Profile | Spring 2016
As BG Group general counsel, and now executive vice president and GC for Royal Dutch Shell’s upstream business, Tom Melbye Eide has an enviable addition to his CV, considering his lead role in BG’s £47bn acquisition by Shell, the world’s second-biggest energy deal on record, which completed last month.
Working alongside external adviser Freshfields Bruckhaus Deringer to obtain final approvals for the deal last month, Eide says: ‘I was very lucky. I had overall responsibility for the legal side and oversaw all work streams. This has been a huge focus for BG and especially the legal team in the last year. I have only been here a year, but there have been a lot of changes to the legal team and the group in that time. This is a very complicated business.’
Over the last decade Eide has become a well-known name in the industry, having undertaken influential in-house roles at Statoil, where he worked with BG Group chief executive Helge Lund, and Norwegian aluminium producer Sapa Group, before his appointment to BG in 2015.
Comparing his roles at BG and Statoil, Eide says: ‘There is a very different company setup. Statoil is obviously a huge state company and while BG is a global player it has a more specialised business model. It has an impressive liquefied natural gas (LNG) trading setup, which is concentrated in specific markets. Statoil had a similar-sized legal team, but it was a much larger company. BG has 5,000 employees; Statoil has around 23,000 employees. On the other hand, the bulk of its operations were in the North Sea, so it is much more standardised in terms of contracts, practices, etc. The more specialised a company’s activities, the more difficult it is to structure a legal team efficiently.’
Upon arrival at BG, he succeeded the company’s longstanding GC and former Allen & Overy (A&O) partner, Graham Vinter, who Eide says did ‘a great job co-ordinating the Shell deal’.
But it has been a painstaking process. Nearly a year after the announcement, the combination was still waiting for the green light from multiple governments, the last being China in December. Where BG’s shareholders voted in favour of the transaction in late January, with only 13% opposing, Shell passed the final hurdle and won 83% shareholder approval at a specially convened general meeting at The Hague, despite concerns the Anglo-Dutch corporate was paying too much for its rival, considering volatile oil prices. But with the deal now finalised, the acquisition of BG will bolster Shell’s already significant position in the fast-growing LNG market and turn it into the largest foreign oil company in Brazil – one of the most coveted oil plays in the world.
The legal team has also been restructured internally, with Eide now reporting to Shell legal director Donny Ching and sitting on the management team for the upstream business.
Eide says his 85-strong BG legal team, which is spread over multiple locations, including London, Reading, Houston, Rio and Brisbane, is now focused on preparing for potential risks they believe the new company will face. ‘The obvious one is lower oil prices, which means there will be heightened focus on credit risk. There is also a bigger focus on fraud risk at the moment and that is something I am making sure the legal team is taking the lead on. It’s the type of risk area where the skillset of company lawyers can actually make a big contribution to the strength of the group – robust fraud checks are rarely implemented in legal teams.’
Also high on the agenda is an increased focus on tax. Eide says: ‘In the oil sector you are normally under a special tax regime, but with lower oil prices there is an increased tension around tax, especially as we are normally situated in countries that are largely dependent on oil operations for their tax revenues. We need to examine contracts and make sure we are protected from this changing regime. We will also be working on trying to reduce costs across the team. There will be a bigger focus on suppliers.’
His views on making greater cost efficiencies resonates with the work of Vinter, who ran a slim external advisory panel and in 2013 shaved the roster from four firms to three, dropping A&O and Herbert Smith Freehills in favour of Clifford Chance, which won a place alongside CMS Cameron McKenna and Freshfields.
Eide believes the legal role has evolved to a point where GCs are now considered more like ‘risk partners’ in the business. ‘GCs were always involved in legal risks, but more general risks are becoming more important to the advice we give,’ he says. ‘Increasingly, at senior level, it is more important to assess business risks rather than just look at legal risks. Legal skills are still important, but it depends on which level you are at in a legal department. It’s more important that the senior legal staff and GCs themselves are good at assessing the legal risk in relation to business risk.’
At a glance – Tom Melbye Eide
- 1999 – General counsel, If P&C Insurance Company
- 2006 – General counsel, StatoilHydro
- 2011 – Head of legal, global strategy and business development, Statoil
- 2013 – Executive vice president and general counsel, Sapa Group
- 2015 – Executive vice president and general counsel, BG Group
- 2016 – Executive vice president and general counsel, upstream division, Royal Dutch Shell
BG Group – key facts
- Size of team 120, including 85 legal counsel
- Annual global legal spend firmwide 2015: $100m, excluding legal costs relating to Shell transaction
- London-headquartered advisers: Freshfields Bruckhaus Deringer; Clifford Chance; CMS Cameron McKenna
This is a trend Eide says he has witnessed during his time in-house as in recent years the evolution of the GC has brought about their growing importance ‘in the corporate setting’. He adds: ‘They increasingly have a presence at the board of directors and are involved with sub-committees – the GC is now more present in an organisation than ever before.’
It is a timely transition for someone like Eide who, having ascended the corporate ranks relatively quickly, prefers taking on a business-facing role rather than the business-as-usual legal work usually considered mandatory in-house.
‘I would say I am still a lawyer, but my job is very different to being a technical lawyer drafting contracts. What I do has implications for more technical lawyers who need to see the implications of bigger issues – how it shapes negotiations or contracts, etc. I translate business risk into legal risk and communicate that to the lawyers in the team, and we translate what they are doing into business risk for the benefit of the board.’
He adds that the extent to which he plays the lawyer these days varies on a ‘sliding scale’ day by day. ‘I try to stay involved in more technical legal work so I don’t forget my skills and I don’t want to be a pure generalist with no links to the skill of a lawyer, but it’s really the case that at senior level you drift slowly away from being a lawyer.’
Eide is also a keen advocate for prioritising the monitoring of compliance changes with the team tracking legislative changes across jurisdictions. The trend to watch out for now, he says, is countries developing their own compliance law, which will serve as a major headache to goliaths like Shell and BG. ‘Two years ago we just looked to the US when setting our compliance goals. Now we are having to look closely at what others are demanding in various jurisdictions.’
And in citing Shell’s Ching and BP’s GC Rupert Bondy as legal leaders he admires, Eide says he views reputation management as a critical role that has fallen into the lap of legal teams.
‘It can be something completely different to the risks you have faced in the past. You may have struggled to deal with corruption in a jurisdiction previously, but it is unwise to focus only on that issue when running due diligence. It can be a completely different set of issues that comes out at you. For those who have been around for a while, they acknowledge it is more difficult to assess risk in terms of a standard template. We know too well that risk is always changing. Of course, if you’re a lawyer, you are always asked to state the risks precisely. That’s where experience comes in.’