After 17 years in private practice, Florian Drinhausen surprised himself in 2014 by taking up a senior legal role in one of Europe’s top European banks. Four years on and he’s at the helm of Deutsche Bank’s legal team as it navigates the headwinds of restructuring, re-strategising and preparing for an uncertain post-Brexit world, as he tells In-House Perspective.

Ruth Green

Florian Drinhausen took over the role of general counsel at Deutsche Bank in April 2018 following the staggered departure of co-general counsels Christof von Dryander and Simon Dodds. For most, this would have been a big step, but Drinhausen had already done much of the groundwork for taking on the bank’s top legal post.

Drinhausen joined Deutsche Bank in 2014, having spent 17 years in private practice and much of it as an equity partner at magic circle law firm Linklaters. He had previously been approached for in-house roles and been non-plussed about such opportunities, but this time it was different.

‘I wasn’t looking for a new opportunity,’ he says. ‘I was approached by Deutsche Bank, which was a client of mine at the time, and they asked if I was interested in coming on board in-house. It was mid-2013, I didn’t anticipate the amount of change that was ongoing and I had done some pretty interesting work for them. I liked the people, I felt it was a highly intelligent organisation, competitive and intellectually challenging. To my surprise, once the question was asked I was really interested, so that was probably the biggest surprise to me.’

However, Drinhausen was adamant he wanted to experience the ‘learning curve’ of working in an in-house legal department and joined the bank as general counsel for Europe, Middle East and Africa (EMEA). ‘Many people who work in my department have been my peers for two years and that gives you a different level of context and traction in an organisation and I find that important,’ says Drinhausen. ‘I guess I underestimated the risk a little bit, but I still think it’s the right thing to do to start somewhere in the upper, mid-level ranks and then work yourself up through the various roles.’

 

 

 

 

After heading up EMEA, Drinhausen became general counsel for Germany before being pulled out of the legal department to run the governance function in 2016. As well as connecting him to senior management at the bank, the role helped prepare him mentally for some of the strategic thinking required as general counsel. ‘To give meaning to this topic was an immense challenge for the team and for me to identify the areas that we can have leverage and the areas that we don’t have leverage,’ he says.

In 2017 when the succession process started for general counsel, the governance function was brought back under the legal department’s wing. This was the right decision, he says: ‘Governance in many respects in the financial industry has lots of elements of legal requirements that you have to meet so it makes a lot of sense to have it in legal. It does help the legal department as well to get more traction not only on the day-to-day business advisory aspects, but also on the more structural challenges of the firm and that the legal department can see that it’s actually an enhanced impact that we have here.’

This didn’t stop him noticing the huge jump in personnel since he was officially appointed general counsel in April 2018. Whereas under the governance function he was in charge of 60 people, he now oversees a 1,000-strong team spanning both legal and governance issues. A month into his new role the bank announced plans to slash around 7,000 jobs in a bid to scale back its global investment banking activities and refocus its efforts on Europe.

Cost-cutting and tough decisions

Although the job cuts haven’t affected Drinhausen’s team so far, he says it has brought greater scrutiny than ever before on his team’s external spend. ‘When we started talked about cost-cutting, I thought we needed to start at what we at Deutsche Bank referred to as internalisation, which means what work we can actually do more efficiently in-house than being handled by external counsel,’ he says. ‘I inherited a world where the amount we pay to external law firms had attracted considerable scrutiny and I must say criticism from around the bank given its sheer size,’ he says. ‘Almost instantly I had to deal with that and fix that. Therefore, more than probably any of my predecessors, I had to look into it and understand what we do with external counsel.’

Drinhausen already felt there was much more that could be done to cut costs in this area. ‘Even before the cost-cutting started I went to my boss and the management board and said I think what we have historically done, ie, concentrating on the internal costs, is actually half-baked at best because we have a very substantial external cost and we need to address both of them in a holistic manner,’ he says. ‘It was a coincidence that I inherited it as I also felt strongly that we use too many external counsel, but that was not driving this: the cost challenge for us essentially means we do more in-house now because it’s more efficient.’

 

 

 

 

Drinhausen’s team reduced the bank’s external legal spend by more than 20 per cent in 2018 compared with the previous year’s outlay. He hopes the progress will continue. ‘The entire legal department has worked very hard to recalibrate what we do internally and externally,’ he says. ‘That’s a combination of people working harder, being more reflective about what work to give outside, and us understanding better actually what we give outside. It was an interesting journey throughout last year for all of us because we started to understand much better than ever before how we use external counsel. And that’s not over yet, we will clearly continue along this path in 2019.’

Some of the decisions may have proved unpopular with some law firms, but he believes it was high time for a shake-up. ‘There are many law firms who I think grudgingly accepted it’s the right thing to do,’ says Drinhausen. ‘Some have been openly critical, but I do think it’s the right thing to do and that’s resetting our relationship with law firms. The quicker we get that to a new starting point the better because I personally feel strongly that we should have good relationships with external counsel, but we should know that they’re external and they don’t work for free. It’s a resource we use and it’s a highly valued and appreciated resource. Our legal spend even after calibration will be so substantial that we will be major clients of many law firms, but before it was a little bit out of hand.’

Brexit headwinds

The cost-cutting drive at the bank comes as Brexit Day fast approaches. As with most banks headquartered in the European Union, but with operations in the United Kingdom, the future looks uncertain. For Drinhausen the priority has been to reassure his staff and the bank’s clients that they’re doing everything to keep disruption to a minimum. ‘For the legal department, Brexit is less disruptive than most people think,’ he says. ‘We already have a material presence in Frankfurt and across the EU. So, as of today, we are looking at a small number of people moving from London to Frankfurt. I would envisage that more people will move over time, but that entirely depends on what will happen to London as a financial centre.’

While Drinhausen believes London will remain a significant financial centre after Brexit, he says it will necessitate some changes at the bank. ‘It will most likely start a flow rebalancing between London and Frankfurt of the legal team supporting investment banking more than anything else, because many other business are already serviced out of Frankfurt,’ he says. ‘Our retail business mostly sits in Germany, but on the investment banking side, no one should be surprised that the senior people in the legal team sit in London. The good thing about it is that for some period we will have people sitting in London able to service businesses sitting in Frankfurt, but we might revisit this over the longer-term.’

 

 

 

 

Undeniably, Brexit has been a strong focus for the legal department over the past 12 months. In fact, Drinhausen has a dedicated team of five senior personnel, including three managing directors, and one external law firm working on Brexit-related matters. Drinhausen himself also serves on the steering committee handling Brexit at the bank. ‘Brexit for us is about client migration,’ he says. ‘We began a comprehensive programme to migrate our clients to be serviced out of Frankfurt for new business back in 2017. This is needed because the passport is falling away. There are a lot unanswered questions for the industry – hundreds of them – that pop up every day so that is consuming a lot of time.’

One of the ongoing questions plaguing Drinhausen and his colleagues is whether pre-Brexit deals will be grandfathered after the UK leaves the EU. ‘Grandfathering is, to my mind, the key challenge at the moment,’ he says. ‘The industry needs clarity on whether financial transactions can be grandfathered. It is a debate that all the industry is involved in.’

Drinhausen says he and his team are constantly in touch with the UK’s financial services regulatory body, the Prudential Regulation Authority, and the European Central Bank. This has helped keep them in the loop to a certain extent, but he says the banking sector is still looking for clarity on what will happen come Brexit Day. ‘The easiest solution would be for regulators to agree what can be grandfathered, but that’s clearly a political decision, and a decision that we as a bank, as large as we may be, have little influence over. But we can try to explain the problems that the issue will cause the industry and make this clear so decision makers understand that these are real challenges.’

Challenges ahead

Away from Brexit, there’s plenty to keep Drinhausen busy in 2019. ‘I want to review the organisational set-up of the legal department, not from a disruptive perspective, but from the perspective [of seeing] whether we are we really set up as good as we could be,’ he says. ‘That’s going to be an interesting exercise for everyone as once in a while I think you need to take the time to reflect on how you do things. I’m also looking forward to more business as usual and advising real clients on real transactions. That’s where I want to be with the legal department more.’

Looking back on his first year in the role, Drinhausen says the number of emails he receives every day is ‘immense’ – the steady melodic chime of emails landing in his inbox signals he isn’t exaggerating. Despite the clear pressures of the role, he is fairly relaxed about his ability to keep cool under pressure. ‘Calm? That’s part of my role,’ he chuckles. ‘If I panic then everyone else panics. The role I have today is something I never thought I would have. I come from a family of lawyers and when my appointment was announced my parents were called with congratulations on the success of their son. It’s the most enjoyable role and I hope I can say this when I’ve had it longer than a year, but intellectually and technically it’s the most rewarding role I’ve had in my life.’

 

 

 

 

As unflappable as he is, Drinhausen admits his views of working in-house have dramatically changed from when he was in private practice. ‘I underestimated the risks and I probably didn’t understand the role of a senior in-house legal person quite right,’ he says. ‘Today when I look back I wonder how I ever got any clients convinced to work for me because I don’t think external lawyers understand how a large corporate works very well. It’s not their fault as we don’t explain it and we’re not very transparent. If we give them projects they understand what to do but what we do internally is something we rarely talk about.’

That’s one reason why Drinhausen is keen to focus on consolidating his relationships with external counsel in 2019, particularly in light of the clamp down on external legal spend. ‘I also need to work with the law firms, whom I haven’t met much as I haven’t had time, to reassure them it’s not about saving money, it’s really about redefining our relationship and that relationship obviously has to be mutually satisfactory for either side,’ he says. ‘I fully understand that they want to be profitable but the next phase is probably needing to reassure them that they are most welcome on the basis of the new rules that we have defined for ourselves in 2019.’

Currently Deutsche has a large panel of law firms, but, in line with the curb on legal spend, Drinhausen expects this to decrease as well. ‘One of things that we’ll seek to do is to reduce the number of law firms that we use,’ he says. ‘That process will start in the first quarter of 2019 and I expect will run until autumn. Then we’ll see where we are.’