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.’
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.’
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.’
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.’
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.’
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.
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.
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.’
GC sat down with representatives of Hong Kong Exchanges and Clearing (HKEX), owner of the Stock Exchange of Hong Kong, to discuss Stock Connect and Bond Connect – two schemes implemented to harmonise trading with China and improve shared financial ties.
GC: HKEX and CEO Charles Li have been long time advocates for the development and introduction of the Connect schemes. Why are they so important?
HKEX: Major projects like this benefit greatly when they are backed by a clear vision and strong advocate. The Connect scheme was a ground-breaking initiative that required the kind of determination, flexibility, patience, and cooperation that is almost impossible without commitment and strong support at the top.
GC: What advantages does the scheme offer for both Chinese and Hong Kong financial markets?
HKEX: There are numerous advantages, which include:
GC: What has been the biggest challenges associated with introducing and continuing the scheme?
HKEX: The biggest challenge was probably the different rules, regulations and characteristics of the Hong Kong and Mainland equity markets. Hong Kong and Mainland China have been cooperating on securities regulation since the early 1990s, when the first Chinese incorporated companies were listed in Hong Kong.
Mainland and Hong Kong regulators signed an MOU on regulatory cooperation with the Hong Kong, Shanghai and Shenzhen stock exchanges in 1993. The cooperation arrangements were strengthened in connection to the launch of Stock Connect.
Hong Kong and Mainland securities regulators now have regular high-level meetings on enforcement cooperation under the enforcement cooperation mechanism they established for the Stock Connect programme.
GC: What has the introduction of the Bond Connect scheme meant for the Chinese and Hong Kong markets?
HKEX: The launch of Bond Connect was a significant development in the further cooperation of the financial markets in Mainland China and Hong Kong. It has made it much easier for investors outside the Mainland to participate in the Mainland China Interbank Bond Market. International investors can use the link to trade directly with eligible dealers on the Mainland through platforms they have been using for other trading.
GC: Are there future plans to introduce Connect schemes with other jurisdictions?
HKEX: We will continue to explore opportunities to expand the Connect scheme to other asset classes, such as commodities, as well as to other jurisdictions.
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.’
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.
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.’
At Weil, we consider ourselves strategic business partners with our clients – you, the general counsel of large public companies, complex financial institutions and sophisticated private equity firms. In my 35 years practicing and running the firm at Weil, I have seen how tremendously the role of general counsel has evolved and expanded over the past four decades. The legal head of a large organization has always borne the heavy burden of ensuring excellence across their legal departments, management and oversight of all risk mitigation systems, and the development and enforcement of quality corporate governance protocols. But today, we are seeing the fusing of all these responsibilities with the business operations and over-arching corporate strategy. Senior lawyers are expected to be providing business judgement as well as legal judgement.
As a result, I’ve seen the role that we play, as outside counsel to our clients, also shift in that time. As we heard from the in-house lawyers who contributed to this report, there is now an interconnectedness of all business, strategic and legal issues. We carefully analyze legal issues for our clients, but we do not stop there. We supply commercial and business judgement, to help them answer that key question: ‘What should I do here?’ This makes for a dynamic time to be a lawyer, whether you are in-house or outside counsel.
I’ve also felt, more and more in recent years, that the legal leaders in organizations are expected to be responsible and responsive corporate citizens – far beyond the walls of their organization. We have always embraced that at our law firm, but now employees want their leaders to have an active voice on global issues that are impacting their lives – whether in or outside of the workplace. Again, this provides in-house legal teams and corporate management with a real opportunity to engage in a dialogue with their employees and address important cultural and social issues. It can forge and strengthen the bonds of loyalty so vital to an organization’s success.
There will always be new and changing developments to the practice of law and the issues facing in-house teams. What will never change is the need for bright, driven, collegial, diverse and adaptive lawyers to fill these roles. As the world and businesses grow more complex, the in-house leaders, including those profiled in these pages, will have the opportunity to be business as well as legal strategists. It’s exciting times, and I congratulate all of the dynamic and diverse GCs featured in this issue.
Barry Wolf Executive Partner Weil, Gotshal & Manges LLP
There are certain privileges held by those looking to take on a general counsel role in today’s world. Thanks to the information age, even those outside a suitor organization are able to easily discover facts and figures about their prospective company, and can access a wide range of materials to help them prepare for a new position. General counsel and would-be general counsel now have the troves of knowledge gathered by generations past at their fingertips.
Things weren’t always so easy.
‘I knew nothing. It’s kind of funny. I had been an appellate and supreme court litigator, I had been in government and had run a big office – so I had management experience. But I hadn’t spent one hour working for GE, not one hour. I met Jack Welch [former chairman and CEO], he interviewed me for 30 minutes and offered me the job. The company had 340,000 employees; I had not met one,’ recalls Ben Heineman of his appointment as general counsel of GE in 1987.
‘Welch didn’t know what he wanted. He knew that he wanted to reshape the legal function, but he didn’t know exactly what that meant. When he offered me the job, I said, “I don’t know anything about GE, I’m not a business lawyer.” And he said, “Well, you’ll figure it out.” I was truly driving the car and changing the wheels at the same time.’
To the wise professional, the perspectives of those general counsel whose careers stretch back beyond the current state of things offer more than historical fascination: they are a rich source of insight into how the role of the general counsel has transformed over years past, how it will transform in the years to come, and how the general counsel coming into the role today can best ensure their success in advising their businesses.
We talked to those battle-tested, long-serving GCs about their experiences making the transition: the war stories from getting established within the business to reflections on what might be done differently if given the chance.
On arriving at GE, Heineman set about surrounding himself with ‘the best’:
‘I knew one really important thing. I knew I had to get great people – I had done that all my life. I hired great people very fast and Welch supported them. The first person I hired was one of the leading tax lawyers in the country. He made a huge difference and was beloved by the business people. I then hired a world-class and very famous litigator; a very famous person to lead environmental safety. What Welch liked was the fact that I was bringing a ton of new talent into the company. I was the first person to actually hire people from the outside on a consistent basis, I basically blew up the legal organization and over the first five or six years, it was transformed. And that was critical to my credibility – it wasn’t me, it was my super-talented partners.’
In contrast, after more than 20 years in-house with DuPont, Tom Sager went into the general counsel role in 2008 with his eyes open – not least with regard to the company’s extensive litigation docket, having spent over a decade as chief litigation counsel. But, like Heineman, he talks of the benefits of leveraging fresh perspectives in order to have a transformative impact. One particular case from the late 1990s and early 2000s springs to his mind as a striking example, not only of leveraging the best talent, but also ensuring that talent is diverse.
‘We were dealing with lead paint litigation. We had a fairly strong team of defendants: we had ARCO [Atlantic Richfield Co], Lead Industries Association, and Sherwin-Williams. These were big players, and there was a mindset that said “We’re going to fight all these cases to the death”. I said to myself, “Well, that’s all well and good, but you’re only going to win so many, and then you’re going to be in more of a hurt because there’ll be some cases in which you’ll lose, and then, as we say in the US, the price of poker goes up,”’ recalls Sager.
‘So we got a team of diverse, talented people – Dennis Archer, who was the president of the ABA, mayor of Detroit, and a world-class guy; Benjamin Hooks, who was a civil rights icon; and several others. We got in a room and I said, “We don’t want to roll over, but how do we go about addressing the problem?” They came up with this idea of creating the Children’s Health Forum, which was designed to do three things: drive education with respect to inner-city families whose children were possibly exposed to the lead paint poisoning, remediation and then medical testing. Dr Hooks, at the age of 78, agreed to chair the Forum and he traveled the country to engage with primarily black inner-city mayors.’
DuPont was eventually dropped from the lawsuit in Rhode Island.
Hiring talent is only as effective as the partnerships that allow organizations to capitalize on that pool and, like any good partnership, they should flow in all directions around the business. When Mark Ohringer began his first tenure as general counsel at Heller Financial, Inc in 2000, he believes he missed an opportunity to build relationships with those around him.
‘I should have gone on a bit more of a listening tour and gone to the heads of the business. I had already been in the department when I became GC and I probably thought that I knew what everybody wanted. But I should have put myself on their calendar for half an hour and checked that,’ explains Ohringer.
‘It puts a line in the sand: “New sheriff in town, I want to understand what you want as my client, and let’s have a discussion – tell me anything, how can I help you, and how can I be a good colleague?” I think I would have been more formal about going around business people and the people running the corporate functions. Particularly listening and not talking so much.’
The general counsel’s office has evolved from a silo to an intersection of cross-departmental collaboration, responsible for leading teams that include an assortment of internal and external specialists. The role has come down from the ivory tower to the corporate thoroughfare, meaning the leap from specialist to generalist is all the more critical. While cultivating a network of experts remains important, the GC must be able to view matters through a broad lens, regardless of background (and comfort zone), as Sager learnt the hard way at DuPont.
‘I turned down a commercial lawyer assignment that didn’t thrill me at the time, and that was probably one of the biggest mistakes I made,’ he says.
‘I did not spend time enough to know how the businesses are challenged and how they meet their profit objectives, and everything that they must deal with. Had I known that and taken that assignment outside my comfort area, it would have made me even an better general counsel.’
Jonathan Polkes, co-chair of Weil’s global litigation department and a member of the firm’s management committee, has been recognized as one of the top securities and white-collar defense attorneys in the United States. In this Private Practice Perspective, Polkes unpacks the qualities and traits that, in his experience, have been a hallmark of standout GCs, while also considering what constitutes a true business partner in the context of in-house counsel.
While the role of the general counsel has clearly evolved and expanded in recent years, the core qualities, traits and competencies for those who succeed and thrive in these roles has not. In collaborating with leaders of large global financial institutions and public companies over the last three decades, I have had the opportunity to partner with GCs of different leadership styles, experience levels and professional backgrounds. But, irrespective of their differences, all had their own distinct point of view while being highly agile and responsive to change. All could leverage advice from their teams and outside counsel to distil complex legal issues into plain language for the primary stakeholders at their organizations. And all prioritized building the best, brightest and most diverse teams possible.
I routinely work with general counsel who are under the gun – whether their companies are ensnared in a cross-border investigation or facing nasty securities fraud allegations. When the stakes are high, it is more important than ever that the GC has a firm sense of the value of the case to the company – financially and reputationally. These are not times to vacillate or second guess. At the same time, if there are key developments that suddenly change the complexion of the case and its value proposition, the stellar GCs I’ve had the privilege to work with always respond to that change immediately and effectively.
Given the scope and complexities of these cases, our firm works with GCs to make the underlying issues as succinct and digestible as possible. The business decision makers at sophisticated global companies need things distilled for them. What will this cost? What are the reputational risks? What are the best and worst options for resolution? How will this impact our brand or our operations six, 12, 18 months down the road? At Weil, we partner with GCs to sift through the immense amount of data and cut through all the noise to isolate the essential issues at the heart of the case. Having that clarity of mind and keen business judgement has always defined the best GCs.
In today’s marketplace, the battle for the best talent has grown into full-fledged warfare. Again, the GCs I’ve worked with embrace competition. They always surround themselves with a diverse team of people who are at least as smart as they are. There has been positive culture dialogue and developments surrounding diversity, certainly, over the past three decades – but needing the best people will always be key. And hiring the best people means hiring and retaining diverse talent.
As strategic business partners with our GC clients, Weil aims to mirror all these attributes. And while the role of outside counsel has changed along with that of the GC, we know that the qualities and standards governing our practice, client service and teamwork will never change.
Jonathan Polkes Co-Chair of Global Litigation Weil, Gotshal & Manges LLP
He did, however, accept another stretch assignment, which stood him in good stead over the years.
‘After four years of being a labor and employment lawyer, I was asked to be a lobbyist for DuPont in Washington, which was as foreign as it could possibly be. That assignment was painful at first but, over time I began to appreciate the value of being a representative of the corporation, because it exposed me to the issues that were challenging DuPont broadly, how one prepares to advance legislation or defeat it, and how to build coalitions and networks.’
The experienced general counsel we spoke to have put in the years to develop the comprehensive scope and alliance-building skills necessary to succeed at leading the legal organization in top corporations. So what advice can older hands give to those navigating less familiar waters for the first time?
‘The most important question is: does your skillset align with the needs of the corporation? I was a litigator, and we had a lot of serious litigation, so that led to my appointment. If your corporation is in a growth mode, then they’re probably looking for somebody who’s more versed in the core area of M&A deals and cross-border transactions,’ observes Sager.
‘General counsel will always have to put out the fires – that’s a given – and you need to be skilled in that. But increasingly, the general counsel is viewed as a part of a senior leadership team, and with that comes responsibilities – some way beyond knowing how to defend a litigation or handle an investigation or a crisis.’
Whatever skillset or background today’s GCs bring to the table, they will quickly discover that the role has evolved beyond individual expertise into a broad-based, proactive and strategic position. And although there is no fixed blueprint for becoming GC, let alone succeeding in the position, experienced past and present holders of the title agreed that there are a set of qualities that aspiring legal leaders should possess.
General counsel must bridge the gap between the legal and business mindsets, and also overcome any outmoded preconceptions that business colleagues might harbor about the dreaded ‘department of no’.
‘Lawyers tend to talk too much and write too much, and for business you need to be very succinct. Nobody has the same attention span that they used to – they’re used to these little sound bites on their mobile phones, and you can’t hand a business person a 25-page brief,’ explains Mark Ohringer, general counsel at Jones Lang LaSalle since 2003.
‘We used to sponsor a NASCAR driver by the name of Jeff Gordon, and my CEO Chad Holliday showed us this picture of Gordon in his car, circling and making a turn in one of these races,’ says Sager.
‘“You have to help us anticipate the curves”, Holliday used to say. They might create an opportunity or risk for the corporation, and you can’t be effective if you’re not thinking along those lines.’
Most of the general counsel we spoke to agreed that GCs need to be particularly attuned to all kinds of change, including societal and political developments that are ostensibly unrelated to business.
‘There are new kinds of risks that never existed before,’ says Ohringer. ‘Cyber risk, social media – none of that existed when I started practicing 25 years ago, and now they’re enormous.’
A keen eye trained on the distant horizon will assist not only in managing and mitigating risk, but in planning for worst-case scenarios. GCs can be useful in bringing together the various siloes within an organization to design future crisis response, and ensure coordination between internal and external specialist resources.
‘A terrorism situation, a natural disaster, all these things keep happening. Are we ready as a company? Because if we’re not, there can be really bad legal risks, and that’s why the lawyers have a ticket to think about it. Those kinds of things didn’t used to happen so much and now they’re pretty much commonplace, so you need to make your response ordinary course of business. Nobody should be surprised when these things happen anymore,’ Ohringer explains.
When times get tough, fault lines often appear around the general counsel if they are not properly negotiating what Ben Heineman has called the ‘partner-guardian tension’.
Much has been written in recent years of the importance of effective partnership between organizations and their lawyers. The office of the general counsel has matured from the in-house approximation of the partner-associate-business ‘client’ model, to a deeper and more strategic enmeshment in the fabric of the business. So far, so value-add. But GCs must have the independence of mind to walk a line.
‘You have to have that partnering relationship with the CEO and the business leaders, but at the end of the day, your real job is being guardian of the company, which requires a certain amount of independence,’ explains Heineman. ‘There’s a certain tension between these two roles: if you are just a nay-sayer – just a guardian, protecting and risk averse – you’ll be excluded from meetings, you won’t be part of the team, and you won’t be able to play a business as well as legal role. But if you’re an inveterate yay-sayer and just do what they tell you to do, you’re going to get indicted.’
These are blunt words from a veteran GC, but necessary ones.
‘I think, sometimes, this idea that the lawyer should be part of the strategy may have actually gone a little too far,’ echoes Ohringer. ‘Big companies have had some terrible things go wrong; and how come the legal function didn’t help? It may have been too protective of the company.’
‘As all this evolves, lawyers have to not get sucked into the business too much. They need to understand it in order to do their jobs, but there’s still a need to maintain some independence. I always said I should not be the last one at the bar at night after business meetings – these are not my friends and I have to keep a little separate, because if they do something wrong, I represent the company, not them.’
We look next to today’s crop of newer recruits, and examine how they are rising to the challenges faced by the modern general counsel – and what advice they give to those currently eying the job.
New entrants into the world of the in-house counsel have a unique vantage point: they are a blank slate, and while they can enjoy the benefit of decades of experience and cascading knowledge of long-serving general counsel, they can also bring fresh perspectives to the table.
The newly-minted general counsel will often straddle the boundary between experience of an already established career and the unfamiliarity of a new one. But despite that, the groundwork for the general counsel role begins early in the legal career, even if they don’t know it at the time.
Amy Sandgrund-Fisher, who became general counsel of The Clinton Foundation in 2017 after nearly 20 years as an employment lawyer, found that her experience working in-house with many different companies served her well in making the leap.
‘To get that exposure, it was key to work at different organizations, with different risk appetites, different business models and different types of leadership. Exposure to a diversity of legal problems and problem-solvers prepares you for a job like this,’ she explains.
‘Given my own experience, my advice to attorneys looking to move into a GC role is to take chances and don’t hesitate to try different organizations and different types of roles, and don’t get stuck. Being at one place for too long can make it hard to have the flexibility and exposure you need to take on a role like general counsel.’
Of course, all the preparation in the world can’t replace a thorough and candid conversation with senior leaders and function heads upon arrival at the business. This is done to glean a clear understanding of how they view the role, its parameters, any gaps that need to be filled, and any necessary points of continuation – or divergence – from the predecessor. In particular, such conversations can be just as necessary for internal promotions as for external hires, in order to align the vision of the c-suite with that of the new arrival in terms of scope.
‘People make assumptions and they’re not necessarily true. A lot of times there’s probably not a common understanding of things like that – foundational aspects of the job,’ warns Mark Ohringer, general counsel of Jones Lang LaSalle.
Our newer general counsel all understood that their value to the business is directly proportional to their understanding of the business. If the general counsel wants their team to provide actionable advice, then this must be grounded in acute insight into the issue in the context of the business itself, at the most granular level possible.
Those new to the company, and especially those new to the sector, all reported investing significant time and energy into gaining a thorough understanding of their new business – including scouring annual reports, rounds of meetings and tours of the shop floor.
Throughout this process, our interviewees were quick to advise the importance of asking even the simplest of questions, not only because it adds granularity to the GC’s grasp of the business, but because it could also benefit the organization.
‘Oftentimes, including a fresh perspective causes people to rethink and re-evaluate things, which is never a bad thing,’ explains Hannah Lim-Johnson, general counsel of Kelly Services.
The next step on the road to orientation in the GC role is adjusting to new obligations relating to governance and the board. Those with a corporate secretarial background have an edge here initially, but for many, being a direct line to the board, with the attendant educational, counseling and fiduciary responsibilities, is a new and absorbing dimension to even a longstanding in-house career.
‘It’s really hard to overestimate how much time and effort goes into board and governance issues. That continues to surprise me, even four years into the role,’ says Tim Murphy, general counsel of Mastercard.
‘Getting the narratives right to the board, not just on my own things, but helping the company do that well overall so that we have effective meetings and get good conversations – boy, it’s time-consuming. You’ve got to make sure you’re resourcing for it, because it can take over your role.’
Learning to function as the board’s lawyer, as opposed to a mere ad-hoc dispensary of advice, requires an ability to both find the right tone for engagement with the board and earn the trust required for developing robust and durable relationships with its members. Those with the benefit of being introduced via a sound succession plan have a leg up. Those without will have to put in significant face-to-face time to build a rapport strong enough to reach their potential.
In addition, finding an equilibrium between acting as a manager of the business – and the juggling act that this entails – with the independence needed for advising the board is a challenge that will be new to most first-time general counsel.
Newcomers looking to acclimatize to the general counsel role will be well-served by a knack for relationship building. Intra-business relationships will be fundamental in maintaining trust within the business and developing a knowledge base from which to operate within the new environment. This, in turn, is the ticket to a full appreciation of the culture at the top echelons, which the general counsel must negotiate.
‘I didn’t realize how complex the landscape could be, and I’m talking about relationships with the senior leadership and the board itself, the significant players who were truly in the inner circle,’ recalls Tom Sager, former general counsel of DuPont.
‘Be sensitive to your landscape. There’s always the political side: who’s in and who’s out in terms of their relationship with the CEO. What is their tenure?’
David Lender is co-chair of Weil’s global litigation department and a member of the firm’s management committee. He has more than 20 years of experience trying and litigating complex international commercial disputes in state and federal courts around the country, as well as in arbitration proceedings. In this Private Practice Perspective, Lender extols the virtues of balancing effective lawyering with business judgement when it comes to successful in-house practitioners, while providing his views on how they can best incorporate outside counsel within their departments.
Any general counsel of a large global business knows that being a great lawyer and manager of your in-house team is not enough in today’s marketplace. As many of the GCs profiled for this feature point out, top in-house lawyers are expected to make business decisions. They are part of the key strategic executive teams and decision makers in their organizations.
That makes it an incredibly dynamic and exciting time to be a GC. The general counsel I work with all have a specific and detailed understanding of their industries, business operations, marketplace forces and competitive factors. Constant absorption and recall of this information is critical to their ability to fulfill their expected roles, both in developing and executing corporate strategy.
As outside counsel, our team at Weil partners with clients to delve deeply into these business issues. Our roles have expanded with our clients, and we clearly need to match their level of sophistication on industry and business matters. No longer is being a strong advocate enough. Over the past several years, I have needed to become an expert on topics that typically require advanced degrees in engineering or business – not law. I’ve had to understand the mechanics and technology behind wind turbines for an important patent trial, the wholesale grocery market for a large antitrust trial, and the syndicated real estate loan business for another multibillion-dollar dispute. It’s a host of different challenges. As with GCs, we as outside counsel can only understand what is at stake if we understand the client’s business, the value of IP, and the cost of losing exclusivity over a patent, among countless other considerations.
Part and parcel with knowing the business and the stakes is moving lawyering beyond risk analysis. Both in-house and outside counsel will always need to provide excellent substantive legal analysis and advice. Now, in addition, we – our GC clients and our firm as outside counsel – need to use that analysis to help recommend business decisions. Not only ‘this is the fact pattern and these are the areas where we have exposure’ but also ‘even with the indemnification in place, the reputational and collateral risks associated with continued litigation warrant resolving this matter now.’
Gone are the days of corporate executives merely looping in legal for the greenlight at the end of a project. There has been a beneficial fusion of the legal and business teams. And while we still have to be the analytical voice that looks most critically at risk and the legal questions that ultimately need to be resolved, we are also now expected to state our point of view with regard to corporate strategy. For all these profiled GCs and anyone new to the in-house role, that hopefully makes for deeper relationships with your outside counsel and the practice of law even more rewarding.
David Lender Co-Chair of Global Litigation Weil, Gotshal & Manges LLP
Solid relationships with the c-suite, and a commensurate understanding of its challenges and priorities, will inform the GC’s ability to add value to the company at the strategic level. But looking around as well as up is a prerequisite for gaining an appreciation of the company at the grassroots level, as discovered by James Zappa in those first months after arriving at CHS from 3M:
‘I spent a tremendous amount of time with my direct colleagues and the board of directors, but I should have done more to get to know the business unit leaders. They are the people who are most important to the operating rhythm of the company and to the risk management practices. Most employees in the company will look to their business unit leaders for guidance relating to culture, appropriate behavior and day-to-day leadership, and had I accelerated my learning and meeting those people, I think I would have known more about the company earlier.’
Developing all types of relationships is essential for achieving that delicate balance between ‘business professional’ and ‘company guardian’ – but just as the role has expanded in recent years, the GC’s sphere of influence has extended further, even to outside the organization.
David Yawman, general counsel of PepsiCo, characterizes the role as achieving mastery of ‘different vectors of influence’.
‘When I look to the north, I see a CEO and a board and the shareholders, and I have to influence them on the things that matter most to them. When I look to the south, I lead multiple functions, and I’ve got to ensure that there’s the right talent and skills and that I can grow the team individually as well as overall. To the west, I see my peers, and whether it’s head of human resources or the chief financial officer, I need to be able to understand their perspectives on things in order to collaborate. To the east, I see a lot of external parties, from government officials, to NGOs, to competitors and industry groups that I also have to engage.
‘In the past, some individuals would be good at one of those vectors and maybe two, maybe three. But now, I don’t think there’s any one of those vectors against which the general counsel can afford to be ineffective.’
Navigating the needs of, and pressures imposed by non-company stakeholders – what Mastercard’s Tim Murphy dubs the ‘external ambassadorship’ component of the GC role – requires a skillset that is even further evolved from the ivory-tower lawyer of yore.
‘If you can give a good speech in a TED Talks style in front of 200 economists in a leading country and come off as pretty compelling, you’re adding value to your firm. The best skill you can ever get anywhere in life is public speaking,’ he explains.
When Ben Heineman started at GE in the late ‘80s, he had 33 direct or dotted-line reports. He fired 30 of them within the first three years.
‘The most important thing that a new GC does is to assess the talent that is in the legal department immediately and determine whether or not they keep those people. Creating your team is one of the first paths, do not wait on personnel,’ he says.
Hired from outside the company with a brief to create change, Heineman was keen to build the legal organization from a blank state. Compare this with the approach taken by Ford’s Bradley Gayton, a company ‘lifer’ with already-established relationships within the company. Gayton took a softer line with the talent around him.
‘Having grown up here, the relationships that I had were now different when I became general counsel. I sat on the operating committee of the office of the general counsel with my peers, all of whom were very talented and any one of them could reasonably have expected that they would be GC,’ says Gayton.
‘So part of this job on day one was re-recruiting my peers, and acknowledging just what incredible lawyers and leaders they are, and reaffirming that all the fantastic work we had done as a leadership team was going to continue.’
No doubt, the incoming general counsel’s approach to talent will be influenced by the condition in which they find their new department. But the GC should curate the department according to the new reality, and not old models, as Eric Dale learned at prominent data company Nielsen, which he came to from 13 years in private practice.
‘I initially analogized my position at Nielsen as me being a partner and the rest of the department being associates. I quickly learned that that was a poor analogy! A better analogy is more along the lines of being a managing partner in a law firm and that there are a lot of other partners as well as associates’.
Team members who are not micromanaged but are empowered, independent decision makers and are fully credited for their contribution, are fundamental to developing what Tom Sager calls ‘collaborative intelligence’ – a willingness to raise issues and reach out to others about problems, rather than cover them up out of fear of criticism. He quotes former US Secretary of State and retired US Army general Colin Powell: ‘The day soldiers stop bringing you their problems is the day you have stopped leading them.’
The concept of ‘diversity of thought’ has permeated the corporate landscape, and legal teams, like other business teams, have woken up to the fact that finding the best talent means looking at all talent available; seeking it out if it does not arrive at the door easily.
The new general counsel could do worse than to take a leaf out of Bradley Gayton’s book when he was building out the legal team at Ford. As the company’s first black general counsel, he has considered the topic in much detail.
‘I think about it in terms of diversity of our office, and then I am also thinking about the pipeline to law school. And there, what we’re thinking about is both late-stage pipeline, maybe people already in college, and we’re thinking about early-stage pipeline, so: should we be thinking about helping kids in sixth grade in debate club?’ he says.
‘And then the thing we’re giving a great deal of consideration to in the office is: should we use the “Mansfield Rule” as a way to recruit, which says you should ensure that 30% of the applicant pool you’re going to put through the funnel is diverse, because then, when you pick the best candidate, you stand a good chance of driving diversity. It’s not a quota system – you don’t only pick people from a diverse pool – you just make sure that the applicant pool is significantly diverse. I’d say we’re mid-level stage of considering what does that look like, how would we implement it, and having really good discussions about that.’
General counsel are in a unique position to drive diversity in the wider general profession – ‘the east’ in terms of David Yawman’s vectors of influence. The competition between external law firms gives in-house teams leverage to select for those whose values align with their own. If firms want to win the business, they will have no choice but to adapt.
PepsiCo has devised practical steps to encourage diversity among law firm partners, launching an outside counsel diversity initiative under the leadership of Yawman’s predecessor Tony West [now at Uber].
‘We demand a lot of metrics from outside firms and then, through a weighted formula that we’ve created, we ascribe a diversity index score to each firm [within peer group – Big law, large firm, small-medium firm]. We are disinclined to provide new business to those firms that have a diversity index score below the median in terms of diversity within the US population of the firm, and particularly for those people working on matters for PepsiCo,’ explains Yawman.
‘In 2017, roughly 85% of new matters that we placed with outside firms in the US went to those firms with diversity scores above the median. We’re trying to put our money where our values are in terms of driving the legal profession to be more diverse, rooted not just in providing individuals with opportunities, but believing that there are better legal services on a qualitative basis when you have a more diverse team.’
Back at Ford, meanwhile, Gayton is applying his thoughtful and nuanced approach to promoting diversity among Ford’s external network, that doesn’t rely on a stats-focused system of measuring diversity metrics.
‘You can tell me that you have three women on your team, but what I really want to know is: what are you doing to develop them? Are they on track to be partner? What kind of work do they have? I’d almost rather that instead of five women doing low-level work, you’ve got two, but they are two that you’re really invested in and I can see that they really have good assignments that will build meaningful expertise over time. This is part of the challenge isn’t it?’ he reflects, adding:
‘We’re going to identify a handful of alliance partners and really work to understand this issue with them, so that we can go beyond the list of top-line numbers.’
A vocal proponent of diversity in the law, Tom Sager has a Minority Corporate Counsel Association award named in his honor. According to him, achieving, maintaining and promoting diverse teams, particularly within the wider profession, continues to be a struggle for general counsel, as with other business leaders.
‘This is a slow process and the gains are incremental – in fact, the numbers may keep regressing depending on the state of the economy. So I remind everybody in this space to celebrate the successes: we’ll have some setbacks, but it pays to persevere,’ says Sager.
‘The whole commitment to diversity can change overnight with a change in leadership – in the corporation or in the law firm – so you’ve got to get the culture built in.
‘Create a culture and this is part of your strategic direction, because some people think it’s no big deal, but I’m telling you, those that understand this and drive it are going to be far more successful than competitors that don’t.’
Once the new general counsel has established a penetrative understanding of the business and assembled a team of their choosing, the more substantial value-add can begin: bolstering the company’s strategic direction, and then helping rather than hindering the progress toward achieving the goals of the business.
‘A lot of times, lawyers are very good at highlighting the risk, and saying that it’s a “big risk” or that it’s a “material risk”, but I think in order for us to really effectively influence, assist and counsel our business clients, we actually have to be willing – and a little bit more evolved in our ability – to put a value on that risk,’ says Yawman.
‘[That means] a business leader can ultimately weigh [the risk] against the value of the resources, time or energy that he or she might have to place in order to mitigate that risk.’
Practically, this can manifest in many areas. A number of our interviewees describe how a sound apprehension of company strategy can help to appropriately color the day-to-day activity of the legal team, and ensure they are furthering strategic goals both now and in the future, while taking care not to stifle potential opportunities.
But in-house teams can add even more value if they view potential legal problems as opportunities to create competitive advantage. At Mastercard, Tim Murphy and his team took the challenge of complying with the recent GDPR data privacy regulation in Europe into an opportunity, by creating an innovative data anonymization venture. At healthcare giant McKesson, GC Lori Schechter’s team formed a cross-company task force to brainstorm ideas to tackle the US opioid crisis, which resulted in a white paper shared with legislators.
But, counsels Murphy: ‘You need to tell your colleagues that [leaning into the company’s strategy] is a priority and you need to get their buy-in and acknowledgement, so when you are successful it doesn’t look like a random walk, it looks like very important strategic work, which it in fact is. In-house lawyers need to be selling their services and their value.’
Another essential tool for demonstrating value in the profit-and-loss-focused corporate world is managing to metrics, and general counsel who have not viewed legal work through this lens would be well-advised to start.
‘For lawyers, it is really hard, and a lot of lawyers resist it. But at the end of the day, if you push hard enough, I think every legal function can find a metrics-based scorecard to measure themselves. That’s really powerful because it speaks the language of business,’ adds Murphy.
Much has been written and said about the supposed intransigence of lawyers, and their tendency to fight the tides. But the general counsel we spoke to were all concerned with embracing change and innovation within their departments. Much of the innovation being enacted or contemplated centered around adopting new technology and processes to enhance efficiency, such as contract, knowledge or risk-management systems, many involving artificial intelligence.
But Jones Lang LaSalle GC Mark Ohringer advises less-experienced GCs to avoid rushing into changes without a full consideration, not only of what the legal department could achieve, but of what business leaders really need and want.
‘Do you want a very industrialized and efficient law department? That could mean asking the business to do more self-service, for example with contracts. But maybe they don’t want to do it; that may not be the smartest thing to do if that’s taking them off the street from selling or doing other more high-value-add jobs,’ he explains.
Instead, he says, the GC should gauge the appetite of the business for wholesale transformation before implementing any innovation plans. He warns that while creative thinking could enhance productivity, business colleagues might not be comfortable with entirely new ways of engaging with the legal function, such as offshoring or outsourcing arrangements. Maintaining an interface that looks coherent with a more traditional way of working might be more effective in some circumstances, for example.
‘What innovative things can you do behind the scenes that make it more effective for the legal team to deliver their services, but when a business person calls, a lawyer is still answering the phone? Which I think a lot of business people want and deserve. That’s very different from having some kind of central legal function based in Mumbai and all the bid people are calling and getting different people – which may be fine for some companies and not fine for others, or fine for some parts of the law department and not fine for others,’ he says.
New might not always be better. But this is very different to adopting a head-in-the-sand approach to innovation, he stresses.
‘You need to know how cool you could be – but then check it out first.’
Ohringer’s own legal team, for example, has leveraged the skills of data scientists within the company to mine existing company data for patterns of behavior that could be red flags for fraud, bribery or other ethics violations.
‘It’s exciting to me, and the data guys like it because it’s fun for them. It wasn’t so obvious for them and it’s not really what they got hired for, but they can add a lot of value for the company,’ he explains.
The Jones Lang LaSalle team has also hired a graphic designer to work on presentations and documents, in recognition of the fact that when training documents and other reports look visually appealing, people actually read them: ‘I’m always amazed when law firms come to give presentations. They’ll put up a slide that’s got very tiny print, and is full of words, and somebody’s talking and you don’t know whether to listen to that person or read the slide. It’s a mess.’
In many cases, the general counsel we spoke to were new enough in their post that they had yet to formulate transformative plans for the legal function. But all backed the notion of keeping abreast of technological and societal developments as key to keeping the legal organization agile and poised to add value – something to think about sooner rather than later for a new GC shaping their legal department.
The legal function might not traditionally be associated with the phrase ‘competitive edge’, but many of the general counsel we spoke to are aiming for exactly that. In the here and now, the pressure is on for GCs to be watching competitors, hoping to learn from their successes and mistakes, while also thinking about how to get to the answers to tomorrow’s questions before anyone else.
‘I think of it in three phases – now, near and far. I draw a circle for “now”, I draw a bigger circle around it and I call that “near”, and I draw an even bigger circle around “near” and I call it “far”,’ explains Gayton.
‘I obviously have to spend time in all three areas, but my most significant value can come from thinking about the “far”, because if I can anticipate both where the law is going and where the business is going, we can identify solutions that are out in the far and then try to bend them back to today. If we can reach out to the future in how I’m thinking and bring those solutions back to today, the curve that comes back is my competitive advantage – that’s how we can contribute to beating the competition.’
Developing a nose for the future is especially demanding in today’s world, given the constantly shifting sands of technological capability, societal norms and geopolitical activity (and the subsequent struggle of regulation to keep up). Some sectors might be steering the waves, while others are drowning in them, but all are operating in an environment where little can be taken for granted.
‘The job is harder than it’s been because of those things and I think we need new models and approaches to addressing them – because trying to do it alone isn’t likely to be successful,’ says Tim Murphy, general counsel of Mastercard.
While the challenges are unprecedented, our GCs were full of insights into the future of legal services for both in-house and private practice.
Collaborative efforts, such as building a peer network of general counsel outside the corporation, can provide traction for dealing with the day-to-day. This has always been a common feature of the general counsel’s armory. However, it was common to hear from those interviewed that general counsel increasingly need to think beyond their immediate geographic environment and cultivate a truly global perspective.
‘Not only is the business climate more global, but our regulations around the world are becoming much more collaborative and sharing more, and so are all of our customers. Social media takes an issue that you might think is a local issue, and can make it a global issue pretty quickly,’ says Gayton.
‘You can’t be myopic in terms of solving these issues thinking that they’re simply local – you’ve got to understand the likely global ramifications. Being able to have a global view and understand how to navigate globally and lead a global team and engage with law firms and martial troops together to resolve global issues is critical.’
That means creating and capitalizing on opportunities to experience unfamiliar perspectives and build international relationships, through travel, international deals, setting up international entities or working on international litigation.
‘Being able to understand and value the differences in cultures, and being able to be inclusive in how you work with people, whether they are next to you or whether they’re 5,000 miles away – that’s a skillset; it’s not just your nature,’ adds James Zappa, general counsel of CHS.
Like all business leaders, general counsel are no longer strangers to efficiency drives. Creative efforts to position the legal function as a generator of revenue, instead of just a cost center, do not exempt them from needing to demonstrate maximum productivity, on top of adding value. It seems natural to assume that alongside a growing use of systems that track and document workflow, attempts to streamline legal functions will continue well into the future.
‘There will be segmentation. The lower, repetitive work will be commoditized and the margins will be lean,’ says Tom Sager, former general counsel of DuPont.
Michael Aiello is chairman of the over 600-lawyer corporate department at Weil, Gotshal & Manges LLP and a member of the firm’s management committee. He regularly represents companies in connection with mergers, acquisitions and divestitures involving public companies. In this Private Practice Perspective, Aiello considers the evolving business and technological context within which GCs operate, as well as how this could affect the optimal skillset required for the future.
At Weil, we are privileged to represent sophisticated clients in their most important matters. Having worked with general counsel for more than 20 years, I have watched as their roles and responsibilities have grown, considerably, in number and complexity. Our GC clients possess an unmatched level of legal sophistication and business acumen. They make decisions that influence the reputation and brand of their companies on a daily basis; they evaluate complex legal and business issues to mitigate risk; and work with executive leadership teams to spot strategic growth opportunities.
Given the speed of change in business and technology, the GCs of the future will have to prioritize what they need to focus on today, what can wait until tomorrow and what may not merit their attention at all. This is not easy. Any experienced professional knows that an issue can seem inconsequential at first blush, but actually may hold some key reputational risk. And, as the GCs in this report have noted, the push to drive efficiency continues, requiring more delegation and outsourcing than ever before.
So how can a GC know which issues require their complete and immediate attention? To make these calls in real time, GCs and their outside counsel must have a strong working knowledge of the corporate organization, the board structure and the competitive landscape. In-house counsel are well-situated to address the majority of business decisions. However, there always will be extraordinary business matters where outside counsel is needed.
As an M&A lawyer who handles boardroom issues for a living, I regularly work with GCs on these sensitive c-suite matters. They look to our firm to provide broad-based commercial judgment. Although our most acquisitive client may pursue two or three deals in a year, lawyers in the corporate department at Weil are handling that number of transactions in any given week. Seasoned outside counsel are important strategic partners to their clients, offering key market knowledge and business judgement.
For Weil, this has meant living and breathing our clients. Our partners attend board meetings for clients free of charge to better understand key structural and governance issues so that we can provide clients the most informed counsel. We provide regular trainings for our clients’ in-house teams across all layers of the organization. We follow the news and trends of their industries on a daily basis.
In the future, I see an even deeper embedding of outside counsel with their GC counterparts. The need for interconnectedness will only grow as companies reduce the number of outside counsel with whom they engage and chief legal officers become involved in more diverse aspects of corporate management.
The general counsel of the future – including those who are featured in this report – should have the highest standards and loftiest expectations for their outside counsel. It is our job to see three or four steps beyond the present to help guide you toward the future.
Michael Aiello Chairman of Corporate Weil, Gotshal & Manges LLP
‘It requires a lot of forethought, a lot of knowledge around process, a lot of thought around what is the lowest appropriate level to delegate this work and leverage the contribution of non-lawyer practitioners who can bring immense value in areas such as compliance, ethics, risk management, governance, procurement, crisis management and diversity.’
The word on everyone’s lips, of course, is ‘automation’, which Sager (and many others) believes will displace some in-house professionals. During his own tenure at DuPont, the bankruptcy team shrank from five members to a single paralegal.
‘It starts with some methodology (and it may be Six Sigma) that maps and processes, to understand the steps, understand where inefficiencies or duplication occur, and put in a system which may be facilitated by technology to ensure that process takes hold,’ he explains.
Ford is already using artificial intelligence for e-discovery, and is considering its application in writing patent applications, as well as in evaluating risk in the company’s contract portfolio. Gayton’s appetite for tech-based applications goes further than most, as he imagines virtual reality tools shortening geographical distances, not only in business meetings, but in courtrooms, widening access to justice. But for now, AI-enabled contract management is within the grasp of many in-house practitioners, as evidenced from our sample of general counsel.
Outside of the realm of technological solutions – although certainly enabled by them to some degree – is the growing range of options for streamlining routine work, which has led many, such as Mastercard, to consider shared services as an option in handling work traditionally handled by the in-house team.
‘Now, at Mastercard, if you do a non-disclosure agreement with us, it’s done by staff in the shared service function – and that shared service function has all sorts of automation and it tracks, in a very rich way, timelines and response rates and so on,’ says Murphy.
While such initiatives are indicative of the diversifying internal marketplace for legal solutions, the external marketplace for non-traditional solutions is also flourishing, as alternative legal services providers, such as on-demand legal professionals, are taking a foothold and challenging law firms for many types of work.
‘We are seeing a trend for law firms to provide one-stop-shops for professional services – not just legal advice, but also things like financial management, media and political consulting – and clients are increasingly coming to expect that,’ says Tom Johnson, general counsel of the Federal Communications Commission.
‘The reality is that the problems affecting corporations and other organizations are not always neatly pigeon-holed as a legal problem, and that’s becoming increasingly true as the world is more becoming more interconnected, as people are becoming more socially conscious, and as information is much more public on a real-time basis through 24-hour news cycles and social media. Law firms are going to be increasingly called upon to expand their traditional skillset.’
The need for law firms to employ lawyers with multiple specialisms, or even non-lawyers, could impact the professional and ethical norms of the legal practitioner, mirroring the in-house partner-guardian tension highlighted by Ben Heineman.
‘It used to be common ground that attorneys did not see themselves as ordinary business people – they saw themselves as officers of the court with a solemn responsibility towards the judicial system as well as to their clients,’ says Johnson.
‘It’s a good thing that lawyers hold themselves to those high professional expectations, but the model is getting to be tested by some of the new trends towards increasingly global professional services organizations.’
If true, this could mean that in-house lawyers are ahead of their private practice peers in negotiating this tension, having walked a similar line for many years. Some believe that for the in-house community, things might be about to come full circle.
‘I expect that, given the brand reputation issues that companies are running into, there will be a greater emphasis on the role of the GC as that internal watchdog, and how their level of responsibility to the owner or the board or whomever is the controlling entity, informs the things that they need to know,’ explains Hannah Gordon, general counsel of the San Francisco 49ers.
But any distancing from the business would seem to be at odds with the seeming proliferation of non-legal responsibilities – and their attendant risk profiles – being absorbed into the GC role.
Subsequently, how law firms adapt to a changing legal marketplace, drew some novel ideas from the GCs we spoke to.
‘I do wonder if we will move away from the very hierarchical law firm model that exists today to one that’s a bit flatter, with more risk that sophisticated clients have to accept. If you don’t have a typical pyramid where you’re paying for review after review after review of work, that could work just fine for a sophisticated law office like ours with sufficiently large numbers, where what you could use in the moment is another junior lawyer,’ says Gayton.
‘I don’t necessarily need the law firm partner’s review of that lawyer’s work, because I have the equivalent of that here. But the law firms would have to be comfortable with the fact that we’d take that risk.’
It was Ben Heineman who coined the phrase ‘business in society issues’ – a concept encapsulating the effects of businesses as corporate citizens: ‘The company can get seriously impaired or seriously improved if it does appropriate actions as a citizen, as well as a business performer’.
As the recent sexual harassment scandals spanning numerous sectors have shown, all organizations must be cognizant of the sudden and incalculable damage that can be wreaked by perceived bad conduct, whether or not that conduct amounts to a substantive legal or compliance violation.
These issues, among others, demonstrate the imperative for future general counsel to act with integrity and a keen sense of their responsibility as an ethical guardian for the company, as an influencer in terms of company culture and, at times, as an external ambassador.
‘We’ve seen how incredibly destructive some of these divisive cultural issues can be if they’re not managed the right way,’ explains Murphy.
However the position and the market might evolve, at the core of the role of the general counsel will continue to be sound and nuanced judgement, at times straying into delicate matters that might be tangential to the usual delivery of legal advice.
Our conversations with those at the top of the corporate legal tree supported the view that whatever technological or efficiency-based innovation is around the corner, there will no substitute for the general counsel to steep themselves in the training, experiences and tools that build that balanced view – and subsequently, retain it.
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