Category: Features

Infrastructure development has long been neglected in Indonesia – a characteristic that President Joko Widodo (Jokowi) set as a primary goal for his administration to rectify during his term. Continue reading “Jakarta Roundtable: Infrastructure, Investment and Internationalisation”

In the last few weeks, my LinkedIn feed has been full of talk of how the latest NewLaw move (EY purchasing Riverview Law) is a massive sign of the market shifting. Continue reading “Create The Hype, But Be Wary Of Believing It”

When Brent Irvin joined Tencent as group general counsel nearly nine years ago, the Chinese upstart company was already a domestic tech wunderkind, boasting revenue close to RMB 20bn. But few foresaw the trajectory it would take from there: with record growth in 2017, the company is now valued at more than $477bn.

‘We have always been about combining social and content, but in the beginning we were more games-focused,’ says Irvin.

‘It’s still a huge part of the business but over time we’ve expanded into movies, video, music and other forms of entertainment. We’ve added online finance and payments to our bow as well.’

The story of Tencent’s dramatic growth is becoming a semi-regular occurrence in the Chinese tech world. The country now has nine of the world’s top 20 tech companies. Only the United States is better represented. Among them is electronics company Xiaomi, the world’s fifth-largest seller of smartphones.

‘We’ve grown very quickly from a start-up to become a Fortune 500 company within eight years. It’s like working in a different company every half year,’ says Bin Sun, general counsel at Xiaomi.

Originally an online-only retailer, Xiaomi, which recently floated on the Hong Kong Stock Exchange, opened its first bricks and mortar store two years ago in a bid to compete with companies such as Huawei, Oppo, and Vivo, which began selling smartphone devices offline, increasing competition in the market. This brought a new set of challenges for Xiaomi’s in-house legal team.

‘Our retail stores have grown very quickly. We started out with just one attorney; six months later I had to add a whole team. Our lawyers have to learn different business skills all the time.’

The legal team has grown ten-fold since Bin Sun joined almost three years ago – Xiaomi now has around 80 lawyers based in its Beijing headquarters, with teams outside China based in India, Indonesia and Spain, with plans for other EU countries in the near future. However, the team is still relatively small compared to other Fortune 500 companies, which is a challenge when trying to keep up with the growth of the business.

That challenge is one not dissimilar to that faced by Tencent. Under Irvin’s management, Tencent’s legal team has seen an increase from 20 to 350 lawyers, with many new specialties required to service the growing expanse of business offerings.

‘Different types of business require different types of lawyers. Online finance has become an important part of our business. We were lacking experts in banking regulation, so had to build out new teams. We talk about IP and technology a lot more now, which also requires more weight,’ explains Irvin.

‘One of the differences between us and other big Chinese firms is that we do a lot more overseas deals, outside of China. We have a need for deal lawyers globally – we do a lot of deals in London, New York and California – and it’s not just regulatory work.’

‘When it comes to hiring external lawyers, “knowing the Tencent way” is very valuable. We put a high premium on lawyers who understand our business well. We often end up with relationships based on a lot of volume (in terms of deals), so we want to build long-term relationships and try to be innovative when it comes to billing, rather than just maximising on price.’

Uniquely China?

China is a notoriously tough market to operate in. While President Xi Jinping has pronounced that China is open for business on the international stage, there are still unique roadblocks to building a successful business in China. Between an intellectual property regime that is still finding its feet and the complex regulatory environment, doing business in China can be difficult at the best of times. However, according to Irvin, the challenges for most companies operating in the tech sector are largely the same as you would find globally.

‘I’m American and have worked across various countries, I know a fair number of GCs, and you find a lot of the issues are the same,’ he says.

‘You worry about competition laws whether you’re at Google or Facebook or Tencent – when you make products that improve people’s lives, there’s a certain amount of increased regulatory scrutiny and that is the biggest challenge we are facing now.’

Providing strong leadership is crucial to overcoming such challenges; a skill that Irvin says he has needed to develop quickly in order to meet the changing requirements of his role.

‘I’m not a big fan of one-size-fits-all management. To me, a very important part of leadership is judgement and that’s often very contextual: how to handle certain cases or people or teams,’ he says.

‘It’s a cliché but you’ve got to hire good people and you’ve got to empower them; there’s no way you can do it yourself once you reach a certain scale. I do not micromanage, so a fair amount of my time is spent making sure we have the right teams and leaders in place.’

This tailored approach to management might be well-suited to the often turbulent life of an in-house counsel in China. Still, for all the differences, the core concerns for counsel stay the same, according to Irvin.

‘The most important thing for me as GC is to understand your business needs and to be able to build a team with strong execution that is highly adaptive. It is challenging to find talent in such a fast-growing environment. We tend to focus on people’s ability to learn and motivation rather than past experience.’

Leveraging Intellect

Bin Sun took over as general counsel during a particularly turbulent time for Xiaomi. In 2016, sales had plummeted and the company fell from first to fifth place in China’s smartphone market. The reasons for this are varied, with reported organisational problems through the supply chain – but one of the main explanations was a reliance on online sales, which plummeted between 2015 and 2016 from 70 million devices down to a reported 41 million.

In an attempt to turn things around quickly, Xiaomi embarked on a new strategy to compete in the bricks and mortar world of offline retail. In addition to its own products, Xiaomi would fill the stores with products developed and produced by start-ups, hand-picked and funded by Xiaomi. The hope was that these start-ups would complement the company’s established products to create an eco-system of digital tech goods that would be enough to lure customers into the Xiaomi stores.

This strategy, together with a concerted push into overseas markets such as India, was designed to pull Xiaomi back to the top of the leaderboard.

However, the international expansion brought its own headaches, and invited patent lawsuits in expansion markets – even some in its home country. In one such case in India, Xiaomi and its distributor, Flipkart, were blocked from importing, marketing and selling smartphones that were infringing eight patents held by Ericsson. It was one of the biggest lawsuits that Xiaomi faced from a major company.

By the time Bin Sun was brought in, Xiaomi had drawn heavy criticism for its intellectual property woes – making her previous role as head of IP at China’s BOE Technology Group a definite advantage.

‘Being able to speak the same language as IP professionals means I can make confident decisions on high-stake matters. It certainly helps in my role as GC. IP law, especially the patent law for tech, is basically the same as the one designed more than 100 years ago when tech was not integrated,’ she says.

‘There is no way you can get complete freedom to operate in hi-tech. Even Apple and Samsung, who have been in the field for so long, are still facing tonnes of litigation every year. I think this will continue in the future.’

Belonging exclusively to the digital space means that this is less of an issue for Tencent.

‘In our business, we are talking mostly about individual copyrights. Tencent Music and Tencent Video – the second largest in China – would not exist if there was wide-scale piracy,’ says Irvin.

‘In the past four or five years, the government and other companies have played a big role in significantly improving digital copyright to a point where I don’t believe there is now wide-scale piracy, and the IP system is good enough to support us.’

The reason behind this is not that Chinese courts are establishing new rights, but that they are enforcing the rights that already exist for copyright owners – and doing so in a relevant way. Nearly 87,000 copyright-related cases were filed in China last year, according to data compiled by China’s Supreme People’s Court – a 15-fold increase from 2006.

Last year, a Beijing court awarded Tencent more than $1m in damages in a copyright infringement case. The defendant, streaming site and hardware manufacturer BaoFeng, was found to have streamed episodes of The Voice of China without permission from Tencent, which had licensed exclusive streaming rights.

Irvin’s experience in IP has proved invaluable when it comes to advising other companies within the Tencent ecosystem too – he sits on the board of music-streaming companies including Tencent Music and Gaana in India.

‘You want a diversity of opinions on a board so for highly regulated businesses having a lawyer on board can have benefits. By itself, just being a GC won’t help you on a board – I had already been a commercially driven deal lawyer, that was my background, so I have a good business sense.’

Driving Innovation

When it comes to legal innovation, both Tencent and Xiaomi are well positioned.

‘We are fortunate. Being a tech company, our attorneys will design the kind of tools we want and our engineers will put them together,’ says Bin Sun.

For larger, more complicated work, the legal team tends to buy in IT systems from the outside market, which tends to be a one-size-fits-all approach.

‘Tech has much more impact on project management and documentation, for knowledge accumulation and transfer it also helps. We are starting to see AI penetrate into legal, but it is yet to become a competent tool that we can use to support daily work.’

At Tencent, the company has recently been asked to work with Chinese courts to use its mobile messaging and social media app, WeChat, as a tool to help the litigation process. Parties to a legal proceeding can now submit documents, verify identification and pay legal fees through the service.

‘It’s a great opportunity for us to build a product innovation where the client or end users are judges,’ says Irvin.

When it comes to implementing legal tech in-house, the company faces other challenges.

‘One of the issues we faced as a Chinese company is that there aren’t a lot of really good off-the-shelf solutions for IP management software. You can buy them here, but they are in English not Chinese,’ says Irvin.

‘We have developed our own IP management software and set up a litigation system in-house. In the tech space, you are often facing new legal issues – technology develops faster than the law. Solving complex legal issues in new ways or coming up with a framework to address various new regulations are the main two innovations I’m seeing.’

Going public

For Bin Sun and her legal team, Xiaomi’s public debut this summer – the world’s biggest technology float in almost four years – was a steep learning curve.

The team played a key role in influencing the listing terms of the Hong Kong stock market, which historically has not been accessible for hi-tech companies. This changed in April 2018, when the Hong Kong Stock Exchange implemented the largest set of changes to listing rules in decades. The new regime allows the listing of biotech companies that do not meet any of the financial eligibility tests of the main board, high-growth and innovative companies with weighted voting rights structures, and issuers seeking a secondary listing in Hong Kong. The amended law will allow Hong Kong to capitalise on opportunities from up-and-coming biotech companies, which make up a large share of pre-revenue companies seeking a listing. As of June 2018, 26 Chinese tech companies have offered to sell their shares through public offerings.

‘We are lucky that the Hong Kong market is becoming more open and realising the importance of having hi-tech businesses,’ says Bin Sun.

‘It’s very important for a tech company not to be shortsighted – we don’t want our operation to be heavily influenced by the stock market, we want to focus on our long-term goal and continuously grow to become a great company.’

Despite the company’s lower-than-expected valuation – Xiaomi settled on $54bn despite media reports suggesting it had hoped for $100bn – the listing was a huge success for the future of the company.

‘We actively participated in the new amendment to the listing rules in Hong Kong. We were involved in the amendment to that of China mainland – neither had accepted dual-class corporate governance before. We prepared our own IPO project at the same time as working with government officials on the law amendment. It was a very intense time and has made a remarkable memory for the legal team.’

‘You have to, to serve these markets, re-imagine how
money can be managed and moved, because there’s
going to be more change in the next five years in financial
services than has happened in the past 30,’
– Dan Schulman, CEO, PayPal.

Global investment in fintech companies hit an all-time high of US$27.4bn in 2017, an increase of 18% year on year, with the market showing no sign of slowing down. Led by China, the fintech revolution has spread across the rest of Asia, while simultaneously gaining traction in the UK, US and Europe.

Conversely Hong Kong, which should have been first to be swept up in the trend given its proximity to China, has largely failed to follow suit, gaining it the reputation of being a fintech ‘laggard’. But it hasn’t always been this way.

In the 1990s Hong Kong was seen as a front runner in financial innovation when it came up with mobile payments – a technology that is still being developed in other parts of the world. However since then Hong Kong has taken a back seat compared to the rest of APAC, particularly Singapore, which was quick to emulate China’s success.

‘Hong Kong are trying to figure out what’s next – they came up with this innovative idea of the mobile wallet but that was ten years ago,’ says Theodora Lau, founder of US-based Unconventional Ventures.

‘I do think the energy has picked up, Hong Kong has been sitting on its last great idea and now there is a new infusion of money to spur them on.’

Breaking the Shackles

In his 2018/9 budget speech Paul Chan, Hong Kong’s financial secretary announced he would allocate HK$50bn to the development of fintech, artificial intelligence and biotech, in order to ‘stay ahead of the game’. Over the next five years HK$500m will be injected directly into the financial services sector, a move which should help improve the attractiveness of startups to larger institutions in particular.

‘If you don’t have the banks open to business you don’t have a fintech market. The idea that fintech startups would come and completely change the banking industry single handedly was an aspiration not grounded in reality. What you’ve seen in most emerging fintech markets around the world is a view of collaboration,’ says Steve Monaghan, CEO of Hong Kong-based fintech firm Gen.Life and former chief innovation officer at Singapore’s DBS Bank.

Hong Kong’s de facto central bank and regulator, the Hong Kong Monetary Authority (HKMA), has been criticised for focusing too heavily on encouraging Hong Kong’s large existing financial institutions to innovate, while regulatory constraints have kept out smaller technology players.

‘Hong Kong has a very archaic banking system where until now there has been no pressure on incumbents to modify what they do. This leads to a system that lags behind the likes of Europe and Australia,’ explains Monaghan.

‘In Singapore, you had very much the same dynamic in the beginning – a regulator whose sole answer to every question was no. But now you have someone who is driving the agenda quite actively.’

However, with a major push from the Hong Kong government and a HK$50bn investment to drive innovation, Hong Kong may finally be on the verge of big change.

Rethinking Regulation

With any growing industry comes increased risk and regulation, even more so when you are dealing with people’s money.

The HKMA published revised guidelines on the authorization of virtual banking in Hong Kong in May, with the first licenses to be issued at the end of this year. More than 50 companies have expressed an interest including one of the strongest homegrown players WeLab, the mobile lending company, which secured the largest fundraising in Hong Kong last year of US$220m.

‘We look to be a serious contender for the license, it will allow us to expand and diversify our business, bringing financial inclusion to those that may not otherwise have access to traditional banks,’ says Patricia Ho, senior legal counsel at WeLab.

The HKMA is preparing to launch a Faster Payments System, which will make it possible for people to transfer Hong Kong dollars and yuan between accounts at different banks more quickly, and by using a telephone number rather than a bank account number. The faster payments system is just one of seven smart banking initiatives being introduced by the HKMA. Other initiatives from the banking regulator include the creation of a new policy around opening up banks’ application programming interfaces to technology players.

‘There has been some talk that certain banking processes may be able to be done online, including anti-money laundering (AML) and know your customer (KYC) requirements, without the need for face to face contact,’ says Errol Bong, director, regulatory and legal initiatives at Credit Suisse.

‘Being able to do virtual KYC checks would be a game changer for banks. It would make us more competitive. One issue is the increased use of technology on the on-boarding process such as the use of WeChat by Chinese clients. Banks were not certain whether they could accept KYC documents over WeChat but the introduction of the HKMA’s virtual banking guidelines may indicate that regulators are more willing to accept the influence of technology on the client on-boarding process.’

In an effort to harmonise the development of regulation, HKMA launched its Fintech Supervisory Sandbox scheme in September 2016, allowing banks to conduct trials of newly-developed technology on a pilot basis, without the need to achieve full compliance with existing supervisory requirements.

In a related move, the Securities and Futures Commission and the Insurance Authority announced the creation of their own sandboxes. The HKMA said in a statement that the three would be linked so as to offer ‘a single point of entry for pilot trials of cross-sector fintech projects’.

After being criticised for only being available to authorised institutions, the Sandbox has this year been opened up to technology players – a move commended by the start-up community.

As a result participants have been able to reduce development costs and as of March this year, around 20 products rolled out to the market.

‘Start-ups in particular tend not to have free cash flow to pay hourly rates, which means law firms that follow traditional economic and pricing models are less likely to be able to develop new and innovative ways to serve fintech start-ups and achieve an acceptable win-win,’ says Ben McQuhae, general counsel of FinFabrik.

Leading Lawyers

It can be difficult for start ups to attract experienced lawyers when they are in the early stages of development, hence many do not have an in-house legal team until reaching further stages of maturity.

‘In our experience legal has been a catalyst for greater efficiency. Founders often find themselves negotiating directly with potential investors and strategic partners and having to produce documents and make decisions of a legal nature with little, if any, legal or negotiating experience,’ says McQuhae.

For FinFabrik, who hired an in-house counsel much earlier than usual, the benefits of having a lawyer on board have been paramount. Joining in the midst of Series A funding negotiations, McQuhae’s experience helped the company secure the best possible financial backing.

‘We realised the terms on offer were not the best available and quickly closed a seed deal instead, preserving founder control and a significant majority equity position for future rounds. It was a great outcome for us.’

Larger, more established fintechs such as WeLab have prioritised the role of legal counsel so that it sits within the company’s top team.

‘My CEO recognises how important compliance is to driving growth. I am empowered to raise awareness to all staff so that everyone understands the latest developments and how to deal with them practically. An in-house lawyer must build themselves in as a stakeholder of the business,’ says Ho.

However the role of the in-house lawyer is still in its early stages, much like the regulatory frameworks they are expected to advise on. McQuhae counsels that it is vital not to separate legal from the fin or the tech.

‘For us, clear regulation can’t come quickly enough, though we have no doubt that current regulatory uncertainty around fintech and cryptos is temporary. It is encouraging to see more jurisdictions introducing new regulations to provide certainty, and to see established global financial institutions investing in fintech infrastructure,’ he says.

‘For Hong Kong there is no single established set of fintech rules to date – the sooner this happens the better.’

One area that is currently sparking debate in Hong Kong is the movement around blockchain and consumer privacy data.

‘The future of European and more mature markets has to be where the customer completely owns their own data. Privacy standards and consumer expectations are a lot higher abroad, more so than in China,’ says Monaghan.

The issue of privacy is a particularly difficult one in terms of regulation, as McQuhae points out.

‘There is a loud and ongoing debate around crypto-assets and blockchain which we believe should be separated. Blockchain is a technology and whilst regulators will need to educate themselves about its potential use and associated risks in their markets, it is important that regulation does not stifle innovation by regulating technology,’ he says.

‘We’ve seen the distribution of products through platform providers, under new online distribution rules there becomes a lot of onus on who is providing these digital platforms. The day of someone putting up a platform to distribute a product and just taking a step back are over in Asia.’

Hong Kong on the International Stage

The rethought approach taken to regulating fintech in Hong Kong has been welcomed across the board from financial institutes large and small, with further changes to better harmonise Hong Kong with China improving the attractiveness of the wider financial landscape.

‘We’re seeing more domestic reforms, such as Bond Connect, Stock Connect, the virtual bank. We are also seeing the introduction of open-ended fund company rules to attract more funds to set up shop domestically in HK as opposed to in the Caymans. These are two big reforms,’ says Bong.

‘We’ll be looking at the domestic initiatives to make Hong Kong more competitive. If we get more funds setting up shop here and they’re private funds, the regulators have specifically mentioned that perhaps these private funds can use prime brokers as their custodian, which would be good for people and institutions that have a prime brokerage business, who are happy to service those funds. So hopefully that will make Hong Kong a more attractive destination for everyone all round.’

Hong Kong’s proximity to China means it attracts the best of Chinese talent and investment, while sharing a similar market that is both more western and relevant to the rest of Asia.

‘One thing you have in Hong Kong which is an advantage over Singapore, is an ecosystem. There’s a fantastic market in Hong Kong, it’s scalable – you can walk across the border in 30 minutes and test in China with the consumer’, says Monaghan.

‘What you do in Singapore doesn’t translate to Indonesia or the Philippines, there’s much less of a market for learning. The Monetary Authority of Singapore is still far ahead but Hong Kong is closing that gap quickly which is great to see.’

The HKMA has also ramped up its cross-border collaboration following the signing of a UK-Hong Kong FinTech Bridge, in 2017. The Bridge, which commits both parties to encourage fintech firms to participate in industry focused events, creates a single point of contact for fintech companies by the UK Department for International Trade and InvestHK, and provides support for fintech start-ups to establish themselves in the opposite jurisdiction.

The impact of this is already beginning to show. According to data analysts Accenture, investment in Hong Kong fintech companies more than doubled in 2017 to US$545.7m, up from US$215.5m in 2016 and US$107.5m in 2015, putting it well ahead of its rivals Singapore, and Australia.

The China Connection

As the ongoing ‘trade war’ between China and the US continues to fray, testing relations between the two, Lau sees the potential for Hong Kong to capitalise on its role as a gateway – which could prove a boon for fintech.

‘Hong Kong doesn’t have that same obstacle – it has autonomy, it’s legal and administration systems are separate which allows it to do more things,’ she says.

Lau, who was born and raised in Hong Kong but lives in Washington DC, notes that there has also been a noted move toward attracting and retaining talent.

‘There’s a lot of talk at the moment of students from overseas not wanting to come to the US, or if they do there is a higher tendency for them to go back to China and Hong Kong to work,’ she says.

One reason for this is US immigration policies which Lau says are not ‘necessarily welcoming’. In contrast, the Hong Kong government is actively promoting an agenda of its own – last month (August) it introduced a new immigration policy to attract talented professionals. The ‘Talent List’ is open to people around the world who specialise in 11 professions that the Hong Kong government defines as the most crucial for the country’s economic development. These include innovation and technology experts in blockchain technology, artificial intelligence, data engineering and robotics.

‘When you look at the efforts from the government and regulators in Hong Kong and China, and the push to get people back to the territory, it’s never been a better time to start something there,’ says Lau.

Adding to the potential of Hong Kong in the medium term is the ongoing Greater Bay Area initiative, a project seeking to create a world-class city cluster, connecting the Guangdong-Hong Kong-Macau region. By 2030, the region is expected to play a leading role in manufacturing, innovation, shipping, trade and finance.

‘I think this will be one to watch. It has the physical connection to mainland China, a diverse and educated talent pool, investment and infrastructure. Whether they will be able to recreate in Asia what we have in the US – a Silicon Valley – will be interesting to see,’ says Lau.

‘The fact the Greater Bay Initiative includes Hong Kong and Shenzhen – the PRC’s tech epicentre – presents a huge opportunity for tech companies and investors.’

Anti-corruption and anti-bribery practices are a particularly pertinent issue at present, as next year the OECD will conduct its first evaluation of Japan since 2011. Last time Japan was evaluated, the results were far from flattering, with foreign bribery and kansei dango – a form of bureaucrat-led collusion to rig bids for public projects – cited as major issues which required tackling.

Chuck Duross, head of Morrison & Foerster’s global anti-corruption practice – who most recently served as a deputy chief in the Fraud Section of the Criminal Division of the US Department of Justice, where he led the Foreign Corrupt Practices Act (FCPA) Unit and was in charge of all of the DOJ’s FCPA investigations, prosecutions and resolutions in the United States – gave a scene-setting presentation to open the day – offering a unique insight into the practices of that agency, which has asserted increasingly broad jurisdiction and international scope. Duross was joined by Morrison & Foerster Asia-based partners, who each shared their practical experience:

• Timothy Blakely (head of litigation, Morrison & Foerster, Hong Kong)
• Daniel Levison (head of litigation, Morrison & Foerster, Singapore)
• Chie Yakura (litigation partner, Morrison & Foerster, Tokyo)
• Yuka Teraguchi (litigation partner, Morrison & Foerster, Tokyo)

In the first session, putting in place proper infrastructure to prevent anti-corruption practices was a common characteristic amongst those who had a successful track record of managing and navigating incidents. Duross provided practical insight into what government investigators look for and what to do when faced with crisis.

The issue of resourcing and staffing of the compliance function was the second key area of discussion, with a distinct contrast in the different approaches taken between the various organisations represented. One general counsel in attendance cited a strong relationship between the board and the compliance function as the top predictor for adequate investment and importance afforded to anti-corruption practices. Budget was a common issue for many in attendance, with the cost of investigations, as well as the perceived risk of a business relative to its budget, both cited as difficulties when implementing internal anti-bribery and anti-corruption programmes.

In the final session of the day, how technology can be used to improve compliance with anti-corruption legislation and regulation was discussed. Compliance training was the most common area of use for those in attendance and was most frequently utilised by major multi-national companies. One general counsel explained seeing a major improvement in compliance rates after developing the training into an interactive format, specifically a video game, with high scores rewarded with prizes.

GC: As the leaders of international legal teams, what are the main challenges of managing your team from afar?

Tugbay Ekinli (TE): For me, the time zone is the biggest challenge. Between me and some of my lawyers, there is a 15-hour time difference, which means we are almost never live at the same time during the business day. My typical day looks like this: I start with China and my Southeast Asian teams. In the afternoon, I work for the Middle East, North Africa and UK-based teams. At night, after 9 pm, it is my Latin America time. We don’t have much of a work-life balance because of that, but it’s the same for Nicky and for all of us.

We are using several different technological tools to have our team meetings every month. We use Skype, WebEx and VTCs to connect with our teams.

Peggy Lim (PL): I think we make it work. Although there is technology, we do try to have at least one formal face-to-face meeting a month, and then individually we have regular calls on a wider team basis. For example, I have a call with the Asian Pacific Consumer Healthcare lawyers on a bimonthly or quarterly basis, where we use the opportunity to share common issues, emerging trends, lessons learned, things like that, so that we do try to connect that way using technology. I think that has worked.

Nicola Fell (NF): I have found that this requires a different source of management and leadership. In the past, I think my teams have largely been co-located with me, bar one or two exceptions. Now, it is very different. I’m having to think much harder about timing, the logistics of communication, and how to help the lawyers feel connected when they are a lot further from the centre and from each other.

GC: Between you, you are responsible for many lawyers in many different cultures and jurisdictions. How do you account for that as leaders?

PL: I think firstly, the hiring process and talent development is critical, because ultimately we need to be able to rely on and trust the teams in the market. Working at a regional level, you can never be the expert on the local laws and regulations.

From a cultural perspective, Australians and New Zealanders are quite different from, for example, your Southeast Asia and China colleagues, so just being aware of the cultural difference is necessary. And not just in the human-to-human interaction, but also the environment: understanding the business environment that presents itself in different markets is important for us to be able to provide practical advice, as well as the right type of guidance that the team needs.

NF: I fully agree. I’ll add to what Peggy said, as much as we all travel to be with our teams individually, we can’t know everything that’s going on in an individual market. That’s actually not what the role is. I quite often see it as being more of the glue. You’re helping your team members to access information, resources, and be central bodies of subject matter knowledge.

The fact that we’re well connected across the organisation means that if a lawyer in Australia has got a problem, and we’ve seen the same issue come up elsewhere, we provide that connection and make sure the knowledge is being shared. Or, if they need access to a subject matter expert who’s sitting in London, we connect them. That’s a big part of the role. Obviously, we can provide coaching and guidance and be there as an escalation point, but we certainly can’t be taking every decision.

TE: Our roles are really leadership roles. Under the three of us, there are more than 160 lawyers, and this team is managing the legal teams in more than 125 countries.

Our role is essentially managing those who are leading the legal affairs in those countries. Sometimes we are supporting them on some country matters or policy matters, but generally, our roles are managerial rather than operational.

GC: With the pressure to do more with less always a concern for in-house counsel, how important is innovation to the legal team?

NF: I think it is becoming increasingly important. It’s actually quite difficult to measure what is the value of your legal function, when a lot of it is about risk avoidance.

We have a philosophy that we call ‘business partner guardian’. We partner very closely with the business, so that we understand what they’re trying to do, and we try to operate in solution mode wherever possible. But we also have what we call a guardian function, which is ultimately to help manage the risks and, frankly, corporate reputation.

Our client is GSK, as in the corporate. It’s not an individual business leader or an individual business team. We have to navigate that interface, but I think because we’re so closely plugged in with the business, we’re very conscious that we can’t just be a corporate overhead, and we need to really feel we are adding value. I think that horizon scanning and trend spotting is increasingly an important part of the role.

I think in terms of trends for us, we’re starting to look much more as a function on what we call the digital agenda, the use of technology, which isn’t just in terms of our business units, but it is also how we can operate more efficiently within Legal.

For example, in a few parts of the function, we’ve developed chat bots to deal with frequently asked questions, not necessarily just around legal advice, but things such as: ‘What’s in our policy on this matter? Who needs to sign this contract? What level of authority is required?’ We’re always trying to think of ways to reduce the need for a lawyer to spend any time on that.

TE: Innovation is at the heart of GSK. It’s our job as a company and, therefore, the legal function is also trying to innovate.

Sometimes, the innovation comes from the bottom, which, from my point of view is the best kind of innovation. In our LOCs, or local operating countries, the legal team are the people who know the daily operations best. Therefore, their innovations are generally much more efficient in terms of managing their daily workload. As leaders we are always listening to them, and we are always giving them a chance to present what they have found, what they have innovated, and then trying to make those tools available in other countries where appropriate.

As a real-life example, in Pakistan, which is one of my countries, a very junior lawyer, 24 years old, innovated a very simple contract management tool. We let her develop that tool and are now using it in 35 countries in emerging markets, which has given us a lot of savings, both in terms of working hours and, of course, financially.

GC: Looking at the wider industry in which GSK operates, what trends do you see currently taking place and on the horizon?

NF: I think the whole digital revolution is definitely changing. Pharmaceuticals is just as much impacted by that. New digital platforms, new ways of trading, e-commerce, digital innovation – obviously, all of that raises a host of legal issues.

Sometimes they’re the same issues that we’ve always had in old ways of working, but you need to understand the new world and new ways in order to identify them.

There are definitely trends around digital, data privacy, in the same way that all our business units are innovating, and finding new channels to reach patients and consumers. That’s one very general observation.

I think we are a highly regulated industry. We always have been. But the regulatory environment continues to get even tougher. I think compliance plays a huge part in what we do, and with that comes increasing regulatory scrutiny, inspections, and investigations. This type of lawyering is not just traditional contracting and counselling.

I think in our industry specifically, almost every market and every government is going to be preoccupied with the cost of healthcare and the increasing burden of ageing populations. A lot of regulation varies, with different mechanisms in different markets, but the pricing of pharmaceuticals, reimbursements to governments, public healthcare and access to medicine – issues like this are a hot topic.

GC: How would you characterise the mission of the legal team for the next five years?

NF: At GSK, we’ve gone through an evolution where we’re trying to be less and less a disparate bunch of functions with our own mission statement. We’re actually all trying to align much more around the corporate mission.

We want to help our business to be more competitive, so that’s definitely been a shift in our philosophy. But we want to be competitive in the right way, aligned to our values. We’re very focused on the GSK mission, which is around how we can best serve the needs of patients and consumers. We’re quite focused on our roles to support the business, but it’s really aligned to what GSK is trying to do, rather than having our own mission to be the best legal function in the industry, or whatever that might be.

TE: I agree. Another is the continuous development for our teams in the next five years. Most of the young lawyers working in the local operating countries today will be the leaders managing the legal function tomorrow. We’re focusing more on their development, focusing more on people and developing them better, so that we can usher in the future legal leaders of GSK.

PL: I would agree with all of that, and add that we want to be the best business partner guardian we can be. Then of course, you have to peel underneath that and say, ‘What does that mean?’ It’s understanding your business, being innovative, and supporting the business in terms of the agenda it has, both from a patient perspective, and from a business perspective.

Shifting ground for businesses

As we have seen in 2018, the next high profile public exposée is never more than an unexpected tweet away. Businesses are now subject to an ever-increasing level of public scrutiny, facilitated by an always-on, 24/7 news cycle, amplified by social media-fuelled empowerment of the individual. The resulting series of social campaigns have stoked public awareness on a global scale and created an unforgiving environment for employers.

The ground is shifting under the feet of businesses, with boundaries between employers, workers and the public, in a state of flux. These changes are compounded by generational shifts in culture, a war for talent, increasing demand for corporate transparency and rising customer and government expectations.

One example illustrating the dynamics of this new landscape is the #MeToo campaign against sexual harassment. The campaign, which started last autumn, has been googled in almost every country on the planet. The scandals unfolding on the back of #MeToo have led to a new scrutiny of individuals and the companies they represent. It has also led to greater focus on equality in a work environment in the broadest sense.

As a vehicle for victims to speak out, #MeToo has sparked a revolution; the Time’s Up Legal Defense Fund, raised in response to #MeToo, has already received more than 2,700 requests for assistance, across nearly every state in the US. On the other side of the Atlantic, a government inquiry into sexual harassment in the workplace has resulted in the suggestion of a mandatory duty on employers to take steps to protect workers from harassment and victimisation, with a breach of such a duty constituting an unlawful act and subject to enforcement action from the Equalities and Human Rights Commission (EHRC).

Amidst these growing pressures, businesses have often appeared flat-footed in response, promoting even further scrutiny from the public and officials. However, the likely impact on future policy and government intervention is significant.

To avoid growing risks around brand, reputation and future talent-shortages, businesses are facing pressure to get more women into work – particularly skilled and senior jobs – close gender pay gaps and create inclusive workplaces. Regulation is playing its part, with new equality reporting duties, targets and related measures being implemented in different jurisdictions.

Managing new expectations requires a comprehensive look at a range of issues if there is to be a real change in culture. Whilst some businesses are comfortable that their diversity records stand up to this new level of scrutiny and expectation, others are not – or can’t be sure.

This article takes a look at gender developments in a global context, alongside a summary of the clear business risks that organisations face by not tackling these challenges. We also include our observations on how these complex issues are affecting organisations in different countries and continents across the globe, with specific examples and input from our international employment team.

Gender developments in a global context

According to OECD research, women are more likely to work on a part-time basis, are less likely to advance to management positions, are more likely to face discrimination, and to earn less than men. The research notes that gender gaps tend to increase with age, reflecting the role that parenthood plays in gender equality – motherhood typically having negative effects on workforce participation, pay and career advancement.

Since 2013, about two thirds of OECD member countries have put in place new gender pay policies involving greater transparency, with companies increasingly required to analyse and disclose their gender wage gaps. Many countries have also introduced measures to encourage fathers to take parental leave.

Meanwhile, a recent Harris survey of US employers found that a third have taken new steps to combat sexual misconduct (Reuters), although the majority reminded employees about existing training or policies.

We know that employers cannot fix the workplace gender challenge on their own. At its roots are social, cultural and economic pressures that influence the educational and employment paths that men and women follow. Governments and the public must play a significant role if change is to happen. Societal pressures also differ by country, demanding a nuanced approach by global employers. However, expectations are growing that businesses will play their part.

Business risks of not acting

Not acting to improve gender equality exposes businesses to reputational, legal and financial risks. These risks have existed for years, but tipping points are fast being reached, and what was acceptable then may not be now. Some employers are being caught off-guard with potentially serious repercussions. The effects of ever increasing media scrutiny have already been felt in the UK, with a growing trend of exposées that have highlighted individual employers as they were forced to disclose their gender pay gaps for the first time.

The use of non-disclosure agreements (NDAs) for allegations of gender discrimination and harassment is another recent example. The #MeToo campaign emboldened some workers to speak out, some breaching their confidential settlement agreements and, in the process, generating a public backlash against their use. Now, the use of NDAs in such situations presents new risks. High-profile NDA cases in the US led to changes in the tax laws relating to payments made under these NDAs. Use of NDAs has also led to allegations that employers prefer to suppress gender diversity challenges than to make improvements.

An effective employer response will typically require more than reminding employees of existing HR policies. Companies whose top management regard inclusion as a competitive advantage, an enabler of growth and as a core part of their organisations’ culture and brand are most likely to succeed (MSCI), particularly as demand for talent intensifies.

Key takeaways for businesses

• The link between diversity and corporate performance is becoming better understood and is expected to result in increasing investor demands.
• While societal issues affecting female workplace participation differ by country, there are consistent themes driving gender inequality across employers globally.
• These include: a lack of women in senior positions; the impact of motherhood and unpaid caring roles on female pay and advancement; too few women pursuing more lucrative science and technical careers; and the global gender wage gap.
• Addressing such corporate gender inequality issues, particularly where they are substantial, requires strategic engagement from the top, not simply a new HR policy. This is because the causes are often complex, they typically require funding to address, consistent prioritisation to overcome and there is no overnight fix.
• Some businesses are already making great strides in this area, introducing innovative programmes, publicly setting gender equality targets, reporting on their progress and holding the senior management team to account.

Nowhere is there a more striking example of a global trend towards ageing and falling populations than Japan. Japanese government figures from 2013 put the median age at 45.9, with a fertility rate of 1.43 – below the 2.04 required to maintain population levels. By the end of this century, Japan’s population will have shrunk to 84.5 million, down from 127.5 million in 2017, according to the United Nation’s World Population Prospects 2017 report.

Especially sobering is Japan’s ‘potential support ratio’, or the number of working-age people per retiree. The UN divides the number of people aged between 20 and 64 in each country by the number of over-65s, revealing Japan’s ratio to be 2.1 – the world’s lowest.

Of course, Japan is not alone. Widespread sluggish and slowing population growth means that the engine for the global population will not be the most developed and prosperous countries, but less developed regions. Africa for example, where youthful populations, falling infant mortality rates and rising life expectancy are causing a surge ahead in the population stakes, according to projections in the UN report.

The same report details a global rise in the number of people over the age of 60, most markedly in Europe, where over-60s number 25%.

Asia largely follows this trend. Although predicted to be the second largest driver for future population growth, this growth will slow over time, while the proportion of its population aged over 60 will rise from 12% in 2017, to 24% in 2050, predicts the report.

But for frontrunners, like Japan, this means not just a ticking social security time bomb and potential future tax rises, but many challenges for businesses in the here and now.

A disappearing workforce

The impact on the workforce is most visible in customer-facing sectors, such as retail, or the service industry.

‘What you do notice in Japan is that there’s a higher penetration of people in their 60s and early 70s active in the workforce in service industries. I don’t think they work full-time, because of the social security system, but, for example, the lady that cleans the common areas and the bathrooms, she’s probably 70 years old,’ says John Vigman, general counsel for Japan at Veolia.

Nobuo Kawakami, country legal counsel for Japan at pioneering technology leader, ABB, believes that changing generational aspirations are exacerbating the issue:

‘In Japan, one in every five people is within a decade of retirement. At the same time, the population is declining, and the younger generation do not want to perform monotonous or strenuous jobs or work in harsh environments. In most of the cases, these jobs are not attractive to people who have grown up in a digital world, also they often have lower compensation levels,’ he explains.

‘The service sector needs to evolve its business model. 24/7 business operations are already not sustainable in some areas due to worker shortages, so they’ve been forced to decrease operation hours from early morning to late evening versus 24/7.’

The problem is most pronounced in rural towns, where, stripped of young people lured away by the bright lights of cities like Tokyo and without an influx of foreign students, older people are left to keep things afloat. As a result, sectors like agriculture have been particularly hard hit – a 2015 census conducted by the Ministry of Agriculture, Forestry, and Fisheries put the average age of a farmer at 67.

Keep active and carry on

Not all sectors have such a conspicuously greying workforce. But older workers could be set to become a fixture at many workplaces, despite the traditional Japanese workplace model of mandatory retirement at 60.

With Japan’s notably high life expectancy meaning that people can expect to live into their 80s, Japanese people often want to work longer. A 2014 government survey of over-60s, quoted by leading Japanese think tank Nomura Research Institute, showed that more people than in any other group stated that they would like to work for as long as possible.

‘We hired a former employee who was over 60 to help out on a part-time basis (against some internal resistance) and I would have liked him to work more, but because he’s already receiving his government pension, apparently he’s limited in the number of hours he can work,’ says Vigman.

‘I think that’s unfortunate. In other countries you can work and you don’t have to pay the same amount of tax on income received, but here it would apparently affect his overall pension from the government.’

In many cases, the desire to work post-retirement is down to the importance of continued contribution among older people, and the sense of belonging that this fosters.

‘A 60-year-old or a 65-year-old – these people are actually very, very young,’ says Claire Chino, former general counsel of Japanese trading house Itochu.

‘Japan enjoys longevity and there are some very capable people, physically and mentally. I think one issue is how do you actually utilise retirees who are still very active? I was told that when it comes to volunteering, the largest number of volunteers by age bracket and also by gender, are actually men in their 60s and 70s.’

Equally, research has shown a greater willingness among working-age people to work with older people. Nomura Research Institute surveyed almost 2,000 people about their attitude to working with over-65s, and more people reported either being pleased to work with older people or ready to work them with under certain conditions, compared to robots, consultants or foreign workers.

However, despite the Japanese workplace being one of long-term employment – with a wage system based on seniority and a requirement that companies that set a retirement age of below 65 must have a continued employment system to ensure workers are protected throughout their working life – in practice, if they work beyond retirement age, many are forced to relinquish their former title and salary. The government has reportedly made noises towards raising the retirement age, which many may welcome, given the fact that in 2013 it committed to gradually increasing the age at which retirees can claim a state pension from 60 to 65 by 2025. More recently, reports suggest further plans to up this to 71, raising the spectre of an income gap.

Open for guests

Immigration is a contentious topic within Japan, a country which is often said to be 98% ethnically homogenous. But past opposition to immigration seems to be fading, not least among the government, which earlier this year indicated plans for a new ‘designated skills’ residency status for foreign workers in agriculture, social care, construction, hotels and shipbuilding, according to a June 2018 report in the Financial Times.

According to an earlier report in March, in The Japan Times, statistics released by the Japanese Justice Ministry show that foreign nationals resident in Japan grew 7.5% during 2017.

In big cities at least, foreign labour does appear to be visibly on the rise.

‘In at least three sectors (healthcare, retirement homes and convenience stores) the response has been to start hiring foreign workers. The headline countries supplying this labour are the Philippines, Nepal and China, but there are also a respectable number of younger workers from Western countries, including the United States,’ says Chris Drake, former APAC general counsel for a European investment bank, now managing partner of Tokyo law firm Drake Partners.

‘I live near Temple University Japan Campus and the closest convenience store is a Lawson, owned and operated by a young Japanese couple. Their two primary support staff at the store are both bilingual American girls, who seem to have settled into a permanent job routine. You would never have seen this even five years ago,’ says Drake.

Nevertheless, even under relaxed conditions, foreign workers will not be allowed to stay permanently, or bring their families over.

‘I think what the Japanese are trying to do is manage immigration so as not to disturb the overall culture. [Foreign workers], unless they’re on some sort of working visa for a limited amount of time, tend to learn the language and adapt, because you have to,’ Vigman explains.

‘In Japan they have the concept of muragaisha or ‘village mentality’ – it’s the idea that you stick together as a village. In my wife’s hometown, every month or twice a month, they all get together and do various civic duties that one would expect from the municipality. There’s no law that requires them to have to do it, but they would never not do it for fear of sticking out. My wife has even travelled back 160 km to her hometown to replace her mother when she is not able to assist in these duties.’

Challenging old mores

Demographic changes with a shrinking workforce and domestic market, mean that old mores are being challenged, bringing opportunities for new models. According to a 2017 article in Nikkei, foreign acquisitions by Japanese companies rose by 30% in 2016, to a record 10.91 trillion yen ($97.9 billion).

‘For several years now, larger, more established Japanese companies in the “mature” local market have realised they have to look overseas if they want to continue to grow their business – and they are getting better at it,’ says Drake.

The potential for e-commerce remains great too, with 48% of older people over 60 owning smartphones in Japan, including some developed specifically for older people. However, the utilisation rate of e-commerce is still slow – under 20% according to Ai Sakata, a member of the ageing industry and senior workforce research team at Nomura Research Institute.

‘Some older people can use e-commerce but most of them cannot reach that level. They can only do telephone or text or email or easy SNS apps,’ she explains.

‘But we expect that future older people, who are getting used to technologies, will have more versatility to start e-commerce. We think it’s not so far in the future that older people will start to do shopping online.’

Do the Robot

Perhaps the most arresting departure from old mores in the Japanese workplace is the introduction of non-human workers, as technology companies step into the gap left by worker shortages.

ABB, the Swiss robot manufacturer, has seized the initiative in Japan, diversifying its customer base to address labour shortages in the food and beverage sector

‘In the past, the majority of ABB’s customer base for robots included large companies such as the major automotive manufacturers and their first-tier suppliers. However, many other industries, driven by both shortages of workers and global competitiveness, are increasingly turning to robot automation. To support these new robot users, ABB takes a strong solutions approach, leveraging both our industry know-how and strong digital offering. This is about much more than simply selling robots,’ says Kawakami, ABB’s Japan legal counsel.

‘The food and beverage sector, which has many companies across Japan, is a good illustration of this challenge. Normally speaking, these are very small operations with many part-time workers. In extreme cases, we see some processes where workers are in their 60s and 70s who are retiring, and the operations are facing difficulties in finding replacement workers.

‘For example, at some factories foods are picked and placed on a moving conveyor by very efficient robot automation solutions, but then manually packed by people – which is often repetitive and boring work. These same robots can be flexibly programmed with ABB software to take over the packaging, taking out the products from the trays, putting the products in line for post-processes, boxing the products in cartons for shipping, etc. The robots can even use vision systems and sensors to check the quality of the food. The end result is more sustainable operations with less need for people to do unattractive or poorly paying jobs.’

He adds: ‘At the same time, robots can help improve workplace safety without compromising productivity. In the past, robots have always been separated from people by safety fences. The emergence of collaboration automation is changing this constraint.

‘Some robots, such as ABB’s YuMi® are designed to work side by side with people on shared tasks such as small parts assembly automation, while keeping workers completely safe. ABB’s SafeMove2 software allows people to work in closer proximity to robots, while restricting the robot speed and position to keep the worker safe. Both YuMi and SafeMove2 help improve manufacturing flexibility to make more diverse products and remove the constraints of fences from factory floors. Workers are therefore more productive, often in a smaller factory footprint.’

While technology also continues to advance, it is also important to have innovation in business models, too. For example, ABB has done careful risk analysis and adjusted its contract terms to accommodate the different commercial needs and financial resources of smaller manufacturers.

ABB is also looking to digitalisation to provide further opportunities to help its customers realise the full potential of its so-called ‘Factory of the Future.’ A good example is the company’s ABB Ability™ Connected Services, where ABB remotely monitors the health and performance of more than 7,000 robots today in some 750 factories to help prevent breakdowns.

‘These advanced, connected services also help us manage the ageing population challenge. Many factories in Japan have workers with 30 or 40 years of experience who are close to retiring. Their experience and knowledge of solving problems is invaluable,’ says Kawakami.

‘But once they leave the workforce, we have to keep our factories running and productive. By connecting robots to advanced, cloud-based services, we can harvest their knowledge and real-time information to identify and correct breakdowns before they even occur.’

New markets

Even away from the environs of industry and production, Japanese people are beginning to see automation and robots pop up in their everyday lives.

‘You see it in the hotel industry – you’re getting robots able to take your check-in reservation,’ observes Vigman.

But aside from replacing human labour, some predict that Japan’s ageing population could generate whole new markets for businesses. Not only are people getting older, they are living longer – and healthier. Longer working lives mean a prolonged period with income to use for consumption, and Nomura predicts a prolonged ‘active period’, in which people are able to manage without assistance or care post-retirement.

There is huge potential for ICT solutions to further extend this period, giving rise to a sector called ‘gerontechnology’ – the fusing of ‘gerontology’ (the study of age) and tech.

In Nomura’s predictions, robots feature heavily, for example, mobile servant robots. Sakata also foresees the development of communication robots to help people to hospital appointments by using a ride-share system, assist in grocery shopping via e-commerce, remind them to take their medication, or even just to chat with family members living far away – all of which allow people to stay independent – and happy – for longer.

There are challenges, however. Many of these products seem to be developed by hi-tech start-ups, which lack the marketing channels that allow bigger, more established companies to reach older people. Nomura suggests that start-ups collaborate with bigger companies in order to reach their target market.

‘Big companies can adapt good start-up skills for development, and start-ups can use the channels of big companies to reach older people. Distributors, telecommunication carriers and also infrastructure companies that deliver gas or electricity, have channels to older people, and can be a platform to collaborate with start-ups, and prepare the environment for start-ups to develop and test new technologies,’ says Sakata.

For those with the skills and vision to capitalise on the transforming demographic, businesses in Japan – and those elsewhere, in the many countries whose demographic patterns are following suit – there is opportunity aplenty to enjoy new markets – and stave off future economic woes. And in an embryonic regulatory environment, their legal staff will be well positioned to contribute to shaping a new future.

British academic Lynda Gratton, who wrote The 100-Year Life, a bestselling tome that inspired the creation of a whole new Japanese government body to prepare for the fact that future generations will frequently reach the age of 100, puts it thus:

‘[Japan] is a beacon on how technology can support long productive lives. This creates real opportunities.

Building upon this strong platform will require a different perception of what makes a great life – both at work and at home. The outcome is nothing short of a social revolution affecting everything. The difficulty is that because so much is changing, the role models of the past are of limited use. The career paths and life decisions that worked for earlier generation won’t necessarily work now. So now is the time to seize opportunities.’