Event Report

Rodrigo Duterte’s unlikely landslide victory in the 2016 Philippine general election has seen the pace of regulatory change increase sharply. The political outsider has passed over 200 new laws, regulations and executive orders since taking office. For GCs, the raft of new regulation has made navigating an already complicated domestic regulatory landscape even more difficult.

But politics is not the only driver of change for GCs in the Philippines. As businesses in the country align increasingly with US and European models of corporate governance, the role played by in-house lawyers is undergoing a profound shift. To discuss these trends The Legal 500 and Cruz Marcelo & Tenefrancia gathered together more than 20 of the country’s leading senior counsel at Manila House Private Club for a special discussion on the changing role of the GC in the Philippines.

One profession, two paths

Among the many of the new laws passed by the Duterte administration, the introduction of a new tax on sugar-sweetened beverages – the first such tax in Asia – has had the most immediate impact on consumers. Lope Manuel, chief compliance officer and vice president for legal, labour relations, compliance and corporate affairs for Pepsi-Cola Products Philippines, has been closely involved in discussions with government over the new law and opened the discussion by commenting on how this engagement reflects a shift in the GC role.

‘Two years ago I may have been asked to check whether a business decision complied with regulations but that would be it. However, I am now responsible for corporate affairs and play and active role in setting the corporate agenda by defining the structures through which we engage with government.’

Pepsi’s decision to appoint its GC as main lobbyist was an unusual one. However, continued Manuel, it reflects a broader redefinition of the GC role. ‘Stakeholder management is generally a far bigger part of the legal function across all businesses. Almost all areas, including the tax practice, now cut through legal in some way. The development of these structures at an FMCG business is sign that GCs are increasingly facing the types of issues and challenges that previously only affected the banking or pharmaceutical sectors.’

However, noted Jazel Calvo-Cariño, head of legal for the Philippine operations of Sanofi, even those operating in highly regulated sectors have seen a big change in their role. ‘I am definitely more aware of the issues that get referred to other departments than ever before. Whether its corporate affairs, regulatory or supply chain, I need to keep up with and understand the matters they are working on to spot which of them have the potential to boil over into something more dangerous.’

Marianne Guerrero, senior vice president and group head of legal at UCPB, one of the country’s largest banks, added: ‘The ability to anticipate potential changes to the operating environment arising from new regulations, changes in government or other external factors is increasingly important to the GC role. We often talk about our role in protecting the reputation of a business, but what exactly is the reputation we are trying to protect? In the past the GC was there to defend the company when things went wrong. Now the focus is much more on taking an active role in identifying the type of reputation you want as a business and making sure things run smoothly.’

This sense of change was echoed by Juan de Zuñiga Jr, head of legal for the Central Bank of Philippines. Having served as a GC for more than 20 years, including 13 with the Central Bank, Zuñiga is one of the longest serving in-house lawyers in the Philippines. For much of his career, he noted, ‘the work done in-house lawyers was not very different from that sent to external counsel. Now, when I speak to a younger generation of counsel, I see that the expectations of them are very different to those I faced when I first moved in-house. While regulation has been a big driver of this change I do not think it is the only explanation. To take an example from my own sector, the increasingly sophisticated nature of financial markets means in-house counsel must show a breadth of knowledge that was unheard of ten years ago.’

Another long-serving member of the Philippine in-house community, Solomon Hermosura of Ayala Corporation, joked that the great misfortune of being a GC was that no one fully understands the job until it is nearly time to retire, adding: ‘I cannot say with any certainty that the role of GC has changed because my own understanding of it has changed so much over the last 20 years. Earlier in my career I thought that law was law. In that sense, I continued to operate like an external counsel and I found it very difficult to adjust. As I grew into the job I realised that my role, like all other roles in the business, was to be part of a collective mind. GCs should try to make that mind better and smarter, but we must not act as the superego governing it.’

The evolution of the GC role is also apparent in increasingly large and varied legal teams, said Ramon Manolo Alcasabas, a partner in the litigation and disputes department at Cruz Marcelo & Tenefrancia. ‘We have certainly seen growth in the size of in-house teams over recent years. The internal legal teams we advise are sometimes larger than the largest law firms in the country, and this growth has been accompanied by new understanding of their function in the business. From our side there must be a recognition that the relationship between internal and external counsel has changed.’

Emma Theresa Cabochan joined Asia United Bank three years ago and now serves as its vice president, legal officer and chief data protection officer. Her experiences, she said, confirmed this view: ‘I came to the bank during a transition period when it was decided that handling work internally was more strategic than simply sending everything to external providers. In terms of the overall cost of handling matters it does not make a huge difference, but when you are operating in a highly regulated industry having staff who understand both the business and the regulations shaping it is essential. More importantly, we understand the limitations in the regulations, which is a good way of spotting opportunities and risks at an early stage.’

Regulation, regulation, regulation

Next on President Duterte’s agenda is an even more ambitious plan to change the Philippines’ form of government from centralism to federalism under a new constitution. While the matter is still at pre-referendum stage, if it comes to pass it will represent one of the biggest political transformations in Philippine political history, carving the country carved into 18 federated regions. While the exact legal consequences of the proposed move to federalism are still unclear, it is almost certain to generate a mass of legal work.

‘The potential shift in our system of governance raises a lot of issues for [the healthcare] sector’, noted Sanofi’s Jazel Calvo-Cariño. ‘What impact will it have on public healthcare programmes? Will the Department of Health be decentralised? How will state-owned hospitals be organised? These are our key stakeholders when it comes to dealing with the public market so it is important to understand how it might play out. However, the debate is still very abstract and no one really knows what this might look like in practice.’

Mickey Colayco, chief legal and compliance officer of Aboitiz Group, had a similar view. ‘The proposed switch to federalism is being monitored very closely by business but we can’t really make contingency plans because so much of it is unclear. Will it be like the US where each state has some power to set laws? We don’t really know yet.’

Even Juan de Zuñiga of the Central Bank was unsure about the precise implications. ‘We were not consulted about this and would need an overview of what the move to federalism means in practice before being able to plan for it. All I can really do at this stage is help the staff grasp the proposal in broad terms. Very few people understand what it means to become a federation of states and as the most visible lawyer in the organisation I feel a duty to explain it. At least our staff will then know what it is that is being proposed and what they are voting on if it comes to a referendum.’

The only thing that was certain, noted Dodjie Lagazo, group head of legal and regulatory at AC Energy Holdings, was that the regulatory burden on GCs was likely to grow: ‘If we end up operating in a decentralised system then our interaction with regulators will be on a regional basis. Far more in-house lawyers will be needed to manage this interaction, but that is the only thing we can say for sure at this stage. Understanding how this will work on a sector-by-sector basis is something we need law firms to assist us with.’

Rowanie Nakan of Cruz Marcelo noted that while law firms are often asked to produce guidance in relation to regulatory change, this often meant departing from strict legal advice. ‘Outlining what the law states can be relatively simple. Explaining what that law means in practice is far more difficult to do in a short briefing. In my view, practical tips on how government agencies are likely to enforce the regulations are of far greater value than anything else. However, from a compliance perspective do you find it safer to give a clear exposition of a particular regulation?’

Having recently conducted an internal review of regulatory risk, Pepsi’s Lope Manuel was in a good position to answer. ‘Senior figures in any business want to be able to accurately measure and manage risk. If a law firm can give us a realistic assessment of the various risks we face then we can prioritise our compliance strategy. We will always comply with all rules, but resources are not infinite. If a regulator will close your business if you do not comply with a particular requirement then of course that matter will receive immediate attention. I therefore welcome your approach of making an informed interpretation of the risks we may face’.

Taking up this theme, Maria Rowena Espiritu, legal affairs director at Huawei Technologies Philippines, noted that too many firms often appeared unsophisticated when compared to other professional service providers. ‘The most common problem with law firms is that their view of risk is not consistent with that of business. There is a tendency to deem everything high risk, which means we have to revise the report to a more realistic picture before presenting it internally. A report where every risk is scored as “high” is not going to fly with our business colleagues. In my opinion, if you are saying something is high risk you are telling me it could shut the company down tomorrow. Excessively cautious reporting that lacks nuance causes more problems than it solves for in-house counsel. As GC I need to actually take a position on risk.’

Mickey Colayco of Aboitiz Group went further, arguing that traditional legal briefings no longer represent a value-add to clients. ‘It is easy to find out what the law says these days. Even those with no legal training are able to find the relevant documents through web searches. Knowing how to implement those laws is a different matter, particularly if you are operating in a business that is not on the front-line when it comes to regulation. We look to firms who can bridge that gap and tell us how to engage with regulators.’

However, as Pepsi’s Lope Manuel pointed out, finding out what the law says is not always a simple task. ‘Regulatory inconsistency is a problem one encounters in any developing market. The regulations change quite often as do the people enforcing them. As a result there seems to be no embedded knowledge on how to enforce. On occasion we are faced with regulations which the regulator itself cannot define. You will receive one opinion from one person and a different opinion from another person employed in the same office.’

When it comes to evaluating law firm performance, added Emma Theresa Cabochan, vice president and legal officer of Asia United Bank, it is not only the opinion of the GC that matters. ‘There is a question of how the business team views the firm’s performance as well. They will ask us to assess the legal work but they will make their own judgements based on how responsive a firm was, whether they brought a commercial perspective or any value beyond advising on black letter law. If the firm is familiar with the business and has a view of its strategy then it also helps. That’s what makes Cruz Marcelo so great. They are respectful, fast, and loved by senior management.’

Sonofi’s Jazel Calvo-Cariño went further, arguing that GCs have a duty to defend the work done by external counsel. ‘If something is not a straightforward matter then we need to step in and say so. There’s no point in capping fees if a matter is so complicated it can’t be handled simply. Business needs to be aware that some things cost money and that when it comes to complex work or a novel legal question we must outsource.’

Concluding thoughts on the changing role of GCs in the Philippines came from Marianne Guerrero of UCPB. ‘From one perspective you could say that the role of in-house counsel is a dead-end job. If you only bring legal skills to the table it is a dead-end job. As an employee of a company you have to acquire skills useful to the business. Over time the company will see the benefit you can bring and your influence within the organization will rise. One thing we must teach junior lawyers moving in-house is not to limit themselves to legal work.’

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