When Dixons and Carphone Warehouse agreed their £3.7bn merger in 2014 it was the biggest retail deal of the year, creating a high street behemoth with 3,000 stores and £12bn of combined sales.
But many doubted the newly merged company would survive its honeymoon period, with poor retail market conditions expected to cripple the company’s strategy of relaunching its US expansion plan and growing into the Internet of Things space by launching domestic heating, lighting and security services controlled by consumers’ mobile phones.
Fast-forward three years and Dixons Carphone has posted its fifth consecutive year of turnover growth, expanded into the US and signed a deal with SSE to provide ‘connected home services’ in the UK. The critics, so far, are wrong.
This strategy success has been thanks in no small measure to Dixons Carphone’s in-house legal team, led by general counsel Nigel Paterson. The 48-strong international team, which contains just 18 lawyers, supports the organisation’s 42,000 employees around the world as well as leading on many of the strategic deals struck to grow the company.
“Retail is such a fast-moving world, you live or die by how much you sell almost on a weekly basis, and certainly on a monthly basis,” Paterson says. “Because margins are low the team has to be lean, and it has to be able to make decisions quickly.”
“Because margins are low the team is lean and it has to be able to make decisions quickly”
If anyone knows about the challenges of retail it is Paterson, who was hired as the merged company’s first general counsel after an 14-year in-house stint at BT.
He was scouted for the job after his first appearance in The Lawyer’s Hot 100 back in 2014, when Carphone general counsel Tim Morris put his name forward.
“At the time I just fancied a crack at the general counsel role and what was on offer at Dixons was the chance to become a company secretary, which was something I’d never done before,” says Paterson. “I got the correct impression, that they would treat me as an executive member of the team – as a business adviser and not just a general counsel that would be kept in a box and taken out for special occasions.”
When Paterson joined, his first order of business was to integrate the legacy Dixons and Carphone Warehouse teams. It was the perfect time to implement change and the first thing Paterson did was build a picture of how the team was going to be from the bottom up.
“We worked out what the vision was for the team, what our mission statement was and how we were going to work together,” he says. “We agreed on a set of values and behaviours that we wanted the legal team to be known for.
“We didn’t want people to say they were dealing with ‘someone from the legal team’ but someone at Dixons Carphone.”
Unlike previous joint general counsels Morris and Helen Grantham, Paterson did not have any allegiances from working at either Carphone Warehouse or Dixons. This helped him arbitrate and move things on during the process.
“It’s easier to have a clear view when you come in from the outside and you don’t have any baggage,” he says. “It’s easier to see how you think the team should be. The challenge is getting to know your team and realising what everybody can bring to the piece. You spend a lot of time getting to know people and seeing how their skills can match up to the resources.”
For Paterson the key was to watch and wait for the right moment to implement change.
“BT was like a comfortable pair of slippers,” he admits, “and after 15 years it’s quite odd to walk into an office and realise you don’t know everybody. There’s a lot of relationship-building and understanding people’s strengths when you arrive at a team. It’s also about reassuring people, so you don’t want to go in and immediately start hacking things.”
One of Paterson’s top priorities was to avoid ‘mission creep’.
“There’s a tendency among legal teams to get involved in all kinds of things,” he says. “Sometimes that’s a good thing because it draws you into the business, but sometimes you can lose the sense of why you are actually there and what you’re there to do. We spend our time making sure we’re prioritising our resources to match our business strategy.”
Paterson spent around three months before the time he started the role putting plans into action, visiting stores and warehouses, and getting to know the supervisors and the senior management at the company.
“I asked them some very basic questions, such as what do you want from me as a general counsel, what do you want from my legal team and what in your view has been going well and what could be going better,” he says.
The result? Clear parameters on what management wanted from him, including an analysis of existing skill-sets in the team, and the creation of an in-house compliance function.
“We did not have enough compliance resource and we had to completely re-engineer all of the processes throughout the company,” comments Paterson.
His argument in favour of investing in compliance resource was helped along somewhat by a significant data breach in 2015, which Paterson wryly calls his “welcome present”.
“We had a data hack in one part of our business but that showed that we needed to get some energy and momentum behind making sure we got compliance right,” he explains.
“We had a data hack, but that showed we needed to get some momentum behind getting compliance right”
As a result of this attack, the personal details of up to 2.4 million Carphone Warehouse customers were at risk. At the time the company issued a statement saying that up to 90,000 customers might also have had their encrypted credit card details accessed.
“That’s probably the number one business risk of an event like this,” he says, “even before you think about the legal implications you have to be thinking about the impact on the relationship with your customers.
“We made a conscious decision that we would wait to go public until we had established what the scale of the problem was.
The crisis team, which was working round the clock to gain control of the situation, had to hold its nerve for 24 hours before it was able to give a concrete statement to the press.
“This was a painful thing to do but it was better than constantly having to reveal bad news,” Paterson comments.
A risk-savvy culture
The breach, which Paterson is quick to point out could happen to any company, has helped to create a “more risk-savvy culture” at Dixons Carphone. Paterson chairs the risk and compliance committee.
Over the past 18 months Paterson has built the team up from four to 10 people focused on compliance and business standards.
Dixons Carphone is regulated by the Financial Conduct Authority, but it also has to comply with consumer business standards in its internet and physical outlets.
“Compliance has really gone up the agenda, with the awareness of what the regulators can do and how they can impact your business if you get things wrong,” says Paterson. “There was a lot of focus on this at BT and there is a lot of focus here now.”
Tighter panel arrangement
Last year, Paterson conducted a review of Dixons Carphone’s external legal advisers – appointing a raft of firms including Addleshaw Goddard, Clyde & Co, DAC Beachcroft, DLA Piper, Freshfields Bruckhaus Deringer, Pinsent Masons and Shoosmiths to the roster.
“The main issue was that it was a loose panel, there was no consistent way of working,” Paterson explains. “Some law firms had engagement letters, some didn’t. We didn’t know what the rates were; which were agreed with some, but not others. It was a chance to get a much more consistent model of working.
“The criterion was simple – to prove that when we go to them they have technical expertise, that they could mesh their business expertise with understanding in the sector. We were particularly interested in added-value services – not just conference and meeting facilities but the most important area was that the firm would help with the training and development of our legal team.”
Panel firms are required to look at what processes can be improved, scan the market and provide the in-house team with ideas on new solutions, and agree to manage matters tightly to avoid “bill shock”.
As part of this Paterson has set up a website for his team to be able to control all external spend, accessing it to see the status of various matters. Since 2015 the in-house team has been working on a major deal with US-provider Sprint, advised by Morrison & Foerster, and has worked on asset sales in Portugal, Germany and the Netherlands.
The deal with SSE to enter the fray of connected devices is likely to keep Paterson busy.
“It’s a programme of continuous improvement. I feel settled but I’ve only been here 18 months. Compared to how long I spent in my last job, I still feel like the new kid on the block.”
From private practice to Dixons Carphone
After 18 years in-house Nigel Paterson has certainly made a name for himself in the telecoms retail sector. His efficient ascent, partly by luck but mostly through effort, has always been geared to gaining further skills in each new role.
Paterson’s first foray into the in-house world was in 1998 when he joined oil and gas company ExxonMobil from Linklaters.
“I was always interested in business as much as the law,” Paterson says. “I wanted to be part of the wider business decision-making rather than the creation of contracts.”
Better work-life balance proved to be a tipping point for his decision to leave the corporate practice at Linklaters.
“I was working round the clock and I wanted more control of my working hours,” he says. “I chose ExxonMobil because I wanted to work for a large international business which had a respected and established legal team. At the time I was still junior and I needed to learn, and I wanted to do that within a large organisation with an established structure.
“I was there for two years. At the time in ExxonMobil there was a ‘glass ceiling’; if you weren’t North American there was only a certain level of the company that you could reach. I’d also become quite an expert in the things we were doing.
Opportunity knocked through a contact – BT in-houser Kerry Phillip (now legal director at Vodafone Group) – with whom he had trained at Linklaters.
“At the time there were 25 lawyers working at BT,” Paterson explains. “It was coming out of the dotcom boom. BT had been on a large acquisition spree and when the economy started to worsen it was in the business of selling assets. When I spoke to Kerry she said there was a huge girth of high-quality work here.
So, keen to get back into the technology work he remembered from Linklaters, Paterson took on the role of M&A senior counsel at BT.
“One day at BT we made a bid for a Premier League contract and the next we had to find a studio and the people to back it up”
“My quality of life immediately took a nosedive because I was involved in the BT O2 demerger,” he comments. “That was the first thing I did. It was a fantastic piece of work because it was 16 months of intense activity, and I led the demerger from the BT side.”
On the other side of the negotiating table was BT M&A head Philip Bramwell, who was joining O2 as the company’s independent general counsel.
Things did not slow down.
“I stayed at BT for 15 years; I was really fortunate,” he insists. “The reason I stayed there for so long is that it’s a very large team and there were lots of opportunities to have a varied career, as well as having fantastic colleagues and inspirational bosses such as [general counsel] Dan Fitz.
After four years in the M&A team Paterson decided he needed to be “closer to the heart of the business” and gain more experience managing a team. A job at BT Global Services was the right fit.
“I ran the major transactions team encompassing both lawyers and contract management lawyers, so it was a team of about 100 lawyers,” he says.
“I did that for roughly another four years and then the opportunity came up to take over as general counsel of BT Retail, which is now called BT Consumer. This is the largest division of BT and at the same time I took over the management of the competition team. My arrival in the consumer team was important because of its growth into TV, as it set about BT Sport.
“One day we made a bid for a Premier League contract and the next day we had to find a studio and people to back up the contract that we had won.
“I spent the next four years building up a team that could support the legal business and we spent more time acquiring rights such as the Champions League so we’d have enough rights to fill up the whole channel.”
After another four years at the helm of BT Consumer Paterson felt it was time for a fresh challenge – and the merger between Dixons and Carphone Warehouse was the perfect challenge.
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