed in critical state In recent months, the most frequent likely to be more price sensitive than tion reverts to the more relaxed pre-
past month’s rally had been driven by 4.64 per cent. The dollar — which has elections. The Nifty 50 index climbed question during my meetings with before the pandemic. Covid configuration. If so, any premi-
“wishful thinking” that both the sold off amid optimism on the outlook for 2.1 per cent to top 20,686 — hitting a investors around the world is “Who’s Second, there is no way to predict ums the market requires to absorb the
Federal Reserve and European Central rates — rallied 0.5 per cent against a second consecutive all-time high. going to buy this massive issuance of danger thresholds or the amount of debt forthcoming issuance would be modest.
Bank will be able to return inflation to basket of six peers. George Steer and Stephanie Stacey Treasuries?” that is simply “too much”. It is possible The core strengths of the US economy
This question is often followed by two that US debt could rise to 150 per cent of — including the dollar’s reserve cur-
others: how much debt is simply “too GDP or even higher with limited adverse rency status, the Fed’s credibility and
Markets update much”? And what might a full-blown effects. But it is unwise for policymakers the strength of the national balance
crisis in the US Treasury market look to experiment or test where the thresh- sheet — should give investors the confi-
like? The UK gilt crisis last year stands as olds might be. The prudent path for fis- dence to buy the additional debt. There
an important template in this regard. cal policy is, at a minimum, to not push are few alternatives to Treasuries, and
US Eurozone Japan UK China Brazil Could something similar — and perhaps debt ratios further upward from today’s the high US debt levels are an unfortu-
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa even more sustained — occur in the US? elevated levels. nate, but unavoidable, fact of life.
Level 4562.65 1842.49 33231.27 7512.96 3022.91 127040.21 In sync, Treasury yields have risen Even so, there is little likelihood of But there is little scope for compla-
% change on day -0.70 -0.03 -0.60 -0.22 -0.29 -0.89 sharply from a year ago. Propelled by meaningful remedial action. A success- cency. Investor patience has limits. Mar-
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $ the Federal Reserve’s “higher for ful strategy would probably require kets are likely to issue the US a reprieve
Level 103.332 1.082 147.105 1.261 7.136 4.929 longer” policy stance and heightened some combination of higher taxes and — but not a full, unconditional pardon.
% change on day 0.062 -0.185 -0.376 -0.158 -0.081 0.538 concerns about fiscal sustainability, reduced expenditures.
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond 10-year yields reached a peak of about Notably, getting traction on expendi- Nathan Sheets is global chief economist at
Yield 4.279 2.353 0.686 4.368 2.690 10.556 5 per cent in October. More recently, tures will require tough reforms to Citigroup
Basis point change on day 2.780 -0.300 -0.950 6.100 0.500 8.400
World index, Commods FTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 457.68 78.43 73.52 2045.40 25.16 3699.30
% change on day -0.51 -0.57 -0.74 0.49 0.56 1.54
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.

Main equity markets

S&P 500 index Eurofirst 300 index FTSE 100 index
4640 1920 7680

4480 7520
1840
4320
1760 7360
4160
| | | | | | | | |
4000 | | | | | | | | | | | | | | | | | | | |
1680 | | | | | | | | | | | | | | | | | | | | 7200 | | | | | | | | | | |

Oct 2023 Dec Oct 2023 Dec Oct 2023 Dec

Biggest movers
% US Eurozone UK
Bath & Body Works 6.76 Ucb 4.73 Rolls-royce Holdings 3.14
Estee Lauder Companies (the) 6.03 Jeronimo Martins 3.79 Jd Sports Fashion 2.84
Ups

Idexx Laboratories 5.69 Grifols 1.93 Bt 1.98

Norwegian Cruise Line Holdings Ltd 5.42 Kering 1.72 Wpp 1.72
Vf 5.28 Sodexo 1.61 B&m Eur Value Retail S.a. 1.56
%
Alaska Air -15.81 Casino Guichard -5.62 Anglo American -3.74
Albemarle -4.11 Alstom -3.26 Glencore -3.07
Downs

Ansys -3.87 Orange -2.51 Rio Tinto -2.70

Palo Alto Networks -3.87 Galp Energia -2.49 Antofagasta -2.64
Cadence Design Systems -3.50 Saipem -2.16 Burberry -2.00
Prices taken at 17:00 GMT Based on the constituents of the FTSE Eurofirst 300 Eurozone
All data provided by Morningstar unless otherwise noted.

Wall Street Europe London

Coinbase led crypto-related stocks higher A positive regulatory development A broker helped propel Rolls-Royce to
amid optimism that the worst of the US boosted Belgian biopharma group UCB. the top of the FTSE 100 index, with
regulatory crackdown had passed and The European Commission granted JPMorgan lifting its rating for the engine
that a bitcoin exchange-traded fund marketing authorisation for Zilbrysq, a maker from “neutral” to “overweight”.
would soon be approved. treatment for generalised myasthenia Analysts anticipated a “much higher
The cryptocurrency exchange gravis, a disorder that can cause double percentage” of the group’s long-term
added 7.9 per cent as bitcoin surged to vision, drooping eyelids and difficulty in service agreements advances would
a 20-month high of $42,000. swallowing. convert into profit, thanks to the chief
MicroStrategy, the software company KBC Securities reiterated its “buy” executive’s “radical moves” such as
turned bitcoin investor, rose 7.5 per cent rating for UCB, noting that Zilbrysq was raising charges and initiating cost
and Marathon Digital, the cryptocurrency the “only approved drug for self- reductions.
miner, added 9.2 per cent. administration” in this area, a benefit that Another broker’s recommendation
Spotify rallied 8.7 per cent after it “could improve patient convenience”. This buoyed packaging business DS Smith,
announced plans to cut another 1,500 green light followed similar approvals for which was upgraded from “equal weight”
jobs, or 17 per cent of its workforce, to cut Zilbrysq in the US and Japan. to “overweight” by Barclays.
costs and improve its profitability. Italian vehicle maker Piaggio rallied on It was among the “cheapest stocks in
Uber Technologies rose 5 per cent announcing that its Vespa brand, home to global packaging . . . and we expect a
following confirmation after the market the eponymous scooter, was worth more volume recovery to drive a multiple
close on Friday that the ride-hailing than €1bn. This came from an Interbrand re-rating”, pointed out analysts.
service will join the blue-chip S&P 500 study commissioned by Piaggio, which 888 was among the session’s biggest
index on December 18th. showed that the brand’s valuation had risers following a report in the Sunday
Alaska Air Group Inc slumped 15.7 per risen 19 per cent since 2021. Times that said the gambling group was
cent after it said on Sunday it would buy Vespa, already well known in Europe, the target of a £700mn takeover
rival US airline Hawaiian Holdings Inc for had gained traction in the US and Asia, approach by Playtech.
$1.9bn, including debt. The price of $18 especially in Indonesia, said the study. The newspaper said the gaming
per share in cash reflected a premium for Finnish telecom group Nokia fell software group made a £1.56 per share
Hawaiian, whose shares rose 185 per cent sharply, triggered by, it seemed, a offer in July, way above its most recent
on the news. LinkedIn blog post penned by Earl Lum, closing price of 70.6p. But the bid was
Virgin Galactic Holdings lost 14.7 per president of EJL Wireless Research. rebuffed on the grounds it undervalued
cent after founder Sir Richard Branson Lum, citing “sources we have spoken the company, quoted City sources.
told the Financial Times that he has ruled to”, said US telecoms group AT&T could ITM Power, the hydrogen energy
out putting more money into his be the “next wireless operator customer group, jumped on posting revenue of
lossmaking space travel company. to remove Nokia from their RAN [radio £7.5mn for the half year, easily topping
Philip Stafford access network] vendor list”. Ray Douglas Citi’s estimate of £5.6mn. Ray Douglas
12 ★ FINANCIAL TIMES Tuesday 5 December 2023

MARKET DATA

WORLD MARKETS AT A GLANCE FT.COM/MARKETSDATA

Change during previous day’s trading (%)
S&P 500 Nasdaq Composite Dow Jones Ind FTSE 100 FTSE Eurofirst 300 Nikkei Hang Seng FTSE All World $ $ per € $ per £ ¥ per $ £ per € Oil Brent $ Sep Gold $

-0.70% -1.10% -0.34% -0.22% -0.03% -0.60% -1.09% -0.51% -0.185% -0.158% -0.376% -0.14%
No change
0.49%
Stock Market movements over last 30 days, with the FTSE All-World in the same currency as a comparison
AMERICAS EUROPE ASIA
Nov 05 - - Index All World Nov 05 - Dec 04 Index All World Nov 05 - Dec 04 Index All World Nov 05 - Dec 04 Index All World Nov 05 - Dec 04 Index All World Nov 05 - Dec 04 Index All World

S&P 500 New York S&P/TSX COMP Toronto FTSE 100 London Xetra Dax Frankfurt Nikkei 225 Tokyo Kospi Seoul
4,562.65 16,403.55 2,514.95
20,423.76 33,231.27
7,512.96
4,358.34 19,824.85 7,417.73 15,189.25 31,601.65 2,368.34
Day -0.70% Month 4.69% Year 12.06% Day -0.15% Month 3.04% Year -0.29% Day -0.22% Month 1.22% Year -0.63% Day 0.04% Month 2.34% Year NaN% Day -0.60% Month 3.90% Year 19.50% Day 0.40% Month 6.19% Year 3.31%

Nasdaq Composite New York IPC Mexico City FTSE Eurofirst 300 Europe Ibex 35 Madrid Hang Seng Hong Kong FTSE Straits Times Singapore
53,873.21 1,842.49 10,178.30
14,148.08
17,664.12
13,294.19 49,787.84 1,759.15 9,293.90 3,082.49 3,084.08
16,646.05
Day -1.10% Month 4.97% Year 23.44% Day -0.05% Month 5.08% Year 5.14% Day -0.03% Month 4.72% Year 5.14% Day 0.37% Month 9.52% Year 21.42% Day -1.09% Month -5.77% Year -10.87% Day -0.20% Month -1.88% Year -5.36%

Dow Jones Industrial New York Bovespa São Paulo CAC 40 Paris FTSE MIB Milan Shanghai Composite Shanghai BSE Sensex Mumbai
36,123.32 68,865.12
127,614.88 7,332.59 29,914.09

33,839.08 7,047.50 28,674.83 3,030.80 3,022.91

115,052.96 63,591.33
Day -0.34% Month 6.04% Year 4.90% Day -0.89% Month 7.52% Year 13.51% Day -0.18% Month 4.05% Year 8.76% Day -0.05% Month 4.32% Year 21.49% Day -0.29% Month -0.26% Year -4.22% Day 2.05% Month 6.98% Year 9.52%

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Tuesday 5 December 2023 ★ FINANCIAL TIMES 13

MARKET DATA

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14 ★ FINANCIAL TIMES Tuesday 5 December 2023

ARTS

Spontaneous spin
Shouty, through the Brahms cycle

sweary, CLASSICAL
threatened to ruin the tranquil
codas of the Third Symphony.
The introspective Third was the

essential
Enraged: Jason Williamson of Sleaford Mods at Alexandra Palace — Burak Cingi/Redferns
POP
Sleaford Mods
Alexandra Palace, London
aaaae
Ian Gittins
For artists perennially viewed as dogged
outsiders, Sleaford Mods are developing
a major mainstream presence. Early
this year, Jason Williamson and Andrew
Fearn saw their latest album, UK Grim,
hit number three on the charts. The
next stage in their ascent? This unlikely
headline gig at the cavernous Alexandra
Palace venue.
It was a vast space to fill for an act that
Williamson has accurately summarised
as “two men and a laptop”. Nor did the
duo make any effort to dress up for their
illustrious occasion. The pair of wizened
early-fifties geezers lurched on to a bare electronic beats, and Williamson ranted
stage in shorts and crumpled T-shirts as over the top of them like a man bearing a
if heading down the park for a five-a- ferocious grudge against the world and
side kickabout. everybody in it.
The casual attire reflected the rough- The singer-rapper has described his
and-ready nature of their performance. vocal style as “shouty bloke by the pub
Sleaford Mods have one musical mode: bins” and the opening song, the album’s
as ever, Fearn pressed play on his laptop, title track, typified his default mindset
unleashing a volley of agitated, rattling of incandescent rage. The scattergun
targets for his ire included former prime
minister Liz Truss, white Range Rovers
and “lunch bellies”, and he arrived at a
WEEKEND ARTS disgusted conclusion: “UK grim/Put it
in the fucking bin.”
The Life of a Song Sleaford Mods’ songs document a
Tim Hardin’s 1966
ballad ‘Reason to
socio-economic wilderness of food
Believe’ has been banks and heating-or-eating. They
widely covered, and chronicle an underclass for whom
often treated as a survival is a daily battle.
love song, but its On “Tilldipper”, Williamson spat out
lyrics are frequently bile-laden words about a minimum-
misunderstood
wage corner-shop worker nicking
ft.com/arts from the till tobuy drugs, defiantly
bereft of hope:“Sod it all, everything’s
shit anyway!”
Williamson’s gutter poetry, yelled ina
meaty East Midlands accent, suggested
John Cooper Clarke in a fearful bate.His
bleak reportage of life in broken Britain
verged on the dystopian in “Smash Each
Other Up”, his personal state-of-the-na-
tion address for a brittle land where eve-
ryone is “well narky” and engaged in
“fist fights near Sainsbury’s car park”.
It would have been unremittingly
dour were it not for the fact that Wil-
liamson’s scabrous wordplay is fre-
quently laugh-out-loud funny. Nothing
escapes his baleful glare, including him-
self. “You’re in a shouty band, you’re not
original, man!” he yelled in “DIwhy”,
going on to level the devastating self-ac-
cusation that he looks like late TV stee-
plejack Fred Dibnah.
There was further comedy in the duo’s
onstage antics. Williamson’s sizeable
array of performance tics included
repeatedly perching a bottle of water on
his head and emitting odd, parrot-like
squawks. Behind him, Fearn’s loose-
limbed, free-form dancing suggested a
tipsy aerobics-class escapee. He made
Bez from Happy Mondays look like
Fred Astaire.
Their current single, a cover of Pet
Shop Boys’ “West End Girls” to raise
money for the housing charity Shelter,
initially appeared incongruous but
makes utter sense. Beneath its electro-
gloss sheen, the original song was about
class and urban angst: Williamson’s spe-
cialist subjects.
Filing out of Ally Pally, it was hard not
to reflect that nobody else is doing what
Sleaford Mods are doing, and they are
extremely necessary.
Staatskapelle Berlin
Carnegie Hall
aaaae
Kevin Ng
Sixty-six years ago, the teenaged
Daniel Barenboim made his debut
at Carnegie Hall. He was due to
return last week at the helm of the
Staatskapelle Berlin, the orchestra
he led for more than three dec-
ades. But recent health issues
forced him to withdraw from not
only the ensemble’s North Ameri-
can tour but the directorship of the
orchestra itself, with the German
conductor Christian Thielemann
taking over the helm from 2024.
For the New York performances,
the orchestra enlisted Yannick
Nézet-Séguin, who leads both the
Metropolitan Opera and the Phila-
delphia Orchestra. Nézet-Séguin is
a ubiquitous presence in New York
— he had already appeared at
Carnegie Hall twice in November
alone. He hasn’t conducted the
Staatskapelle Berlin for a decade
and his Brahms is worlds away
from Barenboim’s leisurely, form-
driven approach.
Rather, Nézet-Séguin revelled in
the emotion of it all, giving a spon-
taneous, sometimes volatile
account of the four symphonies.
Tempos and volumes tended to
the extremes, but there was a
sense of energy and little of the
carefully manicured conducting
that he has been criticised for in
the past. It was also incredibly
beautiful — he drew a gleam and a
depth from the players that suited
Brahms nicely.
The Staatskapelle was on fine
form, with softly glowing strings
and clarion brass, especially in the
resonant, golden horn solos from
Karsten Hoffmann and Yun Zeng.
Despite some distinguished solos
in the woodwind section, there
were some intonation issues that
weakest of the cycle, with abrupt
transitions and choppy phrasing.
It’s the trickiest of Brahms’s sym-
phonies, taut in form and har-
mony but offering few showy
orchestral moments. Nézet-
Séguin’s insistence on lush, glossy
phrasing smoothed over the
craggy harmonies and rhythms
that lend the work its interest. He
was far more successful in the
impulsive First Symphony, pack-
ing a punch in the stormy opening.
The relentless drive of the timpani
lent an ominousness that only
resolved in the chorale finale. Usu-
ally taken at a stately pace, Nézet-
Séguin instead chose a swift tempo
that surged forwards with youth-
ful enthusiasm.
It was the Second and Fourth
Symphonies that suited Nézet-
Séguin best, capturing the ebb and
flow of their meandering lines
without losing momentum. The
opening movement of the Second
Symphony was an endless stream
of golden sound, its idyllic mood
often compared to Beethoven’s
Pastoral Symphony. But Nézet-
Séguin and his orchestra offered
hints of contrasting melancholy
throughout, most notably in the
enigmatic slow movement, though
optimism triumphed in the end
with a blazing finale.
No such triumph occurs in the
Fourth Symphony, which instead
concludes with a monumental
theme-and-variations which may
be Brahms’s towering achieve-
ment. Nézet-Séguin brought a
fierce, almost vicious energy to
this movement, hurtling towards
an inexorable close.
Nézet-Séguin concluded by
thanking the orchestra and offer-
ing his best wishes for Barenboim,
who would surely have been
relieved that Brahms was in such
good hands.
staatskapelle-berlin.de

sleafordmods.com Yannick Nézet-Séguin conducting the Staatskapelle Berlin — Fadi Kheir

Scottish folk music helps game take flight

GAMING
A Highland Song
PC and Nintendo Switch
aaaae
Chris Allnutt
Twice in two days I heard the music of
Scottish folk band Talisk. The first time
was in a throng of hyperactive fans as
the trio’s soaring guitar, violin and con-
certina melodies sought to whisk us far
from a rather anonymous venue in
north London. The second, the follow-
ing day, came as I took flight across a
gentle stretch of hillside in A Highland
Song: as I gained speed, and the game’s
greens and browns blurred underfoot, a
familiar and hypnotic refrain began
to play.
The first thing you’ll do in A Highland
Song — before you meet 15-year-old run-
away Moira, before the game zooms out
over the hills and valleys that stand
between you and your coastal destina-
tion — is calibrate your hardware with
the rhythm of the game. This simple
exercise ensures that, when prompted,
you will run blissfully in time with
the music.
Consider it an initiation into the pace
of the Highlands: as Moira makes her
way up the game’s many peaks, wheels
herself around its lochs and through its
gorse, you will find yourself prompted
to leap to the beat of Talisk’s and Fourth
Moon’s songs. Fail to do so and you’ll
first slow down and then come to a
stumbling stop, your fragile health
bar evidently offended by your lack
of rhythm.
Beyond these fixed-length sections,
the game is a straightforward
platformer; your only enemies are the
perilous terrain and time itself as the
number of days until Beltane, the Gaelic
celebration of May Day and your dead-
line for reaching the sea, counts down.
Your exact reasons for taking flight
will only gradually become clear, but
uncle Hamish, in whose direction you
are headed, narrates your journey from
the lighthouse. Maps of his, sketches
you made from your bedroom window
and pages you’ll find along the way will
help orientate you. Different stretches
of your route — tantalisingly visible
towards the horizon — are linked by
paths that are revealed when you suc-
cessfully match up these scraps with
your surroundings.
There are points where the water-
colour brushstrokes drawing the terrain
are just a fraction too hazy and it
becomes hard to tell what is foreground
path and what is background art; the
sound effects, particularly when you’re
perched atop a peak and panting for
breath, could desperately use some
variety, and the running sections prove
sometimes too long and sometimes too
short — the former when you have to
spend time retracing your steps, the
latter when you don’t quite reach the
rhythmic crescendos of whatever track
the game has chosen.
But it all adds to the sense that this is
the furthest Moira has ever been from
home by herself and that, deep in the
beautiful and very rainy Scottish High-
lands, there’s no telling quite what lies
beyond the next peak. The music —
exuberant, liberating, occasionally fore-
boding — echoes these feelings
perfectly.
When I saw Talisk that first evening, I
found myself wishing we had been in a
creaking pub rather than a cavernous
former billiard hall. Something of the
music’s spirit was lost in its setting: it
needed to be played somewhere more
characterful, more creaking — some-
where whose structural deficiencies are
far outweighed by a great deal of beauty
and charm. Somewhere a bit like A
Highland Song.
Leaps and
bounds: a
scene from
platformer ‘A
Highland Song’
Tuesday 5 December 2023
As opinions shift and political pressure rises, asset managers like BlackRock are talking more about
maximising returns than about saving the world. Is the war on woke creating a transatlantic rift?
I
n 2020, BlackRock chief executive
Larry Fink put the world’s largest
money manager squarely behind
the cause of purpose-driven invest-
ing. “Climate change is different”
from other financial challenges, he
wrote in his closely watched annual let-
ter to corporate chief executives. Fink
promised “a fundamental reshaping of
finance” that would put “sustainability
at the centre of our investment
approach”.
Corporate America and investors
quickly followed suit, scrambling to sign
up to net zero carbon plans and launch-
ing funds that included environmental,
social and governance (ESG) factors in
their investment decisions.
Three years later, BlackRock is still
betting big on the transition to a lower-
carbon economy, but the $9.1tn money
manager’s emphasis when it talks about
sustainability and social issues has
changed. Last month, when BlackRock
put $550mn into one of the world’s larg-
est carbon capture projects in Texas,
Fink focused on moneymaking poten-
tial rather than its contribution to the
planet’s welfare. Describing it as “an
incredible investment opportunity”, he
also highlighted BlackRock’s decision to
work with big energy companies.
The shift comes after a two-year
stretch during which US Republican
politicians have pounded big banks and
investment managers for being “too
woke” or “hostile” to fossil fuels. Red-
state treasurers blacklisted financial
groups including BlackRock, Goldman
Sachs, State Street and Wells Fargo.
Some legislatures, including Florida,
Kansas and Idaho, have passed laws that
ban or limit the consideration of ESG.
The anti-ESG backlash has captured
public attention and opened up a trans-
atlantic rift. While EU investors boast of
their efforts to reach net zero green-
house gas emissions as quickly as possi-
ble, many of their US counterparts are
dodging the subject or saying they must
defer to client wishes.
The real-world impact is hard to
assess. On the one hand, green infra-
structure and transition investment
funds continue to rake in cash. Anti-ESG
legislation has been beaten back in a
number of red-state legislatures, and
relatively little money has been moved
away from blacklisted institutions. The
vast majority of investors and fund
managers incorporate climate and
social risk factors into their decisions
even if they don’t call it ESG.
“More of the largest institutional
investors in the world are more inter-
ested in what we have to say today than
they were three years ago,” says David
Blood, who founded sustainable invest-
ing specialist Generation Investment
Management with former US vice-pres-
ident Al Gore nearly two decades ago.
But there is also clear evidence of
scepticism about the way sustainable
investing has been marketed and car-
ried out. Investor support for environ-
mental and social shareholder propos-
als has fallen sharply; the flow of US
money into ESG-labelled funds has
slowed after poor performance; promi-
nent financial groups including Allianz,
Lloyd’s of London and Vanguard have
pulled out of net zero alliances; and
JPMorgan Chase has redefined its cli-
mate goals to move away from that
benchmark. Even supporters of sustain-
able investing warn of “greenwashing”,
in which money managers overstate the
environmental impact of investments.
The backlash raises the question of
how much longer funds advertising
themselves as ESG will be on the menu
for investors. Fink himself said in June
he no longer used the term as it had
become “weaponised”.
Part of the problem is that ESG funds
often try to address too many factors at
once, says Brad Lander, who runs New
York City’s $248bn in pension funds,
leading to “a loss of clarity and strategic
attention to what any of it means”.
“I understand if you’re a smaller
investor, the idea of a fund that you feel
good having your money in is nice,”
adds Lander, who has publicly commit-
ted to long-term sustainability. “But
inevitably, [such a fund] isn’t going to be
that strategic.”
Red-state resistance
Conservative resentment about green
investment built up in the US over sev-
eral years, but finally boiled over in late
2021.
The precipitating moment came in
May 2021 when start-up hedge fund
Engine No 1 won three board seats at
ExxonMobil by arguing that the energy
giant needed to do more to diversify
away from oil and gas.
BlackRock, which holds nearly 7 per
cent of Exxon shares through its mas-
sive index fund business, backed the
campaign, arguing the oil major was not
doing enough to protect its shareholders
from “the impact of climate risk”.
Red-state politicians, scenting an
opportunity to mobilise voters over
★ FINANCIAL TIMES
FT BIG READ. FUND MANAGEMENT
By Brooke Masters and Patrick Temple-West
The real impact of
the ESG backlash
European flows into ESG have held steady US funds previously enjoying booming
recently, but US investors have been pulling growth have gone to losses over the past
cash out of funds two years
Quarterly flows into global sustainable funds ($bn) US sustainable
200 fund flows
Rest of world ($bn)
US 150
20
Europe
100
10
50
0 0
0
-50 -10
2020 21 22 23
Source: Morningstar Direct
Larry Fink, chief fears for domestic jobs, focused their ire
executive of on Fink, because of his prior full-
BlackRock, says throated support for “stakeholder capi-
he no longer talism”, in which chief executives
uses the term claimed to be helping society, employ-
ESG as it has ees and the environment as well as mak-
become ing money. In September 2021, former
‘weaponised’. biotech executive — and future presi-
His group dential candidate — Vivek Ramaswamy
continues to singled him out during a talk to the
fund green influential conservative network the
infrastructure Federalist Society.
projects Asset managers were overstepping
FT montage/Bloomberg their role by telling corporate leaders
“we want you, executive, to be advanc-
ing and using your corporate platform
to advance a particular social agenda”,
Ramaswamy said. Months later, he
launched activist fund shop Strive Asset
Management, promising it would use its
shareholder clout to lobby against cor-
porate ESG agendas.
The Exxon vote galvanised the efforts
of Republican politicians in Texas and
other oil and coal-producing states who
were already moving to punish banks
and investment companies for signing
up to net zero pledges. In January 2022,
West Virginia treasurer Riley Moore,
who manages the state’s cash and finan-
cial dealings, became the first red-state
official to pull money out of BlackRock.
Texas drew up the first boycott list
that summer, targeting financial firms it
considered hostile to fossil fuels, and
7% held legislative hearings that pilloried
Environmental and both State Street and BlackRock. By the
social proposals that end of 2022, red states had announced
BlackRock backed, plans to pull more than $3bn out of
from 47% in 2021 BlackRock funds.
“Larry Fink has done nothing over the
past year but try to divert people’s atten-
$3bn tion from him getting caught politicising
Amount of planned pension money,” says Dale Folwell,
withdrawals by red North Carolina’s treasurer, who has
states from
BlackRock funds called for the chief executive to be
sacked — but has declined to pull his
state’s money out of BlackRock, citing
$500bn its attractive low fees.
Net inflows into The anti-ESG movement has had a
BlackRock funds significant impact in the arena of proxy
since the start voting. In the past two years, asset man-
of 2022 agers have become much more wary
Organic growth rate (%)
All US funds
Sustainable funds
2020 21 22 23
about supporting activist shareholder
proposals to take specific action on envi-
ronmental and social issues such as
diversity audits or eschewing invest-
ment in fossil fuels.
Average support for liberal proposals
in these areas has plummeted from 33
per cent in 2021 to 22 per cent this year,
with the biggest drop related to climate-
related questions, according to the Sus-
tainable Investments Institute.
The change has been particularly visi-
ble at BlackRock itself. Though Fink’s
earlier letters had urged chief executives
to focus on purpose rather than just
profits, BlackRock is now much more
wary of shareholder efforts to force
companies to do more on climate and
diversity. The money manager backed
just 7 per cent of environmental and
social proposals at companies’ annual
meetings in the 2023 proxy season,
down from 47 per cent two years earlier.
It said in its annual report on share-
holder voting that many of this year’s
proposals were too prescriptive or
pointless, and cited a US Securities and
Exchange Commission policy change
that has allowed more ESG proposals to
get on proxy ballots.
That is not to say that BlackRock and
its peers have turned conservative —
proposals that oppose diversity and
inclusion efforts or seek to force compa-
nies to disclose more information about
legal risks and costs associated with
abortion did substantially worse,
receiving, on average, support from less
than 3 per cent of all shareholders.
Rather, it reflects a trend among big
US index fund managers: where they
once sought to pressure companies to
take action, they now are distancing
themselves from having to take posi-
tions on these issues when they can.
BlackRock, Vanguard and State Street
have come under fire because their
funds control about 20 per cent of most
large US companies. They have all
launched programmes to let their cli-
ents decide how their shares are voted.
The managers now let investors
choose among approaches ranging from
In Q3 2023 more ESG vehicles closed or lost
their ESG thesis than launched
US sustainable funds, arrivals and departures
(number of funds)
Repurposed funds Closures
New fund launches Departures
10
5
-5
2020 21 22
“vote with management” to prioritise
Catholic values or ESG. State Street last
week made its version available to hold-
ers of $1.7tn in assets, and institutional
BlackRock clients controlling more
than $585bn have taken control of their
own votes. Fink has said the change will
“transform the relationship between
asset owners and companies”.
Others say the emphasis on the role of
the investment firms in proxy voting
was misplaced to begin with. “There was
an outsized belief in the influence of
investors, so I am not sure [proxy vot-
ing] makes as much of a difference as
people think,” says Sarah Williamson,
chief executive of Focusing Capital on
the Long Term, a non-profit group.
US money managers have also pulled
back when it comes to advertising and
talking about ESG, especially after
Texas and other red states used mem-
bership in Net Zero Asset Managers, an
initiative launched in December 2020 to
support global climate goals, as evi-
dence of hostility to fossil fuels.
Some have scrubbed references to net
zero from their websites and 30 per cent
of US asset managers told a Cerulli sur-
vey they were going to be more guarded
about sharing ESG-related activities in
marketing materials, prospectuses and
other formal investment documents.
Some 57 per cent of retail advisers said
they were not discussing ESG with cli-
ents, up from 44 per cent last year.
When pressed on the issue, asset
managers in the US now emphasise that
they are service providers. Clients, they
say, should be free to choose from
investments that run the gamut from
impact funds that explicitly seek to cut
carbon emissions to sector funds that
focus on traditional energy companies.
Though Fink warned in 2020 that the
asset manager would “continue to hold
exposures to the hydrocarbon econ-
omy”, in recent years he has hit back
explicitly at rightwing and leftwing crit-
ics who want the group to take a stand
on climate issues.
“There are many people with opin-
ions about how we should manage our
15
clients’ money,” he wrote in this year’s
annual letter. “But the money doesn’t
belong to these people. It’s not ours
either. It belongs to our clients, and our
responsibility and our duty is to them.”
Performance first
Public furore aside, the direct impact of
the backlash against ESG has been more
limited.
Overall, BlackRock’s funds continue
to see net inflows that dwarf the $3bn in
red-state withdrawals: nearly $500bn
since the start of 2022.
The anti-woke manager Strive has
seen funds under management grow
rapidly, but at $1bn, it remains a min-
now in a sea of trillion-dollar whales.
Since Ramaswamy stepped down from
active management to focus on his pres-
idential bid, the firm has dialled down
its “anti-woke” rhetoric in favour of an
emphasis on purely financial returns.
Eighteen states have adopted some
kind of anti-ESG legislation. Some of the
laws ban “discrimination” against com-
panies that sell fossil fuels and guns, oth-
ers order state pension funds not to con-
sider environmental and social factors
while investing.
But in 19 states, such laws were pro-
posed but did not pass. Four have
adopted pro-ESG laws, according to the
K&L Gates law firm. In Nebraska, com-
munity bankers who objected to having
their hands tied when doing business
helped doom the legislation.
In some cases, when anti-ESG and
boycott laws passed, public pension
fund trustees balked at being forced to
move money, saying it would violate
their duty to put investors first.
Liberal-leaning states, meanwhile,
are racing in the other direction, while
justifying their decision on financial
grounds. Calpers, the largest US public
pension fund, last month pledged to
double its low-carbon assets to $100bn.
“We believe by investing in that strategy
we can achieve outperformance,” says
Peter Cashion, its managing investment
director for sustainable investing.
Moreover, the reticence found in
some parts of the US is not mirrored in
other markets. In the EU, where nine in
10 people support ambitious net zero
and renewable energy goals, groups
such as Axa and BNP Paribas have
promised to shun fossil fuel projects.
“If you’re a US wealth adviser sitting
in a regional office somewhere, proba-
bly the last question you want to ask
60
somebody is, ‘What is your view on sus-
tainability?’, because that is a very sensi-
40
tive area,” says Peter Harrison, chief
20 executive of Schroders, a big UK asset
manager with a substantial US arm.
0 “That issue is quite different elsewhere
in the world.”
-20
‘A provable story’
23
The bigger problems for ESG-themed
investing may not be politics, but recent
poor performance and weakening
‘ESG was demand. Such funds historically have
been overexposed to tech because of its
born in relatively low carbon footprint. They
a bullish also benefited from the enthusiasm for
the energy transition at a time when oil
environment and gas prices were low.
and now we But higher interest rates have driven
down the valuations of growth compa-
are in the nies, while Russia’s invasion of Ukraine
opposite. and turmoil in the Middle East have
The cost of driven up profits at the fossil fuel com-
panies that such funds typically avoid.
capital is “ESG was born in a bullish environ-
going up and ment and now we are in the opposite.
The cost of capital is going up and many
many green green things are inflationary,” says one
things are top sustainability banker.
Sustainable funds shrank 0.85 per
inflationary’ cent in the third quarter, while the
industry overall was flat. ESG bond issu-
ance has slowed from a record $4tn in
2021 and is on pace for more like $3tn
this year, while the price premium over
ordinary debt has shrunk, according to
research house Capital Economics.
The likely result, industry leaders say,
is that funds will have to be much more
explicit about what they mean when
they say they offer ESG investing.
For some, that means being more
quantitative about the links between
sustainability measures and higher
financial returns. “The heightened
focus on having a provable story around
ESG and being able to demonstrate
quantitatively that you do what you say
you’re going to do is a good thing,” says
David Hunt, chief executive of asset
manager PGIM. “ESG with integrity.”
For others, it means dropping the
term completely. A $95.2bn Massachu-
setts state pension fund voted last week
to change the name of its ESG Commit-
tee to the Stewardship and Sustainabil-
ity Committee.
One prominent bond fund manager
argues that it “makes no sense” to try to
impose one universal do-gooder frame-
work on all clients because each of them
holds different values. His prediction?
“ESG will be dead in five years.”
Additional reporting by Katie Martin in
London
16 ★ FINANCIAL TIMES Tuesday 5 December 2023

The FT View
China’s accelerating rise in consumer defaults
Bankruptcy procedures
need fixing to support
Beijing’s economic goals
A sharp rise in Chinese consumers
defaulting is the latest in a lengthening
list of ailments afflicting the world’s
second-largest economy. The number
of people blacklisted for missing pay-
ments on everything from mortgages to
business loans has risen to a record
8.54mn, from 5.7mn in early 2020.
This number still only accounts
for about 1 per cent of the working-age
population. But the rate of increase
shows that even since China rolled back
its pandemic lockdown about a year
ago, rising financial distress at the
individual level is contributing to stiff
headwinds that are frustrating a broad
recovery in consumer activity. Without
energising consumer spending, China
may struggle to drive sustainable
ft.com/opinion economic growth — which the IMF is
forecasting will slow next year to about
4.6 per cent, from 5.4 per cent this year.
The impact of these defaults is exacer-
bated by an unsophisticated governance
regime in dire need of reform. Under
current regulations, blacklisted default-
ers are blocked from buying air tickets,
making payments through the near-
ubiquitous mobile apps Alipay and
WeChat Pay, and conducting dozens of
other commonplace transactions.
At the human level, such sanctions
turn defaulters economically into
virtual “non-persons”, creating great
difficulties in their daily lives. At a
national level, they contribute to a debt
crisis that is evident not only in China’s
imploding property sector and local
government finances but in rising credit
card arrears and a surging number of
property foreclosures by banks.
Since the wave of defaults is in part
the result of a decade-long borrowing
spree by Chinese consumers, the dis-
tress is quite likely to get worse. House-
hold debt is estimated to have doubled
as a proportion of gross domestic prod-
uct to 64 per cent over the past decade.
Beijing needs to take the initiative to
push through reforms that deal with
defaults and bankruptcies in a more
transparent and equitable way, not only
for individuals but for corporations
too. If it does not, it will hamper the
cause of switching to a more consumer-
driven growth model, as the IMF and
others have advocated. Last year con-
sumer spending contributed only about
53 per cent of China’s total GDP, against
far higher levels in advanced economies
such as the US and UK.
The main focus of governance
reforms should be to provide pathways
back to solvency for people on debt
blacklists, so that they can hope to even-
tually resume normal economic activ-
ity. The application of individual debt
relief packages and schedules for debt
workouts for individuals are two ideas
being suggested by Chinese experts.
But the most important reform
should be to draft and implement a new
The country law on individual bankruptcy, to com-
has to address plement an existing law on enterprise
bankruptcy in force since 2007. Beijing
its favouritism
can take lessons from a pilot scheme
towards it launched in 2021 in Shenzhen
state-owned which allowed local residents to file for
enterprises over personal bankruptcy.
their smaller, More broadly, China needs to address
privately owned its favouritism towards state-owned
enterprises over their smaller, privately
cousins owned cousins. State-owned corpora-
tions, especially those owned by the
central government, rarely go bankrupt
in China because state-owned banks are
obliged to indulge their excesses.
But an officially estimated 52mn
micro, small and medium-sized enter-
prises are solely funded by individual
households. If they fall behind on their
debt repayments, the banks can
foreclose on their assets and blacklist
the entrepreneurs that own them. The
inequity in this system goes some way to
explaining why China’s private sector is
underperforming so starkly this year —
and holding back its wider growth.

Opinion Technology Email: letters.editor@ft.com

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Corrections: corrections@ft.com
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a single point of failure Cardboard lets us box clever in push for a circular economy
Ewan White The figures used for paper and
cardboard “waste” in your article “EU
packaging law lays waste to industry
revolt” (Report, November 23)
are incorrect.
They don’t account for the fact that
90 per cent of this so-called waste is
recovered and transformed, which is
exactly what Europe’s Green Deal aims
at. Because our sector uses old boxes to
make new ones.
What has been framed as “waste” is
actually recyclable material and key to
creating a truly circular economy. In
fact, cardboard is not only the lowest
contributor to waste, but for decades
has been the most recycled material
in Europe, with recycling rates well
over 80 per cent. Some have been using
these figures to make recyclable
cardboard out to be the villain. But
the fibres of a cardboard box can be
and are recycled up to 25 times. And
when it isn’t, it’s still 100 per cent
biodegradable. This means it
disappears in nature within four
months, unlike other non-recyclable
materials.
Strangely enough, this is ignored by
those who don’t want cardboard
packaging with its superior, existing
and proven recycling system, run by
hundreds of small and medium-sized
European businesses, to become
the cornerstone of EU policies for
environmental sustainability.
Getting this right matters because
what’s at stake is the EU green
transition. The EU parliament has
recently made a historic decision on its
landmark legislation (PPWR), leading
Europe towards a circular economy.
And our sector is built to provide
bespoke, sustainable packaging that
is 100 per cent renewable, recyclable
and biodegradable.
Our political leaders should have the
right information so we can all commit
to a green and circular Europe.
Tony Smurfit
Chief Executive, Smurfit Kappa, Dublin,
Ireland

Mexico’s cartels and elite Decriminalising hard Haley’s nomination plans

prevail. As seen at OpenAI, investors
Yoshua ultimately hold a great deal of influ-
ence. Another option would be for AI
Bengio progress to be funded by govern-
ments, essentially nationalising the
labs or directing their mission through
keep it in ‘emerging’ status drugs would be deadly could be helped by Trump
As a son of Mexicans, it saddens me to Michael Romberg (Letters, Edward Luce’s insights into US politics
have to agree with the editorial board’s
claim that “Mexico is wasting its
November 28) argues that the
better policy mix is to decriminalise
are valuable (Opinion, November 30).
However, the plausible path to the
nearshoring opportunity” (FT View,
December 1). A country such as
drugs with serious detrimental effects,
given “the harms fall to those who
Republican presidential nomination he
describes for Nikki Haley avoids some
South Korea can only dream of being choose to take the risk”. interesting questions. If Hayley were

W
e still don’t know what
actually happened at
OpenAI. But recent
events should prompt
us to take a step back
and ask broader questions about the
kind of governance required for
organisations that are both developing
powerful frontier artificial intelligence
systems and explicitly aiming at creat-
ing human-level intelligence, or AGI.
Should they be for-profit organisa-
tions overseen by a board responsible
to shareholders? Should they be non-
profit organisations with a mission of
greater good? Or a hybrid version?
Could they be nationalised and under
government control? Or do we need
new forms of governance that would
seek to reconcile our shared demo-
cratic values with the financial and
power gain that future frontier systems
promise to those who control them?
contracts and oversight. But this comes
with its own set of risks, including mis-
use for authoritarian goals or warfare.
For true responsible governance of
AI, we therefore need to avoid a single
point of failure. As I laid out in a recent
paper, we need strong independent
and democratic oversight, involving
not only a national regulator but also
civil society, independent academics
and the international community.
The governance structure must be
multi-stakeholder and multilateral.
One objective is to minimise conflicts
of interest with commercial goals and
focus on safety-first R&D. Another is
to protect against the possibility that a
lab’s system falls into the wrong hands
or becomes a dangerous runaway
entity. Having labs share their results
means the other institutions would be
there to defend society.
While a lot of uncertainty remains,
wrestling with these questions is
urgent. Reports suggest OpenAI may
in the privileged geographical position
that Mexico finds itself in. Mexico has
benefited from “nearshoring” for
decades, hosting European and
American automotive plants.
This has not led to the emergence
of a single Mexican automobile
manufacturer. Meanwhile, Korea,
a war-torn country in the 1950s and
1960s, has developed a vibrant and
cutting-edge automobile sector, and
has since proceeded to turning its
attention to technology, financial
services and fashion. In many ways,
Mexico’s greatest export is inexpensive
labour to satiate the American
consumer. What little gains the
country has experienced have only
been a result of growing American
demand, or greater labour costs in
places such as China.
As long as cartels continue to
exercise sovereignty over great swaths
of the country, as long as the
intellectual elites refrain from entering
politics in lieu of illicit financial
advancement, and as long as
innovation and access to capital is not a
core national focus, Mexico will forever
remain an “emerging” economy.
Jorge Alberto Chico
New York, NY, US
This ultra-libertarian perspective
is naive and, like many “progressive”
causes in our freedom of choice-fixated
society, short-sighted. Easier access to
hard drugs has been shown to bring far
more people into the serious risk Venn
diagram who would otherwise be
deterred from making the choice.
As an analogy, individuals in many
US states also wish to “pursue their
own idea of happiness”, as Romberg
puts it, by purchasing and firing off
handguns, but this has resulted in
more “quick” suicides by them and
their family members than elsewhere.
Politicians talk about doing the right
thing. Give the public a dangerous
choice to make and they will: that’s
bad, nay negligent, policy, especially
since the traditional moral compasses
of faith and family have disintegrated.
Barry Taleghany
Tunbridge Wells, Kent, UK
to offer Trump a pardon in return for
him dropping out of the race, how
could he enforce such a contract? As
part of such a deal, would she require
his fulsome endorsement? Would
enough swing voters see such a deal as
so sordid that they would coalesce
behind Joe Biden?
John Griffiths
Seattle, WA, US
Charles has Greek ties
Perhaps the tie King Charles wore
at COP28 sporting Greek flags had
nothing to do with the row over the
Elgin Marbles (Report, FT Weekend,
December 2). He could simply be
honouring his late father who was born
Prince Philip of Denmark and Greece
in Corfu in 1921. Our king is part Greek.
Izhar Khan
Ferryhill, Aberdeen, UK

Do we have the
mechanisms and other
means to mitigate
dangerous outcomes?
I often remind myself that democ-
racy is foremost about sharing power,
and that our democratic institutions —
with their checks and balances — are
designed to avoid its concentra-
tion, even in the hands of a few elected
officials.
When it comes to AI, future out-
comes are highly dependent on who
has decision rights. As development
accelerates, benefits and risks grow
accordingly. We already have AIs that
can generate realistic fake images of
politicians to influence elections. In
the near future, many are concerned
that malicious actors could use AI sys-
tems to help design and release deadly
biological weapons. There is growing
fear that risks could escalate beyond
our ability to rein them in.
The decisions of how to develop and
deploy AI, then, may soon drastically
affect society. If that is the case, should
they be completely left in private
hands? As seen with the oil and gas
industry in regards to climate change,
we cannot fully trust profit-driven
companies to take into account the
societal implications of their activity.
It is a classic tragedy of the commons,
where the best move by individual
players is not well aligned with collec-
tive wellbeing.
Unfortunately, we may also not be
able to rely on non-profit structures to
have recently made a breakthrough,
Q*, which may have greatly increased
reasoning and mathematical abilities.
If and when this is proven to be true,
we could have become closer to AGI.
I am well positioned to appreciate
the implications of such a break-
through through my own research. My
group came up with the attention
mechanisms which led to the trans-
formers that are the engine behind
today’s frontier systems. I believe the
main remaining gap between current
advanced systems and AGI is what we
could refer to as conscious cognition —
abilities such as reasoning, deliberate
thought and explicit planning.
I have argued for many years that
although deep learning has made huge
strides in cognitive capabilities corre-
sponding to human intuition (system
1), methods are still weak regarding
the conscious cognition crucial for
humans to provide correct answers in
settings for which we need to reason
(system 2). If OpenAI has made
progress on this, AGI may be much
closer than many of us expected.
Regardless of who gets there first, if
we bridge the gap to human intelli-
gence soon, will society be ready to
respond? Do we have the appropriate
governance mechanisms and other
means to mitigate potentially danger-
ous outcomes? I do not think so. This
discussion must happen urgently. It
should reflect democratic values and
democratic will. The OpenAI saga
should serve as a strong warning.
The writer is a Full Professor at Université
de Montréal and the Founder and Scien-
tific Director of Mila — Quebec Artificial
Intelligence Institute
A
OUTLOOK s our dinner ended at a
chic Peruvian restaurant
LA TIN A MER ICA in Buenos Aires last
month, my Irish uncles
and cousins, in town for
a family wedding, pulled out their
phones. Shaking their heads in
How to amazement, they photographed the
mountain of Argentine pesos they had
cope with assembled to pay a $90 bill. I cringed.
I understood the impulse: for
tourists paying in cash, any large sum
Argentina’s in Argentina requires a comically
large wad of 1,000 peso notes, each
economic worth about $1 — the result of the
Argentine currency losing 98 per cent
of its value against the dollar since
absurdities 2017, when the 1,000 peso note was
first released. I’ve seen many
foreigners do the same since I moved
here in June.
But I was still embarrassed, not
wanting to be seen laughing at this
symptom of Argentina’s economic
distress. The South American country
is suffering its worst crisis in two
decades, with annual inflation above
140 per cent and two-fifths of
Argentines living in poverty. That’s
the backdrop that propelled Javier
Milei, an eccentric libertarian
economist, to victory at recent
presidential elections. He has pledged
swingeing spending cuts and
deregulation to reboot the economy.
This year’s crisis is hardly the first.
Stability has eluded Argentina for
decades, thanks in part to politicians’
chronic overspending, financed
intermittently by money printing and
by Ciara Nugent heavy borrowing, triggering inflation
and defaults. On top of that, the
outgoing government has built a
labyrinth of tight economic
restrictions, including currency,
price and import controls.
“This country is hopeless — I don’t
care who is in power,” said Tomás, a
plumber who saved my bathroom
from flooding after a toilet
malfunction last week. He cackled
when I told him about the UK’s panic
at its recent 6 per cent annual
inflation.
Tomás gets paid off the books, like
almost half of Argentines, and has
only been able to wrangle a 20 per
cent rise this year, despite food and
rent costs doubling, he said.
Many Argentines have developed
strategies for dealing with their
unique economy. Taxi drivers give me
tips on which fixed-income saving
instruments will shield one from price
rises. Generous shop assistants advise
me to look elsewhere for somewhere
that offers 12 monthly payments
without interest — a popular scheme
that allows buyers to afford goods, and
keeps consumption up for retailers.
Argentines know it’s better to splash
any extra cash than hold on to pesos —
particularly ahead of market-moving
events such as elections — which is
why Buenos Aires enjoys a booming
restaurant scene as the economy
crumbles. Others buy up non-
perishable goods, such as cleaning
products, and later trade them for
food on online marketplaces.
Up the economic ladder, advice
differs. At a conference, one executive
told me how he had skirted
Argentina’s asset wealth tax, which
exempts dollars stored in banks, but
not those kept at home. “They count
the dollars on December 31, so I drop
them off around Christmas, and pick
them up on January 2,” he said.
For anyone in a privileged elite
earning in dollars, there is a
disjunction between the price of food
and services (made ludicrously cheap
by wide-ranging state subsidies and
the peso’s decline) and that of goods
(made expensive by protectionist
policies). I paid $50 for the cheapest
clothes horse I could find, and $70 for
a T-shirt that disintegrated after three
washes. But a subway ride costs eight
cents, an upscale haircut $8 and a
lavish seven-course tasting menu
comes to $50 a head.
Change may be on its way. Milei has
said he intends to stamp out inflation
and deregulate the economy. Even if it
goes well, he has warned any benefits
will not be immediate — exchange
controls are likely to remain for the
foreseeable future and inflation may
spiral faster as he begins to unpick
a web of price controls. Analysts say
his austerity plan will inflict serious
pain, particularly on Argentina’s
working and middle classes.
It looks as if for Tomás and most
Argentines, things will keep getting
worse before they have a chance at
getting better. If my family visit again
next year, there may well still be
shocking sights to see in Buenos Aires.
ciara.nugent@ft.com
Tuesday 5 December 2023
INDIA
Ruchir
Sharma
hough Indian Prime Minis-
ter Narendra Modi is in his
1 0 t h ye a r i n o f f i c e , h i s
position is as strong as ever.
The Bharatiya Janata
party’s overwhelming election victories
in the Hindi heartland states confirm
Mo di ’s gri p o n th e wor ld ’s l a rg e st
democracy, as well as the shadow he
casts over its hapless opposition.
Ahead of Sunday’s results, the opposi-
tion had hop ed to build on its gains
following the Congress party’s win in the
state of Karnataka earlier this year.
The BJP and its allies still ruled in
s t a t e s re p re s e n t i n g 45 p e r c e n t o f
the natnation
ional
al populpulatiation,
on, but tha
thatt was
d o w n f ro m 70 p e r c e n t a t t h e i r p e a k
just six years ago. Mo Mod di to ok it up on
himself to reverse that decline. The BJP
America and
a crumbling
world order
global affairs
rs
Gideon
Rachman
ow many international
conflic ts can one sup er-
power handle at the same
time? T Th he Biden aad dminis-
tration is currently trying
to deal with wars in the Middle East and
Europe, while preparing for a surge in
tensions between China and Taiwan.
All this is taking place under the
lengthening shadow of Donald Trump.
His possible return to the White House
poses profound questions about the
future of US democracy and the coun-
try’s role in the world.
The combination of all these events is
creating a palpable sense of tension and
foreboding in government offices in
Washington. It is not just the sheer
numb er of crise s coming at the Biden
administration, but the fact that many
are heading in the wrong direction — the
wars in Ukraine and the Middle East,
for example. And the polls look bad for
Biden.
T h e f o re i g n c r i s e s c o u l d c o m e t o a
head quite fast. “The next three months
could determine the next few years,” is
h ow o n e s e n i o r U S o f f i c i a l p u t s i t . A
prominent Democrat worries that “by
January, we could be talking about how
Joe Biden lost Ukraine”.
Trivial concerns threaten big decisions on Europe’s future
ECONOMICS
Martin
Sandbu
he EU’s top leaders meet
this month for the last
E u ro p e a n C o u n c i l o f t h e
year. How decisive they
manage to be could make
the difference between a summit that
wo u l d r a n k a m o n g s o m e o f t h e m o s t
consequential — or a massive wasted
opportunity.
Consider the unresolved decisions
that have been piling up. Whether to
make good on the promise to finance
Ukraine with €50bn over four years,
half a year after it was made. Whether to
ope
pen n formal EU membe berrship negotia-
t i o n s w i t h U k r a i n e a n d p o s s i b ly
other candidate countries. Whether
finally to sign off on a trade deal with
S o u t h A m e r i c a’s M e r c o s u r b l o c .
Whether to adopt proposed new com-
Why Modi is cruising to a third term
campaigned as if he were the candidate
for chief minister in contested states,
f e a t u r i n g h i s i m a g e o n p o s t e r s,
relegating the actual candidates to the
background.
Mo d i f i g h t s t h e s e b a t t l e s b e c a u s e
they matter so much in India, where
60 per cent of government spending
i s c a r r i e d o u t by t h e s t a t e s i n I n d i a ,
compared with 30 per cent on average
in developed countries.
The BJP won thre e of the four
contested states, and now with its allies
controls 16 of the 29 states, representing
nearly 60 per cent of the population.
Though state elections have of late not
been good leading indicators of national
elections, it is hard to see the BJP losing
next May’s national ballot. When Modi
was the prime ministerial candidate
in 2019, he led his party to a margin of
victory 10 points higher than its average
in state election victories since then.
Meanwhile, Congress lost the states of
Rajasthan and Chhattisgarh to the BJP,
extending an unusual string of failures.
D ro p p i n g a l o n g s t a n d i n g t e n d e n c y
to toss out incumbents, voters began
i n re c e n t ye a r s t o re - e l e c t m o s t
New funfundin
dingg for the Ukr Ukrain
ainia
ian
n mil
mili-
i-
tary and its civilian institutions is stuck
in Congress. The Biden administration
seems confident that money for Kyiv
will ultimately be agreed. But if financial
assistance is not passed before the end
of the year, Ukraine could feel the
effects on the battlefield within weeks.
Attempts to agree a fresh package of
EU money for Ukraine are also stalled
by wrangling in Brussels. Senior US
military officials are warning Congress
that , if funding for the country is cut
and Putin makes substantial progress in
t h e w a r a s a re s u l t , Ru s s i a c o u l d b e
threatening the Baltic states by the end
of 2024.
I n t h e c o m i n g w e e k s, Ru s s i a i s
expected to launch an intense bout of
attacks on Ukrainian infrastructure in
the hope of crippling the country’s
power supply and winter heating. Mos-
cow tried the same thing last winter and
failed. But the Russians now have many
more drones and missiles, thanks to
Iran, North Korea and rampe d-up
domestic production. Ukrainian air
d e f e n c e s a re l o o k i n g t h re a d b a re i n
places and could be overwhelmed.
The precariousness of Ukraine’s situa-
tion is getting le ss attention than it
should because of the Middle East. The
Biden administration is paying a heavy
political price, at home and abroad, for
i t s s u p p o r t f o r I s r a e l . T h e U S i s n ow
p u t t i n g p u b l i c p re s s u re o n I s r a e l t o
change its military tactics in Gaza and to
kill fewer Palestinian civilians.
But American concerns extend well
beyond Gaza. The Biden administration
mon rules for national public finances,
as well as midterm revisions to the EU’s
seven-year budget.
Contrary to appearances, what has
been holding up these decisions is not
that they are deeply controversial. Eve-
ryone understands they are necessary
or would bring momentous benefits to
the EU and its relations with the rest of
the world. Instead, what they have in
common is they have all been impeded
by much more trivial concerns.
It is not go o d enough to blame the
delays on the obstruct ctiionism of Viktor
Orbán’s Hungary. It is true that Orbán is
holding up the Ukraine de cisions to
extract advantages — in particular, a
release of EU funds held back due to his
undermining of his country’s rule of law.
But, as in earlier big decisions, there is a
limit to how far others will let him delay
them. Already there is talk in national
finance ministries of circumventing
Budapest by funding Ukraine “at 26” as
a possible if not preferred option.
J u s t a s b i g a p ro b l e m h a s b e e n t h e
European Commission’s bundling of
Ukraine support with other top-ups to
its budget from member states. As for
★ FINANCIAL TIMES
Opinion
chief ministers — but only from the BJP
a n d r e g i o n a l p a r t i e s. N o C o n g r e s s
c h i e f m i n i s t e r h a s w o n re - e l e c t i o n
since 2014. Dominated by the dynastic
Gandhi family, Congress doesn’t have
the entrepreneurial drive of Mod odii and
many regional leaders.
Even the one contest that Congress
won, in the southern state of Telangana,
simultaneously illuminates Modi’s
His brand of Hindu
nationalism and image
of managerial competence
still mobilise support
drawing power. Carved out in 2014, Tel-
angana is the newest state in the coun-
try. It has seen extraordinary progress
under Bharat Rashtra Samithi, the
regional party that led it to independ-
ence, climbing the ranks from 15th to
third richest state. Nine of its 10 districts
were officially classified as poor and
“backward” in 2014. Today, none are.
When I travelled there to cover the
still feels that it is dangerously close to a
wider regional war that would drag in
t h e U S. A t t a c k s o n s h i p p i n g b y t h e
H o u t h i s, a n I r a n - b a c k e d m i l i t i a i n
Yemen, might create the incident that
leads to escalation.
T h e re a re a l s o p o w e r f u l vo i c e s i n
Israel who argue that, after the October
7 terror attacks, Israel can no longer
t o l e r a t e t h e p re s e n c e o f H i z b o l l a h ,
another heavily armed Iran-backed
militia, on its northern border. But a war
between Israel and Hizbollah could be
much more intense than a conflict with
Hamas.
Therre is som
The somee resensentme
tmentnt in Wash ash--
ington that Israel is insisting it will make
its own decisions about military opera-
tions, while relying on US muscle in the
background. “The Israelis are playing
With the presidential
election less than a year
away, international crises
feed into US politics
Ukraine’s acce ssion talks, some are
tempte d to string things out for a few
months in a misguided belief this would
make Kyiv reform faster.
T h e h o l d - u p s r a n g e b e yo n d t h e
Ukraine questions. The shape of the
fiscal rules has long been largely clear.
The remaining technical details finance
m i n i s t r i e s a re f i g h t i n g ove r w i l l
make next to no difference to the EU’s
economic prospects. The Mercosur
We are well past the
point where holding out
for one more marginal
concession is of much help
d e a l , m e a nw h i l e , i s b e i n g h e l d u p by
narrow sectoral interests and overzeal-
ous environmental demands. That’s
unsurp
uns urpris
rising
ing — and in a na narr
rroow sesennse
even legitimate — but these interests
a re n o w h e re n e a r e n o u g h t o j u s t i f y
scuppering the deal. The budget
revisions, too, are over trivial numbers.
I n a l l t h e s e c a s e s, t h e E U r e m a i n s
election, far from the high-tech hub and
state capital of Hyderabad, I encoun-
tered villagers raising fat turkeys — a
pricey breed of poultry once unknown
in the Indian back- country. Many
h o m e s w e re n e w ly re m o d e l l e d , i n
concrete with glass windows rather than
mud or clay. Outside one, a woman was
t a k i n g d e l i ve r y o f a n e w d re s s f ro m
a scooter driver, who told me customers
order from his employer online — and
can return goods the same way ay.. Such
conveniences were rare in villages even
five years ago.
Nonetheless, people in Telangana
wanted change and the Congress offered
a n u n u s u a l ly yo u n g a n d dy n a m i c
challenger, Revanth Reddy. Voters told
me that 10 years in power was enough
for BRS chief minister K Chandrashekar
Rao and complained of his shortcom-
i n g s . W h e n c o nve r s a t i o n t u r n e d t o
Modi, they saw only accomplishments
and a leader enhancing India’s global
stature. One voter even cited the recent
assassination of a Sikh separatist leader
in Canada — for which Modi’s govern-
ment adamantly denies responsibility —
as proof, in their view, that he can get
with house money,” as one US official
puts it . But , after O c tob er 7, there
remains a deep reluctance to put serious
pressure on Israel to change course.
Dispatching American aircraft carri-
ers and missile defence systems to the
Middle East means that they are not
available for other trouble spots. That
has implications not just for Ukraine but
also for east Asia.
The current expectation in Washing-
ton is that the Taiwanese presidential
election on January 13 will be won by Lai
Ching-te, who is regarded in Beijing as a
dangerous separatist. If China responds
to a Lai victory with threatening dis-
plays of military strength, that could
easily provoke a new crisis.
There is cautious optimism that Bei-
jing’s initial response to a victory by Lai
will concentrate on economic and politi-
cal pressure. But, over the course of the
year, China could take its military
intimi
int imidat
dationion of Taiw aiwan an to new le levvels
els,,
particularly if the US looks distracted
and weakened by events in Ukraine and
the Middle East.
T h e f a c t t h a t C h i n a w i l l b e c l o s e ly
hamstrung by the narcissism of small
d i f f e re n c e s. B u t w e a re w e l l p a s t
t h e p o i n t w h e re h o l d i n g o u t f o r o n e
more marginal concession, haggling
ove r t e c h n i c a l d e t a i l s o r g a t h e r i n g
more knowledge is of much help. On
all thes esee issueses,, the po
pollitical dec eciisions
just have to be made.
Doing so would make this into one of
those summits that take the European
p ro j e c t i n t o a n e w c h a p t e r : s e t t i n g
U k r a i n e o n a f i r m e r we s t e r n c o u r s e ,
creating the world’s largest free trade
a re a a n d e s t a b l i s h i n g a p re d i c t a b l e
framework for securing the big invest-
ments needed in defence, decarbonisa-
tion and digital modernisation. No one
is presenting an alternativ ivee political
course: the failure of po pollitical will this
month would simply be a massive exer-
cise of kicking the can down the road.
The lon longer
ger it tak
takees the EU to de decid
cidee
things that should just be wrapped up,
the more the genuinely hard delibera-
tions will be delayed.
They include a full, good-faith and
s u s t a i n e d e n g a g e m e n t w i t h h ow t o
ready the bloc for enlargement. A tenta-
tive debate earlier this year on deep
things done outside the country as well.
Still, if there is a chink in Mo di’s
armour, it is in the five southern states,
now including Telangana. These states
lost ground to the north in the 2000s but
regained momentum in the last decade,
when their share of national economic
output rose from 25 to 30 per cent, even
as their share of the population slipped
a bit to 20 per cent. Southern politicians
claim credit for driving national growth
and stir resentment against the BJP,
which they accuse of taxing the south
to fund welfare in the north.
India is more a continent than a coun-
try. What works in one region won’t
always work in another. But then it
doesn’t need to. In the Hindi heartland,
which has enough votes to return Modi
to power, his brand of Hindu national-
ism, carefully crafted image of manage-
rial competence, and powerful party
organi
org anisat
sation
ion sti
still
ll mob
mobili
ilise
se eno
enormo
rmous us
suppo
porrt. With no coherent oppo possition
to rally the other regions against him,
Modi looks to be cruising to a third term.
The writer is chair of Rockefeller Interna-
tional
watching Ukraine and Gaza illustrates
the linked nature of all these crises.
Western officials believe Russia, China,
Iran and North Korea are working
t o g e t h e r m u c h m o re c l o s e ly t h a n
before. The Russians are now depend-
ent on Chinese economic support and
are almost unrestrained in military col-
laboration with North Korea and Iran.
With the US presidential election less
than a year away, all these international
c r i s e s f e e d i n t o A m e r i c a n p o l i t i c s.
Trump will take every opportunity to
accuse Biden of presiding over an era of
weakness and retreat, citing Afghani-
stan, Ukraine, Gaza and the Taiwan
Strait.
A chaotic and divisive US elec ecttion —
with Trump as the central figure — will
contribute powerfully to that impres-
sion of US weakness and decline. China,
Russia and Iran will relish asking how
America can promise to defend democ-
racies overseas, when its own democ-
r a c y i s i n s o m u c h t ro u b l e a t h o m e .
Unfortunately, it is a good question.
gideon.rachman@ft.com
eforms of EU decision-making and
E u r o p e a n i n s t i t u t i o n s h a s, f o r t h e
moment, fizzled out (which also means
i t h a s b e c o m e u n l i n ke d f ro m t h e
decision on advancing accession talks).
They include, too, the shape of the
EU’s next seven-year budget, and how to
make it fit for an age of economic inse-
curity and ge op olitical tension . It is
clear that very large common invest-
ment projects have to be carried out —
in energy, for example, and in stronger
t r a n s p o r t a n d i n f r a s t r u c t u re l i n k s
with neighb ouring countrie s — while
protecting the integrity of the single
market and dealing with enlargement.
That requires a bigger, fundamentally
reshaped budget, to satisfy the interests
of both net contributors and recipients.
Dealing with such challenges must no
longer be displaced by second- or third-
order interests. One solution is to take
more decisions by majority, as some
propo posse. But that is an inferior substi-
tute for statecraft that builds broader
agreement. Next week, leaders have
a chance to show they can deliver it.
martin.sandbu@ft.com
17
Migration
crackdowns
won’t help EU’s
moderate right
Catherine
De Vries
s the far right surges in
Europe pe,, the centre right is
trying to defeat it by taking
a tougher line on migration.
B u t t h i s wo u l d b e a m i s -
takeke,, based on wro ron
n g l e s s o n s d r aw n
from the far right’s rise.
Immigration motivates a hard core of
f a r - r i g h t vo t e r s . B u t a n i m p o r t a n t
driver of the far right’s current success is
the centre right’s hollowing out of public
services through austerity. Attempts to
get tougher on migration will do little to
reverse the far right’s advances.
A good example is the Netherlands,
where Geert Wilders’ Freedom party
wo n l a s t m o n t h’s e l e c t i o n. O n e o f
Europe’s most divisive politicians, con-
vic te d in court for his inflammatory
anti-Islam rhetoric and deliberately
kept out of government by centrist par-
ties, he might become the new prime
minister after the centre right broke the
previous coalition over immigration.
Ahead of a crucial year for the EU in
which a new European Commission will
be appointed after elections to the Euro-
pean parliament, politicians and pun-
dits are wondering about what lessons
to draw from upsets like the Dutch vote.
Manfred Weber, the head of the cen-
tre-right European People’s party, says
far-right vic torie s will p ersist unle ss
E u ro p e a n c o u n t r i e s m a s s i ve ly c u r b
migration. “People want to have solu-
tions. And that’s why the numbers of
arrivals must go down,” he told the FT.
However, reducing recent far-right
gains to immigration in this way ignores
more structural issues plaguing Euro-
pean societies in which the centre right
An important driver
of populists’ success
is the hollowing out
of public services
itself played a prominent role — in par-
ticular, cuts to key services.
An overlooked aspect of the Dutch
election illustrates this. A newly estab-
lished party, New Social Contract, was
alsoo a big win
als winner
ner,
r, gai
gainin
ningg 20 sea seats
ts.. It
Itss
leader, Pieter Omzigt, condemned
Wilders’ rhetoric and called many of his
p ro p o s a l s u n c o n s t i t u t i o n a l . W h a t
Omzigt and Wilders have in common is
a rele
elentl
ntleess fo focus
cus on the fai failur
luree of th thee
previous governments of Mark Rutte to
protect “bestaanszekerheid”, loosely
meaning “livelihood security”.
Under Rutte’s premiership, policies
that erected barriers to social benefits
and reduc duceed acc acceess to pub publiclic ser
servvice
icess
raised concerns among the Dutch popu-
lation about what they are getting in
return for the taxes they pay. In this con-
text, it is important to remember that
o p p o s i t i o n t o c u t s i s a ke y t h e m e o f
Wilders, next to immigration. In 2012,
for example, Wilders withdrew his sup-
port for the first government of Rutte, a
minority coalition between Rutte’s lib-
eral party and the Christian Democrats,
over reductions in public expenditure.
Research, including my own, suggests
t h a t c u t s t o p u b l i c s e r v i c e s p l ay a n
important role in explaining the rise of
the far right. Concerns about reduced
access to public services, such as hospi-
tal care, state schooling, affordable pub-
lic transport and housing, leads people
to question the ex exttent to which their
government cares about people like
them. Waning public services may also
fuel immigration concerns out of fear of
more congestion and overcrowding.
Centre-right parties have an interest
in diverting public attention from their
o w n p o l i c y f a i l u re s — a n d re s e a rc h
s h o w s t h a t s h i f t i n g a t t e n t i o n f ro m
unpopular economic policies to socio-
cultural issues that inflame public opin-
ion, such as immigration, can b e an
effective short-term electoral strategy
for government parties, especially those
on the centre right. But in the long term,
this strategy strengthens the far right —
and could even lead to a far right EU, as
Hans Kundnani has argued.
A better strategy would be to under-
stand why discontented voters have
flocked to far-right parties recently.
European politicians who serve a conti-
n e n t c h a l l e n g e d b y s l u g g i s h g ro w t h
prospects, an ageing society and labour
shortages should look beyond immigra-
tion
tion as the cul culpri
pritt of far
far-ri
-righghtt suc
succcess
and start addressing deeper structural
problems plaguing European societies.
The author is dean of international affairs
and professor at Bocconi University, Milan
18 ★ FINANCIAL TIMES Tuesday 5 December 2023

Strait of Hormuz/oil: tanker rancour

Oil prices soared twice in the 1970s following an oil embargo and the later Iranian revolution. The narrow
Strait of Hormuz remains a critical corridor for Middle Eastern crude exports. Asia is the biggest recipient of
the crude; China, India and Japan are the biggest buyers.

Twitter: @FTLex
Evergrande:
yours truly, angry mob
An abrupt turn of events has bought
more time for China Evergrande. A
Hong Kong judge postponed a hearing
into a liquidation petition to January.
That gives the developer longer to
finalise a debt restructuring plan.
Offshore creditors, such as petitioner
Top Shine Global, may not realise quite
how much power they wield over
China’s property and banking sector.
Evergrande is the most indebted
developer. It has been working for
about two years on a debt restructuring
it hopes will stave off liquidation. Fresh
breathing space lifted shares more than
9 per cent yesterday.
Offshore creditors have shown little
enthusiasm for the proposals. One
cannot blame them. A brutal haircut is
a likely outcome. Beyond that,
prospects for the developer look bleak.
The payouts from a court-approved
liquidation are hardly appealing either.
Analysts expect a recovery rate of
below 5 per cent. Evergrande has more
than $300bn in liabilities.
For Beijing, however, getting offshore
creditors to agree to a restructuring is
of paramount importance.
The biggest risk comes from an
estimated 1.5mn homebuyers that have
paid Evergrande for unfinished homes.
These dwellings are estimated to have
an original value of $90bn. Beijing may
face social discontent if Evergrande is
liquidated and the projects cannot be
completed.
A restructuring would also alleviate
pressure to support state-owned banks.
Their returns are eroding amid slowing
economic growth and a falling property
market.
The impact on lenders is growing.
Banks do not just have direct exposure
through mortgages and loans to
developers. They are also exposed to
the country’s shadow banks. These
non-bank financial institutions often
lend to higher-risk industries such as
real estate. The financings are
frequently through wealth
management products that are held
off-balance-sheet.
Zhongzhi, one of the biggest shadow
banks, may have a shortfall of $36bn. It
has warned that it is “severely
insolvent”.
The liquidation of Evergrande
would set a dangerous precedent for
struggling peers. Evergrande had
always been outlier. But a domino
standing at the extreme end of a line
tumbles most peers through indirect
impacts. Foreign investors have yet to
comprehend the extent of that danger.
Roche:
fat chance
In a race, any place but first can feel
like coming last. That is not the case for
pharmaceutical companies.
Novo Nordisk and Eli Lilly are
already striding ahead with anti-
obesity treatments. But prizes are still
on offer for also-rans, especially if they
can compete on price. Barclays
estimates the market could be worth
$100bn within a decade,
Switzerland’s Roche has just boosted
its chances of being a contender. It is
acquiring US-based obesity drugs
developer Carmot Therapeutics, for up
to $3.1bn. It is the second bolt-on buy
by Thomas Schinecker, Roche’s new
chief, in less than two months.
Schinecker needs to soothe investor
jitters over Roche’s pipeline. The group
had several big disappointments in
2022. These included trial failures by
its Alzheimer’s drug, gantenerumab.
The Carmot deal will give Roche
access to three clinical-stage assets
based on GLP-1 treatments for obesity.
These drugs are similar to Eli Lilly’s
much-discussed Mounjaro. Others are
joining the obesity race: AstraZeneca in
November struck a $2bn licensing
agreement with China’s Eccogene.
Two of the Carmot treatments are
injectable, including snappily named
lead asset CT-388. The other is in pill
form — the Holy Grail of anti-obesity
medicines. But only data for one out of
three trial stages is available for CT-
388. That would explain the modest 2.5
per cent rise in Roche’s share price
yesterday. Year-to-date, the stock is
still down more than 15 per cent.
Roche trades on a forward price/
earnings ratio of 12.4 times, behind its
five-year average of just over 15 times.
Schinecker has been trying hard to
persuade investors that Roche has one
of the youngest drug portfolios in the
business. It has 98 pipeline assets in
various phases, well ahead of a sector
average of 70.
Its problem is that phase 3 trial
success rates have fallen below sector
US imported crude oil price
$ per barrel
Real value
Nominal value
1970 80 90 2000 10
Source: EIA
Tensions in the Middle East are
mounting as war rages in Gaza. There
is, as always, potential for Israel’s
enemies to threaten the vital Gulf
shipping route through the Strait of
Hormuz. This would put pressure on
an oil price previously suffering little
impact from the conflict.
So far, maritime hostilities have
been further west. Yemen’s Houthis,
who are backed by Iran, attacked a
US warship and three commercial
vessels at the weekend.
Western powers are protecting the
Gulf with such assets as the Dwight D.
Eisenhower US aircraft carrier. The
Strait of Hormuz is just 20 miles wide
at its narrowest point and is dotted
with islands controlled by Iran.
About one-fifth of the world’s
averages. He will have to better that hit
rate if he is to persuade investors that
Roche’s losing streak is behind it.
Origin/Brookfield:
octo pash
As smart molluscs, octopuses have a
habit of overturning expectations.
Shareholders at Australia’s Origin
have blocked a near-$13bn bid by a
consortium led by the Canadian asset
manager. One complaint is that the
deal undervalued Origin’s 20 per cent
share in Octopus, the UK energy group.
The saga reveals a lack of consensus
on what Origin might be worth. The
board and 69 per cent of votes cast
yesterday said Brookfield’s bid was fair.
Crude oil transiting the Strait of Hormuz
By source, barrels a day (mn)
Qatar
Iran
160 Kuwait
140
UAE
Iraq
Saudi Arabia
120
100
80
60
40
20
0 largest airline in the US has struck a
23 2022 2023 Oct
Source: Rystad Energy
crude oil and liquefied natural gas
flows through the strait daily.
It closed twice before, in 1973 and
1979. Crude oil prices rose about
300 per cent in each case, damaging
global economic growth. The world is
now less reliant than it was on Middle
Eastern hydrocarbons. But disruption
in the strait would still push up prices.
Oil traders regard this as a distant
tail risk. They are more worried by
flagging demand. After a spike in Brent
crude prices to more than $90 a barrel
at the current conflict’s outset, prices
have dropped below $80 a barrel.
Iran, which supports Hamas, would
have much to lose from the strait’s
closure. Its oil exports to China are at
record highs. Of the 15mn barrels per
day of crude that passed through the
AustralianSuper, the pension fund and
owner of 17 per cent of Origin, thought
it undervalued the group. That swayed
enough other voters to deny the deal
the 75 per cent support required.
The energy transition makes
businesses like Origin hard to value.
That is particularly true of the
shareholding in Octopus. The group
includes a retail unit, an IT platform
and a nascent business selling EVs and
heat pumps. Octopus is expected by
analysts to be profitable this year. It
commands tech-style multiples.
Independent experts value Origin at
£5.7bn-£6.2bn, or some 20 times next
year’s ebitda as estimated by
Macquarie. AustralianSuper believes it
is worth much more, apparently.
Divergent views of Octopus’s potential
are enough to swing opinions because
By destination, barrels a day (mn)
Rest of the world
South Korea
20 Japan 20
India
China
15 15
10 10
5 5
0 0
2022 2023 Oct
strait in October, more than 1mn
were Iranian.
Pipelines elsewhere would ease a
blockade. A Saudi east-west pipeline
to Yanbu in the Red Sea has extra
capacity. Even so, some 2mn to 4mn
bpd of the 6mn bpd of its crude
flowing through the strait would stay
stuck in Saudi Arabia, thinks
consultancy Rystad Energy. Abu
Dhabi also has pipeline capacity to
circumvent the strait. But some
5.5mn bpd from Iraq, Kuwait and
Qatar has no other exit route.
That leaves more than a tenth of
global crude supply at risk from the
strait’s closure. Markets are taking
too sanguine a view of the threat. The
likelihood of the conflict spreading
raises the longer fighting continues.
Brookfield’s bid was no knockout. To
see how numbers stack up, put Origin’s
electricity generation and energy retail
unit on 6.5 times next year’s ebitda.
That equates to just over A$10bn of
enterprise value. A stake in a big
Australian LNG plant might be worth
another A$7bn. Add A$2.2bn for the
Octopus stake and assume other assets
and capitalised costs roughly cancel
each other out. Lop off A$3.5bn of debt.
That yields an equity value for the
transaction of A$15.7bn, broadly in line
with what Brookfield was offering.
Of course, companies rarely trade at
their underlying value — until they
come up with a clever strategy to sweat
their assets. One consequence of
Brookfield’s interest is that Origin must
think hard about how energy will affect
it as an independent.
US airlines: Alaska
competition question
US airline takeovers are hard to pull
off. Differences in worker contracts, IT
systems and cultures make
integrations difficult.
Throw into the mix the Biden
administration’s aggressive antitrust
regulators. There are more reasons to
avoid consolidation than pursue it.
Unless you are Alaska Air. The fifth-
deal to buy smaller rival Hawaiian
Airlines for $1.9bn including debt.
Alaska’s cash offer of $18 a share
represents a premium of more than
100 per cent to Hawaiian’s three-
month average share price. It is still an
opportunistic move. Hawaiian shares
have lost more than two-thirds of their
value over the past 12 months. A slow
recovery in tourism from Asia, growing
competition from Southwest and Maui
wildfires have weighed on demand.
Hawaiian, which has not made an
annual profit since 2019, is forecast to
book a net loss of $310mn this year.
Alaska believes these challenges will
pass. It is projecting $235mn of
“synergies” — mostly cost savings, one
would hope. Taxed and capitalised,
these would be worth about $1.8bn, or
more than three times the premium.
The carriers say the Hawaiian leisure
air travel market is worth $8bn a year.
Unfortunately for the partners, the
regulators have taken a tough line on
consolidation in the sector. They
successfully sued to unwind the
American and JetBlue alliance in the
north-east, and are trying to block
JetBlue’s proposed takeover of Spirit.
Alaska — like JetBlue — will argue
that consolidation is needed to create a
stronger company to compete against
the industry’s traditional Big Four
airlines. Unsurprisingly, given the
distance between the 49th and 50th
states to join the US, the two airlines
have few overlapping routes.
The 16 per cent collapse in Alaska’s
shares yesterday suggests the market
thinks this deal will stay grounded.
Spirit’s share price offers little comfort.
It is sitting at about $16, or less than
half of JetBlue’s offer of $33.50.
Lex on the web
For notes on today’s stories
go to www.ft.com/lex

CROSSWORD No 17,592 by BRADMAN

       ACROSS

1 Back of this vehicle is hit (6)

4 Chatter in B&B with wild wind outside (6)
  8 Be only partially successful? Charming!
(7)
 9 Hide children — not entirely
compassionate (7)
  11 Degradation of fellows on row being held
by detective (10)
12 A word from holy woman about love (4)
13 Island in secret escape (5)
   14 Document showing overturned vehicle
by gallery (8)
16 Maiden entering to make a light meal
(5,3)
   
18 Mark’s daughter wearing a hat (5)
20 Fish mostly of a red hue (4)
21 One gripped by religious freedom
drooling (10)
  
23 Represents dramatically as cast maybe
(4,3)
24 What’s silly can then delight (7)
 
25 Group of nine chaps heading off with
drunken dean (6)
26 Items of fruit — yellow fruits, not black
(6)
 
DOWN

Solution 17,591 JOTTER PAD 1 Bit of stuff on tree that is sticky (5)
2 Hesitation about hostility brings relief
& / $ : ( ' 5 8 0 % $ % $ 6
(7)
$ 5 ; 6 ( 2 $
3 Able to take part, being given set of holy
1 ( * $ 7 ( + ( , 5 / 2 2 0
books (9)
7 ( ( & ' * = %
5 Muslim man, holy person among top
2 : 1 , 1 * 8 3 & $ 0 ( 5 $
people (1-4)
1 7 ' ( 7 0 (
6 Function in club — old-fashioned
6 / , 3 $ % / ( % 2 ' , ( '
headgear required (7)
1 $ $ 6 7 1
7 Manners of quite silly communication,
& 5 $ , * 6 / , 6 7 6 & $ 0
ignored first and last (9)
$ 1 / ( 6 2 2
10 Money given to crusade in hub location?
' , $ / 8 3 8 5 * , 1 * 2 1
(9)
( 1 6 $ $ 7 1 $
13 Vehicle second-rate — to member of
1 $ . ( ' ( 6 7 $ & + , ( 5
family it is a gem (9)
= / ( , 2 7 &
15 Answer to snake bite in vain with ten in
$ 0 ( 5 , & $ 1 6 0 2 2 7 +
trouble (9)
17 A theologian, one disciple who was an
essayist (7)
Scan the QR code to 19 Get to understand security device is
access FT crosswords secure (5,2)
over the last 30 days 21 Shrine put up, protected by religious
— cryptic, Polymath,
Weekend and Sunday organisation (5)
puzzles — or go to 22 Beastly noises all right outside home?
ft.com/crosswordapp Start to scream (5)
 FT INNOVATIVE LAWYERS
North America
2023

www.ft.com/innovative-lawyers DECEMBER 5 2023

RESEARCH PARTNER
2 | FTReports FINANCIAL TIMES Tuesday 5 December 2023
FINANCIAL TIMES Tuesday 5 December 2023 FTReports | 3

FT Innovative Lawyers North America

Inside
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FT Top 35 law firms
Differentiation becomes crucial as more
firms focus on scale and best uses of
generative AI Page 4

Global perspective
Cross-border strategies come under
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Court appeal
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choose to testify Page 8

Future fusion
Lawyers hope US regulation will lay the
foundations for a new global energy
industry Page 9

Administrative upheaval
Conservatives look to Supreme Court
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Digital offensive
Specialists take frontline roles in the battle
to contain cyber criminals Page 12

Lawyers grapple conflict, Artificial intelligence

Lawyers help create guardrails, set
boundaries and defend new lawsuits as

fusion and generative AI tech advances accelerate Page 14

Sporting victories
M&A attorneys win big amid booming

I
n 2023, the legal profession has seen no let-up in the range of
disruptions affecting clients’ operations — a dynamic that
has shaped the annual FT Innovative Lawyers report for
North America yet again. In some ways, the sheer variety of
challenges has only grown over the course of the past year,
with upheaval coming in geopolitical, technological and
regulatory forms.
If geopolitics in 2022 was shaped by the Russian invasion of
Ukraine, the outlook became even more challenging in 2023,
with the Ukraine conflict joined by the Israel-Hamas war and
escalating polarisation in the US as the presidential race heats up.
On Page 6, you can read how law firms are fine-tuning their
global ambitions as they assess this complicated landscape.
But the core of this report remains focused on the innovative
law firms that excel at figuring out legal solutions to complex
business problems, as well as the innovative in-house lawyers
who show their readiness to address challenges head-on.
On Page 10, we hear the legal arguments suggesting that four
cases before the Supreme Court could ultimately backfire on
those seeking to curb US regulators. And on Page 8, nearly a year
after the high-profile collapse of Bahamas-based crypto
exchange FTX, there are lessons for lawyers from the conduct of
its founder, Sam Bankman-Fried, in an austere federal
courtroom in Manhattan.
Around the time FTX was imploding, US government
scientists were making a breakthrough: a net energy gain in a
valuations and complex deal structures for
fusion reaction. So it was happy timing that energy lawyers trophy acquisitions Page 16
were pushing for rules better tailored to this technology,
Page 9.
Lawyers have also been forced to tackle the exponential
Green card
growth in cyber scams, and several have been setting precedents Despite a backlash against ESG, firms say
both in the courts and as negotiators, Page 12. In US sports, new demand for legal advice in the field is
ownership rules have led to record-breaking transactions — meet continuing to rise Page 33
the “M&A quarterbacks” on Page 16.
But perhaps no change has prompted more debate for the legal Diversity challenge
profession than the challenges and opportunities presented by Law firms weigh the impact of backlash
generative AI. Several parts of our report look at how lawyers are against affirmative action Page 34
meeting those challenges, including how best to size a firm in an
age of AI disruption, Page 4. In short, the successful firms will
need broad skillsets, which is why our annual ranking of People
innovative law firms incorporates digital, people and social Legal leaders of change Page 22
responsibility criteria, as well as financial growth. Then, on Page Top legal practitioners Page 24
14, we hear from legal experts tackling a new wave of AI lawsuits.
Amid the analysis, the report includes panels of case studies Best practice: case studies
that highlight the efforts of law firms and in-house legal teams. Practice of law Page 26
Each panel names a winner, as well as commended examples, Business of law Page 30
which are all showcased at an awards event in New York on
December 4. Our thanks go to RSGI which, alongside the FT,
researches and compiles this review of innovative law firms, in- In-house
house legal teams and lawyers. Legal teams offer solutions to track the
fast-changing pace of business Page 18
Peter Spiegel, US managing editor Plus Best practice case studies Page 20
4 | FTReports FINANCIAL TIMES Tuesday 5 December 2023

FT Innovative Lawyers North America

How big should a law firm be?

Growth, the ideal size and “You are faced with coming up with existential
strategies every day now.”
down on a formula that still works for them and
delivers the high profitability sought by
the disruption of AI are the Michael Gerstenzang, managing partner of partners. Bob Giuffra, the firm’s co-chair, sums
key questions in 2023, Cleary Gottlieb, points out that, five years ago,
the largest firms by headcount and revenues
up the tactic: “We balance litigation and
corporate work so we can respond well to
writes Reena SenGupta

H
ow big is big enough for a law firm?
And how long before generative AI
fundamentally changes its
business model? These are the two
standout questions preoccupying
many US law firm leaders.
After some reordering in 2022 of the top-
earning US law firms, with two firms’ annual
revenues passing $5bn (one beating $6bn) for
the first time, the question of size as a strategic
goal has only intensified. Is bigger — revenues,
profits, and people — better?
Then, on top of this preoccupation with size,
come questions over generative AI tools and
how they could revolutionise legal work.
No wonder strategic planning in the US legal
industry is in a state of upheaval.
“There is so much fragility in the law firm
market,” says Brad Karp, chair of Paul Weiss.
were not necessarily the most profitable. Today,
“this is a different competitive landscape.”
The revenues of $5bn-plus reported last year
by mega-firms Kirkland & Ellis and Latham &
Watkins were accompanied by high
profitability per equity partner, which would
suggest scale is a meaningful goal for firms with
ambitions to be in law’s premier league.
This is challenging the cadre of historically
elite, highly profitable law firms, set up in the
late 19th and early 20th centuries, whose
annual revenues of between $1bn and $2bn now
make them look relatively small operations.
Some within this group are already
rethinking their business strategy. Cravath,
Swaine & Moore has hired UK-qualified lawyers
in its London office for the first time, and
created a tier of non-equity partners in New
York. It was formerly wedded to practising only
US law, and to full equity partnership. Others,
including Sullivan & Cromwell, are doubling
market volatility.” The firm had revenues of
$1.7bn for the financial year ending in 2022 and
profits per equity partner of nearly $6mn,
according to FT research partner, RSGI.
At Shearman & Sterling, however, it was a
need for greater scale that drove the established
New York firm to seek a merger with UK firm
Allen & Overy. Shearman’s turnover in 2022
was just under $1bn, and the merger will create
one of the world’s biggest law firms by revenue,
at a projected $3.5bn — albeit lagging behind the
frontrunners.
“I underestimated the value of scale,” reflects
‘You are faced with Tom Cole, managing partner at Troutman
Pepper Hamilton Sanders, formed by two US
coming up with firms, in 2020. Its revenues for the financial
existential strategies year ending in 2022 were $1.1bn. The effects of
merging have “exceeded my expectations,” he
every day now’ says. Among them are the ability to hire teams
Brad Karp, Paul Weiss of people that would have been out of reach for
either firm on its own.

FT law firm index - North America 2023

Ranking of the top 35 participating law firms based on submissions made to this year’s report and index
Index TOTAL SCORE* Innovation***** Digital People Social Responsibility Growth (financial)****
ranking Law firm name (/110) (/30) (/20) (/20) (/20) (/20)
1 Latham & Watkins** 94.6 24.9 17.0 16.0 16.7 20.0
2 Orrick, Herrington & Sutcliffe*** 94.4 27.6 20.0 17.0 17.8 12.0
3 Ropes & Gray 93.4 25.3 15.6 18.0 15.6 19.0
4 Kirkland & Ellis 93.3 28.8 14.1 16.0 14.4 20.0
5 White & Case 92.1 26.8 16.3 15.0 20.0 14.0
6 Goodwin 90.7 24.5 17.0 19.0 12.2 18.0
7 Dechert 89.8 28.0 19.3 15.0 15.6 12.0
8 King & Spalding 89.7 27.6 14.8 16.0 12.2 19.0
9 Paul, Weiss, Rifkind, Wharton & Garrison 89.0 24.9 15.6 16.0 15.6 17.0
10 McDermott Will & Emery 87.5 26.1 18.5 16.0 8.9 18.0
11 DLA Piper 86.6 28.0 14.8 15.0 17.8 11.0
12 Willkie Farr & Gallagher 86.5 20.9 14.8 15.0 17.8 18.0
13 Morrison Foerster 86.3 28.0 14.8 19.0 14.4 10.0
14 Morgan, Lewis & Bockius 85.5 27.6 13.3 19.0 15.6 10.0
15 Reed Smith 84.5 25.7 17.0 16.0 17.8 8.0
16 Davis Wright Tremaine 83.8 26.8 15.6 19.0 14.4 8.0
17 Hogan Lovells 83.6 30.0 14.1 15.0 15.6 9.0
18 Foley Hoag 81.7 21.7 10.4 20.0 16.7 13.0
=19 Sullivan & Cromwell 81.3 26.4 11.1 12.0 17.8 14.0
=19 Weil, Gotshal & Manges 81.3 26.4 8.1 17.0 16.7 13.0
21 Husch Blackwell 79.9 22.5 14.8 16.0 15.6 11.0
22 Troutman Pepper Hamilton Sanders 79.5 27.6 18.5 10.0 13.3 10.0
23 Pillsbury Winthrop Shaw Pittman 79.0 26.4 14.1 14.0 14.4 10.0
24 Arnold & Porter 77.7 24.1 9.6 17.0 20.0 7.0
25 BakerHostetler 76.9 24.9 17.8 15.0 12.2 7.0
26 Akin 76.7 21.7 16.3 13.0 16.7 9.0
27 Ballard Spahr 75.1 24.1 13.3 16.0 16.7 5.0
28 McGuireWoods 74.5 24.1 14.1 15.0 13.3 8.0
29 Schulte Roth & Zabel 73.8 24.9 12.6 13.0 13.3 10.0
30 Eversheds Sutherland 72.8 20.9 10.4 16.0 15.6 10.0
31 Honigman 71.0 22.9 13.3 16.0 7.8 11.0
32 Shearman & Sterling 68.8 20.9 16.3 11.0 15.6 5.0
33 Bracewell 68.7 24.5 8.9 15.0 13.3 7.0
34 McInnes Cooper 63.9 20.5 8.9 16.0 14.4 4.0
35 Porzio, Bromberg & Newman 62.1 24.5 8.9 18.0 7.8 3.0
Source: RSGI * The total score is the sum of banded scores for: innovation, digital, people, social responsibility and growth, which each comprise several indicators. Scores shown in each column are rounded to one decimal place. The full research
methodology is available on Page 33. To sort each column by score, go to ft.com/innovative-lawyers ** Winner of “Most innovative law firm in North America 2023” award *** Winner of “Most digital law firm in North America 2023” award
**** Growth (financial) is banded on revenue growth for three years to financial year ending in 2022 and profitability per equity partner figures from RSGI research ***** Innovation scores are scaled to yield a score out of 30

RESEARCH AND AWARD SUPPORTED BY RESEARCH AND AWARD SUPPORTED BY

FINANCIAL TIMES Tuesday 5 December 2023
FT Innovative Lawyers North America
The fastest growing North American firms by
revenue, over three years to the financial year
ending in 2022, feature some new names
making incursions into the historical elite. As
well as Latham & Watkins and Kirkland & Ellis,
the list includes: King & Spalding; Willkie Farr &
Gallagher; McDermott Will & Emery; Ropes &
Gray; and Goodwin, which all experienced
revenue growth of more than 40 per cent in the
A
period, according to RSGI research.
t Ropes & Gray, which posted
annual revenues of more than
$2.7bn for 2022, scaling up in
selected areas has been important.
For example, says chair Julie Jones,
in private equity it has been a game-changer:
“To be credible here, you have to go big.”
However, she notes, even more pressing are the
skills that lawyers will need to succeed in the
age of generative AI. “People who tend to
Cover and illustrations throughout: Efi Chalikopoulou
innovation or creativity — this is what we will
praise,” she says.
Most of the 60 or so firms that participated in
the research for the FT Innovative Lawyers
North America report are actively engaging
with the new AI tech. A third are already
training staff, developing products for clients,
and rolling out customised large language
models in order to expedite basic legal tasks,
such as drafting and research.
One of the more advanced users of generative
FTReports | 5
AI is Dechert, which has built a customised tool,
DechertMind. So far, it has 1,000 active users
and has clocked up 50,000 interactions. “All the
innovation will be from the bottom up,” says
Mark Thierfelder, Dechert co-chair. “The
people performing tasks on the ground will be
figuring out how to unlock [AI]’s value.”
With more firms now able to boast size and
profitability, the ways in which elite firms
differentiate themselves is changing.
Innovation — or, at least, the willingness to
approach work differently — will be more
important to clients.
“Lawyers need to hone their leadership
skills,” says Jami McKeon, chair of Morgan
Lewis. “Skills previously considered ‘soft’ ones
will become critical, such as empathy and
building cognitively diverse teams.”
Latham & Watkins, which tops the FT’s
annual ranking of law firms for the region this
year (see index below) was one of the first US
law firms to consciously integrate innovation
into its strategic priorities 20 years ago. Its
ability to do legal work in new ways, incentivise
partners with fairer financial distributions, and
empower junior lawyers has contributed to its
profitable growth.
Increasingly, the more intangible elements of
a firm, which Latham & Watkins has long
cultivated, will ensure its success: knowledge
management and its adeptness at handling
change — now including an AI-powered future.
6 | FTReports FINANCIAL TIMES Tuesday 5 December 2023

FT Innovative Lawyers North America

US firms fine-tune global ambitions

Cross-border growth
‘Slowbalisation’ has
shifted lawyers’ world
view, says Suzi Ring

O
ver the past decade,
many US law firms have
shunned their
American roots,
marketing themselves
as “global” networks to appear
borderless to their clients.
But, with many observers
predicting a slowdown, stalling or
even partial unravelling of
globalisation, the imperative of cross-
border expansion in the legal world is
also under review.
“The time of firms planting flags on
the map is over,” says Tony Williams,
principal at Jomati consultants and
managing partner of leading UK law
firm Clifford Chance in the late 1990s.
“People will look at markets in quite a
hard-nosed way and say: ‘Is this
relevant for us for the long term? Are
we getting real traction from the
clients?’”
Profound disruptions — caused by
Covid-19, US-China trade tensions,
and Russia’s invasion of Ukraine — that match the geographic footprints companies expanded there, lured by International trade: as geopolitical Jomati’s Williams. For some firms,
have all forced governments and of leading clients has led many US tax benefits. Cravath opened an office events lead to a shift in trading joining forces to produce scale may be
businesses to review their firms to reconsider their in Washington DC, and Cleary between countries, many US firms a better long-term plan. “I do expect
interdependency and the reliability international approach. Cravath Gottlieb launched a base in San are reconsidering their approaches that there will be additional
of their supply chains. launched a London-based English Francisco in 2021. Elijah Nouvelage/Bloomberg consolidation in the legal industry in
“Friend-shoring” — countries law offering this year, despite its “In some ways, what’s happening is the coming few years,” says Yvette
setting up supply chains with more longstanding “best friend” a shift in terms of what the priority Ostolaza, chair of Sidley Austin’s
trusted nations — has grown up as an relationship with Slaughter and May. markets are, or might be, going management committee. “In part, this
alternative to reliance on locations And, with locations such as Saudi forward,” says Michael Gerstenzang, could be a result of the ongoing global
such as China and Russia. Meanwhile, Arabia opening up to western law Cleary Gottlieb’s managing partner. financial instability and geopolitical
strategic sectors, including military firms, many have applied for licences Clients are “looking for the best law risk that we are experiencing.”
equipment and semiconductors, there. In October, Kirkland & Ellis firm in a particular market and not US law firms have already seen
have seen an active reshoring effort said it was opening an office in Saudi just defaulting to the fact that their some fallout from such risk. White &
from governments, according to Arabia after new rules allowed firms traditional firm happens to have an Case was one of several big firms

Barret Kupelian, chief economist at
PwC UK, the professional services
firm.
“The innocence that characterised
trading relations at the end of the
20th century is gone,” says Kupelian.
“At the end of 2019, the firm [PwC]
stated that ‘slowbalisation’ is the new
globalisation, and we have been
broadly on the right track.”
The inherently local nature of law
has led to different approaches
towards internationalisation by US
law firms over the years. For some,
such as White & Case, global offices
have long been part of the strategy,
with outposts in places like Paris
dating back to the 1920s. Others, such
as Cravath, Swaine & Moore, have
preferred a “best friend” approach,
working with a network of top native
firms in each jurisdiction and
benefiting from the referrals.
But, as geopolitical events push a
shift in trading between countries,
the impetus to create global networks
to operate solo, rather than with a
local affiliate. Gibson Dunn opened
an office in Riyadh in November, and
King & Spalding has obtained a
licence to operate as a standalone
firm there.
Meanwhile, Ropes & Gray and
Quinn Emanuel Urquhart & Sullivan
are opening in Singapore.
“We’ve certainly seen an increased
level of protectionism, an increased
level of onshoring and, in terms of
how it impacts our world, I would say
that you’re seeing clients be a lot more
careful about cross-border deals,”
says Neill Jakobe, a member of Ropes
& Gray’s governing management
committee. “That . . . from a legal
perspective, creates more complexity
and more work for us.”
US law firms have also been
growing domestically, with a spate of
new offices.
Kirkland & Ellis, Sidley Austin and
Winston & Strawn launched offices in
Miami last year after several big tech
T
office in that market”.
he US accounts for
almost half the world’s
legal spending, and the
market’s sheer scale
presents an opportunity
to expand domestic growth.
“We do intend to continue to invest
in the US,” says Heather McDevitt,
chair of White & Case, which has eight
US offices. “This is the world’s largest
legal market, and I think that there’s
more we can do here.” But she adds
that, while more office openings in
the US are a “possibility,” it is not on
the list of near-term priorities.
The depth of the US market also
underpins the recent decision of UK
firm Allen & Overy to merge with
Shearman & Sterling of the US.
While international expansion may planting flags on the
present opportunities for lawyers,
opening new offices is costly and
requires a minimum investment of
about £2mn to £5mn, according to
forced to close its Moscow office after
the invasion of Ukraine. Latham &
Watkins, Squire Patton Boggs and
Akin were other US firms that had to
shut their Russia operations.
There is also growing nervousness
in China after regulatory scrutiny saw
the Big Four professional services end
their legal affiliations there last year.
Some view the recent Singapore office
openings as a hedge against regional
volatility.
Still, an ever-increasing complexity
and reach of global industries,
combined with deepening trade and
geopolitical tensions, presents
opportunities for US firms seeking to
act as advisers to clients wherever
they operate.
‘The time of firms But not everyone can come out on
top.
“It creates more need, but it might
map is over’ create some stratification within the
industry,” says McDevitt. “It might
Tony Williams, Jomati ultimately result in changes in the
large law firm ecosystem.”
FINANCIAL TIMES Tuesday 5 December 2023 FTReports | 7
8 | FTReports
Guilty as charged: Sam Bankman-Fried outside court in New York in January earlier this year — Fatih Aktas/Anadolu Agency via Getty Images
FTX founder failed ‘likeability’ test
Criminal trials
Sam Bankman-Fried’s
court appearances
provide lessons for
defendants, writes
Joe Miller
D
uring the murder trial in
Albert Camus’s The
Stranger, when prosecu-
tors decry the emptiness
of Meursault’s soul, the
emotionally stunted defendant says
the proceedings have denied him “the
right to show any feeling or goodwill”
to the jurors deciding his fate.
And, as the case against Sam Bank-
man-Fried reached its conclusion last
month, the 31-year-old former crypto
wunderkind — who had watched for
weeks as three of his closest friends
and colleagues painted him as a con-
niving fraudster — doubtless felt sim-
ilarly deprived.
Like Meursault, Bankman-Fried
had taken the decision to testify in his
own defence, almost certainly against
the advice of his lead lawyer Mark
Cohen. Also like Meursault, he did so
to no avail.
What may have worked in Silicon
Valley and on Capitol Hill, where the
MIT graduate’s “maths nerd” mum-
blecore act once played to rave
reviews, fell disastrously flat in the
austere, mahogany-panelled New
York courtroom.
During hours of gruelling ques-
tions, Bankman-Fried claimed not to
FT Innovative Lawyers North America
recall crucial events or petulantly
refused to provide binary responses
to simple queries. To the white-collar
criminal defence bar, this underlined
the fact that exposing a client to cross-
examination is almost never a gamble
worth taking.
If the aim was to win over the three
men and nine women who made up
the jury in Lower Manhattan, it back-
fired spectacularly: a guilty verdict on
all counts was returned after just over
four hours of deliberation.
There is, of course, little to suggest
that Bankman-Fried stood a chance
of being exonerated, even if he had
kept his counsel.
“I don’t think the results would
have been any different, had he
stayed off the witness stand,” says
Cheryl Bader, a former federal prose-
cutor who is now associate professor
of law at Fordham University.
“The prosecution had already pre-
sented extremely damning evidence.
They had testimony, texts, emails
supporting that testimony of long,
reflective conversations between
Bankman-Fried and his closest asso-
ciates.”
Yet, as Cohen had attempted to get
the court to acknowledge, in the days
leading up to the trial, Bankman-
Fried was at a disadvantage from the
very start.
For all the legal accoutrements that
adorn US criminal cases, a defend-
ant’s testimony is often a high-stakes
popularity contest played out in front
of 12 ordinary Americans. That, says
Bader, is the lesson reinforced by the
FTX case. “Like a lot of life, if you are
charismatic and a more attractive
person, and [you are] seen as more
credible and likeable, that yields
rewards,” she notes.
Tom Barrack — the real estate
investor and early financial backer of
Donald Trump’s 2016 presidential
run — was acquitted last November of
illegal lobbying charges after he man-
aged to portray himself as being
aghast at the former president’s dem-
agoguery, and as an ordinary citizen
with political concerns.
A year earlier, white teenager Kyle
Rittenhouse was found not-guilty of
killing two men in Kenosha, Wiscon-
sin, having convulsed with tears on
the witness stand, during testimony
in which he said he was acting in self-
defence after travelling armed to the
town, to counter-protesters in the
wake of police shooting a black man.
‘If you are charismatic
and . . . seen as more
credible and likeable,
that yields rewards’
Bankman-Fried was not able to
appeal in either way, even when his
life was on the line. The author
Michael Lewis’s assessment of the
entrepreneur with whom he spent
many hours both before and after the
collapse of FTX was that “other peo-
ple felt emotions; he did not”.
Caroline Ellison, the FTX founder’s
former girlfriend, had testified that
Bankman-Fried “thought that
the only moral rule that mattered
was doing whatever would maximise
utility”.
These impressions were not shifted
by Bankman-Fried’s matter-of-fact
confession that relationships, in gen-
eral, were not something he had
“been great at”. Remorse was not on
the cards.
However, Judge Lewis Kaplan had
denied a request by the defence for
the panel to be told that the former
billionaire lives with attention-deficit
hyperactivity disorder, which affects
his “body language, or eye contact”.
Bankman-Fried, who fidgets and
looks away when answering ques-
tions, is renowned for having played
video games during TV interviews for
FTX. He was on prescription amphet-
amines for the duration of the trial to
manage his ADHD symptoms.
But even a jury made aware of this
would not have got an insight into
Bankman-Fried’s “Robinhood”
defence — which he tried to peddle in
media appearances before and after
his indictment last December.
No doubt wary of being cross-ex-
amined on the topic, Bankman-Fried
offered no evidence of his purported
motive for seeking to quickly make
billions of dollars off his cryptocur-
rency businesses: namely, in order to
eventually give it all away.
The “effective altruism” movement
to which he and his co-workers,
including Ellison, adhered, was never
mentioned at trial.
On several occasions, Bankman-
Fried offered to “explain if you want”
FINANCIAL TIMES Tuesday 5 December 2023
and elaborate on certain answers
for the prosecution. Unsurprisingly,
the offer was almost never taken up
by assistant US attorney Danielle
Sassoon.
All of the above were foreseeable
reasons not to take the stand.
Vincent Cohen, a partner at
Dechert who spent years as a federal
prosecutor before becoming the act-
ing US attorney for the District of
Columbia, says being a defence law-
yer is “like banking, you have to KYC”
— referring to regulatory shorthand
for “know your customer”, or in this
case, a client.
Testifying works for defendants
who are “very articulate and charis-
matic and likeable and personable”
and who “don’t have three people
inside of their company that are testi-
fying against them,” he adds. Bank-
man-Fried did not fit that bill.
The opinion that he “did not have
much to lose” by taking the stand will
be tested in March, when Judge Kap-
lan, who at times made his exaspera-
tion at Bankman-Fried’s evasive
answers abundantly clear, decides on
sentencing. A bad performance on
the stage that is a US criminal court-
room could yet condemn him to a life-
time in prison.
Critics have speculated whether
Camus’s Meursault — who is damned
for not shedding a tear at his mother’s
funeral — would today be diagnosed
with alexithymia, or a difficulty to
express socially appropriate feelings.
He, too, would likely fare no better
if testifying in front of a modern
US jury.
FINANCIAL TIMES Tuesday 5 December 2023 FTReports | 9

FT Innovative Lawyers North America

New rules ease fusion confusion

Clean energy Lawyers have
lobbied for regulation that is
tailored to the technology,
paving the way for faster
rollout, writes Tom Wilson

E
nergy lawyers are hoping that new
rules for the regulation of fusion
power in the US will set a global
precedent that makes it easier to roll
out the potentially revolutionary
technology around the world.
In April, the US Nuclear Regulatory
Commission voted to regulate fusion energy
separately under a less onerous regime than
fission — a landmark decision that lawyers and
industry executives say was needed to give the
technology a chance of helping to cut emissions.
The fusion reaction, which is the same one
that powers the sun, occurs when the atomic
nuclei in two hydrogen isotopes — normally,
deuterium and tritium — are fused. This process
releases helium and vast amounts of energy, but
emits no carbon. Scientists estimate that just a
small cup of the hydrogen fuel required could
theoretically power a house for more than 800
years.
Importantly, unlike fission energy — which is
created when uranium atoms are split and
thereby produces nuclear waste — fusion
reactions create no long-lived radioactive
byproduct and could never result in a nuclear
accident, such as at Chernobyl in 1986.
And it is because of these different risk
profiles that energy lawyers, such as Jeffrey Powering ahead: the International Thermonuclear Experimental Reactor nuclear fusion research project being built in France — Alamy
Merrifield at Pillsbury, had been lobbying the
NRC to treat fusion technology differently from is based in Washington state and is backed by Despite this regulatory progress, fusion commercialise and export these facilities,” says
traditional fission reactors. OpenAI chief executive Sam Altman, is remains years away from supplying electricity Roma.
“We had a tall mountain to climb to basically building its seventh prototype fusion device in a to the grid. In this way, the fusion industry is hoping to
disentangle fusion technologies from the little over a decade. “They have been able to In December last year, scientists at a federal learn from mistakes made in the international
regulatory process for fission and really iterate and move forward and figure out what laboratory in California used a giant laser to regulation of fission, where variability in how
convince the NRC commissioners that the right works . . . in a way that fission never can,” achieve energy gain in a fusion reaction for the individual countries regulate the sector has
way to go was to differentiate it,” he says. Roma explains. first time, but the experiment still produced restricted growth, says Pillsbury’s Merrifield,
“Fusion has its own issues, but it doesn’t The UK, arguably, has gone even further only slightly more energy than was in the laser who is a former NRC commissioner.
have the risk or complications of a fission- than the US, advising in June 2022 that future used to trigger the reactions. Physicists estimate He hopes that the approach taken by the
based reactor.” fusion facilities in Britain will be regulated by that commercial fusion will require reactions US, the UK and Canada — which, he notes,
Future fusion reactors in the US will instead the Environment Agency and the Health and that generate between 30 and 100 times the has adopted a similar stance — will be
be regulated under the same regime as particle Safety Executive, rather than the country’s energy going in. embraced by the UN-backed watchdog, the
accelerators, according to the NRC, which is Office for Nuclear Regulation. More than 40 companies are trying to International Atomic Energy Agency. This
now drafting specific rules for the nascent “In some ways, [the UK approach] is even develop these fusion technologies, with several would result in a more “harmonised” global
fusion sector. more innovative in that they’ve completely — including CFS and Tokamak Energy — aiming attitude to fusion regulation.
This decision should make the development moved it out of the nuclear regulator,” says to complete demonstration plants capable of “It is powerful that the US, the UK and
of prototype fusion devices — and, it is hoped, Andrew Holland, executive director of the generating electricity in the 2030s. Canada have aligned on an approach that is
future power plants — faster. It should remove Fusion Industry Association, a US-based Industry experts are increasingly optimistic really quite similar to how they would go ahead
the need for expensive regulatory approvals, trade body. that some of these companies will succeed and and regulate fusion,” he says. “So I think that
insurance and safety provisions that in contrast “There is a certain competitiveness aspect that consistent regulatory regimes could allow provides an important foundational
add costs to new fission power plants. to this,” he adds. “The first countries that can for faster deployment of the technology in the opportunity to use that as something for which
The restrictions on fission reactors have set up an appropriate regulatory regime 2040s. “To the extent that we can create the rest of the international community could
made it harder for the traditional nuclear for fusion might be the ones that attract the alignment, that makes it a lot easier to potentially harmonise.”
industry to innovate, says Amy Roma, an early pilot plants.” The FIA’s Holland says the Japanese
energy lawyer at Hogan Lovells, who has also Commonwealth Fusion Systems, which is government is taking a “deep look” at the
consulted with the NRC on the regulatory
framework for fusion.
backed by US tech billionaire Bill Gates, is now
building a large-scale demonstration device in
‘The first countries that can regulatory decisions taken in the US and
the UK.
“Fission cannot iterate prototypes, because Massachusetts. Meanwhile, UK-based set up an appropriate regulatory “The US nuclear regulatory regime is well
they need a very expensive NRC licence to even
build a prototype,” she says. “So you can’t build
Tokamak Energy has said it will construct its
next prototype at the UK Atomic Energy
regime for fusion might attract respected around the world, so the hope is that
we can point to this and say, ‘Hey look, the
it, see what works, take it apart, rebuild it.” In Authority’s fusion research centre in Culham, the early pilot plants’ Americans do it this way, it is appropriate, it’s
contrast, fusion start-up Helion Energy, which near Oxford. safe, it’s the gold standard’,” he says.
10 | FTReports
Shredding rules may come at a cost
OPINION
Brooke
Masters
L
ike most countries,
the US relies heavily
on regulators to
handle the day-to-
day business of
governing. Congress has
neither the time nor, in recent
years, a cohesive majority
willing to tackle the
complexities of overseeing
everything from securities
and fisheries to guns and
pollution.
But all that could be about to
change, in ways that would be
very destabilising for business.
Judicial conservatives who
believe less government is
better than more have long
had what is known as “the
administrative state” in their
sights. Now, the Supreme
Court’s rightwing majority is
poised to inflict major damage
to the way the US government
has been working for four
decades.
Four cases are attracting
particular attention. They
focus on methods for agency
funding, the use of
administrative law judges in
some regulatory proceedings,
and, most prominently, the
ability of agencies to
determine the rules in areas
where Congress has not given
detailed instructions.
If the most conservative
interpretations win out, the
cases could undermine the
financial independence of the
US Federal Reserve, change
the way the US Securities and
Exchange Commission brings
many enforcement cases, and
cause what the Biden
administration warns would
be a “convulsive shock” to the
American legal system.
Industry challenges to US
regulations are already
proliferating, and these cases
could lead to more. “All the
big-ticket rules absolutely are
going to end up in court,” says
David Slovick, a former senior
enforcement attorney at both
the SEC and the Commodity
Futures Trading Commission.
“The conservatives see this as
an opportunity to remake the
legal landscape for a
generation.”
FT Innovative Lawyers North America
Battleground: the conservative-dominated Supreme Court is poised to change the way government works —Drew Angerer/Getty
Progressives who support
tough regulation of business
are most concerned about two
cases that focus on, of all
things, fishing fees —
specifically, the right of a
federal agency to make
fishermen pay to be monitored.
The Supreme Court justices
have made clear that they
intend to use Relentless vs
Department of Commerce
and Loper Bright Enterprises
vs Raimondo to reconsider a
seminal decision that has set
the rules for legal challenges
to federal regulation since
1984. Under the Chevron
doctrine, as it is known, courts
defer to an agency’s
interpretation of federal law
when Congress itself has been
silent.
Written by conservative
Antonin Scalia to defend
Republican agency policies
from liberal legal challenges,
Chevron is now a bête noire of
rightwingers who believe it
gives administrators,
particularly Democrats, too
much leeway. “The
conservative lawyers and the
Conservatives have
long had the
‘administrative state’
in their sights
conservative justices believe
that the final word on what a
law means is the court, not an
administrative agency,”
Slovick says. “It’s about
control.”
Anti-regulatory groups such
as the conservative Federalist
Society crave a wholesale
rewriting that would give the
courts more power to check
regulators, including the
Environmental Protection
Agency and the SEC.
But Don Goodson, a senior
attorney at New York
University’s Institute for
Policy Integrity, warns that
businesses should be careful
what they wish for.
“There are good legal
FINANCIAL TIMES Tuesday 5 December 2023
reasons for Chevron and there
are good practical reasons . . .
Inevitably, federal statutes are
sometimes ambiguous,” he
says.
If different courts reach
different conclusions, that
could lead to conflicting rules
in various parts of the country.
“If you are a regulated entity,
the question is: do you want
one interpretation or several?
That may have headaches of
its own,” he adds.
Financial services groups
have long complained that the
SEC’s use of in-house
administrative law judges, in
some enforcement cases,
essentially allows it to act as
both prosecutor and judge.
Supporters argue the process
facilitates swift action and
saves court time. They also
note that decisions can be
appealed to the circuit courts.
But hedge fund founder
George Jarkesy contends that
the use of an administrative
law judge to hear his securities
fraud case against the SEC
deprived him of his
constitutional right to a jury
trial, an argument that taps
into the current majority’s
scepticism of administrative
proceedings. The key question
will be whether the majority
rules in a way that would affect
enforcement proceedings —
not just at the SEC but a wider
range of federal agencies.
The funding case is perhaps
the most radical of all. It arises
from the latest legal challenge
to the Consumer Financial
Protection Bureau (CFPB),
which was created to protect
customers after the 2008
financial crisis and has been
under attack ever since. The
plaintiffs contend that the
agency is unconstitutional
because its funding comes
from the Fed’s operating
budget, rather than an annual
Congressional appropriation.
The case initially went to the
Fifth Circuit appeals court,
known for its staunchly
rightwing judges. Their
decision in October 2022 used
such sweeping language that it
could be interpreted as
invalidating not just the CFPB
but also the independent
funding methods applied to
Medicare, Social Security and
the Fed.
But, when the Supreme
Court heard oral arguments
this autumn, even some of the
conservative justices seemed
sceptical of that
interpretation. “The Fifth
Circuit is going farther than
the Supreme Court is willing to
go,” Goodson says. “The court,
even though it has drifted to
the right, doesn’t want to
overshoot and undermine the
Federal Reserve.”
Many businesses may find
this anti-regulatory agenda
appealing now. But,
ultimately, they may regret
decisions that substantially
weaken independent
monetary policy and national
standards.
The writer is the FT’s US
financial editor
FINANCIAL TIMES Tuesday 5 December 2023 FTReports | 11
12 | FTReports FINANCIAL TIMES Tuesday 5 December 2023

FT Innovative Lawyers North America

Specialists lead cyber counterattack

Crypto theft
Lawyers are setting a
precedent in court action
against hackers, and helping
to recover stolen funds,
writes Jane Croft

A
s cyber attacks escalate,
companies are increasingly
turning to lawyers to help them
trace stolen money, negotiate with
hackers and, in some cases, take
attackers to court to recover stolen funds.
From phishing scams to trading breaches,
attacks involving cryptocurrency are rising.
The value of illicit cryptocurrency transactions,
including scams and ransomware, rose to
$20.6bn in 2022, up from $18.1bn a year earlier,
according to a report by Chainalysis, a
blockchain data platform.
Now, cyber crime specialists at law firms are
being called on to play an intermediary role —
part negotiator and part forensic investigator —
to help minimise damages while also finding
ways to prevent hackers from succeeding in
their attacks.
Companies face multiple challenges, as the
international nature of hacking makes it
difficult to investigate attacks and trace stolen
funds. Syndicates based in, and sponsored by,
hostile states — such as the North Korea-linked
Lazarus Group — have been among the most
prolific cryptocurrency hackers.
But, in November 2022, US law firm King &
Spalding helped Google score a legal victory
against the Russian operators of a botnet known
as Glupteba. They used it to steal login and
account information to commit crimes,
including theft and fraud, and to use other
people’s computers to illicitly mine
cryptocurrency.
In a New York lawsuit, Dmitry Starovikov and
Alexander Filippov were named along with 15 Google’s request for settlements against the US law firm Morrison Foerster helped recover hacker. “We sent messages to attacker wallets
other unidentified individuals as controlling the defendants and their lawyer, and ordered the stolen funds for UK-based Euler Finance, a on the blockchain — which was public — to try to
botnet. According to the court ruling, Glupteba defendants to pay Google’s legal fee in the case. cryptolending platform, after a $197mn cyber get the hacker to engage in a private
was notable for its “technical sophistication” The amount was not specified. Cote found that theft. It managed to retrieve all the funds in conversation,” he explains.
and leveraged blockchain technology to protect there had been a “wilful attempt to defraud the three weeks. This was one of the biggest The hacker then did something that helped
itself from disruption. It used a network of court and resist discovery” by the defendants. recoveries in decentralised finance history. the team engage. “The hacker made a strategic
private computers infected with malware to aid Preventing the defendants from using the William Frentzen — a partner and trial error in paying 100 ETH, or Ether, worth
numerous criminal schemes, including selling litigation to obtain information about Google attorney in Morrison Foerster’s white-collar approximately $170,000 at that time, into an
credit card details for fraudulent purchases. set a legal precedent and sent a warning to crime unit, and a former government account reputed to be linked to North Korean
US district judge Denise Cote ruled that the botnet operators. “The court finds that the prosecutor experienced in dealing with hackers hackers,” Frentzen recalls. “Very soon after,
defendants used the botnet to steal and exploit defendants have intentionally withheld — had already helped to recover money stolen North Korea started sending what appeared to
Google users’ personal and financial information and misrepresented their in a $110mn fraud at crypto exchange Mango be phishing messages. We emphasised this
information, which they sold. willingness and ability to engage in discovery in Markets. So, when Euler suffered an attack in interest to the hacker as a pressure point and
“Botnets are generally very complex and order to disadvantage Google in this litigation, March, Frentzen received a call the next [said] that it was bad enough with the FBI and
resilient cyber crime schemes,” says Sumon avoid liability, and further profit off of the morning. He had to alert US law enforcement DoJ on the case — you do not want to attract the
Dantiki, partner in special matters and criminal scheme described in the complaint,” agencies and determine whether the firm was interest of state actors and organised crime.”
government investigations at King & Spalding. the ruling stated. dealing with state actors or an individual. The hacker decided to return the funds and
“Among botnets, Glupteba was a particularly Dantiki says the ruling has wider importance, His team was able to make contact with the Euler was able to offer redemptions to its users
innovative threat, which required Google to too: “The court’s award here is significant and before closing the platform — although it says it
respond with a very novel and multi-faceted demonstrates that the judiciary won’t tolerate a has plans to resume trading.
disruption effort.” litigant who abuses the court system.” “The money was returned to us in pieces —
In her ruling, Cote said the defendants had As well as pursuing hackers through the
‘The award is significant and including a payment to one individual in Latin
attempted to use the litigation as a means of courts, law firms are being called on to track demonstrates that the judiciary America, and we kept the conversation going,”
extorting Google, or at least seeking discovery, down and recover stolen funds. And they are explains Frentzen. “We eventually got all the
the formal process of sharing evidence, which having some success. The sum extorted through
won’t tolerate a litigant who money back and, because it was Ether and the
could help them evade the company’s efforts to ransomware attacks fell from $766mn in 2021 abuses the court system’ price of Ether went up, we were able to obtain
shut down the botnet. The judge upheld to $457mn last year, according to Chainalysis. $220mn to return to Euler’s users.”
FINANCIAL TIMES Tuesday 5 December 2023 FTReports | 13
14 | FTReports
Artificial intelligence Writers and artists claim
copyright violations, writes Miriam Rozen
Legal experts
step up to
defend wave
of AI lawsuits
W
hen the Microsoft-
backed OpenAI
unleashed its Chat-
GPT chatbot in
November 2022, it
sparked a frenzy over the potential of
generative artificial intelligence.
But faultlines have quickly
emerged about how it is being devel-
oped, deployed, and regulated —
spurring a wave of litigation and lob-
bying efforts that have pushed legal
expertise to the fore.
Over the past year, dozens of writ-
ers, musicians, visual artists, and soft-
ware code developers have filed copy-
right infringement claims and other
commercial disputes in multiple
courts against OpenAI and its rival
start-ups.
Comedic writer Sarah Silverman
and novelist John Grisham allege
OpenAI failed to secure writers’
approval to use copyrighted works to
train its language models.
Programmers also allege that
Microsoft, its GitHub subsidiary, and
OpenAI pooled resources to launch
an AI assistant, Codex, and CoPilot
software tools but did not program
them “to treat attribution, copyright
notices, and licence terms as legally
essential”.
Universal Music, the world’s largest
music group, has sued OpenAI’s rival
Anthropic, alleging its AI-based plat-
form Claude generates “nearly word-
for-word” copyrighted lyrics.
Meanwhile, visual artists have tar-
geted AI ventures Stability AI, Mid-
journey and DeviantArt for copyright
infringement, claiming their plat-
forms were trained on the styles of
the plaintiffs’ works without first
seeking permissions or offering credit
or compensation.
In the US, some AI developers
defending against copyright claims
have relied in part on the “fair use
doctrine,” which was deployed by
Google in 2015 to defeat a claim by the
FT Innovative Lawyers North America
Authors Guild, the writers organisa-
tion, that its online book searching
function violated writers’ copyrights.
AI developers are hoping that copy-
right infringement concerns do not
discourage businesses from buying
their services. In September, Micro-
soft committed itself to paying any
legal costs for commercial customers
that are sued for using tools or any
output generated by its AI.
Such pledges reflect “smart busi-
ness” strategies, says Danny Tobey,
who leads DLA Piper’s AI-focused
practice group and represents devel-
opers including OpenAI before regu-
lators, lawmakers and the courts.
Developers are expressing “the
type of confidence you need to
project for a new technology to get
adopted”, he adds.
In court, Tobey has already repre-
sented OpenAI in defamation battles.
He is defending the chatbot operator
against a lawsuit filed by radio host
Mark Walters, who also alleges Chat-
GPT accused him errantly of embez-
zling from a gun rights group after the
platform generated “a complete fab-
rication” of a lawsuit, according to
what his lawyer John Monroe in Daw-
sonville, Georgia, told the court.
In another defamation lawsuit, aer-
ospace author Jeffrey Battle has tar-
geted Microsoft’s AI-assisted Bing,
alleging it conflated him falsely with a
convicted felon. That lawsuit “aims to
treat Bing as a publisher or speaker of
information provided by itself,”
according to a blog post by Eugene
Volokh, a law professor at the Univer-
sity of California, Los Angeles.
Copyright infringement and defa-
mation liabilities are not the only
legal threats for AI developers and
users of the tools. Future claims will
centre on “safety and accountability,”
Tobey says.
DLA Piper has been heavily
involved in helping OpenAI put for-
ward its own views to Congress on
Betting on the future: Microsoft is among early backers of AI services facing legal challenge — Mike Segar/Reuters
how the technology should be regu-
lated. “Our clients love that we’re
involved with the rulemaking around
AI because people know there’s going
to be regulation,” he says. “It’s the
uncertainty that’s bothering them.”
Generative AI-based large language
models are “the Dictaphone for eve-
rything on Earth,” Tobey argues.
Tools using voice or text interroga-
tion will help people deal with any-
thing from planning holidays to rais-
ing health questions. But the answers
can be supplied without “the tradi-
tional human gatekeepers” — law-
yers, architects, engineers and doc-
tors, he explains.
His team includes forensic lawyers,
data analysts, science experts and
subject matter experts. It helps AI-
assisted tool developers and innova-
tors test for accountability, the risks
of discrimination and bias, statutory
compliance.
‘We’re going to have to
worry more about deep
fakes used as evidence’
In addition, the team works to cre-
ate legal “guardrails” for Fortune 500
companies to “create policies, proce-
dures, controls, monitoring, feed-
back loops” for the technology’s use,
Tobey notes.
Such guardrails must past muster
as “credible” to policymakers and
regulators, Tobey says. “There’s not
going to be political appetite for
broad immunities just to nurture the
industry.”
Since 2020, OpenAI has also
appeared on Morrison Foerster’s cli-
ent roster, according to Justin Haan, a
technology transactions group part-
ner at the firm.
“We’ve already been quite
immersed in doing work that is
directly related, not just tangential, to
AI and machine learning models,”
including procuring data, says Haan.
The firm is helping to defend OpenAI
against the Silverman-led authors
and also against software program-
mers’ copyright claims.
Morrison Foerster represents more
than 75 clients involved in the AI field
and that roster has “increased sub-
stantially over the past five years”,
Haan says. His firm, like DLA Piper,
aims to help corporate clients
develop internal policies for genera-
tive AI tool use.
David Cohen, Pittsburgh-based
chair of Reed Smith’s records and
ediscovery group, predicts that AI-
assisted tools will require at least
some of the 70 lawyers he supervises
to reinvent their roles in the next few
years. “Disruption should be
expected — nobody should be com-
placent,” he says.
But he also envisions the tools gen-
erating new tasks. “We’re going to
have to worry more about deep fakes
used as evidence — a videotape of
somebody saying something or doing
something that they didn’t really say
FINANCIAL TIMES Tuesday 5 December 2023
or do. That’s going to create a whole
new set [of evidence-authentication
issues],” he says.
“You’re going to need professionals
who get good at validating evidence —
or finding where evidence is fake.”
Early instances of AI tools generat-
ing fake case references that surface
in briefings have prompted court
administrators and judges — from
Manitoba, Canada to North Texas, US
— to create rules about how litigators
may deploy the new technology.
Morrison Foerster’s Haan also
expects discovery battles when plain-
tiffs aim to uncover evidence about
the liability of the owners or develop-
ers of AI-assisted tools, which may
have played a role in car accidents or
employment discrimination, or other
causes of claims.
“People are going to be suing about
things that happen partially because
of AI,” Cohen says, and new discovery
puzzles will emerge.
So far, emerging AI tools are
demanding his time but not necessar-
ily leading to billable hours. He scours
announcements, blogs, and podcasts
to determine the tools “we ought to be
testing”, he says.
Ultimately, he can see the technol-
ogy transforming ediscovery entirely
— with litigants agreeing to “throw
the documents into one generative AI
system” that allows both sides to pose
questions. “There’s so much about
today’s discovery system that’s ineffi-
cient, including the fact that both
sides are essentially duplicating
efforts,” Cohen says.
FINANCIAL TIMES Tuesday 5 December 2023 FTReports | 15
16 | FTReports
In it to win it: Denver Broncos celebrate an interception in an NFL match (left) and an attempted lay-up by the Washington Mystics in a WNBA game (right) — Justin Edmonds/Getty Images; Zuma Press/Alamy
Legal eagles punt ‘trophy assets’
Business of sport
M&A ‘quarterbacks’
help navigate rules in
record-breaking deals,
reports Samuel Agini
S
ports used to be small-
scale stuff for seasoned
mergers and acquisitions
lawyer Matt Eisler. But,
with valuations now
booming, the Hogan Lovells partner
has worked on some of the biggest
deals in the sector.
As global head of the law firm’s
sports group, Eisler advised private
equity tycoon Josh Harris’s consor-
tium on the $6bn takeover of the
Washington Commanders American
football team in May — the biggest
team takeover in sports history.
And, before that, Eisler had worked
on the previous record holder, last
year: representing a consortium led
by the Walton-Penner family, heirs to
the Walmart founder, on their $4.6bn
acquisition of the Denver Broncos.
By that point, Eisler was already
accustomed to representing billion-
aires in their pursuit of trophy assets
— or massive returns from selling
them. He advised Russian billionaire
Mikhail Prokhorov on the staggered
sale of the Brooklyn Nets in 2018 and
2019, to Alibaba co-founder Joe Tsai,
at a then-record valuation of more
than $2.3bn.
“I realised, wow, this is not going to
be the highest valuation forever —
something’s happening here,” says
FT Innovative Lawyers North America
Eisler, “I don’t think this record is
going to hold.”
That is just one of the highlights in
more than a decade’s worth of sports
deals since the New Jersey native
moved to Denver in 2010 and fell in
love with the Broncos football team,
basketball’s Denver Nuggets and
baseball’s Colorado Rockies.
As sport is increasingly recognised
as an asset class — and one that is
widely hoped to be more recession-
proof thanks to locked-in broadcast
and ancillary revenue streams — the
price of entry is rising. Booming valu-
ations mean that even the richest
buyers seek co-investors, financing,
and sophisticated legal advice.
“When you talk about sports own-
ers, you’re talking about people that
are very, very wealthy and can usu-
ally get their way just by spending
some money,” Eisler says. “But, when
you put them both into a situation
together, you really have to come up
with some creative solutions for peo-
ple to coexist in a way that works.”
In the top leagues, such as the NFL,
teams no longer trade for millions of
dollars but billions, raising the stakes
for the billionaires and investment
firms buying into sports. Part of the
appeal to Eisler is “building bridges”
between the ultra-wealthy people
attracted to sports ownership.
Beyond teams, investors are
putting money into leagues, media
rights, and stadiums as new sources
of capital change the way the sports
industry does business.
The appetite to buy in is creating
opportunities for incumbent owners
to sell minority stakes or, when
league rules permit, controlling
shareholdings.
European private equity group
CVC Capital Partners has invested in
tennis, rugby, volleyball and Euro-
pean football. Sixth Street Partners
has invested in Spanish football clubs
Real Madrid and FC Barcelona. Red-
Bird controls Italian football club AC
Milan, while Silver Lake has a minor-
ity position in English champions
Manchester City.
For those seeking a more attractive
price in North America, Sixth Street
in April committed $125mn to buy a
new National Women’s Soccer League
club, becoming the first institutional
investor to take majority ownership
of a professional US sports franchise.
In most major US sports leagues,
ownership rules are stricter than, say,
in European football, meaning pri-
vate equity firms and other sources of
institutional capital cannot usually
take controlling stakes in clubs.
‘I don’t care how wealthy
you are, coming up with
three, four or five billion
dollars in equity is a lot’
But, since 2019, Major League Base-
ball, the National Basketball Associa-
tion and Major League Soccer in the
US have revised their ownership rules
to allow greater participation by pri-
vate equity firms and institutional
investors in their sports. The National
Hockey League has also welcomed
private equity investors.
Eisler advised the NBA’s San Anto-
nio Spurs as private capital arrived
from Sixth Street and Michael Dell.
He also worked with Arctos as the
investment firm sought NBA mem-
bership and bought into the Golden
State Warriors.
“We were mostly hired to negotiate
the documents with the NBA that
would allow Arctos to become
approved, so that it could take an
equity interest,” Eisler says. “And
those documents . . . set the frame-
work for how institutional capital
would work in the NBA and, essen-
tially, became part of the blueprint of
the go-forward model.”
Less than a year after the NBA per-
mitted sovereign wealth funds to take
passive minority stakes in clubs, the
Qatar Investment Authority bought
into the ownership of the NBA’s
Washington Wizards, the WNBA’s
Washington Mystics and the National
Hockey League’s Washington Capi-
tals. The $200mn investment for a 5
per cent share of Monumental Sports
and Entertainment valued the group
at more than $4bn.
Even billionaires can struggle to
compete when the other bidder is a
sovereign wealth fund.
Sovereign wealth funds notwith-
standing, the increase in valuations
also means that billionaires are tak-
ing a more flexible approach to rais-
ing the cash to fund acquisitions.
According to analyst PitchBook, 63
major sports teams in four leagues —
with a combined value of more than
$234bn — have private equity con-
FINANCIAL TIMES Tuesday 5 December 2023
nections. But the NFL remains off
limits, as it has so far held back from
following its peers.
It is already rare for NFL franchises
to sell. The last team to trade before
the Commanders and the Broncos
was the Carolina Panthers — and that
was back in 2018. This scarcity — and
the difficulty of joining the wealthy
group of NFL owners — is another fac-
tor holding up deals. So, unless the
NFL decides to change its stance, it
will be tougher for existing franchise
owners to find buyers who can afford
their asking price. According to
Forbes, the average NFL team is
worth more than $5bn.
Josh Harris, who is worth more
than $8.6bn according to Bloomberg,
brought the likes of former Google
chief Eric Schmidt and private equity
investor David Blitzer into the con-
sortium that acquired the Command-
ers. They were joined by basketball
legend and investor Magic Johnson.
Further constraints, across various
leagues, are the limits on how much
debt may be used.
“What we have been seeing a lot of,
across all leagues, are ways to finance
the acquisition of the asset without
violating the rules, the debt limits,”
says Eisler. “It has to be very carefully
done in concert with the leagues and
in a way that considers how the
league’s debt policies work.”
“We’re going to need to see a lot
more creativity in terms of how to
finance these things,” he predicts,
“because — I don’t care how wealthy
you are — coming up with three,
four or five billion dollars in equity
is a lot.”
FINANCIAL TIMES Tuesday 5 December 2023 FTReports | 17
18 | FTReports
Geopolitics make counsel raise pace
In-house Supply chains,
risk-taking and generative
AI demand fast responses,
writes Yasmin Lambert
T
he demands on corporate legal
departments are increasing like
never before. “Geopolitical friction
and complexity are at an all-new
level,” says Anne Madden, general
counsel at technology and engineering
company Honeywell. “We have fast balls being
thrown at us at a much faster rate than we’ve
seen in a very long time. A sanctions regime can
drop overnight, and you have to be nimble
enough to react.”
The combination of a faster pace of business,
global tensions, increases in regulation and
rapid advances in artificial intelligence has
made finding new models to handle complex
legal work a priority. In-house legal teams are
working on a wide range of strategic,
sustainability and operational projects. What
they have in common is a renewed urgency to
innovate and change.
For example, US carmaker General Motors
has committed to selling only electric vehicles
by 2035, presenting its legal team with many
challenges. These range from striking deals for
the supply of semiconductors and materials for
car batteries to securing partnerships to
develop vehicle-charging infrastructure.
“Building this alternative supply chain for
electric vehicles is a very, very heavy lift that’s
going to require a lot of legal expertise to
implement,” says Craig Glidden, general
FT Innovative Lawyers North America
Most innovative
in-house legal teams
North America 2023
Winner Liberty Mutual*
DXC Technology
Equitable
General Motors
Hewlett Packard Enterprise
Honeywell
Intel
Microsoft
The Clorox Company
Upwork
Uber
* “Winner” of the FT Innovative Lawyers
award for “Most innovative in-house legal
team in North America”; other
organisations are listed alphabetically
counsel at GM. Tensions between the US and
China and new laws such as the US Inflation
Reduction Act have wide-reaching implications
for supply chains and investment.
“So much of our business is influenced by
geopolitics,” says Glidden. As such, he is
attempting to recast how his lawyers think, “to
focus on not [just] the case law, but the current
events that are actually going to determine the
shape of the business in the future”.
Pressure for change is also emerging from
within businesses. “There is something
different about this moment,” says Damon
Hart, chief legal officer at Boston-based insurer
Liberty Mutual, winner of the 2023 FT
innovative in-house legal team award for North
America. “Legal departments have been able to
say ‘we’re different’ and escape some of the
scrutiny that other departments have been
under,” Hart adds. “That’s over. Companies are
looking at legal like they look at any other part
of the business, with the same kind of rigour and
[key performance indicators] and metrics.”
That pressure is driving the growth and rising
status of legal operations roles — in data
analysis and other specialisms — which help
legal departments apply relevant technology
and improve how they deliver their work.
This year, the legal operations team at Liberty
Mutual launched a programme that pairs its
staff with lawyers to improve processes or apply
new technologies in specific areas of the
business.
The goal is to provide answers and equip
lawyers with the skills and tools to solve
operational problems themselves. “We take
them through steps of design thinking, of agile
processes, or what a minimum viable product
really means,” says Kiran Mallavarapu, an
engineer by training who leads the team.
A cultural shift within the team was one of the
most pressing requirements to effect change.
“The very first thing we did was create a risk-
taking award,” says Mallavarapu, to recognise
“individuals who either had an idea, raised their
hand and said they would contribute, or at least
asked the question that made the rest of us
think and enabled us to move forward”.
For others, handling more complex legal
work internally is a strategic and budgeting
decision. At ride-hailing platform Uber, chief
legal officer Tony West has focused on bringing
FINANCIAL TIMES Tuesday 5 December 2023
more substantive work in-house, which he
says has helped him retain highly skilled
lawyers and is “significant for professional
development”.
Also this year, the emergence of generative
artificial intelligence has presented a big
opportunity to improve legal processes and ease
pressure on staff. And, because in-house
lawyers are tasked with shaping the so-called
guardrails for using generative AI safely, they
have a front-row seat from which to observe its
development and understand its potential in
their own departments.
At consumer products group The Clorox
Company, associate general counsel Apur Patel
is one of two people leading its strategy on
generative AI. He describes his approach to
using AI as, broadly, “permissive”. He points out
that helping to steer AI implementation means
“[the legal department] gets the visibility we
want and we get our hands on the tools”.
Ultimately, many expect AI to reshape not
only in-house legal departments but also their
relationships with law firms.
“I thought that Covid would be an enormous
disrupter to law firms’ business model, and it
really wasn’t,” reflects Hart. “AI could be that
next level of disrupter . . . the way we use
outside counsel will change.”
Case studies featuring best practice among in-house
legal teams appear on pages 20-21
RESEARCH AND AWARD SUPPORTED BY
FINANCIAL TIMES Tuesday 5 December 2023 FTReports | 19
20 | FTReports FINANCIAL TIMES Tuesday 5 December 2023

FT Innovative Lawyers North America

In-house Legal team operations

Standout available to the senior managers, business introduced new technology. The new jobs General Motors
Honeywell: Winner units and legal team to manage risks and spot include a chief legal innovation counsel and O: 7; L: 7; I: 7; Total: 21
Originality: 8; Leadership: 8; Impact: 9; trends. For example, the tool provided hard legal innovation and tech (LIT) team members. Supply chain disruptions caused a flood of
Total: 25 evidence that lower-risk contracts are The new tech has helped to halve the time the new requests to General Motors’ global
Management of sanctions compliance for correlated with higher margins. Separately, an team spends manually reviewing contracts purchasing and supply chain legal team. It
transactions has been improved at Honeywell, ethics and compliance scorecard provides and has automated financial crime alerting, as worked with other departments — legal
the engineering and technology conglomerate, detailed comparisons and data on compliance- well as the way requests from the business operations, operational excellence, and IT —
thanks to a new tool. It automates processes related activities on more than 10 Flex sites. relating to sanctions are handled. The LIT lab and drew on management methodologies,
to update documents, approve requests, and is now working with other teams in Marsh such as Agile and Six Sigma, to create a new
identify and report on any frozen assets, and Intel McLennan to develop tools to speed up data process and a tool to manage requests.
also helps ensure that compliance continues if O: 7; L: 8; I: 8; Total: 23 privacy, procurement and M&A processes.
sanctions change. The tool has cut the The legal operations team at Intel is making ........................................................................................................ Equitable
compliance team’s response times to new sure the computer chipmaker’s legal team is Commended O: 6; L: 7; I: 7; Total: 20
sanctions-related requests from the business. both fully equipped, and ready, to use artificial Accenture Each year, financial services provider Equitable
The team has also trained a machine-learning intelligence as it develops. Legal operations O: 7; L: 8; I: 7; Total: 22 manages 100 or so legal “holds” —
technology to predict tariff codes for imports staff spent two years cleaning and ordering Working with AI tech company BlackBoiler, instructions to preserve often large volumes of
and exports, which has more than doubled the the legal department’s data, which allowed the legal team at professional services group data ahead of an expected litigation. The legal
team’s capacity to classify 10,000-plus parts them to start testing more than 40 practical Accenture has overhauled how it reviews team led a project to automate the previously
exported each month. applications for generative AI. The in-house contracts. Low-risk contracts are now manual process and to stop storing data in
........................................................................................ team is also working with law firms to test use reviewed, edited and sent to the relevant multiple locations. As a result, it has saved
Highly commended of AI assistants in litigation e-discovery person for signature within five minutes. For more than 1,500 manual hours and cut both
Flex processes. more complex documents, the tool ensures a data costs and the risk of missing data.
O: 7; L: 8; I: 8; Total: 23 human reviewer focuses on the most
Electronics and diversified manufacturing Marsh McLennan important clauses, which cuts manual review
company Flex built an in-house tool to O: 8; L: 8; I: 7; Total: 23 time by up to 90 per cent. The approach has RESEARCH AND AWARD SUPPORTED BY
expedite the process for sealing agreements As part of a strategic push to modernise the cut the number of contracts that need legal
with customers. The contract lifecycle legal and compliance team of more than 650 review by nearly two-thirds, improved
management software tracks metrics on more people, professional services group Marsh turnaround time and made it easier for clients
than 3,000 contracts, and live dashboards are McLennan has created extra legal roles and to do business with Accenture.

In-house Outside counsel management In-house Sustainability and impact

Standout law firm associates being involved in more Standout Amazon
Liberty Mutual: Winner interesting work. It also encourages law firms Upwork: Winner O: 7; L: 8; I: 8; Total: 23
Originality: 8; Leadership: 8; Impact: 8; to set healthy boundaries around work-life Originality: 8; Leadership: 8; Impact: 8; A dedicated sustainability legal team is
Total: 24 balance when working on its projects. Total: 24 leading new initiatives to support
For global insurer Liberty Mutual, managing The legal team at freelancing platform decarbonisation at ecommerce company
legal spend and relationships is highly Equitable Upwork leads on sustainability initiatives, Amazon — for example, by investing in
complex, as it handles thousands of O: 7; L: 7; I: 7; Total: 21 including ways to reduce its environmental carbon capture and offsets, restoring
litigations a year and uses more than 1,000 The legal team at the financial services and impact, and to promote diversity and rainforests, and co-founding the Climate
firms to cover all the legal specialities and insurance company is mandated to interview inclusion. In 2022, after Russia’s invasion of Pledge Fund. This fund will invest in tech that
jurisdictions. So a legal data science team and at least one leading counsel from a diverse Ukraine, the team helped make changes to helps companies reach net zero carbon
in-house lawyers created new data models to background for every matter that it assigns support freelancers and businesses in the emissions. Lawyers also led the creation and
manage legal spending and relationships. to outside law firms. Leading counsel receive country that use the platform. Initiatives governance of a programme to flag to
The team takes a data-driven approach to the most pay and credit. In 2023, 86 per cent included providing fast access to funds. The customers when a product bought through
compare law firms and to allocate cases. This of leading counsel on Equitable matters were team quickly identified more than 70,000 the platform has at least one of more than 50
has reduced the cost of litigation. from under-represented groups. freelancers on Upwork in Ukraine and set up sustainability certifications.
...................................................................................... processes for business clients to request ......................................................................................................
Highly commended Intel freelancers displaced or affected by the war. Commended
The Clorox Company O: 6; L: 7; I: 8; Total: 21 By September 2023, the Ukraine-based General Motors
O: 7; L: 8; I: 8; Total: 23 Over the past 18 months, the legal team at freelancers had earned more than $413mn O: 7; L: 8; I: 7; Total: 22
Consumer goods maker Clorox implemented the computer chipmaker has changed the through jobs advertised on Upwork since the As the US carmaker switches to electric
comprehensive changes to improve how it way Intel allocates work to outside law firms, start of the war. vehicles, lawyers in General Motors’ securities
manages budgets and outside law firm fees. saving millions of dollars. It introduced ...................................................................................................... practice team are designing sustainable
The legal team can now track legal spend via outside counsel management technology, Highly commended financing to underpin the company’s broader
real-time dashboards and has cut costs by 20 from Persuit, which it uses to compare bids Hewlett Packard Enterprise commitments. The team supported the
per cent while handling higher volumes and for large legal matters and to manage work O: 7; L: 8; I: 8; Total: 23 creation of General Motors’ sustainable
greater complexity of work. Data on sent to lower-cost providers. Live feedback The legal team designed processes, finance framework and the issuance of its first
spending has led to more efficient use of its on law firms is now improving the way Intel documents and training to allow technology green bonds. The $2.25bn raised in 2022 will
own resources and that of external firms. works with its most-used legal partners. company HPE’s financial services business to support making electric vehicles and other
...................................................................................... expand into offering asset management. The clean energy projects and investments.
Commended Redfin new business unit offers a range of ways for
Cardinal Health O: 6; L: 6; I: 7; Total: 19 clients to manage their IT, with a focus on
O: 7; L: 8; I: 6; Total: 21 Two technologies have helped the legal team smarter, more energy efficient and generally
The legal team at US healthcare provider at real estate services company Redfin to cut sustainable use of tech. Lawyers helped
Cardinal Health has set out to achieve more costs. Using ediscovery software Exterro, it design processes to allow computer
strategic partnerships with its law firms. can handle 80 per cent of litigation review equipment to be re-engineered and reused
Changes include new feedback and reporting work in-house, cutting the cost of this work while meeting regulatory requirements. The
processes to ensure better value for Cardinal by 25 per cent. And data provided by legal new services will cut HPE’s overall carbon
Health, but also a commitment to helping its operations software Brightflag helps to emissions and reduce electronic waste, which
law firms. For example, it actively facilitates manage spending on law firms. contributes by far the most toxins in landfill.
FINANCIAL TIMES Tuesday 5 December 2023 FTReports | 21

FT Innovative Lawyers North America

In-house Commercial and strategic advice

Standout
General Motors: Winner
Originality: 8; Leadership: 8; Impact: 9;
Total: 25
Lawyers at General Motors formed part of a
cross-departmental centre of excellence
devoted to battery raw materials, which was
tasked with securing and speeding up supplies
of materials for electric vehicles. One of the
team’s first deals was a $650mn investment in
US miner Lithium Americas in early 2023.
Lawyers negotiated a transaction in which the
investment was sliced into tranches, delaying
a portion of payment until after the separation
of Lithium Americas’ US and Argentine
businesses. This meant the second part of the
investment could be made in the US entity
only, which includes the strategically
important, but contentious, Thacker Pass
project in Nevada. Lithium Americas estimates
the mine will produce enough lithium for up to
1mn electric vehicles a year.
Microsoft
O: 7; L: 9; I: 8; Total: 24
A new specialist unit within the legal team at
Microsoft supports responsible and strategic
use of data. It tracks trends relating to policies
and regulation around the world, including the
US tech company’s submissions to regulators
and policymakers globally. The unit also helps
research engineers and data scientists identify
data that they can safely collect and use. It
launched an awards programme to recognise
best uses of data to support sustainability,
health and social equity in Microsoft.
Uber
O: 8; L: 8; I: 8; Total: 24
The legal team plays a central role in the
Commended
OpenAI
O: 8; L: 7; I: 7; Total: 22
The legal team at OpenAI, the start-up behind
the chatbot ChatGPT, is navigating the
unprecedented legal issues surrounding the
development and regulation of generative AI
as well as its own boardroom turmoil. It has
supported OpenAI’s shift to a commercial
“capped-profit” company structure, its fast
growth since the launch of ChatGPT in late
2022, and partnerships that include $13bn in
investment commitments from Microsoft.
OTC Markets Group
O: 7; L: 7; I: 7; Total: 21
Financial services business OTC Markets
Group provides price and liquidity information
design and launch of new products by the semiconductor plant in Arizona. Such facilities for over-the-counter securities. Its legal team
ride-hailing platform, many of which have no are traditionally financed by banks. But supply has now navigated complex regulations and
legal precedent. In 2023, Uber Teen launched chain disruptions and legislation designed to won approval from the US Financial Industry
in the US to allow parents and carers to add subsidise US chipmakers and tech companies Regulatory Authority to allow investors to
teenagers to their Uber accounts so they can have led to demand for big but flexible trade digital assets on its platform. The team
ride alone. Lawyers worked through legal investments to fund environmentally has also worked with legislators to create
questions to make safety features available, sustainable plants in the US. Brookfield’s move new rules for OTC-traded companies in order
including audio recordings of trips and live creates a model for private capital investments to raise capital and offer shares to
tracking. Separately, the team has developed for similar deals. employees.
legal agreements to allow Uber to offer rides
and deliveries in autonomous — driverless — Pfizer The Not Company
vehicles. They are playing a prominent role in O: 7; L: 8; I: 8; Total: 23 O: 6; L: 7; I: 7; Total: 20
developing safety standards for the industry. Pharmaceutical company Pfizer’s plans to The US-based legal team at The Not Company
........................................................................................................ launch 19 new medicines and vaccines globally created simpler, modular contracts to enable
Highly commended over 2023 and 2024 mean the international the plant-based food tech group to partner
Brookfield Asset Management legal team is, in effect, working on hundreds of with bigger businesses more easily. For
O: 8; L: 8; I: 7; Total: 23 launches because each country has its own example, the companies can now agree an
The legal team of the Canadian investment rules for intellectual property and regulations. initial R&D stage while postponing negotiation
group’s infrastructure affiliate, advised by law The team created an online product launch of future ownership of intellectual property.
firm Kirkland & Ellis, negotiated a creative hub, used by 400-plus legal professionals, to This faster, more flexible process has enabled
investment structure for a $30bn joint venture help manage risks consistently and to speed the company to close several deals with
with computer chipmaker Intel to expand a up their advice. leading big food brands.

In-house People and skills

Standout
DXC Technology: Winner
Originality: 8; Leadership: 9; Impact:
8; Total: 25
Since IT services company DXC
Technology was formed from a
merger six years ago, its legal team
of 400-plus has undergone several
upheavals. It is now focusing on
both staff wellbeing and on building
skills to make the most of generative
AI. Team members attend wellbeing
sessions — with neuroscientists, and
meditation and yoga instructors —
and a software tool helps identify
when they are overloaded with
tasks. Training on AI, a requirement
for the whole legal team, includes:
generative AI prompting; advanced
legal technology courses with the
Legal Design School; and a four-
month innovation course.
Liberty Mutual
O: 8; L: 8; I: 8; Total: 24
To keep pace with rapid legal and
technological change, the team at Prudential Financial virtual reality for meetings as well as
the global insurer launched a legal O: 7; L: 9; I: 7; Total: 23 a platform, Micro-Tips, for
innovation programme in 2022 to The US insurer’s general counsel, employees to share advice via short
develop new products and promote Ann Kappler, leads a mental health videos on the tools they use. The
more innovative thinking and and wellness programme for Will project is now running training
actions. A new award recognises employees. An initial focus was to and collecting ideas for using
individuals or teams for trying use open forums and talks from generative AI within the HPE legal
something new, whether it succeeds experts to help remove the stigma department.
or not. Innovation workshops enable around talking about mental health
lawyers to collaborate with problems. Employees can now The Clorox Company
technologists and other colleagues access up to $1,000 a year to spend O: 6; L: 7; I: 7; Total: 20
to develop ideas, such as processes on wellness benefits, such as mental The legal team at consumer goods
to improve how lawyers work with health services. In addition, business The Clorox Company
the rest of the business on new managers will be assessed on how designed an interactive game called
products and complex contracts. they support wellbeing in their “Hey Legal, This OK?”, in which a
............................................................................. teams. host asks legal questions related to
Highly commended ................................................................. Clorox’s business. The questions
Moderna Commended spur consideration of real legal and
O: 7; L: 9; I: 7; Total: 23 Hewlett Packard Enterprise business challenges and generate
The legal team at pharma company helping business colleagues prepare O: 6; L: 8; I: 7; Total: 21 an interactive discussion.
Moderna has embraced generative their own legal agreements, and The Worldwide Innovation Law Lab The programme has improved
AI through investment, training and helping to draft patents and manage (Will) initiative at the US tech team members’ ability to spot
working with the company’s trademarks. Moderna’s outside law company helps co-ordinate problems and has also created new
technologists to develop AI firms are asked to share how they innovative projects across the global connections, which helps foster
applications. AI tools are changing are using AI and must have an AI legal department. In the past two knowledge-sharing across different
how the team negotiates contracts, strategy for any new legal matter. years, the team has introduced parts of the team.
22 | FTReports
Ambitious for
change and impact
T
he initial focus when a law firm
brings in innovations is on new tech
and teams — often with unusual
spellings to signal novelty — writes
Harriet Arnold. But the changes
would not take place without the individuals
who take a lead on making them happen. The
FT Innovative Lawyers awards identify the
most effective of these “change makers” and a
Danielle Benecke
Founder, Baker McKenzieML, Baker McKenzie
Danielle Benecke, pictured right, helped found
the firm’s machine learning practice, a global
team of lawyers, data scientists and engineers.
In 2017, while helping clients to set up artificial
intelligence (AI) tools, she realised that the
technology would fundamentally change the
law firm’s business model — and new
legal resources would be needed in
response.
Formally launched in 2021,
Baker McKenzieML works with
clients on projects such as
creating customised
generative AI for employment
law queries.
The team has been out in front
in understanding the potential of
this new technology — including use of
OpenAI’s GPT-3 since February 2022, well
before its official launch.
As Benecke puts it, the question for lawyers
everywhere is: “What does it mean to be a
trusted adviser in an AI-enabled world?”
Andrew Terrett
National director, legal technology and
service delivery, Borden Ladner Gervais
Andrew Terrett, pictured right, started out in
legal technology long before it made
serious inroads in the legal
industry, by building neural
networks — a type of AI
system modelled on the
human brain — at the
University of British
Columbia in 1994.
Now, he plays a vital role in
the digital transformation of the
firm. For example, he has led the
rollout of applications for automating civil
litigation and streamlining contract processing
and document management. He heads Borden
Ladner Gervais’s Digital Hub, a team of
developers and analysts that design user-
friendly apps, such as a time-management
tool, and implement the automation of routine
tasks for the firm. By analysing documents and
emails and using automation, the team says, it
has saved more than 1.5mn hours of work
since its launch in 2020.
FT Innovative Lawyers North America
judging panel picks the most outstanding. They
were most impressed by Danielle Benecke, of
Baker McKenzie Machine Learning. She was
far-sighted on the impact of artificial
intelligence on legal work, and the practice is
now a leader in understanding and applying
generative AI. The effects are seen in work for
clients, for the firm itself, and have also been
applied to a global study on child detention.
Natalie Kernisant
Chief diversity and inclusion
officer, Morrison Foerster
Natalie Kernisant, pictured
right, was appointed the firm’s
chief diversity and inclusion
officer in 2020, following 10
years of implementing its
strategic diversity programmes.
She launched an allies network
at the firm, which encourages staff
to support under-represented
groups, and MoFo Navigate, a
co-ordinated series of
mentorship and sponsorship
programmes — including for
specific groups such as one aimed
at black, Latino, Asian American and
Pacific Islander lawyers. She led the
establishment of the firm’s policy
allowing lawyers to claim billable
hours for time spent on
initiatives promoting diversity,
equity and inclusion.
Morrison Foerster was one
of the first law firms targeted
by the American Alliance for
Equal Rights, an anti-affirmative
action group. The firm modified the
language of a post on its website about
diverse recruitment, but Kernisant says the
case will not deter the firm’s diversity
efforts.
Katy Ryan
Partner, Orrick, Herrington &
Sutcliffe
Katy Ryan, pictured middle, saw a
gap in the market for financial
services institutions to manage a
complex array of regulatory and licensing
requirements — and played a lead role in
creating Approved to help fill it. The
service was launched in 2018 at
law firm Buckley, which merged
with Orrick in 2023. The service
aims to simplify the process of
obtaining and maintaining
licences for financial services,
such as business lending,
mortgages, car loans and debt
collection, across different US state
The judges also commended Miriam Buhl,
whose efforts mean that lawyers at all levels at
Weil, Gotshal & Manges undertake pro bono
work, and support it with the firm’s resources.
Profiles compiled by RSGI researchers and FT
editors. “Winner” indicates an Innovative Lawyers
North America 2023 award, the rest are in
alphabetical order. For the list of judges, please see
Page 27.
jurisdictions. Its technology tracks
more than 40,000 licence
requirements from more than 275
agencies. Approved is offered at
a flat fee, and is staffed by a
variety of professionals, including
directors, programme managers,
licensing analysts, and
technologists. The team
reports an annual revenue of
about $30mn and is planning to
expand into Europe.
David Cohen
Partner, Reed Smith
David Cohen, pictured right, leads
the firm’s global records and
electronic discovery team. He has worked
in the field for more than 30 years,
participating in the evolution from
paper copies to microfilm, email,
and other forms of digital records.
Through his work on protocols
and with academic institutions,
he promotes common US
standards for ediscovery. This is
a particular focus in light of the
emergence of artificial intelligence-
generated deepfakes, a development
that raises questions over what can be
accepted as evidence by courts. He
continues to advise clients in complex
litigation and overall records
management, and has drafted and
supported amendments to state
and federal rules on ediscovery.
In 2020, Cohen led the design
and launch of an ediscovery mobile
app that offers checklists and rules
of procedure on discovery that is free
to the public. It continues to add new
content and interactive features as the
field evolves. The app has been
downloaded more than 4,000
times.
Will Gaus
Chief innovation officer,
Troutman Pepper Hamilton
Sanders
Will Gaus, pictured left, has been
tasked with encouraging innovation at
FINANCIAL TIMES Tuesday 5 December 2023
the firm since the 2020 merger of Troutman
Sanders and Pepper Hamilton. He oversees
technology implementation and data science
initiatives, including an analytics project to
store client relationship data on a single
platform, and an app called MobileOn, where
people at the firm can access resources to aid
them in professional development
and wellbeing.
Gaus leads the firm’s
generative AI task force and
headed the development of
the firm’s generative AI
chatbot, Athena, which uses
OpenAI’s large language
model, supplemented by the
firm’s own data.
The chatbot has been released to
everyone at the firm to encourage
experimentation and is used by lawyers for
research.
Miriam Buhl
Pro bono counsel, Weil, Gotshal & Manges
Miriam Buhl, pictured left, has made it an
expectation that lawyers at all levels at the
firm should commit to pro bono hours.
She supports individual lawyers in their
cases and co-ordinates Weil, Gotshal &
Manges pro bono resources, such as
technology, associates, and external
relationships.
Examples of the firm’s
impact include work with the
Innocence Project, a non-
profit organisation that
works to overturn and
prevent wrongful convictions,
on a tech-heavy project to
clear a backlog of 5,000 prisoner
requests for aid in 2019 and helping
to achieve the 2023 exoneration of Tyrone
Day, who was wrongly imprisoned in 1990.
Buhl has overseen Weil, Gotshal’s lawyers
working on many projects, including assisting
the Public International Law and Policy Group,
a global pro bono law firm, on a draft law for a
Ukrainian war crimes court.
Since Buhl joined Weil, Gotshal in 2005, its
lawyers have committed more than 1mn
pro-bono hours. They added more than
80,000 hours last year.
FINANCIAL TIMES Tuesday 5 December 2023 FTReports | 23
24 | FTReports FINANCIAL TIMES Tuesday 5 December 2023

FT Innovative Lawyers North America

Top legal practitioners

who lead in their fields
T
ake 10 highly skilled practice lawyers and you will find still
more different ways to shine in legal expertise, writes Harriet
Arnold. From financial and litigation skills to pioneering
digital technology, the FT Innovative Lawyers awards seek
out practitioners who go beyond sheer prowess to address
the nexus of the law, business and wider society.
All the lawyers featured here were notable for leadership in their field
and for having an impact on the future practice of law.
For our panel of judges, even if generative artificial intelligence had not
been the story of 2023, on all these counts Danny Tobey would have stood
out for general foresight, creativity and entrepreneurship in bringing the
potential offered by legal technology to the sector. He is established as a
corporate adviser to OpenAI and an early-stage litigator in the field.
He has long understood, and explained to policymakers, how
generative AI’s potential for good or bad depends on the work being done
now on the creation of guardrails for its use. Moreover, Tobey’s expertise
in both the health and legal sectors means he has a vision of how AI could
improve both innovation and fairness in healthcare.
Profiles compiled and edited by RSGI researchers and FT editors. “Winner”
indicates an Innovative Lawyers 2023 award, the rest are in alphabetical order.
For the list of judges, please see Page 27.

Danny Tobey Katherine Forrest Michael Goldberg Dee Martin Valecia McDowell

Winner
Partner, DLA Piper
A medical doctor and software
entrepreneur, Danny Tobey is
heading his firm’s efforts to
establish itself as a leading legal
adviser on artificial intelligence.
This year, Tobey, who chairs
DLA’s AI practice, has led the
expansion of a team that now
comprises more than 100
attorneys, data scientists,
coders, and policymakers
focused on the topic worldwide.
He has helped OpenAI, the
Silicon Valley start-up, in
representations to Congress
over future regulation of AI and
helped lead its defence in a
defamation suit against its
ChatGPT product. Tobey is
adviser to many Fortune 500
companies including CVS, 3M
and Eli Lilly, and regularly
speaks to a range of
organisations on the risks and
benefits of AI.
He continues to exploit his
clinical qualification by advising
the American Medical
Association and other health
organisations “to advance AI
equity” in healthcare.
Partner, Paul Weiss
A former district judge for the
Southern District of New York,
Katherine Forrest is a leading
voice at the firm on the risks
and opportunities of artificial
intelligence. She speaks to the
industry on the future possible
impact of AI on the criminal
justice system.
As co-chair of the firm’s
digital technologies practice,
she leads a team of experts and
has advised more than 60
companies in the media,
pharmaceutical and finance
sectors on plans to implement
AI in their businesses.
Forrest honed her expertise in
the law surrounding the
expanding digital economy as a
judge. She has handled
important cases including:
United States vs Ulbricht (2015),
where the leader of Silk Road,
an online drug-trafficking
operation favouring bitcoin for
payment, was convicted; and
notably ruled in 2018 that using
someone else’s tweet on a
website could classify as a
copyright infringement.
Partner, Akerman
Michael Goldberg has handled
many receiverships and has
honed his flair for working with
the many constituents involved.
He was selected as the
receiver in charge of a group
suit brought over the collapse of
a condominium block in Miami,
Florida, in June 2021 that killed
98 people, co-ordinating the
sale of the land and property
left behind, and the
investigations that took place.
In May 2022, he helped secure
$1.1bn in damages from insurers,
contractors, and the building’s
security agency over their civil
responsibility for the collapse.
Goldberg’s goal was to avoid
protracted litigation. He
mediated between parties,
including the victims and their
families, mayor’s office, US
Congress, police, judge, federal
investigators, experts, and the
lawyers for the class action suit.
He also liaised with
emergency services, and
oversaw the gathering of
evidence and the return of
items that survived the collapse.
Partner, Bracewell
Dee Martin is co-chair of the
firm’s policy resolution group,
which specialises in strategic
communications and
government relations.
Acting on behalf of client Air
Liquide, the practice also
recently advised the Fuel Cell
and Hydrogen Energy
Association, a trade body, in its
lobbying around the granting of
tax credits for the sector
included in last year’s Inflation
Reduction Act, and the creation
of several “hydrogen hubs”
across the US backed by up to
$7bn in public funding.
Martin, a board member of
lobby group Feminist Majority,
has used her advocacy skills in
campaigns to defend women’s
rights in the US and abroad.
She has helped The Trevor
Project, an LGBTQ+ youth
charity, to secure support for its
suicide-prevention hotline.
Martin has also helped establish
“Minute Mentoring”, a speed-
dating-style programme to
introduce women in law to
female mentors.
Member, Moore & Van Allen
Valecia McDowell has worked at
the firm as a commercial
litigator and investigator for 25
years and, last year, created its
civil rights and racial equity
assessments practice. Her work
focuses on reviewing the
performance of companies and
public services on a range of
race, gender and other diversity
criteria and compliance with
civil rights.
Following the US Supreme
Court’s recent decision
overturning affirmative action
policies in US colleges, she and
her team have been helping
companies ensure they comply
with civil rights legislation while
avoiding challenges from
opponents of affirmative action.
The outcomes of many of
McDowell’s cases are private
but, in one recent example, she
ran an audit for prison operator
CoreCivic, which houses roughly
50,000 inmates, reviewing its
adherence to racial equity
standards and making
recommendations for
improvements.
FINANCIAL TIMES Tuesday 5 December 2023
Adam Silverstein
Member, Otterbourg
Over the past year, Adam
Silverstein has played a crucial
role in clamping down on big
corporations deploying the so-
called Texas two-step, whereby
a company facing mass
damages claims sets up
subsidiaries that are put into
bankruptcy to limit the ability
for claimants to pursue them.
He co-led at trial against 3M,
which faced mass tort action on
behalf of more than 250,000
veterans. They claimed earplugs
supplied by a subsidiary to the
US Army had failed to protect
them from hearing loss.
3M was forced into a $6bn
settlement after a federal judge
in June overturned its attempt
to put its Aearo unit into
bankruptcy with just $1bn to
cover settlement. He also co-led
at trial against Johnson &
Johnson where it was concluded
that a financially engineered
subsidiary, facing claims over
illness caused by talcum
powder, was “not sufficiently
financially distressed to avail
itself of bankruptcy”.
FT Innovative Lawyers North America
Cate Stetson
Partner, Hogan Lovells
Cate Stetson, co-director of the
firm’s appellate practice, is
determined to encourage
younger and more diverse
lawyers in her field of work.
She, herself, has argued more
than 120 appeals before the US
Supreme Court, the federal
circuit court of appeals, and
state appellate courts from New
York to California.
Stetson has represented
several defendants facing the
death penalty and helped
secure the release of Leon
Brown and Henry McCollum
after 31 years on death row,
successfully arguing wrongful
conviction.
In the commercial field, last
year, she defeated Citadel
Securities in its recent attempt
to limit the operations of her
client IEX in market trading.
To achieve change in her
appellate practice, she has set
targets to recruit from diverse
backgrounds, spends time on
mentoring young associates,
and ensures they have early
opportunities to argue in court.
Joshua Sussberg
Partner, Kirkland & Ellis
As a senior partner at Kirkland
& Ellis’s restructuring practice,
Joshua Sussberg is established
as one of the most high-profile
advisers in the field of
bankruptcy and corporate
rescues.
In the past two years, he has
added to a long list of acting for
prominent retail names facing
collapse — including Bed Bath
& Beyond and Cineworld, which
emerged from Chapter 11
proceedings in July.
He has previously worked on
attempted rescues of the
distressed retailers ToysRUs, J C
Penney, Barneys, and Macy’s
and more recently WeWork, the
highly indebted flexible office
space provider, which filed for
Chapter 11 in November.
His overall approach when
possible, he states, is “to
convince debtholders that the
company is worth more alive
than dead”. In the past two
years, he has acted for crypto
lenders Voyager, BlockFi and
Celsius, which entered Chapter
11 in 2022.
John Timperio
Partner, Dechert
As co-chair of Dechert’s global
finance practice and real estate
practice group, John Timperio
has more than 25 years of
experience working with some
of the world’s largest asset
managers and investment
banks on various types of
structured finance solutions.
He helped pioneer the
emergence of specialised
collateralised loan obligations
and also helped develop the
market in collateralised fund
obligations — vehicles that
parcel up stakes in private
equity and similar assets.
His structured credit and CLO
team is ranked one of the most
active in the market and advises
more than 50 asset manager
clients involved in the field.
More generally, Timperio
advises managers and
borrowers in a variety of fund
financing structures.
Despite recent dislocation in
the CLO market, Timperio has
helped asset managers
Centerbridge and Advent
Capital to launch in the sector.
FTReports | 25
Ariel Wolf
Partner, Venable
Ariel Wolf helped found, and is
general counsel to, the
Autonomous Vehicle Industry
Association — a trade group
comprising 20 businesses,
including Ford, Volvo Cars, Uber,
and Lyft, that promotes self-
driving cars and trucks in the
US. The association has
successfully lobbied in many
states for laws allowing
autonomous vehicles and for the
California governor to veto a bill
that would have banned self-
driving trucks from being driven
without driver oversight, despite
overwhelming support among
state senators.
Now chair of the firm’s
autonomous and connected
mobility group, Wolf has nearly
two decades of experience in
government affairs including a
spell as a senior official at the
US Department of
Transportation until 2019. As
well as advising private clients,
he has testified to the US
Congress and other forums on
the topic of mobility technology
and autonomous vehicles.
26 | FTReports
Practice of law:
case studies
T
he seven sets of case studies
showcased here and overleaf
feature examples of the most
innovative work and legal services
that law firms have provided for
their clients in North America.
All the case studies were researched, compiled and
ranked by RSGI. “Winner” indicates that the
organisation won an FT Innovative Lawyers North
America award for 2023
Supreme Court
Standout
Hogan Lovells: Winner
Originality: 8; Leadership: 9;
Impact: 10; Total: 27
The appellate practice helped
persuade the US Supreme Court to
reject a case brought by North
Carolina’s Republican-controlled
legislature, which was trying to
limit state courts’ oversight of how
state lawmakers draw election
maps. In Moore vs Harper, the
lawyers emphasised the non-
partisan aspects, drawing on
support from conservatives such
as judge J Michael Luttig and
referencing Articles of
Confederation from the 18th
century.
Separately, in Allen vs Milligan,
the lawyers persuaded the US
Supreme Court that Alabama’s
redrawing of congressional
districts violated the Voting Rights
Act because black voters would be
a majority in only one district out
of seven although black residents
comprise 27 per cent of Alabama’s
population. Commended
individuals: Jessica Ellsworth and
Neal Katyal
Arnold & Porter
O: 8; L: 9; I: 9; Total: 26
After Gorgi Talevski received poor
treatment in a nursing home, the
firm represented his daughter
FINANCIAL TIMES Tuesday 5 December 2023
FT Innovative Lawyers North America
Healthcare and life sciences
Standout
Porzio, Bromberg & Newman:
Winner
Originality: 9; Leadership: 9; Impact:
health practice group in response to
the Supreme Court’s 2022 ruling on
Dobbs vs Jackson, which overturned
the constitutional right to abortion.
8; Total: 26 It has advised clients, ranging from
In 2004, the firm created a large healthcare insurance
subsidiary, Porzio Life Sciences, to companies to charities, on the legal
provide companies with a database repercussions.
of compliance obligations across all
50 US states. The team now employs Morrison Foerster
about 50 lawyers and analysts O: 7; L: 8; I: 7; Total: 22
offering a range of subscription The firm played a leading role in the
services, such as updates on US and creation of the Abortion Defense
international regulation and global Network, a coalition of law firms and
transactions in the sector. The non-profit organisations that
subsidiary was sold for an provides free, confidential, and
undisclosed sum to RLDatix, a state-specific advice on access to
healthcare tech company in 2022, reproductive rights. Since last year’s
but maintains links to the law firm, Supreme Court vote to overturn the
sharing staff and office space. constitutional right to abortion,
seeking or providing access to
Schulte Roth & Zabel
O: 7; L: 9; I: 9; Total: 25
termination can lead to jail, loss of
licence, and heavy fines in some
The firm advised activist investor states. The network seeks to clarify
Quentin Koffey and his hedge fund confusion and educate individuals
Susie in a lawsuit. It persuaded the Mexico” — brought in by the Politan Capital Management after on their legal rights.
Supreme Court that the Federal Trump administration to make medical tech company Masimo
Nursing Home Reform Act gave asylum seekers await hearings amended its bylaws to resist his Ropes & Gray
more than 85mn US citizens south of the border. Usually, attempt at election to its board. O: 8; L: 7; I: 6; Total: 21
enrolled in federal spending amparos protect an individual, but Politan threatened legal action over Chinese pharmaceutical company
programmes, particularly the lawyers argued that restriction of shareholder rights and Hutchmed was advised by the firm
Medicaid, the right to sue the state Appleseed México represented the was backed by the Managed Funds on licensing its cancer drug
if their rights were violated. The collective rights of individuals Association, a US hedge fund lobby, fruquintinib to Japanese
lawyers used historical affected by the rule. Remain in as an interested third party. Masimo multinational Takeda
congressional records to make Mexico was overturned by the withdrew its new bylaws, allowing Pharmaceutical for $400mn upfront
their legal arguments, as well as Biden administration but the two Politan nominees to be elected and up to $730mn in further royalty
contributions from experts and amparo holds the Mexican to Masimo’s board. payments.
charities, as interested third government accountable for
parties, ultimately winning with a migrant treatment if it resumes. Hogan Lovells and Kirkland & Ellis Reed Smith
7-2 ruling. Commended individual: ............................................................................. O: 7; L: 8; I: 9; Total: 24 O: 7; L: 7; I: 7; Total: 21
Andrew Tutt Commended Hogan Lovells and Kirkland & Ellis In July 2023, the firm launched tech
Reed Smith advised both businesses involved in to track and provide updates on
McDermott Will & Emery O: 6; L: 7; I: 7; Total: 20 UnitedHealth Group’s $8bn changing state and federal laws
O: 8; L: 9; I: 8; Total: 25 At the request of legislators in acquisition of Change Healthcare, regarding the treatment of
The firm won a unanimous 9-0 Oklahoma, the firm undertook a defeating the US Department of transgender and intersex people to
Supreme Court ruling in favour of pro bono independent Justice’s antitrust challenge in March healthcare providers. Last year, the
transgender asylum seeker investigation to support the 2023. The lawyers had to show that firm launched a similar tracker to
Estrella Santos-Zacaria who faced appeal for Richard Glossip, a man controls were in place to prevent report updates on laws relating to
unreasonable bureaucratic on death row convicted of UnitedHealth, one of the largest US abortion rights.
challenges in applying for asylum. commissioning a murder in 1998. health insurers, unfairly exploiting ......................................................................
The firm argued against Their 18 months’ work unearthed access to the customer data of the Commended
longstanding US immigration new testimonials and documents acquired insurance tech group. Goodwin
practices, convincing the Supreme more than 20 years old, which ..................................................................... O: 7; L: 7; I: 6; Total: 20
Court that it was inefficient for prompted the state government to Highly commended The firm advised Nimbus
immigration agencies to require launch a new investigation. In May, Dechert Therapeutics on its sale of a
that non-citizens exhaust all the Supreme Court voted to halt O: 7; L: 7; I: 8; Total: 22 subsidiary, Nimbus Lakshmi, to
options within the agency before Glossip’s execution, scheduled for The firm advised US drugmaker Eli multinational pharmaceutical
appealing their case in court. that month. The case has revealed Lilly in a patent dispute with Swiss company Takeda for $4bn in 2022.
Commended individual: Paul flaws in the initial prosecution and rival Novartis, which was trying to Lawyers advised on the transfer of
Hughes has prompted fresh debate in the protect the market for its its psoriasis drug business without
............................................................................. US about the death penalty. blockbuster psoriasis drug, affecting Nimbus’s other research
Highly commended Cosentyx. Dechert lawyers and development projects.
White & Case embarked on a protracted dispute in
O: 8; L: 8; I: 6; Total: 22 an attempt to use a federal statute Dentons
In October 2022, on behalf of to bring discovery proceedings to O: 7; L: 6; I: 6; Total: 19
charity Appleseed México, lawyers the US — despite the dispute being After a criminal investigation at
in the Mexico City office filed an brought in front of European publicly funded Borrego Health, a
amparo — a request for antitrust authorities. Novartis and Eli group of medical clinics serving poor
constitutional protection — with Lilly reached a cashless settlement areas, California’s Department of
the Mexican Supreme Court. The resolving the case last year. Health Care Services threatened to
move was to help migrants suspend Medicaid payments. The
affected by the US Migrant Foley Hoag firm helped Borrego to file for
Protection Protocols government O: 7; L: 8; I: 7; Total: 22 bankruptcy and secure payments
programme — dubbed “Remain in The firm created a reproductive due from the state.
FINANCIAL TIMES Tuesday 5 December 2023
Cyber security and data protection
Standout
King & Spalding: Winner
Originality: 9; Leadership: 9; Impact:
8; Total: 26
The firm used legislation including
the Racketeer Influenced and
Corrupt Organizations (Rico) Act, a
US federal law designed to tackle
organised crime gangs, to bring the
operators of the Glupteba botnet, a
sophisticated malware, to court on
behalf of its client, Google.
A New York judge backed the
technology giant in demanding
settlements against two Russians
named as operators of the botnet,
who eventually appeared in court,
and their attorneys, in a court order
that eased Google’s efforts to
disrupt the botnet in the US and
overseas.
Morrison Foerster
O: 8; L: 9; I: 8; Total: 25
When a hacker stole $197mn in
assets from UK-based crypto trading
platform Euler Finance in early 2023,
the firm helped to recover the funds
Deals and
financing
Standout
Sullivan & Cromwell: Winner
Originality: 8; Leadership: 8; Impact:
8; Total: 24
Acting for generative artificial
intelligence start-up OpenAI, the
firm helped structure a $10bn
extension of its partnership with
tech company Microsoft. As well as
a fresh injection of capital from
Microsoft, the agreement in January
established the tech giant as
exclusive cloud computing provider
to OpenAI and secured access to its
products. The deal reflects
Microsoft’s expectation that AI will
transform its business model and
services.
Ropes & Gray
O: 8; L: 8; I: 7; Total: 23
The firm advised Pfizer in its $11.6bn
cash purchase in 2022 of US biotech
Biohaven Pharmaceuticals — the
FTReports | 27
FT Innovative Lawyers North America
breach to date, securing $350mn to
be paid out in damages and a
further $150mn to be spent on
upgrading its data security.
..................................................................................
Commended
Troutman Pepper Hamilton
Sanders
O: 6; L: 7; I: 7; Total: 20
The privacy and cyber practice
includes industry experts and data
scientists who build client security
systems and run forensic inquiries
in-house, supplementing the
traditional legal adviser role. It helps
clients comply with best practices in
holding data and ensuring customer Contributors
privacy and runs weekly seminars Suzi Ring
for them on emerging tech such as Legal correspondent
within three weeks. A team worked Highly commended generative AI. Joe Miller
on negotiations with the hacker Hausfeld US legal correspondent
while working with international law O: 7; L: 7; I: 8; Total: 22 DLA Piper Tom Wilson
enforcement and blockchain The firm was one of three that led a O: 6; L: 6; I: 7; Total: 19 Energy correspondent
research group Chainalysis to class action on behalf of 76.6mn US Trained cyber security consultants Brooke Masters
narrow the search. The platform has consumers against telecoms work with lawyers in the firm’s data US Financial Editor
since ceased operations. company T-Mobile after a data protection, privacy and cyber Samuel Agini
Commended individual: breach in 2021. It was the second- security team to advise local and Sports business reporter
William Frentzen biggest US settlement for a data multinational clients globally. Patrick Temple-West
Governance reporter
Jane Croft, Miriam Rozen, Sarah
Murray
Freelance writers
Harriet Arnold, Michael Kavanagh,
pharma company’s biggest deal in negotiate the $6bn purchase of the struggling home furnishings Nathalie Kilby
more than five years. The deal Washington Commanders and the company. Commissioning editors
secured Pfizer rights to Nurtec, the
blockbuster migraine medication,
sale of Denver Broncos for $4.65bn,
in compliance with existing Nelson Mullins Riley &
Steven Bird
Designer
while Biohaven’s vestigial business ownership rules. In 2021, lawyers Scarborough Esan Swan
was spun off as a listed company also advised a group of financial O: 8; L: 8; I: 4; Total: 20 Picture editor
following the acquisition. The new investors buying a minority stake in The firm advised on the formation Efi Chalikopoulou
business will be entitled to the basketball franchise Golden of Redemption Holding Company to Illustrator
continued royalty payments if State Warriors, following a acquire Utah-based bank Holladay
Nurtec sales exceed $5.25bn a year. relaxation by the league of its Bank & Trust and turn it into a Judging panel
................................................................................. ownership rules. Commended minority depository institution — a For the Innovative Practitioner and
Highly commended individual: Matt Eisler bank primarily owned by ethnic Change maker awards, winners were
Latham & Watkins minorities. The deal, which is selected by a panel of judges from a
O: 7; L: 7; I: 8; Total: 22 Orrick, Herrington & Sutcliffe expected to close before the end of shortlist compiled by RSGI. The panel
The firm advised media company O: 7; L: 7; I: 7; Total: 21 2023, will make Redemption comprised:
Endeavor on the merger of its The firm’s asset-backed securities Holding Company the first black- Harriet Arnold, assistant editor, FT
subsidiary Ultimate Fighting team is helping clients raise funds owned bank in the Rock Mountains Project Publishing (panel chair);
Championship with World Wrestling through the securitisation of assets state. Michael Kavanagh, FT Project
Entertainment to create TKO Group. in industries where this is relatively Publishing contributing editor;
Endeavor retained a 51 per cent uncommon — such as intellectual McGuireWoods Nathalie Kilby, commissioning editor,
controlling stake in the group, which property assets in the TV and music O: 7; L: 6; I: 6; Total: 19 FT Project Publishing; Rob Chesnut,
listed on the New York Stock industries. The team combines The firm advised George Mason former general counsel and chief
Exchange in September. lawyers that have relevant industry University on construction of the ethics officer, Airbnb; David Fisher,
expertise with bond specialists. Institute for Digital Innovation chief executive and founder, Integra
Paul, Weiss, Rifkind, Wharton & Commended individual: Leah (IDIA) in Arlington, Virginia. The Ledger; Laura Garcia, senior counsel,
Garrison Sanzari deal involves George Mason leasing Ironclad; Jordan Schuetzle, product
O: 7; L: 7; I: 8; Total: 22 ................................................................................. land to real estate developer marketing manager, Thomson
The firm advised US professional Commended Edgemoor for its campus expansion Reuters; Julie Sculli, assistant dean,
wrestling group World Wrestling Kirkland & Ellis and construction of the IDIA. office of graduate degree
Entertainment on its merger with O: 9; L: 6; I: 5; Total: 20 programmes, Columbia Law School;
Ultimate Fighting Championship, The firm’s liability management and Laura Wenzel, global product
owned by Ari Emanuel’s Endeavor credit opportunities team helps marketing director, iManage; Yasmin
media rights group, to create TKO clients facing the threat of Lambert, managing director, RSGI.
Group. Commended individual: Kyle bankruptcy to reduce debt, raise
Seifried capital and buy time. The team For advertising details, contact:
recently advised dialysis provider Alex Roszkowski, +44 (0)7481
Hogan Lovells US Renal Care in a capital raising 606760 and alex.roszkowski@ft.com,
O: 7; L: 7; I: 7; Total: 21 and restructuring of its distressed or your usual FT representative.
Over the past two years, the firm’s debt. It also helped home goods
sports practice has advised on the company Bed Bath & Beyond ahead All editorial content in this report is
two biggest deals for NFL sports of its collapse, and the private produced by the FT. Our advertisers
teams to date. Lawyers helped equity owners of At Home Group, have no influence over or prior sight
of the articles.
28 | FTReports
Energy transition
Standout
Pillsbury Winthrop Shaw Pittman: Winner
Originality: 9; Leadership: 9; Impact: 8; Total: 26
The nuclear energy team worked with the
Fusion Industry Association — a lobby group
that advocates for the commercialisation of
nuclear fusion. The firm successfully helped
argue the case for a less onerous governance
regime. The US Nuclear Regulatory
Commission said its decision should help
provide certainty to private investors backing
pilot research aiming to demonstrate fusion as
a plausible eventual source of safe and
affordable energy.
McGuireWoods
O: 8; L: 8; I: 7; Total: 23
The firm helped Dominion Energy secure state
approvals for an offshore wind project in
FINANCIAL TIMES Tuesday 5 December 2023
FT Innovative Lawyers North America
Virginia. The firm advised on securing more
favourable terms in “performance guarantee”
Sidley Austin
O: 8; L: 7; I: 7; Total: 22
Ontario Teachers’ Pension Plan and Singapore
sovereign fund GIC. Commended individual:
arrangements than those originally sought by The firm advised energy company Distributed Tim Chandler
state authorities for the project. These were Solar Development on a $155mn securitisation
eventually agreed in December 2022. The of solar projects. This combines on-site solar Hogan Lovells
$9.8bn project is now expected to be installed assets, including commercial and industrial O: 7; L: 6; I: 6; Total: 19
by the end of 2026 and to power up to projects, such as solar canopies over car parks. The firm advised fusion energy company
660,000 homes. The client is aiming to expand the market in Helion Energy on a potentially pioneering
......................................................................................................... such deals, despite their legal complexity. nuclear fusion power purchase agreement. If
Highly commended successful, Helion will supply Microsoft with
Bracewell Troutman Pepper Hamilton Sanders 50MW or more of electricity derived from its
O: 8; L: 8; I: 6; Total: 22 O: 7; L: 7; I: 7; Total: 21 planned fusion reactor facility. Full details of
The firm advised Georgia-based Synovus Bank The firm advised client PacifiCorp, a power the agreement remain undisclosed.
on its $45mn purchase of energy transition tax utility provider operating across six western
credits from a battery storage developer US states, on negotiations with local and King & Spalding
created by project spending in Texas. It is one national regulators over the operation of the O: 8; L: 6; I: 5; Total: 19
of the first purchases of energy transition tax “extended day-ahead market”, planned for The firm is advising EnergySource Minerals on
credits since the 2022 Inflation Reduction Act, launch next year. The project aims to extend the construction and financing of a lithium
which eased the sale of tax credits gained from the sharing of electricity in the region, to project in California, in a deal that takes into
investing in renewable energy projects to third improve reliability and save costs by balancing account uncertainties around production and
parties. supply and demand better. market prices. The project will use the client’s
......................................................................................................... proprietary technology to extract lithium from
Orrick, Herrington & Sutcliffe Commended brine drawn from local geothermal reservoirs
O: 7; L: 8; I: 7; Total: 22 Sidley Austin for use in electric car batteries.
The firm advised Microsoft on a deal to O: 6; L: 7; I: 7; Total: 20
supply one of its data centres in Washington The firm advised four investors on a $650mn Sullivan & Cromwell
state with green power supplied by a investment in a 300GWh green hydrogen O: 7; L: 7; I: 5; Total: 19
division of energy utility BC Hydro. The production and storage facility in Utah, which The firm helped California Resources
agreement involves BC Hydro’s subsidiary is expected to be one of the world’s largest Corporation, an oil and gas company, strike a
Powerex directly matching the data centre’s when completed in 2025. The clients were deal with asset manager Brookfield to fund a
energy demands by varying its hydroelectric Canada’s Alberta Investment Management proposed carbon capture and sequestration
output. Corporation, Manulife Financial Corporation, project, one of the first planned in California.
Access to justice Michael Goldberg as receiver to co-ordinate
related lawsuits and liaise between various
and civil rights parties. He had a leading role in efforts that
secured $1.1bn from the insurers and others,
and $96mn from the sale of the site. Goldberg
also took part in negotiating the division of
compensation between families of victims and
owners of the building. Overall, litigation was
resolved much faster than expected.
Moore & Van Allen
O: 8; L: 8; I: 8; Total: 24
The firm helps banks improve their detection
of financial activity related to human
trafficking and advises on how they can
Standout support victims, including granting access to
Morgan, Lewis & Bockius: Winner bank accounts. In 2022 it successfully
Originality: 8; Leadership: 9; Impact: 9; Total: 26 proposed a new rule to update remedies
In 2022, the firm negotiated a class action available under the 2021 Debt Bondage
settlement with the US Department of Repair Act. Commended individual: Sarah
Defense, US Army, and Department of Byrne
Homeland Security. The deal overturned
refusals to grant US citizenship to more than Dechert
2,000 legal immigrant soldiers and veterans, O: 7; L: 8; I: 8; Total: 23
which had left them and their families The firm uses its global network to work
vulnerable to deportation from the country. with campaign group Freedom Now to
The firm argued that the terms of the Military communicate with political prisoners around
Accessions Vital to the National Interest the world and to help negotiate their release.
enlistment scheme entitled the personnel to This year, women’s rights defender Saba Kord
eventual naturalisation. Afshari, who had been arrested in 2019 in Iran,
was released as a result of the collaboration.
Akerman More generally, summer associates are invited
O: 8; L: 9; I: 8; Total: 25 to help uncover relevant cases while in this
After the collapse, in 2021, of Champlain “stepping stone” role and can then pursue
Towers South apartment block in Miami, killing them along with the wider team if they join
98 people, a judge appointed Akerman partner the firm.
FINANCIAL TIMES Tuesday 5 December 2023
Technology
Standout
DLA Piper: Winner
Originality: 8; Leadership: 9; Impact: 9; Total: 26
The firm’s global artificial intelligence and data
analytics team, launched in March 2023,
comprises 100-plus lawyers and more than a
dozen data scientists. Recent work includes
developing methods for clients to test their
artificial intelligence (AI) tools for bias. It has
also defended OpenAI in defamation and
copyright cases, and helped a range of
prominent institutions in their investigations
into AI governance.
Davis Wright Tremaine
O: 9; L: 9; I: 6; Total: 24
The firm worked with ecommerce site
Amazon’s legal team to file actions against
fake review brokers. The lawyers helped file
Highly commended
Davis Wright Tremaine
O: 6; L: 8; I: 8; Total: 22
The firm partnered with three organisations —
the Knight Foundation, which provides
journalism grants; charity Reporters
Committee for Freedom of the Press; and
corporate sponsor Microsoft — to pilot
ProJourn in 2020-21. The pro-bono initiative,
which supports underfunded journalists and
small newsrooms by providing legal services,
including pre-publication review of material
and requests to access public records, has
expanded to several states from the initial two.
Mayer Brown
O: 7; L: 8; I: 7; Total: 22
The firm helped Children’s Law Center, a lobby
group, to campaign for the district council in
Washington DC to remove police officers from
schools, by conducting research and drafting
testimony around other school safety
approaches taken around the country. A city
council vote in 2021 to reduce police numbers
was subsequently reversed, however.
McDermott Will & Emery
O: 8; L: 7; I: 6; Total: 21
Working alongside charities Legal Action
Chicago and the National Housing Law Project,
the firm led a successful class-action lawsuit
this year against Chicago Housing Authority
for overcharging families who were eligible for
a “hardship exemption” to help them meet
their minimum rent requirements, but had not
been informed such assistance was available.
FTReports | 29
FT Innovative Lawyers North America
lawsuits in Washington DC as part of a co- its 49 per cent stake in a joint venture with and to publish an annual transparency
ordinated worldwide action. It worked with chipmaker Intel to fund construction of a report.
outside investigators, and rival Meta — owner $30bn semiconductor plant in Arizona. The
of Facebook and Instagram — to identify and financing structure gives Intel access to a Latham & Watkins
disrupt perpetrators of the misleading reviews. larger pool of capital to expand its US O: 7; L: 7; I: 7; Total: 21
The global campaign appears to have manufacturing. The firm advised US satellite company Viasat
prompted others to shut down their ........................................................................................ on its acquisition of UK-based rival Inmarsat. It
operations and has led to the conviction of Highly commended helped persuade regulators in the US and the
two brokers in China. Hogan Lovells and Weil, Gotshal & Manges UK that there would be enough competition
O: 8; L: 7; I: 7; Total: 22 from others, such as Elon Musk’s Starlink.
Morrison Foerster Weil, Gotshal & Manges advised Facebook- ........................................................................................................
O: 8; L: 8; I: 8; Total: 24 owner Meta in its takeover of Within Commended
A multidisciplinary team has supported Unlimited, maker of virtual reality fitness app White & Case
OpenAI in the launch and development of Supernatural, which was advised by Hogan O: 7; L: 8; I: 5; Total: 20
generative AI tools ChatGPT and DALL-E 2, Lovells. The firms helped their clients overturn The firm advised Mexican bank Banorte on the
helping to negotiate partnerships with objections to the deal from the Federal Trade creation of an affiliate, Banco Bineo, a digital
Microsoft and its subsidiary GitHub. The Commission, the US competition regulator, bank scheduled to launch in 2023-2024. The
intellectual property litigation team is helping which had argued that Meta would gain an firm drew on similar experiences in other
to defend OpenAI in a lawsuit over its work unfair advantage in the emerging VR market. jurisdictions to win support for the venture
with GitHub to create Microsoft’s AI-powered from Mexican regulators.
assistant Copilot. The case, alleging violation Hausfeld
of copyright and other business laws, will help O: 8; L: 7; I: 6; Total: 21 Latham & Watkins
set a precedent for chatbot and other AI In September 2023, Hausfeld lawyers worked O: 6; L: 7; I: 6; Total: 19
developers. alongside other law firms to secure a The crypto division of venture capital firm
preliminary $90mn settlement for 48,000 Andreessen Horowitz partnered with the law
Kirkland & Ellis small app developers in an antitrust class firm to create Decentralization Matrix — a
O: 7; L: 8; I: 8; Total: 23 action suit against Google. The deal required resource to help legal practitioners, innovators,
The firm helped Canadian investment group the tech giant to reduce fees that it levies on investors and policymakers to better
Brookfield Infrastructure Partners to negotiate its Play Store for app and in-app purchases, understand blockchain technology.
White & Case
O: 7; L: 6; I: 8; Total: 21
In 2015, the firm began work with two
campaign groups — ArchCity Defenders and
Civil Rights Corps — to file a class action
against the city of Ferguson, Missouri, for
illegally jailing people who failed to pay fines
for minor offences. In 2022, the class action
was certified by a judge, and a settlement is
being negotiated. The firm helped argue that
the plaintiffs’ shared experiences, such as
unjust jail time and lack of representation,
made them a single class.
.........................................................................................
Commended
Creel, García-Cuéllar, Aiza y Enríquez
O: 6; L: 7; I: 7; Total: 20
The firm has continued its work pro bono with
environmental charity World Wide Fund for
Nature in Mexico to advise on projects such as
the protection of jaguars. And in 2022 it also
worked with law firm Latham & Watkins to
provide legal counsel to LGBTQ+ mental
health charity The Trevor Project in its launch
in Mexico, and still supports the organisation.
Veterans Legal Institute
O: 6; L: 7; I: 7; Total: 20
The non-profit public interest law firm in 2022
assisted a client who was discharged from the
military on “other than honourable” grounds
for behavioural issues, which stopped her
receiving disability compensation. The lawyers
showed she had been suffering from post-
traumatic stress disorder from time served in
Iraq and secured $300,000 in back pay.
RESEARCH AND AWARD SUPPORTED BY
30 | FTReports
Business of law:
case studies
T
hese three sets of case
studies highlight how law
firms in North America are
innovating as businesses.
They feature leading
examples of law firms changing how
they manage their own people, and how
they are reinventing services and
delivery models.
All the case studies were researched,
compiled and ranked by RSGI. “Winner”
indicates that the organisation won an FT
Innovative Lawyers North America award
for 2023.
Knowledge and data
Standout
Orrick, Herrington & Sutcliffe:
Winner
Originality: 8; Leadership: 9;
Impact: 8; Total: 25
Orrick partnered with Italian
venture capital group Pi Campus’s
Pi School programme, which
provides software engineers with
real-world industry experience, to
develop a machine-learning tool
for use by the firm. It uses natural
language processing to analyse
client data and tag it with
descriptions, such as a client’s
sector. The tool’s accuracy on
client tagging is 90 per cent,
compared with 50 per cent when
done by people.
BakerHostetler
O: 9; L: 8; I: 7; Total: 24
The information services
department at BakerHostetler
improved a litigation analytics tool
by adding a generative AI element
that can extract data from PDFs
and Microsoft Word documents to
identify patterns that had
previously been missed. Clients
can see the data visualised for a
clearer picture of trends across
litigation, transactions and legal
spend.
Morgan, Lewis & Bockius
O: 8; L: 8; I: 8; Total: 24
The firm launched a tool to give its
lawyers easy access to important
information about clients — for
example, what they need to know
RESEARCH AND AWARD SUPPORTED BY
FINANCIAL TIMES Tuesday 5 December 2023
FT Innovative Lawyers North America
Digital solutions
Standout including a document review system
Kirkland & Ellis: Winner
Originality: 7; Leadership: 9; Impact:
9; Total: 25
for data contained in communication
apps such as Slack, Teams and
WhatsApp. One new tool helps to
The investment funds team built a identify and log privileged
platform, SideTrack, that automates information in large data sets, while
the creation and tracking of side another automatically removes
letters. These contain additional irrelevant documents from searches.
terms agreed in contracts that vary
between many separate investors. Willkie Farr & Gallagher
The side letters are included in O: 7; L: 7; I: 7; Total: 21
information, dubbed “most favoured The asset management department
nation” documents, where they can worked with the IT team to create a
be viewed and commented on by platform that helps clients manage
investors. SideTrack allows efficient fund administration while ensuring
processing of such documents, often regulatory compliance. The service
hundreds of pages, and tracks side was developed for private equity
letters globally to avoid duplication group Glendower Capital, but is now
of terms. It stores 100,000 side- available to other clients.
letter provisions and has been used ......................................................................
in more than 300 matters since its Commended
launch in 2023. Commended Morgan, Lewis & Bockius
individual: James Desjardins O: 7; L: 7; I: 6; Total: 20
The knowledge management and
Troutman Pepper Hamilton Sanders practice services team worked with
O: 8; L: 8; I: 8; Total: 24 the intellectual property practice to
The firm has released its own create VizBridge. This presents
generative AI application, Athena, clients’ trademark portfolios and
and commercial litigation practices. which uses OpenAI’s chatbot system their product development plans as
but ensures client data is not shared an interactive world map, to aid
Reed Smith externally — to avoid privacy and strategic decision making.
O: 6; L: 8; I: 7; Total: 21 data security concerns. Athena has Commended individual: Rachelle
A new platform at Reed Smith been released across the firm, after Dubow
automates the allocation of work being trialled in the marketing
to organise resources efficiently, department. Of the 500 users a day, Reed Smith
optimise pricing, and involve 150 are lawyers. O: 7; L: 7; I: 6; Total: 20
associates in bids for work in a The financial services litigation team
more consistent way. AI helps to Ballard Spahr created an app that helps paralegals
match lawyers’ particular skills O: 7; L: 8; I: 8; Total: 23 and lawyers draft litigation briefs
with available work. More than 95 The fintech team created an faster and more cheaply. Although
per cent of associates at the firm application that handles business the app’s first drafts must be
use the platform. licences and government obligations checked and amended by lawyers,
.................................................................. for consumer financial services the firm estimates the overall time to
Commended clients, with dashboards and produce a high-quality brief is cut by
McDermott Will & Emery checklists to help clients navigate 50 per cent or more. Commended
when working with a new client for O: 6; L: 8; I: 6; Total: 20 licensing requirements and filing individual: Diane Bettino
the first time. It combines the The knowledge management team deadlines for each US state. The
firm’s existing data on clients and at the firm created a searchable application, which is free, is run by a Eversheds Sutherland
active legal matters with third- hub, for M&A and private equity team of lawyers who respond to any O: 6; L: 7; I: 6; Total: 19
party information — such as daily work, which organises key data legal queries that arise. Commended The firm developed a searchable
stock prices, news stories, and and provides insights on clients, individual: Lisa Lanham database of legal requirements for
Securities and Exchange deal dates, and values and Meta — owner of Facebook,
Commission filings. agreement types. The team can Cooley Instagram and WhatsApp —
.................................................................. collate relevant information for O: 8; L: 8; I: 7; Total: 23 covering data security requirements
Highly commended new matters based on lawyers’ Last year, the firm launched an in jurisdictions across the globe.
White & Case past searches and proactively improved version of its Vanilla
O: 7; L: 8; I: 7; Total: 22 send it to them. platform, which is focused on Ropes & Gray
The client experience team at venture capital and other asset O: 7; L: 6; I: 6; Total: 19
White & Case developed a Ballard Spahr managers. It helps to set up, In partnership with civil rights lawyer
platform on which “client O: 7; L: 5; I: 7; Total: 19 administer, and close private Andrew Stroth and campaign group
experience blueprints” record The client value and innovation investment funds. Added services Truth, Hope and Justice, the firm led
specific preferences, sticking team developed a tool, Cognitive include compliance with sanction a project involving more than 30 law
points and other information. The Services, that uses generative AI requirements. firms to establish a database of
aim is to create a more consistent and a Microsoft suite of off-the- ...................................................................... police misconduct cases in Chicago
experience for clients globally, and shelf AI tools to spot patterns in Highly commended and Philadelphia. They analysed
to help lawyers anticipate their profitable and unprofitable legal King & Spalding data surrounding settlements and
needs. The “blueprints” are in use work. It then applies the lessons O: 7; L: 7; I: 8; Total: 22 verdicts to guide state and city
across the firm, including in project learned to future client work and The ediscovery practice has made a authorities on how to improve
development and finance, M&A, business development. number of updates to its technology, practices and enact reform.
RESEARCH AND AWARD SUPPORTED BY
FINANCIAL TIMES Tuesday 5 December 2023 FTReports | 31

FT Innovative Lawyers North America

People and skills

Standout
Mayer Brown: Winner require. The results have included using data
Originality: 8; Leadership: 8; Impact: 8; analytics and visualisation on environment,
Total: 24 social and governance (ESG) questions, and
The firm launched a “technology general a contribution to a summary of the risks of
counsel in residence” programme in early artificial intelligence. The internship, which
2023, in which an experienced, senior started in 2019, now has seven data analytics
in-house lawyer from a tech company takes interns a year.
up an adviser role on a short-term
secondment to Mayer Brown. The scheme, Eversheds Sutherland
which is modelled on similar initiatives in the O: 6; L: 7; I: 6; Total: 19
venture capital industry, helps the firm’s Expanding out of its energy and employment
lawyers to learn about the legal needs of practices, the firm’s global ESG group
tech start-ups. So far, two general counsels launched a training scheme for lawyers in
have participated. other practice areas on some of the
challenges facing their clients — such as
Goodwin energy transition, social responsibility,
O: 8; L: 8; I: 7; Total: 23 sustainable finance and climate litigation.
The firm is exploring “use cases” for Sessions are tailored to showing how
generative artificial intelligence and training different areas of the law are affected.
lawyers and other staff in the technology.
Exercises include a “test kitchen” Willkie Farr & Gallagher
programme, where lawyers and business O: 6; L: 7; I: 6; Total: 19
professionals at all levels are developing and Last year, the firm hired two former
trialling the way that generative AI could participants in its environmental analyst
work in practice. Collaboration and sharing internship programme. The initiative —
knowledge across disciplines are benefits scheme, including financial launched in 2021 and targeted at students
emphasised. Nearly 160 such use cases have contributions for fertility treatment, adoption who are not in law school — aims to broaden
been identified so far, with the firm planning and surrogacy, as well as providing advice the range of skills in environmental analysis
to develop and implement a number of them and support through the network. The that the firm makes available to clients.
in the coming months. proportion of LGBTQ+ law students in
“stepping stone” summer associate roles at
Orrick, Herrington & Sutcliffe the firm in 2023 was up 10 percentage points,
O: 8; L: 9; I: 6; Total: 23 to 18.2 per cent, on 2020, when the family
The firm introduced a policy in 2022 whereby benefits initiative began. Commended
new associates avoid any billable-hours individual: Justin Lee
targets for the first six months and are
allotted time to work on pro bono projects, as White & Case
well as research, and non-billable work with O: 6; L: 8; I: 7; Total: 21
clients. Training, shadowing opportunities The firm has created a programme to help
and mentorship have also been added. Orrick new partners acquire additional “soft skills”,
reports that this approach has improved to help with business development, by
lawyer performance and benefited clients, as assigning a more senior partner as a sponsor
they are billed less often for work by very who can help with networking, meeting
junior lawyers. clients, and generally gaining expertise. The
..................................................................................... new partner’s progress is taken into account
Highly commended in calculating the sponsor’s pay. More than
Davis Wright Tremaine 150 new partners have taken part this year.
O: 8; L: 8; I: 6; Total: 22 .....................................................................................
In 2023, the firm launched a programme to Commended
reduce unconscious bias in partner BakerHostetler
evaluation, admission and pay meetings. O: 7; L: 7; I: 6; Total: 20
Participants receive training on unconscious IncuBaker, the firm’s alternative legal
bias, and one is nominated as a “bias services unit, worked with Georgia State
interrupter” to call out any examples they University College of Law to create a course
see during a meeting. They dub it “throwing in legal technology for law students. The first
a bias flag” — a reference to American ran in early 2023 and guided students on
football refereeing — to call for a pause, in how to advance legal innovation projects.
order to review and assess a statement for The curriculum will expand in 2024 to
unconscious bias. include new tech such as generative AI.

Weil, Gotshal & Manges DLA Piper

O: 7; L: 8; I: 7; Total: 22 O: 6; L: 7; I: 6; Total: 19
The WeilPride programme highlights The firm created a corporate data analytics
LGBTQ+ issues and provides pro bono internship programme that trains
support to several non-profit groups participants using DLA Piper’s data, both
supporting the queer community. Within the internally and for client work. It
firm, it has supported the rollout of a family demonstrates to them what law firms

RESEARCH AND AWARD SUPPORTED BY

32 | FTReports FINANCIAL TIMES Tuesday 5 December 2023
FINANCIAL TIMES Tuesday 5 December 2023
Moral money Firms predict uptick in demand as market grows, says Patrick Temple-West
ESG rows
fuel need
for expert
counsel
A
s sustainable
investing grows, it
has also become
weaponised. As
more companies
and asset managers tailor their
investment decisions to
achieve societal goals, as well
financial profit, they have met
with a growing backlash from
legislators and campaigners.
But, as the controversy
rages, the growing market of
investors wanting to apply
environmental, social and gov-
ernance (ESG) criteria to port-
folios has created demand for
credible rating systems,
accounting frameworks and
professional talent — including
legal expertise.
Ropes & Gray is one US law
firm closely monitoring a wave
of so-called anti-ESG bills,
which seek to limit the ability
of pension funds, asset manag-
ers and businesses to base
decisions on anything other
than narrow financial grounds.
A year-to-date recap, pub-
lished by the firm last month,
points to a range of contradic-
tory state laws now facing asset
managers. The situation
requires careful consideration.
“Caution, care and modera-
tion are the order of the day to
best ensure that the manager
can continue to work with
a diverse array of investors,”
the firm says.
But, where there is confu-
sion and dispute, there is a
need for professional advice.
And US-led global law firms
are continuing to strengthen
their teams covering the field.
“We have seen explosive
growth [in ESG advice],” says
Timothy Wilkins, global part-
ner for client sustainability
at Freshfields Bruckhaus
Deringer.
FT Innovative Lawyers North America
In October, the law firm
hired Doug Bryden, previously
co-head of ESG and impact at
Travers Smith. For his col-
leagues at Freshfields, “ESG
issues have become a core part
of the advice they give to
boards and [senior executives]
— whether those practices are
primarily transactional, dis-
putes or regulatory”.
BlackRock, the world’s big-
gest asset manager, is among
the institutions rowing back
on marketing products as
“sustainable”, in response to
scrutiny and political contro-
versy. But investing in, and
managing, companies with the
aim of balancing profit with
social justice and environmen-
tal protection is not going
away. ESG ratings now influ-
ence which stocks and bonds
are included in $2.8tn of
investment funds marketed as
sustainable, according to
research group Morningstar.
Amid attacks from oppo-
nents of “woke capitalism”
from the right, businesses and
institutional investors also
face intensifying legal chal-
lenges over “greenwashing” —
exaggerated claims of ethical
standards from ESG support-
ers. The US Securities and
Exchange Commission has
already settled enforcement
cases with Goldman Sachs and
German asset manager DWS
over the issue.
Even so, many law firms are
betting that, whatever the
backlash against ESG, demand
for legal advice in the field will
increase. Earlier this year, Cov-
ington & Burling hired Jayni
Hein, a former White House
environmental official under
President Joe Biden, and Kirk-
land & Ellis poached Rhys Dav-
ies from DLA Piper for the
firm’s global ESG and impact
practice, underscoring how
law firms are trying to
strengthen their competence.
A Morrison Foerster survey
conducted in association with
Corporate Counsel earlier
this year found that, despite
anti-ESG sentiment gaining
momentum in 2023, half of
companies reported no back-
lash. However, it noted that 15
per cent said they no longer
used the term ESG or had
changed terminology because
of anti-ESG sentiment.
“While public companies
face additional external scru-
tiny and activist investor pres-
sure, public company res-
pondents signalled that align-
ing with ESG objectives is still
good for business,” concluded
the report.
“Green-hushing”, rather
than “greenwashing”, has
become the latest approach
for some US companies that
are reluctant to talk about
adopting ESG agendas to avoid
criticism.
“The fight over ESG in public
investments is far from over
and may even be just begin-
ning,” found the Ropes & Gray
report.
“We believe it is generally
still possible for managers to
thread the needle and con-
tinue to retain both red
[Republican] and blue
Headwind: [Democrat] state mandates.”
counsel But is the pipeline of legal
must tread advisory talent there?
carefully A survey published in
on ESG November by research group
challenges Wolters Kluwer, conducted
Angel Gacia/ among 700 lawyers across US
Bloomberg
and Europe, found that 68 per
cent of law firms had estab-
lished dedicated ESG practices
within the past three years.
However, 69 per cent felt
they were not yet “very well
prepared” to meet client
demand in this area.
Willkie Farr & Gallagher is
one firm looking beyond the
quagmire of disputes in the
field to a future when ESG fac-
tors are even more central to
clients’ considerations — and
perhaps less contested.
The firm has launched an
internship that brings in col-
lege students, who are not nec-
essarily thinking about law as a
career, to work on environ-
mental and sustainability
issues. The firm says it is possi-
bly the only major law firm to
have such an internship pro-
gramme.
Since it started, “the pro-
gramme has brought in nine
interns, two of whom have
transitioned to full-time roles”,
says Peter Fradkin, chief
administrative officer at the
firm. The scheme is expected
to welcome new students in
2024, he adds.
FTReports | 33
Research methodology
North America 2023
FT Innovative Lawyers North America 2023
is a ranking, report and awards scheme for
lawyers based in the region, produced by
the FT and its research partner, RSGI, based
on a unique methodology.
Law firms and in-house legal teams are
invited to make submissions. Each
submission is researched and scored out of
10 for originality, leadership, and impact —
giving a maximum score of 30 for each
published entry. Top-ranked entries in the
report are shortlisted for the FT Innovative
Lawyers North America 2023 Awards.
Some 300 submissions and nominations
were received from 61 law firms and 39 in-
house legal teams. RSGI researchers
assessed and researched them through
interviews with clients, senior lawyers,
executives, and experts between August
and November 2023. Featured entries are
the submissions that ranked highest in each
category.
FT Law Firm Index The index (Page 4)
provides a ranking and a holistic assessment
of law firm success. Participating firms were
assessed on submissions to the report and a
separate questionnaire, and ranked on the
following criteria, with a maximum score of
110:
Innovation The sum of scores for the top
three submissions from each law firm
entering the FT Innovative Lawyers North
America Awards 2023, including those that
were not published. Scores are divided by
the highest score and multiplied by 30 to
give a scaled score out of 30.
Digital Law firms completed a questionnaire
on their use of data and technology. Each of
six questions was scored and benchmarked
against other responses (weighted score out
of 20);
People Law firms completed a questionnaire
about gender representation, diversity and
inclusion, and investment in skills for
lawyers and for business services people.
Five questions were scored and
benchmarked against other law firm
responses (weighted score out of 20);
Social responsibility Law firms completed a
questionnaire on their approach to social
responsibility. Five questions covering
commitment and investment in pro bono
work, and social responsibility and ESG
reporting were scored and benchmarked
against other law firm responses (weighted
score out of 20);
Growth (financial): Law firms were
compared with each other for three-year
revenue growth to the financial year ending
in 2022, and for profit per equity partner in
the financial year ending in 2022. Figures
were sourced from RSGI’s research
(weighted score out of 20).
RSGI research team
Reena SenGupta, Yasmin Lambert, Mary
Ormerod, Chris Sharp, Sarah Davis, Mina
Jenkins, Molly Reynolds, Tom Saunders,
Gitanjali DasGupta
34 | FTReports
Backlash: students protest in July following the Supreme Court’s ruling against affirmative action at Harvard University campus in Cambridge, Massachusetts — Alamy
Firms feel chill from diversity ruling
Affirmative action Legal
challenges force rethink on
hiring and programmes,
writes Sarah Murray
I
f the Supreme Court ruling in June against
affirmative action at US universities left
law firms wondering how it will affect
their diversity goals, Sarah Zearfoss is in a
position to offer advice. As senior assistant
dean at the University of Michigan Law School,
she faced a similar predicament back in
2006 when the state prohibited the use of race
as a consideration in admission decisions.
The ban’s effect was marked: enrolment of
black, Latino and Native American
students almost halved from 17 per cent of the
intake in 2005 to 9 per cent by 2008. The
number of Asian American students also
dropped. “The word plummet is not too
dramatic to use,” says Zearfoss. “We stayed at
pretty low levels for a few years.”
This year, racial minority groups represent
20 per cent of the freshman class. This is in
part, says Zearfoss, because demographic
shifts have created a bigger pool of non-white
candidates. But, in addition: “We got better at
an administrative process that was race-blind.”
Still, many in the legal sector worry how the
Supreme Court decision will affect their
diversity strategies.
In bringing the case before the Supreme
Court, Students for Fair Admissions, a lobby
group that challenges affirmative action in
FT Innovative Lawyers North America
school enrolment, argued that considering
race in admissions in colleges benefited black
and Hispanic students to the detriment of
Asian Americans and others.
In a report published this month, US legal
sector analyst Leopard Solutions said 64 per
cent of diversity professionals at law firms
expect the decision to make their job harder.
Almost a quarter said they thought the ruling
might alter their firm’s goals on diversity,
equity, and inclusion (DEI).
While law firms are not directly affected by
the Supreme Court decision, many have
watched with dismay as, following the ruling,
lawsuits have challenged the legality of
diversity programmes, including
fellowships at Perkins Coie and Morrison
Foerster.
“There’s been a lot of activity on [the]
lawsuit side of this,” says Valecia McDowell, co-
head of a practice at Moore & Van Allen, whose
work includes conducting risk management
and civil rights and racial equity assessments.
“For those professionals who practise in that
space — and there’s not many of us — our
phones are ringing off the hook.”
Legal threats aside, attacks on “woke
capitalism” by Republican politicians in some
US states are also having a chilling effect on
diversity programmes in businesses, including
law firms, says Aaron Taylor, executive
director of the AccessLex Center for Legal
Education Excellence, which works to increase
access to law schools for minority groups.
“You have to respond to a letter from the
attorney-general or put out a press release to
counter what the governor is saying,” he says.
“It increases the cost, even if the politicians
don’t have a legal leg to stand on.”
None of this is good news for those who
believe the legal sector has always lagged
behind others in advancing workforce
diversity. Taylor argues that law firms were
already paying insufficient attention to
providing outreach and opportunities to
under-represented groups of people.
Nor are trends
improving. Leopard
Solutions says that,
between 2022 and ‘[Responding
2023, promotions of to challenges]
ethnically diverse
attorneys fell from 19 increases the
per cent to 17 per cent. cost, even if the
But experience has
taught Zearfoss that politicians
the legal sector — don’t have a
whether law schools or
firms — still has plenty legal leg to
of room for stand on’
manoeuvre, even in
the face of legal
challenges and conservative backlashes.
Michigan Law, for example, increased the
number of essays students could submit as
part of their college application, which
Zearfoss says “allowed people to tell their
stories more fully”. It also started working
more closely with undergraduate institutions
and minority pipeline programmes to identify
diverse cohorts of students.
Zearfoss says strategies ranged from “hitting
FINANCIAL TIMES Tuesday 5 December 2023
the pavement” in order to meet potential
students in person to introducing anti-bias
training for staff, publishing more information
about the application process, and writing a
blog. “We were looking for opportunities to
make connections,” she explains.
Firms, too, can continue supporting
employees with diverse backgrounds. For
instance, Morrison Foerster’s initiatives
include affinity groups and mentorship and
sponsorship programmes.
The New York Bar Association has launched
a task force to advance diversity in law firms.
Co-chaired by Jeh Johnson, a partner at Paul
Weiss, and Brad Karp, the firm’s chair, it will
provide guidance on the implications of the
Supreme Court ruling for colleges, law firms,
and other organisations.
McDowell stresses the need to strike a
balance in designing DEI initiatives that take
into account new legal constraints and the
views of conservative lawmakers while
meeting the legal duty to prevent workplace
discrimination.
Taylor agrees. “We talk a lot about the risk
associated with maintaining DEI programmes
within law firms. But we don’t talk enough
about the risk of getting rid of them,” he says.
As well as legal pitfalls, he points to low staff
morale and difficulties in retaining talent.
Most importantly, he argues, there has to be
a fundamental shift in mindset. “Law firms can
do more in terms of how they define merit in
their application processes,” he says. “If that is
the outcome [of the Supreme Court decision],
then there is a silver lining for this case.”
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