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Here be dragons: Starting a legal function from scratch

GC talks to founders of legal departments in Asia about the risks and rewards of drawing up the blueprint for an uncharted legal function.


ASIA: IN-HOUSE TEAM MANAGEMENT

CATHERINE McGREGOR

EDITOR-IN-CHIEF

E-mail Catherine

In the Middle Ages, map makers would often depict a place where ships could sail off the end of the world. The dangerous straits of uncharted territory were marked by pictures of ferocious sea monsters, vividly suggesting the terrible fate in store for the unwary sailor who tried to go where there were no instructions for the journey.

In many ways, starting a company’s legal function is a similarly unmapped domain. ‘There are just no guidelines about how to do it,’ one new GC recently remarked in frustration at the myriad of possibilities to be considered. By contrast, law firms generally employ a ‘one size fits all’ model, and even in alternative providers the original blueprint may be discernible just below the surface.

I spoke to a number of general counsel in Asia who had set up legal functions, sometimes multiple times, to find out more about navigating these unexplored waters. They all agreed that there might just be a certain type of person, an adventurer attracted to overseeing the genesis of a legal department. They also felt that one of the major requirements for success is prior experience of in-house roles.

A wealth of experience

William Hay, general counsel at Baring Private Equity Asia, is a veteran of establishing legal departments. He set up GE Capital’s first regional legal function in Asia, did the same for private equity firm Colony Capital and repeated the task for Baring Private Equity Asia.

William feels there is an optimum seniority level for general counsel bringing a legal function into an organisation – whether is it the organisation itself, or just the concept of having legal, that is new. For him, the key qualification is a certain vintage, he says: ‘It helps if you go into a start-up legal function with at least ten years’ experience. You can’t be effective in an entrepreneurial company unless you’ve had enough experience in more established companies to be confident of your judgement, and knowledgeable about proper processes.’

But it’s not just about comfort with technical legal expertise, William holds, rather it’s also about the type of person. Management skills are essential: ‘In start-ups, which tend to be peopled with strong personalities, you also need a certain amount of gravitas to hold your own.’

In 2010, Faris Alsagoff became the general counsel of Marina Bay Sands, a casino and luxury resort in Singapore. When tasked with setting up the legal function, Faris concurs that his know-how from prior in-house roles came to the fore. ‘It’s not just about the law but also about how legal integrates with the other business functions,’ he explains. ‘If you are sitting in a law firm, the legal function is the whole point, but that’s not so for in-house departments. Therefore prior in-house experience is a real benefit.’

Chris Dancey at Hays agrees. He set up Hays’ Asia Pacific legal function eight years ago and is about to embark on the same journey again now that the company has split its Asia and Pacific regions. He will be founding the Asia legal department out of Singapore to cover the territory outside Australia and New Zealand. Chris agrees with William that seasoning is a fundamental requirement for the person in the top job. ‘As the person overseeing, you need an understanding of both the legal and business sides to deal with the range of general issues and the needs and demands of your stakeholders,’ he claims.

Winning credence with the business is always a challenge; especially if it has been operating up to now without a dedicated legal function, or without one in the region. For the start-up where legal has been factored in as part of the initial business plan, the existential battle has been won. However, proving ongoing value and strategic importance can be a perennial quest.

Chris explains that the Hays Asia Pacific operation had been without an in-region legal team, and there were a number of business and recruitment personnel who were initially sceptical about the notion of a dedicated Asia Pacific legal department. ‘I did have an uphill struggle, initially, with many folks who could not see the point of us in the region, feeling they had been managing perfectly well without lawyers looking over their shoulder.’ However, he was well-equipped for this: ‘I had the benefit of having been a recruiter in a previous life. Having an operational perspective was fantastic and it helped me to very quickly understand the key business imperatives of my internal clients. Aligning those functions to the imperatives, for example in the approach to client contract reviews, assisted in the business embracing the new legal function.’

Most of our interviewees cautioned GCs setting up legal functions to ensure that their early appointments have a sufficient level of seniority to combat any residual doubts from non-legal colleagues. As Chris puts it: ‘Your initial legal team hires need a certain amount of experience, especially if they are taking responsibility for a particular country or business area. They, and you, need to win credibility with the business, particularly if you are some folks’ first experience of a dedicated legal function.’ Chris is currently hiring a lawyer in Japan and is adamant that he needs someone of a senior associate level, as this will win trust from business colleagues early on. ‘It’s the cost/experience tension,’ he says, ‘but a big part of my role is to persuade the business that it’s not just about the bottom line but rather building solid foundations to help facilitate growth of the business in the medium to long term.’

Mapping your territory

That cost/experience tension may be a significant influence on how the legal team is configured, particularly if legal is viewed primarily as a cost centre. However, Chris believes that more senior (and therefore expensive) recruits can help you win that battle in the long term, as they are able to demonstrate value to the business more quickly and more effectively than junior hires, and often in ways that are wider than just legal.

But this conflict goes right to the heart of the broader issue: that of merging your own conception of the legal department with the ideas and aims of the overall company. The legal department has to work in tandem with a whole other set of expectations from the business. Finding a happy medium is really the key.

Chris Dancey entered his role at Hays with what he terms, ‘a skeleton vision of the legal function mapped out,’ but he also ‘had to dovetail with what the business wanted and needed as well’. He was entering the industry to some extent – although he had actual recruitment experience before he went in-house, he had worked as a senior lawyer within a sizeable telecoms in-house team in Australia immediately prior to being hired. While his range of experience was relevant, he says, ‘I was still not at that point a “Hays” person and I had to speak extensively to Hays management to get a sense of what they wanted, but to also have some minimums in there for myself.’ Fortunately the management were also willing to defer to his overarching perspective. ‘To some extent they were relying on me to tell them what a world-class legal team looked like, so that was the mission statement,’ he says. An additional complication for Chris was joining in 2008. ‘I also had to build in a flexible function, so that when the world economy started to shake down, the legal department would still be able to manage effectively in a downturn.’

Chris had the advantage of slotting into an existing business, and was able to get a sense of how his skeleton framework could fit with its needs. But GCs launching a function within a start-up, whether big or small, often do not have that luxury and cannot foresee exactly the needs or volume of the work they will be handling. That was very much the experience of Faris Alsagoff when he was gearing up for the opening of Marina Bay Sands. ‘The business was not live yet, so there was a lot of forecasting,’ he says. He knew the areas of business in which the company was operating, so he could anticipate the legal issues that could arise. But predicting the quantity was another matter. ‘In terms of skillsets I had some ideas – I knew I needed some litigators and some commercial contracts people and with those two areas covered I would have a good start. What I did have trouble with was anticipating the volume. There was no way to anticipate whether we would be dealing with 100 contracts or 500.’ Did he make the right call? ‘I learned the hard way,’ he says. ‘Today it is over 1500!’

Top five lessons that our pioneers in Asia can share:

1. Be flexible – plan for how the business is now, but also for how it might evolve.
2. If starting a pan-regional team, be alive to cultural sensitivities.
3. Make hiring the ‘right’ team, not just ‘a’ team, your priority.
4. Be prepared to train on the job and allow for team members’ roles to develop.
5. Be patient – and have a sense of humour!

To cope with the challenges of a large business coming online with a range of different areas of focus, Faris set himself different targets for ramping up the legal function. ‘My approach was: get the right skillsets, start small, and rely on outside counsel until I could calibrate the optimal balance between internal and external resources. I set the first benchmark for review at six months, then one year, and then two.’ However, such plans sometimes had to be put to one side as the business evolved. ‘I was forced to do the first review in three months – far more rapidly than anticipated. The casino side grew quickly and due to the intensity of regulatory issues that came with that, it was obvious to me that we had to staff up rapidly.’ Up until that point Faris had been able to function with a lean team, relying heavily on the lawyers of Sands, the parent company in Las Vegas. But increasingly, the need for more legal resources on the ground accelerated growth plans.

When the legal function for an industrial facility in East-Central Asia was built, the structure of the budding department had to morph into diverse areas of expertise as the enterprise itself went through different stages of its business – from exploration to construction, to operation, to supply. The chief counsel says: ‘We had a basic idea that there would be three elements to the department. One would be the classic in-house legal functions: dealing with contract reviews and general legal advice, from procurement to employment to basic commercial and governance documents. The second part would be more strategic: commercial and transactional work needed to support big ticket strategic issues such as procuring the power and project finance for the project and key government negotiations. Then finally the evolving operational, marketing and general regulatory work as the facility commenced production.’

Putting this into practice on the ground, however, proved more complicated. The difficulty was in finding the right people for the right roles. ‘We had to chop and change a bit,’ says the chief counsel. ‘We recruited graduates as part of building the team and therefore had to have a more hierarchical structure than a typical in-house department. But because of our size there were inevitable overlays and sharing of responsibilities. In the early days, getting it to all work together was a challenge. Now as the graduates become more experienced we may evolve to a flatter structure.’

Speaking the same Language

The particular struggles of setting up a legal function in Asia – or any culturally and linguistically diverse region – should not be underestimated, particularly when it comes to staffing the team. William Hay, a fluent Mandarin speaker and avid student of Asian culture, feels that charting the cultural disparities between a Western parent company and an Asian legal function is something that an Asia-based general counsel in the midst of establishing their department needs to place at the forefront of their planning.

‘You can’t expect to have a team that answers all the problems,’ he argues. ‘Generally what we have done is create a network of external advisers to make sure we have all areas covered.’ This places additional responsibilities on team members as the in-house lawyer becomes an organiser and project manager, while retaining responsibility for directing strategy and making judgement calls. ‘As GC there’s a pressure to get your in-house lawyers to know enough so that they can really direct external counsel, rather than passively rely on them. I never want lawyers who just turn to their Rolodex for every problem.’

Getting the right team culturally cuts across all aspects of the embryonic legal department – whether it’s function, relationship with the business or structure. When putting GE Capital’s Asia legal team in place, William Hay had to bridge the gap between the US parent company’s expectations around hiring in Asia, versus his own experience and cultural knowledge. ‘If the company leaders haven’t spent much time in Asia,’ he explains, ‘you need to convince them that it’s not just about hiring the best person on paper or the best speaker of English, but hiring someone who really understands the challenges and risks they will face in the job based on real experience.’

‘they were relying on me to tell them what a world-class legal team looked like, so that was the mission statement.’

The burgeoning nature of many Asian legal markets has made hiring one of the most significant and evolving challenges for multinationals, according to William. ‘In China in 1995 there weren’t a lot of Chinese-trained lawyers [at international firms]. The bosses at GE would say: “This person has good English; they must be a great lawyer,” and we’d have to push back to explain the importance of the cultural dimension.’ In fact, William would often prefer to hire a non-English speaker with better legal skills. Nowadays, the norm in many Asia Pacific legal departments is to demand fluency in Mandarin.

For Joanne Low at RRJ Capital in Hong Kong, recruiting for a private equity company with a diverse portfolio was tricky: ‘It’s finding people who are really adaptable. We cover deals from M&A to banking-type transactions and we also cover several jurisdictions: the US, the EU, China and South-East Asia. We need people who are qualified in more than one jurisdiction and not limited in experience – and they are not easy to find. On top of that we need them to take on a compliance role,’ she says. And recruiting at the right level is also essential: ‘If they are too junior, they may not want to stay in-house.’

A perfect match

At Marina Bay Sands, getting the right type of person was also imperative for Faris. Indeed, his top piece of advice to other GCs setting up a legal function is: don’t be hasty with your first hires. ‘When you find yourself alone, the work pressure is immense and you need help desperately, it is tempting to hire the first person who comes along,’ he acknowledges. However, he continues: ‘That is a mistake! Always resist that temptation and rely on outside counsel until you are sure that person is the right hire.’

The wrong type of person will inevitably leave, and might even set the development of your team back. A common piece of advice from the legal heads I spoke to was to hire for the long term and find ways to encourage people to stay. Ultimately, as Faris explains, ‘a leader is only as good as their team and once you lose sight of that, you stop being an effective leader.’ It’s a question of understanding the team’s needs to ensure that they feel supported and motivated, and demonstrating that he is down in the trenches with them – and not barking orders from above.

With succession planning in mind, Faris has built flexibility into roles so that his lawyers can develop skills in different practice areas. He cites examples of regulatory lawyers managing syndicated loan transactions and litigation lawyers getting involved in corporate restructurings. ‘For young lawyers in in-house roles, developing diversity of legal and management skills is key to career development.’

‘As GC there’s a pressure to get your in-house lawyers to know enough so that they can really direct external counseL.’

Spotting potential was front and centre when staffing the new in-house team at the industrial facility in East-Central Asia. Personality traits were as important as skills on paper; particularly as it became clear that a lot of training would be done in-house: ‘In hiring student interns and graduates we have been looking for motivated people who have done something in their lives that shows persistence and ability,’ the chief counsel recalls.

This is something voiced by all those we found that had ventured forth to establish a new function: success is as much about team members’ fortitude in coping with life in a brand new legal department as technical expertise. This is perhaps even more true of those GCs who sign up for the job (in the absence of a press gang) – sometimes multiple times throughout their careers!

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