18 Jan Leading transformation in Portugal
Bruno Ferreira, Co-Managing Partner, PLMJ, highlights the importance of social impact and sustainability within the law business
During the last year we have seen the world on high alert and governments taking all manner of actions to stop the pandemic. As we have seen, some nations have stood tall, while others fell. Portugal – as a nation – rose to the occasion and has received global praise for its handling of the coronavirus crisis, especially considering how hard its neighbour, Spain, was hit. What in your opinion, were the key elements that allowed for Portugal to tackle this crisis so effectively?
I think that the government ended up acting swiftly. Given there was this initial big impact in other EU countries that did not exist in Portugal, it was very important for us to prepare allowing for the Portuguese economy to fair better when compared to the Spanish economy. This was an important factor when comparing Portugal to other EU jurisdictions. At the end of the day, I think that other countries and investors especially ended up seeing Portugal as a country that did not have as much impact and handled the crisis well.
How important is it for companies to re-invent themselves for the digital age and what can you tell us about the impact of the convergence of the circular economy and digital transformation 4.0 on how PLMJ does business?
Location, in the sense the physical location of the work station, is not as important, because you can work from wherever you want, and you can provide services from wherever you want to live. This is a selling point for Portugal, because, rather than living in a country that is not as appealing to live in, people are moving to Portugal, while working for a California start-up or some company in the North of Europe. We are in a great position to take advantage of that as a country, given we are a very safe place to live in. We have infrastructure that is up to par with other advanced countries.
In terms of our business and sector digitalization, we have not felt a specific impact from alternative service providers in Portugal: this is a smaller economy and the legal services sector is different from others because competition is not that easy. There are a lot of barriers to entry, so we have not felt either local or international alternative service providers in Portugal. Meaning that a big part of our businesses is still traditional legal services within the business sector for large transactions. In any case, for us it is very important to ensure that we continue to have business in the next 10 to 20 years and this means focusing continuously on finding additional sustainable competitive advantages.
In that spirit, we have been doing a sort of a spray and pray strategy in terms of looking at several different technological innovations, where we look at several new technologies and try to implement them not just internally but also with our clients and see if any one of them ends up picking up and replacing a significant part of our business which has not happened yet.
Your firm has a privileged insight into the key legislation that has lead Portugal to become as globally competitive as it has been over the last decade. Could you please highlight the key legislative changes in Portugal that has given it an edge in doing business and attracting its foreign investment flows?
A big part of the legislation was the special tax regimes that Portugal implemented. This allowed for a lot of individuals to relocate to Portugal and to benefit from a special tax rate when compared to Portuguese residents in terms of personal tax. That was a big part of it, especially because it also assured that there was a continued demand for real estate investment in Portugal, which allowed for return rates to continue to evolve steadily in Portugal and not feel the impact as other jurisdictions. I think those were the more relevant pieces of legislation that were implemented. We tried some others like the Portuguese REIT (SIGIs) which was emulating Spain with the SOCIMI’s, however it still has not picked up significantly. This also happened in Spain, they initially implemented SOCIMI’s in 2009, but it only picked up in 2011 or 2012. I think we still have to make sure that the tax rules that apply to the SIGIs are clear. I think that this will be the focus in the near term in order to see if some additional legislation allows us to continue the flows of international investment.
Mergers and acquisitions exceeded 13 billion in 2019. A sign that Portugal’s notoriety in the world is experiencing an unrelenting growth. This is especially true in the real estate and technology sectors. We would like to lean on your many years of experience in capital markets; considering the situation we are living through, how did 2020 compare and what should we expect in 2021?
The Portuguese capital markets is not as big as other capital markets. We do have some very interesting M&A activity, especially in the sectors you mentioned. We initially did see some decrease in the activity in March 2020, then things picked up in July and have been steadily picking up. What we expect for 2021 is that, unfortunately, economic activity will probably not pick up, at least not to desirable levels and pace. We will hopefully still see a V-shaped recovery, but not so much of an L-shaped one. What we probably will see is more activity in terms of restructuring businesses. We have had some bank moratoriums in place for the better part of 2020 and this will also continue until the first quarter of 2021 but, after that, there will be a significant cash impact once the bank moratoriums are terminated. So as a result of that, I think that the Portuguese market in terms of both M&A and financial restructuring and labour restructuring and operational restructuring will see a lot of activity in 2021.
PLMJ has a remarkable story. You are more than 400 people and have existed for more than 50 years. You come into your role as the co-managing partner quite recently. How would you describe the key strategic pillars of PLMJ today?
Well, in terms of client work we are a firm that focuses on business transactions, but we feel that we are more than that, because we have a focus in strategic terms on social impact. We feel that there is this virtuous circle currently between what the market wants, what our clients want and what people want. Everybody is more concerned about the environment, social justice and transparency in terms of governance. We feel that this is a part of our mission and our strategy; not just something that we mentioned as a part of our description of our overall activity. This is very important for us, because we feel that as an agent of a broad social impact mindset and focus. We are able to make a significant difference in the market and in the Portuguese society. We feel that we are in a what we call a ‘perfect storm’ context, that allows us to implement this in a positive way because all our stakeholders are interested.
The Financial Times Innovative Layers series dubbed you as one of the most innovative leaders in Europe. Significant changes have happened within the firm that centred on three pillars: betting on talent, technological innovation and integration of sustainability at the heart of the office’s strategy. How will these three strategies enhance the operational structure of the firm?
It is great for us, because it means that we have a continued focus on the way that we do our work and the way our work has an impact on our people and on our clients. Becoming more aware of this is really important, not just in terms of wellbeing, for our people, but also in terms of making sure that in the actual services that we provide to our clients that we cater for their interests and for what they need. Either from a technological perspective, making sure that we have robust solutions for them, and making sure, at the end of the day, that we are also proactive in creating a special relationship between us and our clients.
Just before the end of last year, the firm decided to set up a task force the specialized in ‘legal finance’. Why is this decision important in a post-pandemic environment and how will this task force work differently?
We had some work on that front already, meaning that we do some litigation finance work, but the Portuguese market is not very aware of this as a whole in terms of the overall legal finance sector experience. So what we wanted to do is to put together all of that experience and bring in some international investors that specialize in all aspects of legal finance, whether it be litigation finance or special situations finance. We wanted to make sure that we had an overall picture of the market trends for the type of work that we usually do. This means that we have a pre-packed product when dealing with legal finance. What we did was to put together a lot of the experience that we already had and make sure that we have a proper framework internally to deal with that. We are already feeling that this move has gained traction with both international investors and our regular clients that we do litigation work for. They are also asking us about these funding possibilities, which is really interesting.
Portugal’s Fintech sector continues to experience steady growth and development. It has matured considerably in 2020 with several key developments such as the formation of a Fintech hub along with the introduction of a framework for a financial technology regulatory sandbox program. How mature is the Fintech sector in Portugal especially in regards to its regulatory framework and number of players?
The financial hub initiative was an important initiative, but it still falls short of what we need. We do not have a proper regulatory sandbox. We have a sort of regulatory hotline for the fintech companies to clarify some doubts that they might have and get some help from the supervisory authorities, but it is not a proper regulatory sandbox. We need to implement a regulatory sandbox, to make sure that start-ups are granted the opportunity to test their products in Portugal and check if it is a viable product from a regulatory perspective and, then, contribute to the sector’s growth. I feel that on that front, that is one of the benefits of having a web summit for the last couple of years. I think that positive effect has not passed on to other types of measures that we need and the regulatory sandbox would be the essential one to make sure we take advantage of this momentum in terms of creating a proper fintech ecosystem. We have some individual measures that we have taken but we have not focused on creating an actual ecosystem in where not only the founders, but also the consultants, service providers, funders, VC backers, and, especially, the supervisory authorities are all a part of this ecosystem that helps this fintech world grow.
What would be your final message of optimism and security about Portugal and the resumption of its economy for our readers of Newsweek?
The largest firms in the Portuguese legal sector have really made a great effort in terms of implementing the best practices of international law firms and this is the sector that sometimes is forgotten, because it is not as large as the tourism sector and other sectors. One of the positive messages is that we and the two other largest law firms in Portugal are part of making sure that we are using the best practices worldwide in terms of legal services. We feel that this is putting us at the forefront when compared to other industries.