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EVENTS AND ROUNDTABLES

EVENTS AND ROUNDTABLES > Roundtable > Ethics

EVENTS AND ROUNDTABLES

ROUNDTABLE: Ethics

The In-House lawyer debate - The sharp end

To mark the annual in-house survey, Legal Business teamed up with DWF to discuss the ethical dilemmas and changing demands facing GCs.

 

Confidence may have picked up, but there are plenty of challenges old and new facing general counsel (GCs). To mark our annual in-house lawyer survey, Legal Business teamed up with DWF to hold a debate to tease out the issues on the minds of senior in-house counsel.

 

Reflecting the theme of our special report and the themes on the night, two issues dominated the discussion: how to imaginatively respond to the need for high-quality legal services and the challenges of navigating an increasingly complex ethical environment at a time when in-house counsel are expected to display a highly commercial mindset.

 

Where centralised in-house teams could once function somewhat like a conventional law firm, relatively cut off from the business drivers of their sponsoring employer, it is clear the modern GC has a trickier balance to strike, being on one hand more embedded into the business, while being asked to manage risk in a more robust regulatory environment.

 

As several of the senior in-house counsel gathered for the debate noted, it remains hard to say ‘no’ to the business. Perhaps the biggest challenge for the modern GC is the expectation voiced by The Crown Estate’s Rob Booth that the legal team should influence culture enough so that commercial staff know better than to keep asking questions that legal will have to veto. The job is not getting any easier.

 

 

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Alex Novarese, Legal Business: Let’s start with innovation, as more people want to discuss that than anything else. Are there any examples you have seen of in-house innovation or neat operational ideas that caught your attention?

 

Nilema Bhakta-Jones, Top Right Group: At Aviva, Lee Callaghan recently looked at his own business and how they could utilise software to benefit the legal team. I did something very similar recently. Our IT team have a product they utilise to manage issues coming into their team and I have repurposed it to create a contract management base. It is disappointing that the law firm sector is not proactively innovating with us.

 

Andrew Levy, Stagecoach Group: Have you asked your law firms for that?

 

Nilema Bhakta-Jones: I have talked to two law firms and one made the right noises but did nothing. The second is doing something about it and wants us to trial with them.

 

The reason I paid attention to this firm is because they think creatively, even down to the little things. A Magic Circle firm I instructed last year in China FedExed their terms of engagement to me. What a breathtaking waste of time and money! Sometimes it is a lack of vision, a lack of creativity, but firms often just do not ask us simple questions like: ‘What do you need?’

 

Alex Novarese: It is a common gripe from in-house that it is hard to get the budget to deliver technology to improve the process.

 

Ed Smith, Telefónica UK: Law firms that are new to us tend to lead on this kind of thing. But, at the risk of being slightly controversial, I do not agree that great advice is a given. What is a given is that you are going to spend a lot of money on legal advice, but the quality of advice is not. With the lawyers I instruct, I am looking for instances in which they get me out of a jam or give me some kind of edge on my competitors and for that I am prepared to pay a lot of money.

 

In terms of the business as usual, I take a really simple view: I do not give that to external law firms. Once you have made that leap, I find it liberating. Anything that I give to an external law firm is either huge, massively difficult or niche. My first objective is to make sure that my board has as good or better advice than the opposition. My second objective, which is nowhere near as important, is to do that cheaply.

 

Rob Booth, The Crown Estate: Legal innovation, to me, is much, much more important. At the heart of what I need is a solution. We are being devolved at the moment and how many times has that happened historically? Never. So I need lawyers who are going to come in and bring solutions to what that devolution mandate looks like. Once we are locked in, it is all about the legal advice and you pay a premium for the fact that you are expecting people to turn on a sixpence in making sure that you are getting absolutely super advice when you need it. We are an outsourced team for a £10bn property portfolio. There are five in-house lawyers. Explaining that we need money spent on technical solutions for how we deal with our panel firms is not a compelling discussion.

 

Alex Novarese: When you talk about getting innovation or an edge from your advisers, do you mean grasp of the law or that they are putting it into a business context that is useful?

 

Rob Booth: Primarily the former. I am looking for individuals who are going to really bring something to the party. We can translate what they say. I know what my CEO wants to see, which is a picture and not an essay. The heart of the outsourced model is to add that nuance and that specificity to what we need that our external firms will never get close enough to us to be able to do properly.

 

Alex Novarese: If there was one thing that the GCs around the table could do to be more effective, either with their own team or from their external counsel, what would it be?

 

Keith Austin, DHL Global Business Services: I would like to try to start to automate those things that we currently do, be it simple NDA reviews or reviews of our standard contracts that are only changed in terms of the odd commercial aspect; triaging legal work coming in; making sure that when we get work in it is allocated to the right person in the right location at the right level of experience and expertise.

 

Alex Novarese: One of the things that we looked at in Legal Business’ annual in-house lawyer survey was how people felt about new law providers. Has anyone used a non-law firm provider?

 

Nicholas Economakis, G4S Risk Management: I have. It was not such a great leap for me because I worked in one of the providers for a while.

 

Alex Novarese: Which provider was that?

 

Nicholas Economakis: Axiom. I initially joined G4S as a secondee from Axiom before joining full time. When you are in a very niche business, there are not many people who understand your business. Having someone who has worked in that background, to me, is invaluable. There are any number of brilliant lawyers out there in the market, but people who really understand your business and can cut through, and you do not have to start the negotiation about the idiosyncrasies and the particular risks in your environment, really add value and you can get that advice a lot cheaper than in a law firm.

 

Alex Novarese: Are there any other areas where it is particularly effective using that kind of provider?

 

Nicholas Economakis: I am a very happy client of DWF, for example. I have used them on certain things and I cannot think of anyone else who could do as good a job as a sole provider or have that niche expertise. However, there are some compliance and regulatory things as well as complex tenders and things like that, which people who have worked in the industry would be able to do a bit more efficiently.

 

Alex Novarese: Is anyone else tempted to give new law providers a go?

 

Ed Smith: I have looked at these providers. When you sit down and have very, very serious discussions with them, what they are trying to do is to replicate what I am doing in-house and a few back-of-the-fag-packet calculations tell me: (a) I am not going to save very much money in engaging them; and (b) I am pretty confident that it is going to be a pretty bumpy ride from what I have now into essentially an outsourced service provision.

 

Keith Austin: You would lose that business intimacy that we have, because we are where the service is required and work closely with our internal customers/partners. Fully understanding the operational and commercial background is key to contract negotiation and there is a possibility that this would be sub-optimal or lost in my view.

 

Ed Smith: That part of the market is nascent and in ten years’ time it will be much slicker. If you looked at IT departments 40 years ago the idea of outsourcing was madness; now the idea of keeping it in-house is madness. I have challenged them to pitch along with City law firms and national law firms, and it has not worked out. They are not able to put their arms around the whole project.

 

Alex Novarese: How much have law firms risen to the challenge of the post-crisis economy in terms of being more innovative, whether it is pricing or just doing things differently?

 

Ed Smith: I do not see the change.

 

Nilema Bhakta-Jones: I do not see any new, novel packages necessarily. There are several attempts. They always come in and say: ‘We do fixed pricing.’ Is that really novel? It is not really.

I used Axiom for a very specialist project at the end of last year and it worked out really well for us. Someone parachuted in to work alongside me in a very specialist area and the project completed really well. In terms of pricing, it was expensive, but it was worth it.

 

Alex Novarese: Andrew, where would you see space for DWF to do new things or compete against what presumably, in years to come, will be a much larger section of alternative providers?

 

Andrew Leaitherland, DWF: The alternative providers are getting traction, maybe not in this room, but certainly with some general counsel with some organisations and, if nothing else, they are challenging law firms to think differently. They are getting law firms to be less complacent around how they deal with their clients and start looking at their service delivery models, their use of technology and that sort of thing. That has to be a good thing. We were already working on that without the pressure of alternative providers coming in. We spent a fortune on building a technology suite that connects with clients, so you can see that connectivity right the way through. However, that is not what everyone wants. We can build a dashboard within ten minutes that will give you all the management information you need. We have it for certain clients and it works brilliantly well, but fundamentally, for certain types of work, it is down to the quality of the lawyer and their ability to hold the relationship.

 

Lesley Wan, Lloyds Banking Group: I agree with that 100%.

 

Andrew Leaitherland: Where it falls down with some of the alternative providers is it can become very process orientated and sometimes very technology orientated, but the knowhow element may be neglected.

 

Alex Novarese: Let us assume in a few years an alternative legal provider can do a lot of things a decent in-house team do at half the cost of internal sourcing. Would there be strong resistance to such a pitch?

 

Andrew Levy: One of the roles of the in-house counsel is to know the business and to know the people, and sometimes to translate the legal advice and put it into business speak. If you outsource all of that role, you are going to lose it. We are a small team, but one of the ways we add value is knowing the business.

 

Rob Booth: The key word is ‘value’. It is a value-driven equation, not a cost-driven equation. You are never going to go to your CEO and say: ‘That transaction went horribly wrong, but at least it was cheap.’

 

Nilema Bhakta-Jones: In terms of value, what sort of metrics does your CEO require you to deliver on?

 

Rob Booth: If I am drawing up my matrix for rating firms as part of our panel review, we are never putting cost on the top line. Cultural fit is extremely important. We cannot have lawyers rubbing our customers up the wrong way, because if one of our lawyers annoys Apple and we lose the Apple Store on Regent Street, that is a big loss for our business. We do talk about innovation and we do talk about billing innovation especially. We are not fans of paying hourly rates and there is an equation to be drawn up between moving away from hourly rates and, equally, not taking on funding structures where our external law firms lose their independence, because I need them to keep that. I do not want them to get bonuses for deal success.

 

Mark Allen, Doosan Power Systems SA: Keith, you have an interesting approach in terms of managing key performance indicators [KPIs] and how the business views your team.

 

Keith Austin: It is what the business wants and requires of us. Working for Deutsche Post, we have fairly sophisticated KPIs, and this is what the team are measured and incentivised on. We have 31 KPIs for what the business expects from us, and we are expected to exceed 80% satisfaction each and every year. Those KPIs are consistent through all of the back-office service functions.

 

Ed Smith: Are your external law firms also subject to these measures?

 

Keith Austin: They are. To the extent that we use external lawyers, we are now replicating many of the measures that we have internally exactly on our external providers. It demonstrates where some external providers are still not in the position they ought to be.

 

Alex Novarese: Could you go back over some of the KPIs that you would look for?

 

Keith Austin: The ones that I focus on are: straightforward and uncomplicated process; ease of use; understanding the business needs; understanding the business objectives; value for money; and generating additional benefit/value. Pragmatism, flexibility and a commercial approach are obviously important as well.

 

Alex Novarese: Are you primarily getting these through a survey or are you feeding in financial metrics, is it a mixture of things?

 

Keith Austin: Internally, we are asked to nominate our internal business partners. Last year, my legal team invited over 1,000 people internally. From just over 1,000 people, we had 350 of our internal colleagues who took the time to complete the online survey. Since we started measuring this globally, in 2006, the global legal department’s overall satisfaction score was 77 and it is now 86.

 

Andrew Levy: Is there a competitive tension [with other DHL departments being benchmarked]?

Keith Austin: Very much so, yes, which is no bad thing.

 

Nilema Bhakta-Jones: Often, law firms are quite reactive. I have one firm that engages in forward planning with me. They start the year with questions about our strategy, what are we trying to achieve and our objectives. They will ask: ‘How can we help you get there?’ I find that quite refreshing.

 

Keith Austin: There is a huge opportunity for external law firms to get much closer to the corporate world in terms of customer service. They can get a great deal closer to their customers, drive more revenue and more profit, at the same time providing additional benefit/value to their clients.

 

Andrew Leaitherland: I find it fascinating that you do not experience that as much as we think that you do experience it. We assume that law firms are all over you on a regular basis to say, ‘What are your challenges?

 

Lesley Wan: I remember when the recession hit us in 2008/09, I did notice then that external lawyers suddenly looked around and thought: ‘What is going to happen to our income?’ I then started getting lots of calls saying: ‘Can I meet with you to talk about the bank’s new structure?’ In my mind, those firms were the ones that were on the ball and strategic in their approach to adapting to their clients’ needs.

 

Rob Booth: The thing that always amuses me with that, is that quite often I see the people who are most likely to do those sorts of things are the people who are tapping me up for work, not my current panel.

 

Ed Smith: The worst thing in the world is when a new law firm wants to come to see you, and they turn up and there are six of them. They all sit there, and they tell you they have employment lawyers and competition lawyers, and you think: ‘What is next – property?’ Yeah, tick. This is literally the most boring hour of my life. There is absolutely no way they are going to get any instructions out of me on the basis of what they have presented. They know that. I know that. I have absolutely no idea why they are there.

 

Alex Novarese: They probably think they have just made the Sistine Chapel of pitches.

 

Ed Smith: Possibly. We do not have a panel really. But there are a few lawyers within that group of firms that we use regularly who completely get it. They understand what is important and what is not, and they will be proactive.

 

Clifton Harrison, DWF: That relationship is based on trust and credibility, which is borne out by sector insight, sincerity and authenticity, so they are not just reacting when you do the press statement – they spot when something goes bad. It is not when something is good, it is: ‘How can I help you when…?’

 

Nilema Bhakta-Jones: The points that you made are right, around authenticity, about the trust, about being able to go to the legal team and get sound advice. Quite often it is not necessarily just legal advice; it is about strategic, commercial advice and contributing ideas in a collaborative way.

 

Lesley Wan: That is the importance of law firms providing secondees. We can teach them about our business and they learn how we like to do things. They are then in the enviable position of being able to go back to their firms to share that understanding of how our business works and, importantly, how we as an in-house legal team work.

 

Mark Allen: I agree. Doosan takes a lot of secondees from its panel. Doosan certainly has now changed the flavour for some of the law firms we work with, because they do recruit engineers, who want to be solicitors, which is particularly interesting to Doosan. Again, doing a pitch, anybody who speaks Korean – it is quite simple to impress Korean people, a few sentences is all it takes. My board is instantly impressed. We are going to instruct that firm. It is just enough to say they are hungry and they are interested.

 

Andrew Leaitherland: I have changed my mind on secondments. We have 26 people on secondment to clients at the moment and it is a significant investment. Where I was two years ago, it was the lowest-cost individual that you can possibly send out on secondment – send those people out and that is fine. Then we sent someone quite senior on secondment to Lesley, believe it or not, and it was a partner-level secondment and we got a lot more out of that as a result of that individual understanding, from a commercial perspective, how the organisation works.

 

Clifton Harrison: Probably in the last six months we have had 75 requests for secondees and almost as much as 40% of the criteria is weighted on cultural fit for the organisation.

 

Alex Novarese: What qualities make an outstanding in-house team?

 

Lesley Wan: Attitude is really key. I would rather have a lawyer who is not the most technically brilliant person in the world, but they have the right attitude, they are willing to learn and they are open-minded, and committed and driven, and they get the culture. You have to be open-minded and commercial enough to understand that if you put legal roadblocks in the way of transactions, then the business will not get done. It’s about appropriately managing risk. You need to win the support of your stakeholders.

 

Mark Allen: You need humour as well, because if it is not fun, then what is the point? Certainly within Doosan, it is a very big multinational. There is lots of pressure from clients, particularly demanding clients.

 

Nilema Bhakta-Jones: I look for good team players and for curiosity – that desire to learn and a passion for the business. I have just hired someone for one of our businesses and one of my criteria was finding someone who will be as passionate about this business as I am.

 

Alex Novarese: One of the main things that motivates in-house counsel is becoming truly part of the business. What sort of ethical pressure does that bring?

 

Lesley Wan: It is really difficult, but that is the daily role of the in-house counsel. We need to balance getting our work/deals done appropriately and on time while protecting the bank’s interests. You can’t just say no to the business. You need to be pragmatic and help them find other solutions to help grow the business. However, ultimately the role of the in-house counsel is to manage the legal risk and that must always come first.

 

Nilema Bhakta-Jones: We approach it on the basis that we are also the ‘conscience’ of the company. Fundamentally, we are lawyers first and, therefore, we must not forget to hold up a flag to unethical behaviour. Good counsel are respected by the business because they challenge and facilitate solutions.

 

Alex Novarese: If lawyers try to be embedded in the business, and have a more commercial outlook, that is a blurrier line than if you had an in-house legal team the way it looked ten or 15 years ago.

 

Nilema Bhakta-Jones: Then that is a weakness of the leadership and a weakness of our leadership. We need to be good guides, facilitate a route to the right outcome and open to be sounding boards for business colleagues. We should have regular contact with those people in the frontline to be able to influence them.

 

Andrew Levy: This question of the ethical role plays into what the role is of an in-house lawyer these days and how a GC sits with somebody who is responsible for compliance in a broader term. I am finding more of my time is spent on teaching people what they can and cannot do, where the red lines are on bribery and corruption or antitrust, competition compliance or whatever. On the one hand, you are an in-house lawyer who is trying to facilitate deals, but the compliance side as well is perhaps more the conscience of the company now or that is where the responsibility sits.

 

Mark Allen: I have a picture of a prison cell that I show people when they want to know why. I am not the ‘No department’, but quite often people do not understand this is a criminal matter now, certainly with the UK Bribery Act. They need to understand it is not that you cannot do anything, it is that you need to understand the risks you are facing. When people sit down and realise: ‘Ah yes, ok, I might lose the sale, but I am going to be free to visit my children,’ they understand differently.

 

Andrew Levy: It is important that the board, the compliance committee or whoever at board-level has that role as well.

 

Caroline Hill, Legal Business: How do you prevent the slow creep though, because commerciality can be used as a weapon to bash the legal team over the head with? Bit by bit, you perhaps slip away from first principles.

 

Mark Allen: I am trying to impose a central standard of what I think is the appropriate behaviour and Doosan, as a company, has set that out very clearly. However, there is a regional understanding of how you should behave. That is something that we do audit against. All the documentation is electronically stored, so it cannot be hidden or amended, so I can just go and see: ‘Right, this person has made this decision.’ I do that occasionally, every quarter or so – just have a quick look to see if somebody locally has gone slightly more native and then become worse and worse, because you can see the trend.

 

Nilema Bhakta-Jones: It also depends on what behaviours we are rewarding, because in any sales-led culture where the bigger the sale the better the reward, you potentially have people who are going to cut corners. One of the best examples I have heard about is at a large defence company where they reward the right behaviour not the outcome, their risk committees will reward people for turning unethical deals down.

 

Mark Allen: Doosan rewards behaviours, not results, and that is the way to do it, because that is what your charter or your statement of intent – whatever business thing you have in terms of monitoring people’s behaviours – that is what you should reward. Have you complied with what we call ‘the Doosan way’? And we test people on that every six months. ‘Have you complied with it? Show me.’ They have to give real-life examples of what they have done and I see from their work whether they are upholding these values, and that is what they get assessed on for their bonus.

 

Alex Novarese: Is it getting harder for in-house lawyers to say no to the business?

 

Nilema Bhakta Jones: We should communicate risk allocation more clearly. We can advise, guide and police, but the risk must be owned and sit squarely with the business, otherwise there is no accountability and everyone will simply say: ‘Legal are holding this hot potato.’

 

Rob Booth: If you are saying no regularly there are only really going to be two reasons: either there is a cultural problem within the organisation or you simply have not empowered people to bring you things that are compliant. A big part of our focus is doing that. It is the education sessions. The reality is if the people who are coming to you do not understand why you are saying no, you have already failed.

 

Ed Smith: That is a really good point. Maybe 15 years ago it might have been ok, you might have got away with it. I do not think you would now. My chief executive would consider it my fault if deals regularly came to us that we just plain said: ‘No, that is unlawful.’

 

If I might just come back to your earlier question about what creates a great in-house team, I do not think there is any difference between a great in-house lawyer and a great lawyer in private practice. You have to be very bright. You need to have been given superb training and you need to be really, really driven. If you do not have that third thing, you can be a liability because you can wallow in intellectual argument. In fact, what you need to do is to be super-bright, super-well trained, understand why people are asking you the questions and tell them the right questions to ask you if they are not asking the right ones.

 

Lesley Wan: I agree with all that, but also, in my experience, because I work in a big organisation where there are a lot of competing interests, you need to learn to adapt your approach/views and navigate your way around the organisation.

 

Ed Smith: I am often told that such and such a lawyer is brilliant, but he is not a people person or he is academic or something. He is not brilliant; he is a halfwit. It is often something said about lawyers who are not very good, that academically they are great, but try to get a sensible answer out of them and they are hopeless. Well, you do not need to worry about that first label; they are just hopeless lawyers. I often use the analogy of footballers who have to look at the ball when they are running. Look at Cantona. He was brilliant. He never looked at the ball. If you have that, it is easy to think strategically. If you are struggling and thinking: ‘I do not quite know the answer to this’, then you do become potentially an oddball, because it is not that difficult to become the world’s authority on a niche subject if that is all you are doing 20 hours a day. It does not make you a good lawyer.

 

Alex Novarese: Fair point. I am going to suggest that we stop here. Thank you for your time.

 

The panellists

  • Mark Allen Legal and commercial director, Doosan Power Systems SA
  • Keith Austin Senior vice president, head of legal services UKIEEMEA, DHL Global Business Services
  • Rob Booth Head of legal, The Crown Estate
  • Nilema Bhakta-Jones Group legal director, Top Right Group
  • Nicholas Economakis General counsel, G4S Risk Management
  • Clifton Harrison Client development director, DWF
  • Caroline Hill Contributing editor, Legal Business
  • Andrew Leaitherland Managing partner and chief executive, DWF
  • Andrew Levy Group legal director, Stagecoach Group
  • Alex Novarese Editor-in-chief, Legal Business
  • Ed Smith General counsel, Telefónica UK
  • Lesley Wan Corporate real estate counsel, Lloyds Banking Group