It’s not an option anymore for a general counsel to only focus on core legal services. Possessing strategic attributes, the ability to manage risk & compliance, and the competence to act as an effective business partner - all these have emerged as key expectations from today’s evolved role of a general counselToday’s general counsel and in-house law department face a conundrum. As...
It’s not an option anymore for a general counsel to only focus on core legal services. Possessing strategic attributes, the ability to manage risk & compliance, and the competence to act as an effective business partner - all these have emerged as key expectations from today’s evolved role of a general counsel
Today’s general counsel and in-house law department face a conundrum. As companies have globalised and countered more sophisticated technological, regulatory, economic, and environmental demands, they’ve sought help on increasingly complex problems from the law department. To keep up, most law departments have created or acquired narrowly defined practice or service areas, and encouraged lawyers to perform as service function with the check box mindset, like the number of contracts being delivered, standardising their dealing with contracts with ‘common minimum requirements’ and forcing all kinds of clauses as learned in contract classes without understanding the business task, risk appetite and the affordability factor. As a result, the law department’s collective expertise has been looked upon as a cost centre that’s burdensome. To change this and address business stakeholders’ most complex issues, the general counsel must work beyond the conventional boundaries of the law department’s expertise, associate closely with business leaders and stakeholders to push the legal team to build business acumen, and learn the business on the fly through collaboration and by creating shared success.
The benefits of collaboration accrue slowly, and other advantages are hard to quantify. That makes it difficult to decide whether the investment in learning to collaborate will pay off or not. No wonder collaboration is difficult! It’s different from mere assembly (in which experts make individual contributions and someone aggregates) and from sequential, interdependent projects. True collaboration requires people to combine their perspectives and expertise, and tailor them to the businesses’ needs so that the outcome is a multiplier of collective wisdom and knowledge.
Most CEOs in the world rank the frequently asked question – “How does the GC contribute the most value to the company?” in the order of: Manage legal risk, Anticipate risk, Advise business units, Manage the law department, and Manage outside counsel. Today’s CEOs struggle with this most important task – “How can my law department demonstrate value to our company?” CEOs are no longer interested in just ‘soft’ value like reactive measures, boiler plate contracts, term sheets, etc. that ensure the company’s compliance with the law, but ‘hard’ value in the form of return on investment that affects the company’s bottom line in a positive way. The ‘hard’ valued law department may sound to be a contradictory concept because law departments have always been traditionally considered as cost centre. But today’s global GCs of High-Tech to major innovator and generic pharma companies believe that it is the duty of the law department to generate revenue, and that there is no conflict of interest which may endanger independence of thought and deed. CEOs and CFOs have long looked at the ever-rising costs of the law department, and asked – “Why should it be immune to economic measures?”And that is why it is important for the law department to go beyond just meeting expectations as a service provider (and these are usually met and exceeded), to fulfilling expectations as a business partner. In short, the effectiveness gap must be bridged to drive ‘hard’ value’. See Table 1.
Heidrick & Struggles and the Minority Corporate Counsel Association asked fifty CEOs of Fortune 500 companies for their views on the role of general counsel in their companies. Fifty four per cent of CEOs believe that advisory is the most important role of general counsel in their company. Out of this 54%, 62% believe that the skill required to perform advisory role is business acumen/ lawyering. [Source: “Why the Corporation Needs a Proactive General Counsel” by June Eichbaum, Partner, Heidrick & Struggles, 2008]
Therefore, the prime question is – “What does an effective law department do to drive ‘hard’ value?” There is a gap between management’s expectations and law department’s performance in every skill area, particularly in the persuader competencies for effective engagement. Solution orientation, meeting (agreed upon) deadlines, and providing preventive or proactive advice are though the opportunities and of importance, but fall short of two critical expectations – (a) demonstrate effective partnership and communications skills, evolving from a legal or technical expert to a savvy business partner and (b) confronting next generation legal risks like unprecedented regulatory scrutiny, widespread distrust among investors and the public, and swift market punishment for corporate missteps - real or perceived. An effective approach to such broader expectations require 1) continuous risk monitoring, 2) cross-functional collaboration and 3) communication of actionable information to senior management and the board of directors to ensure effective decision making. See Table 2.
While general counsels have historically relied on adhoc or infrequent risk assessments, recent developments in the business and regulatory environment require a shift toward continuous monitoring, without overwhelming the business with information overload. Few benchmark best practices around the world could address the challenge – (a) capture collective risk information through a robust reporting process, (b) a dashboard to communicate company’s overall risk profile, (c) an early warning mechanism to detect and address emerging legal risks through collaborative evaluation by outside counsel and in-house attorneys and prioritise the critical risks for the company to reduce exposure, and (d) a cross-functional Enterprise Risk Council to evaluate emerging risks that cross departmental or divisional lines. This enables the general counsel to solicit feedback on the non-legal implications of legal risks, and (e) to reduce its product liability exposure and quantify the legal risks associated with the product value chain (e.g., product testing, manufacturing, shipping).
Year-on-Year research by General Counsel Roundtable of CEB reveals that a general counsel’s risk management activities vary significantly across companies, and it requires effective collaboration across functions. In today’s unforgiving business climate, a general counsel can illafford to have an unanticipated risk or a poorly managed crisis that erodes shareholder value.
While outstanding communication skills are crucial for the general counsel, most Boards are dissatisfied with the effectiveness of their general counsel’s communication. A root-cause analysis of why legal risk reports underperform reveals such risk reports: 1) employ formats and language difficult for non-lawyers to digest, and 2) lack clear prioritisation and context so the Board can make effective comparisons across legal and non-legal issues on (a) multidimensional litigation risk reporting, to provide Board with a comprehensive view of litigationrelated risks, (b) legal trend impact briefings, e.g. General Motors’ general counsel provides to the Board a periodic report on the strategic implications of legal trends to ensure directors maintain a forward-looking perspective on legal issues without overwhelming them with information, and (c) legal consequence measurement, e.g. BAA’s general counsel provides its board with a single report of material risks across all business units, with mitigating activities in place, and quantifies the resulting residual risks. This ensures that the Board understands the consequences and the controls in place to manage them.
It’s not an option anymore for a general counsel to only focus on core legal services. Possessing strategic attributes, the ability to manage risk & compliance, and the competence to act as an effective business partner - all these have emerged as key expectations from today’s evolved role of a general counsel.
Disclaimer – The opinion of the author is completely personal and not of company’s view.