In the world of banking and financial services, 1999 was another age. Back in the day, as bankers and regulators grizzled with age may one day recall, international finance was able to weather storms such as the Asian financial crisis, a fall in confidence in Russian investments, and a burst dotcom bubble, with no recourse to public funds, sovereign funds, or state guarantees.

That is the world in which the first Barclays legal panel was forged. Skip forward to 2013 and the picture is very different. When Antony Jenkins (pictured), Bob Diamond’s successor as chief executive at the bank, stood alone at a curiously translucent podium before the world’s media at 10.30am on 12 February, he did so surrounded by some very dour, almost contrite, messaging. ‘Respect, Integrity, Service, Excellence, Stewardship’ were the words illuminated around the set – this was not a feast at which the ghost of Gordon Gekko was present.

The bottom line

Are these slogans – deliberately, almost aggressively, dull – just window dressing? It is easy to be cynical. As has been pointed out, for all of his staid, deadpan delivery and retail banking background, Jenkins oversaw acknowledged errors during his sojourn at Barclaycard.

The fact is however that Barclays needs these phrases to have real meaning. In common with other banks, Barclays has admitted problems with mis-selling of payment protection insurance. Again, like its peers, the bank has had its fingers burned through misjudgements over securitisation products. On 12 February its 2012 financial results reflected a doubling in its admitted exposure to mis-sold derivatives products (interest rate swaps).

Its credible exposure to Libor-fixing claims is unknown, though trades that depended on the Libor rate are in the trillions. And the deal with Qatar that saved Barclays from the shame of direct state support, or even nationalisation, is now under scrutiny from financial regulators – money may have come from elsewhere, and that is a problem.

So Jenkins divested activities. The bank will ‘forgo’ £500m in revenue from its investment bank, reflecting greater emphasis on retail banking. The tax-related business of the ‘structured capital markets’ division, with its politically awkward association with tax avoidance, will cease. And attention shifts from continental Europe and Asia, where Jenkins says there will be ‘smaller regional fee pools’, to Africa, the UK and US.

Those headlines have direct implications for the Barclays legal advisers in private practice. The bank has 43 firms on its investment banking panel, including all of the magic circle. The ‘wealth panels’ include eight firms in the UK and eight in the US. And although it is harder to quantify the impact of this, the many international firms on its panels have invested heavily in opening offices in Asia. Africa, where its attention – like Tolkien’s Eye of Sauron – now moves, includes many key jurisdictions where offices and established collaborations with local firms are much thinner on the ground.

All this matters because Barclays has an estimated legal spend of £100m and around 1,000 in-house legal staff. What is more, Barclays believes its strategic review has ‘first mover’ advantage. As Jenkins puts it, banks that ‘don’t get’ Barclays’ judgements on the steps it has taken ‘will fall behind’.

Fewer instructions

Some of the impact on law firms will be felt quickly. The bank may have postponed its June 2013 panel review by 12 months, but Barclays has confirmed to the Gazette that firms which advise on areas where the bank is retrenching will see fewer instructions.

There is, of course, a read-across from the strategic review to the delayed panel review. As Bjarnie Anderson, who as head of legal operations oversaw the bank’s far-reaching 2003 review of its legal needs, tells the Gazette, ‘geographic reach’ is a key consideration. Put simply, he says: ‘You map the grid of your legal needs and place it over your local expertise and capabilities.’

Certainly, given the paucity in Africa of branch offices of international law firms, commercial firms in key jurisdictions there can expect both friendly visits over the next year and to see nicely suited partners making a beeline for them at international gatherings. The management boards of international firms who have announced tie-ups or office openings in friendly north African jurisdictions will be asking themselves if this is an adequate base to serve banking interest in the continent, or if they need to go further. Looked at in this light, delay of the panel review is not a reprieve, but a potential headache.

However, it is in the bank’s in-house legal department that changes will be more far-reaching – by no means all bad, but certainly substantial. Outgoing general counsel Mark Harding was not at Jenkins’ press conference. His finance chief was in the audience, though only because 2012’s results were released the same day. Unlike some departed executives, Harding is not leaving in disgrace – he may be there for a year pre-retirement while a successor is found. But changes to the in-house legal function are key to the new regime Jenkins promised. The most eye-catching example was the general counsel’s loss of the compliance function as a report.

The review spells the end of the ‘legal and compliance function’, with its joint heads of operations reporting to the GC. Instead, a global head of compliance will head a structure independent of all country and regional managers, and will report to Jenkins direct. Compliance was merged with the legal department in 2004. So the shakeup will probably be interpreted as an admission that the arrangement has been deemed ‘not fit for purpose’.

Certainly, Anderson says, the decision is ‘significant’. In last week’s leader, the Gazette judged that this could be a ‘liberating’ development for the legal department. After all, as confirmed at the Gazette roundtable on the changing role of corporate counsel, attended by in-house counsel from Barclays, the growing pressure on them to be a regulator’s eyes and ears – a ‘control function’ – can conflict with the preferred role of ‘trusted adviser’. One attendee put it thus: ‘It can be an uncomfortable position, where you are also forced to ask: "What about my independence?".’

But consultant Paul Gilbert, who ran focus groups for the bank’s legal department leading up to the 2004 reorganisation, disagrees. ‘I think it is a shame that compliance has been lost from the GC’s remit,’ Gilbert says. ‘The fact that it will report to the CEO clearly [reflects] the seriousness with which the issues are being taken. But in my view the GC is a natural home for compliance – accepting completely that it is a different skill set from "legal", with different approaches, strategies and value-adds.’

Keeping score

Other points in the strategic review, though, point to greater ‘in-sourcing’ (as Anderson calls it) boosting the role, centrality – scale, even – of the in-house legal function. To take a key point, Jenkins’ reliance on a ‘balanced scorecard’ that reflects the banks new ‘values’, to be used in staff assessments, received surprisingly little coverage.

This approach is central to the success of Barclays’ new direction, alongside the proportion of bank- staff remuneration from bonuses, which will fall to the ‘mid-30s’ as a percentage of staff rewards. As Jenkins put it on 12 February: ‘We never want to reward activities that are at odds with our values… if people do not want to be measured or rewarded according to our values, they need to move on.’

The scorecard, reflecting the performance levels and rewards that align with the bank’s new approach, relies significantly on investment in staff, process improvements and improved controls – controls which, Anderson says, rely on the ‘rewards’ and the ‘knowledge management’ that exist in-house.

Gilbert observes: ‘Balanced scorecards are a reasonably common approach to developing performance indicators that are aligned to corporate goals. In many organisations, however, this potential to demonstrate value is diluted by trying to shoe-horn work into categories that are hard to match. My assessment is that in-house teams have largely failed in this regard because they have not defined their role well enough.’

Barclays’ greater emphasis on good governance, though, would seem to be an opportunity for the legal department to obtain scorecard aims that are more aligned with the department’s values – but for the whole organisation. Comparing the ‘usefulness’ on this front of in-house versus private practice lawyers, in-house lawyers look to be a more effective tool. Anderson explains: ‘Knowledge management is key to all this.’ In deciding to ‘in-source’ more work, he says, ‘your leverage is knowledge management’. In addition to a control-dividend from keeping advice in-house, the balanced scorecard requires ideas to be borrowed and applied in such a way that in-house ownership of the data on best practice remains favoured.

If the scorecard, which in time alters the rewards of all staff, achieves that, it must triumph over Gilbert’s fear that an ‘institutionalised balanced scorecard rolled out on an industrial scale’ was, to lawyers, ‘an administrative chore of little value’.

Since the Barclays panel was set up, the bank has also in-sourced more work – a trend that seems likely to continue. As Anderson puts it: ‘On so many fronts it was concluded that this was the key – that work could be done more efficiently, at lower cost, and with greater client satisfaction.’

Eduardo Reyes is Gazette features editor