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The Company Man

GC takes a look behind the company curtain in European countries
where corporate counsel are denied the professional status
and legal privilege afforded to private practice lawyers.


L E G A L   P R I V I L E G E   F O R  I N - H O U S E  L A W Y E R S

CATHERINE RODGERS

E-mail Catherine

“Does the company lawyer hold a job or does he practise a profession?”

This is a question posed by Jacques Barthélémy of Cabinet Barthélémy Avocats in Paris. He is writing in the 2014 European Company Lawyers Association [ECLA] white paper, which calls for all in-house lawyers in Europe to be recognised as independent professionals – and afforded the legal privilege enjoyed by their peers in private practice.

Some legal professionals are more professional than others, according to the European Court of Justice [ECJ]. In 2010 it confirmed its position that legal privilege only applies to communications between private practice lawyers and their clients, and not between those of in-house lawyers and their internal clients, in the case of Akzo Nobel Chemicals Ltd v European Commission. In his piece in the same ECLA white paper, Christophe Collard, a professor at EDHEC Business School in France, boils down the reasoning behind this ruling. In-house lawyers are fundamentally compromised as independent practitioners due to their economic relationship with their employer, their imperative to comply with workplace instructions and pressures from above, their desire to please their employer, and by the likelihood that they will buy into corporate strategy; to the extent that they succumb to a conflict of interest.

The ruling applies only to competition cases at the ECJ level, but many European nations agree with its logic, often restricting Bar membership and legal privilege to lawyers in private practice. Yet despite this apparent snub, across Europe highly qualified and experienced external counsel continue to make the move in-house.

A two-tier system

Despite a prestigious law firm background, Andreea Tipa, a member of the legal team and assistant vice president of global process excellence and technology services company Genpact Europe, has had her Bar membership suspended. In Romania where she is based, in-house lawyers are not permitted membership of the Bar. Is she missing out? Members of the Bar in Romania have access to training, updates and notifications on changes to legislation, and above all, she says, thanks to regular meetings with peers, “you belong to a community”. It’s not compulsory to join an in-house association, and the training requirements for in-house lawyers are not as rigorous. They also do not qualify for the generous pension scheme reserved for Bar members.

Christophe Roquilly, professor and dean for faculty and research at EDHEC Business School and co-editor of the ECLA white paper, is based in France, where there is no required qualification to be an in-house lawyer. In-house lawyers must resign from the Bar, and are not entitled to the confidentiality privilege enjoyed by avocats, or private practice lawyers. He believes that as well as limiting individuals this division damages the legal profession overall, and that merging would place greater importance on legal issues in companies, thereby encouraging business for both branches.

How much does money talk?

Christophe Roquilly rails against the logic that in-house lawyers are less independent than their external counterparts, and his white paper makes several arguments refuting that rationale. In a number of testimonials from practitioners and academics across Europe and the US, the paper questions the assumption that an employment contract and financial dependence on an employer amounts to a conflict of interest and resulting subordination of will to the business, pointing out that private practice lawyers are also bound by a financial relationship.

At Telecom Italia, general counsel Antonino Cusimano agrees. He argues that the insecurity of the external lawyer’s position resulting from a fear of losing business could be a potential impediment to giving a client unwelcome legal advice – one that is at least as powerful as an employment connection. “I don’t buy the idea that if you’re in-house your advice will be conditioned by the executives. It’s a view that maybe was true 20 years ago, but not now,” he says.

In Italy there is no Bar for in-house counsel, although lawyers that are employed by the state are able to join the “Special Register”, and so enjoy privilege and a kind of professional membership. But the lack of privilege for most, says Antonino, undermines the status of corporate counsel. “By definition, if you’re not part of the Bar there is a risk that you are perceived as a second class lawyer.” But it’s more than that, he continues. The absence of legal privilege means that the fundamental ability of the in-house lawyer to represent their client is impaired. “The ability to feel free to write what you need to be writing to your client without fear that that advice may be used against the company – this is very, very basic protection,” he argues. The world has changed, according to Antonino, and Italian legislators are lagging behind.

Do you believe in angels?

But Christophe Roquilly concedes that there is a conflict between the two roles a company lawyer must fill – that of the ethical “guardian angel”, and that of the “business partner” – and it can be difficult to find the right balance between the objectives of each. Three years ago, EDHEC conducted research in France that showed there was a correlation between the size of a company and the extent to which their legal team were considered business partners. Larger companies are more likely to expect lawyers to add commercial value. Roquilly contends that this is an argument for granting legal privilege to corporate counsel, not against. Why? “To be able to discuss openly, to have a mutual trust between the executives and the company lawyers when you don’t have legal privilege and you know that everything could be disclosed or used by investigators or prosecutors – maybe that could reduce the level of trust,” he says.

Such an erosion of trust can only hit the company where it hurts, Roquilly says: in the area of competitive advantage. Regulation continues to surge globally, and as the biggest French corporate players follow the global trend of working in business partnership with their legal teams, the lawyers are pushed to be more innovative in finding legally – compliant solutions. In doing so, says Roquilly, the traditional French division that downplays the status of corporate counsel looks increasingly out of touch – and is detrimental to the innovation of companies themselves. “When you look at US company Google, innovation is its DNA, and I know that when they evaluate lawyers’ performance within the company, one of the criteria is how much these lawyers have been innovative,” says Roquilly. French powerhouses have been pushed to do the same – “to put the legal department at the right level in the company, being at the same time the guardian angel regarding the legal risk, but also the business partners. It’s mandatory for them to have this modern vision and not the old vision of what the lawyer’s role is.”

In Romania, in-house lawyers are not permitted membership of the Bar.

To not have legal privilege, says Roquilly, could be a hindrance to developing the trust that encourages an innovative partnership. It would seem to be a vicious circle, where lack of privilege is a glass ceiling on the commercial value in-house lawyers can bring to the company – and the broader economy – but one which cannot be broken without access to the very legal privilege that they are not currently privy to.

Mindfulness

In Italy, Antonino is sceptical, however, about whether a lack of Bar membership and privilege is detrimental to the company lawyer’s status within the organisation in real terms. He doesn’t believe that executives are broadly aware of the technical distinctions between the two branches of the profession, and refutes the suggestion that businesses in affected countries are interested in anything other than a high-level and conscientious performance from their legal team. “CEOs are only interested in good advice,” he says. “It’s your responsibility to make sure that that you give the best advice you can.” He doesn’t see a lack of legal privilege as a barrier preventing an honest relationship between legal and the business. “I think we’re mindful,” he says, “but it doesn’t mean we’re not going to provide the benefit of our unbiased legal advice to the company – that would be suicidal.”

Crucially, says Antonino, regardless of restrictions, it is the in-house lawyer’s job to ensure that their advice is covered by legal privilege. Protection can be achieved in various ways, as long as the general counsel is fully up to speed with the rules of the jurisdiction they are operating in – something that is particularly key for general counsel managing multijurisdictional work to bear in mind.

In Romania, lawyers can effectively act for companies on a privileged basis in-house as long as they are operating on a consultancy agreement, rather than an employment contract – as long as the company is in agreement. This useful loophole means they can retain their Bar membership, provided the lawyer in question is senior enough to be a desirable candidate for a consultant post.

In jurisdictions where this is not an option, a solution could be something like preferring verbal communication with internal clients over written, engaging an outside lawyer to write the advice, and seeking the advice of local counsel where necessary. It could even mean the business using a lawyer from a foreign subsidiary based where legal privilege does apply.

Aside from the cost implications, Antonino Cusimano dubs this “a layer of bureaucracy which serves no purpose,” and Christophe Roquilly agrees: “It’s a waste of time, it’s a waste of energy,” he said. What it adds up to, he adds, is “clearly a competitive disadvantage.”

Code of conduct

The ECLA white paper makes the case that corporate counsel should be subject to a code of ethics and a regulatory framework, a protection usually provided by the Bar. Prohibition of membership could therefore undermine standards. Andreea points to the authority of the Romanian Bar as an enforcer of rules. “If the client has something to notify on the compliance side, they can go and complain to the Bar,” she explains. Although the in-house association in Romania has guidelines, any issues might have to be resolved through the employer-employee relationship at the company in question.

In Estonia, there is no professional training or examination process required for company lawyers, and they are not required to join the Bar – in fact, they cannot unless they have qualified as private practice lawyers first. Aare Kruuser, lawyer at the Chamber of Bailiffs and Trustees in Bankruptcy in Talinn, points out in the ECLA white paper that during the same period that the qualification requirement for company lawyers was abandoned in the post-Soviet era, there emerged “a certain stagnation of general business ethics and corporate culture, as well as a relatively high risk level in the entire business sector of Estonia,” which “has had a negative effect on both domestic and foreign investors’ investment decisions.” Several factors were at play, he points out. But does this correlation mean that the relaxation of corporate counsel requirements has contributed to increased corruption in Estonia?

“It doesn’t mean we’re not going to provide the benefit of our unbiased legal advice to the company – that would be suicidal.”

It would not appear so, from talking to Ivar Kurvits, general counsel of Eesti Energia, one of the country’s largest companies and the world’s biggest oil shale to energy operation. It may be the case that in-housers are not all subject to the rules of the Bar, but this is not deterring top lawyers from flocking to companies, to take account of the interesting work and broader perspective that life in business affords them, says Ivar. “I have 18 lawyers in the in-house team; some of them are members of the Bar and some are not – but I think that the reputation of in-house lawyers, and the need for in-house lawyers has increased,” he says.

He feels that it is not necessary to be a member of the Bar to be a good professional, and that ultimately it’s down to the character of the general counsel and culture of the company to encourage an environment where the lawyer is listened to as a key member of the team. In his view this is not weakened by a distinction between the requirements on in-house and private practitioners.

However, Ivar comes from a top tier private practice background and enjoys Bar membership as a result. Andreea Tipa is a former member of the Romanian Bar, and simply operates according to the principles instilled into her during her membership days, she says. Those practising in-house might find the tenets of the Bar available to them, even when denied formal membership. The situation is not as clear-cut as concluding that the exclusion of in-house counsel from the Bar equates to a drop in standards in practice, especially in a corporate environment which increasingly attracts top flight lawyers, who bring with them their expertise, training and of course, code of ethics. The commercial reality is that despite a schism in the technical professional status (as indicated by compulsory Bar membership and legal privilege) between in-house and external lawyers in many European countries, the top legal echelons of large companies across the continent are peopled by lawyers with eminent private practice careers behind them.

Symbiosis

But Roquilly argues that this could go further, and to merge the two branches would foster flexibility to switch between the two. There is a symbiotic relationship between law firms and companies, where the former can supply specific expertise, and the latter an innate understanding of company needs. He argues that to remove restrictions on corporate counsel in France would encourage cross-pollination, thereby enhancing the quality of in-house lawyers, but also private practitioners – even those who don’t wish to make the move long term. In France, we note, the restriction imposed on avocats’ Bar membership means that secondments do not usually take place unless they go abroad, for example to a US or UK company.

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Getting business leaders on board

Despite the distinction, the attitude of French employers towards embracing in-house lawyers as equal members of the legal profession is a hot topic. In the past, says Roquilly, Mouvement des Entreprises de France [MEDEF] – the French federation of companies – was opposed to the creation of a new category of employee with a specific profession, believing it to be at odds with the authority of the employer. However, he continues, more recently there has been a change of emphasis to accommodate the growing importance of an open discussion around legal risk and regulatory issues, and the involvement of lawyers in decision-making.

Increasing support from the business community in France is a help, but business schools also have a critical role in educating future business leaders in the importance of the legal role, in Roquilly’s view. “You don’t need to give them technical legal skills,” he says, “but to show the importance of the law and legal issues in the strategy of companies – and then you prepare them better to work with lawyers, to understand what they should expect from lawyers, and to ask lawyers the right questions.” If an understanding of the pivotal place of the law in formulating strategy is inculcated into junior executives, argues Christophe, this will avoid a situation where executives, managers or operations people avoid seeking opinions from the in-house team, until a legal issue rears its head – which might be too late.

But it’s also up to lawyers themselves to show the correct pedagogy – they must ensure they get up-close to the business to make sure they are having the right discussions. Ivar Kurvits agrees that the character of the general counsel is critical to embedding a culture where company lawyers are seen as gatekeepers for the company’s interests, and their contributions are heard. “Depending on the structure of the company, the GC could have a very prominent role in meetings, or in large-scale projects that need supervision,” he claims. “It largely depends on his or her character, whether he or she is up for the challenge, and if that is the case then he or she basically forms the GC’s position within the company,” he says.

Govern the governance

If it’s down to the corporate counsel themselves to display both entrepreneurialism and self-regulation, then what if they don’t? In the aftermath of the global financial crisis, a common refrain was “where were the lawyers?” Ivar puts such cases down to the structure and reporting line of the company, and not a fundamental conflict at the heart of the in-house role: “You would have to look into how the general counsel is motivated from the financial side – what is the financial package and who she or he will have to report to,” he says.

If the governance structure is fundamental to regulating the conduct of the general counsel, it’s crucial to know who the client is – whether it’s the CEO, the chairman, or the company more broadly – and whether this can change. The medical profession is often invoked in the debate over who the employed professional’s loyalty lies with, but the patient-doctor relationship is far less ambiguous.

It’s down to the corporate counsel themselves to display both entrepreneurialism and self-regulation.

“Having the GC on board in the management or executive committee shows that at the minimum the legal issues will be addressed at the right level,” says Roquilly. He does however concede that in a situation where the management committee is reluctant to listen to the GC, a safety net would be a structure where the general counsel reports to the chairman – almost like a whistleblower. Antonino also believes that every board should have a lawyer as a director – for their expertise in risk management in an increasingly regulated business world, but also for their guiding hand when it comes to crisis management.

When it comes to achieving parity of status for in-house lawyers at the European level, Christophe Roquilly believes that the change has to happen within individual states before bodies with a broader remit, such as the European Commission and the ECJ, are interested in implementing wider acceptance and legal privilege for company lawyers in the competition sphere. Antonino places the responsibility for campaigning at the door of the company lawyers themselves. “Make your voice heard,” he says. “Lobby for change in a more efficient and articulated manner, and take part in initiatives.”

Multi-tasking

It’s clear that all general counsel in today’s business world must be multi-taskers. But for those based in countries where there is a separation between those operating in-house and those in private practice, business heads of legal must be especially nimble – to tiptoe the line between business leader and company gatekeeper, to keep their communications protected, and to lobby for the professional recognition taken for granted in many other jurisdictions. The company lawyer is certainly a profession with more than one job.

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