Modern Working In Unprecedented Times

At the best of times, the role of the in-house counsel is marked by loosely defined and ever-expanding boundaries. It is part of why the role demands a sufficiently flexible and open-minded candidate in order to be done effectively.

Enter COVID-19: norms of business and the global economy have been thrown into turmoil as countries across the world struggle to balance the need to control the flow of the pandemic with economic survival.

As of the start of August, four of the top ten countries for confirmed cases of coronavirus are Latin American. Businesses working in the region will be as pressed as businesses anywhere to weather the storm, adjust their practices and adapt to whatever world in which they find themselves operating after the peak of the pandemic has passed.

How do in-house counsel across Latin America feel about the effects of the pandemic? What have their experiences been? How do approaches differ between counsel and across businesses?

In The Legal 500’s GC Powerlist: Latin America Survey, we asked counsel working in the region all of these questions and more.

Status Report

While the pandemic hasn’t exactly affected all countries equally, most of the in-house counsel surveyed for this report could agree that it had affected their work, and that of their legal team.

46% of respondents felt that the COVID-19 pandemic had affected the output of the legal team to at least a moderate degree, with 20% feeling that the impact had been ‘great’. The single largest group were those who felt that the pandemic had ‘slightly’ impacted their legal team’s output, at 37%.

All but a small number of in-house counsel working in their country’s defense sector reported that them and their teams had been working from home during the pandemic.

“Communication was repeatedly emphasized in the interviews conducted with general counsel from across the region as being of particular importance in adjusting to entire workforces being taken off-site.”

‘I think everyone would agree that working from home under these circumstances would be ideal,’ said one GC working for an aviation and defense contractor within the region.

‘But for us, it is not permissible. We are working with documents and files that are highly sensitive, and that cannot be risked in remote working. Many of our employees are given a special government pass to be commuting during the pandemic.’

The majority of respondents (76%) felt that home-working had been ‘highly’ effective, and another 20% characterized home-working as having been ‘somewhat’ effective. The rest felt it was too difficult to say; not a single respondent reported feeling that home-working had been less than effective.

Measuring success remotely

This data begs the question: how can the effectiveness of home-working be properly gauged?

It’s a question which takes on added import among the speculation that this period of remote working will extend beyond the pandemic if not become the norm entirely. Despite virtually all respondents reporting their team working from home since the start of the pandemic, just over half (58%) said that they had been monitoring the effectiveness of homeworking for their employees.

For many, the proof is in the pudding:

‘We manage to complete integration projects and M&A initiatives in a record time,’ says Alejandra Castro, head of legal at Bayer, based in Costa Rica.

‘The feedback of the business is that the team is not only very responsive but also very involved in every company’s decisions. Home office has increased the overload of work in the organization but we have manage to keep performance on track.’

But the work doesn’t always speak for itself, particularly when the benefits brought by having a competent legal team are often difficult to quantify. In these instances, broader brush strokes are required when attempting to track how the team is coping under pandemic pressure.

‘We have shifted to goal based work, improved communication and knowledge sharing practices across the regional legal team, keep each other updated on target completion and adopted legal project management practices to keep everything on track,’ says Jorge Hirmas, general counsel at Orica.

Communication was repeatedly emphasized in survey responses and the interviews conducted with general counsel from across the region as being of particular importance in adjusting to entire workforces being taken off-site.

Ana Haynes, general counsel at Essilor in Brazil, said that they monitor home-working ‘through video calls, through the delivery of many work demands, through constant feedback and phone and video interactions, as well as surveys performed by our company.’

Sheila La Serna, Chief Legal at Profuturo, shares her organisation’s approach amongst the pandemic in Peru: ‘From the outset of the Sanitary Emergency Declaration and Social Isolation declared by the Government of Peru, we conducted daily videoconference meetings first to assess how the team was keeping up with their current home office situation, what needs they had (i.e. accesibility to our systems or physical attendance to the office, and health status) and furthermore, set a schedule considering housekeeping and child care hours since the majority of our members in the legal department are  women.’

‘Also, the CEO and senior management shared with the teams some podcasts with updates con health monitoring, challenges and quick wins during the COVID-pandemic. From June 2020 on, we had a twist for good knowing that “no size fits all”: we agreed on having virtual sessions twice a week only,  to review how we started and finished the week, but we kept communicating one -on -one by Whatsapp (legal department chat and individual chats), email and mobile when necessary.

‘After that, the team´s motivation rose because they felt they had more flexible time to spend with their families,  and I saw a change on our productivity measured by quicker responses made and greater number of emails that were replied during the day.’

One common sentiment was that there has been a realization (or validation, in many cases) that employees are just as effective when working from home, particularly when properly supported by the organization.

‘[We have] follow up conference calls and meetings,’ says Catalina Gaviria, legal vice president at SBS Seguros in Colombie.

‘Nonetheless, we are confident that our team is composed of great people who are very professional and committed to the result of the company! Therefore, more than conducting follow up meetings to tasks (which we do), during these times is always important to keep a warm contact. We usually use video to see each other, we ask daily how we are, talk about our personal and family concerns.   We even celebrate special dates as happy birthdays of the team, by sending food and celebrating!  We are convinced that a happy team always provide great results and are always effective, open, and available.’

Mental health

The COVID-19 pandemic comes at a time where an increasing amount of attention is being paid to health and wellbeing at work. The legal profession is in many parts of the world associated with long hours and high pressure, and despite a prevalent myth that these concerns do not exist in-house, general counsel must be careful to ensure they and the teams they lead are taking care of themselves.

Just under half (49%) of all respondents to the survey sent out as a part of this report felt that in-house counsel have appropriate resources available to them in order to assist with stress or mental health issues, and 37% answering in the negative.  A little over half (54%) of respondents reported that their organization has an employee mental health policy.

Of those who reported their organization having such a policy, the most commonly cited feature of the policy in use was the specification of a chain of command or point of contact for support. The second-most commonly cited feature was flexible working arrangements.

“Just under half (49%) of all respondents to the survey sent out as a part of this report felt that in-house counsel have appropriate resources available to them in order to assist with stress or mental health issues.”

 

When asked to identify the leading causes of mental health problems for in-house counsel, the most commonly given answer was the high stress nature of the job (68%), followed by long hours (57%).

Now, thanks to COVID-19, the workforce is remote, which means the line at which work ends and recreation begins is even more difficult to manage. This was a concern expressed by many participants in this research, but just as common was a feeling that the pandemic has given teams the opportunity to explore how to keep their motivation and mental well being high.

‘We have been in constant communication with team members within my region, and also with the rest of the members of the Law Function within Cargill across the globe,’ explains Michelle Canelo, legal director at Cargill in Honduras.    

‘We have been monitoring feedback we receive, how are people feeling, dealing with the challenges that came with Covid-19, not only work related, but with new challenges from home with family. being mindful of the needs of our team members, providing them with resources, accessories that could make their job at home more easily, for example, coordinating that team members received the chair, their docking station, monitors, files needed, printers, headphones, etc from office and deliver to their homes, so that they can work better and take care better of their posture, their overall health.   

‘We’ve been also talking about mental health and how we can support each other, listening, talking of our challenges, etc.    we even had happy hour every month, getting together virtually at the end of the day, and sharing, a cup of coffee, a glass of wine or other, and a good non-work related conversation.’

Lasting change

For the in-house community, the upheaval of 2020 has manifested in a variety of ways.

The practically universal uptake of home-working for the duration of the pandemic is an easy example. But the in-house counsel surveyed also pointed to other areas that have seen change.

For example, respondents largely reported being more likely to renegotiate obligations with business partners as a result of the pandemic: 71% said they would be more likely, as opposed to 16% who said they would not; the rest were undecided.

45% of those surveyed said that they expect the way in which external firms will deliver their services to change as a result of the pandemic, compared to just 26% who did not expect any such change; the remainder were undecided.

‘I expect external law firms to be more proactive, more efficient, more agile and for their business understanding to improve,’ says Ricardo Estrada, senior lawyer for the wider Latin America region at GlaxoSmithKline.

‘I also think they need to be open to provide support 24/7 and to team with other external law firms and forget about how to compete with them, rather [focus on] how to team up for work.’

‘We are already living a change,’ emphasizes Sheila La Serna at Profuturo.

‘Most of the firms we work with have acknowledged the importance of adding value to in-house teams during COVID pandemic. Webinars, live or recorded and podcasts with legal content are now trends in many firms to keep clients engaged.

‘Delivery is definitely quicker and it is expected to continue that way.  Legal service will not disappear in the near future but I think that digitalization of the services, blockchain and artificial intelligence will challenge traditional law firm service sooner or later.’

As for homeworking, counsel were almost united in their expectations going forward: 77% said they expected homeworking to become more frequent, and another 17% said they expected it to become the norm. Just 2% said they expected the pre-COVID status quo to persist.

Data Analysis 1: GCs Facing Increasing Regulation

Regulation is taking over the agenda for in-house counsel across Latin America, according to the results of the 2020 GC Powerlist Survey: Latin America. Almost 70% of respondents reported that the sector in which they are operated is highly regulated – 92% said that their sector was at least moderately regulated.

What’s more, 85% of all respondents said that they expect regulation in their sector to increase in the next five years, with almost half of that number (37% of all respondents) expecting a great increase in regulation. Virtually no respondents expected regulation to decrease in the next five years, and just 14% expected no change at all.

‘The explosives industry is highly regulated and for very good reasons,’ says Jorge Hirmas, general counsel for the Americas at Orica.

‘The regulations in the different countries of the region are similar and of a high standard.  Some important aspects of our industry regulations and the means of implementing them could be improved, however, in most countries there are plans currently underway to address these gaps.’

The numbers reveal a complicated relationship between in-house counsel, their businesses and the regulations that are governing their conduct. Taken as a whole, the in-house counsel that participated in the survey were cold on the prospect of more regulation in their sector: 42% said that they thought more regulation in their sector would be a bad thing, compares to 23% who thought it would be positive. Those who came from highly regulated sectors we most likely to see increased regulation as a bad thing: half of those from such sectors said that more regulation in their sector would be a bad thing, as opposed to just 18% who thought it would be a good or great thing.

‘Regarding regulation, it is required because we owe fiduciary duties and so we are regulated on investment limits and eligibility of investment assets,’ explains Sheila La Serna, chief legal counsel at Profuturo AFP. ‘However, there are always aspects that can be improved in regulation now that we are facing more digital relationships with our clients.’

Overall, counsel reported that their companies were well prepared for the event of a regulatory investigation: 76% said that their company has a response plan for such an event. Predictably, those that came from highly regulated sectors were more likely to have a response plan (89%) as opposed to those who came from sectors with less regulation (66% for those in lightly regulated sectors, 79% for those in moderately regulated sectors).

 

Contentious Issues

The belief that strategy is critical to dispute resolution is one of the few things that businesses across Latin America have in common.  Everything else, from an organization’s appetite for conflict, to its preferred method and forum are all up for grabs.

Even on the question of where responsibility for resolving a dispute sits within an organization, GCs are divided: just 61% of respondents to our survey said that disputes were the responsibility of the general legal team, with others saying responsibility should fall either to a dedicated disputes attorney/team (25%), to external counsel (11%).

Given the large range of approaches towards dispute resolution across Latin America, what can be gleaned from the insights of in-house counsel working throughout the region?

Current Disputes

To gauge how much time and attention disputes and contentious issues are taking up on the agenda of Latin American in-house counsel, survey participants were asked  about how their disputes volume has changed over the past two years, and how they felt it was likely to change in the coming months.

Our survey shows dispute volumes have been stable over the past 24 months, with 62% of in-house counsel reporting that their portfolio of disputes has been consistent over this period. Just under a quarter (24%) reported an increase, while only 12% said that the level of disputes within their business had decreased.

However, when asked to look ahead and state their expectations for the future, GCs painted a very different picture. Well over half (65%) of respondents said they expected an increase in the number of disputes that their business would be involved in over the next 24 months, with just 3% predicting a fall in disputes over this period. Around a third (31%) expected no change.

Disputes aside, the impact of current events was clear: 81% of respondents reported that their team had become more likely to be consulted on employment matters within the past twelve months, and it seems likely that employment actions in the wake of COVID-19 was the main driver of this.

Further, 66% of counsel reported that their company has entered into discussions with their business partners to help renegotiate each party’s obligations due to the COVID-19 pandemic; 71% said that COVID-19 had made them more likely to do so.

Again, this suggests an increase in the level of contentious issues being dealt with by the legal team in the present time, either resulting from a failure to meet payment obligations or other failures to meet contractual obligations. On the other hand, such willingness to enter discussions with partners in the supply chain suggests an amenability on the part of in-house teams and their businesses to taking a practical, lenient approach to commerce during the pandemic. Many businesses are feeling the crunch, and with reduced capacity in courts and dispute resolution venues across the globe, there may be little to be gained from a steadfast insistence on contractual rights.

Methods of Disputes

When asked what type of dispute resolution methods they or their team had employed in the previous 12 months, in-house counsel across Latin America showed a tendency toward litigation, with 64% having been involved in a major litigation over the past 12 months. Arbitration was the next most common answer, at 38%, followed by mediation at 27% and ‘other’ at 11%.

But one common sentiment to come out of the interviews conducted for this report has been that alternative methods of dispute resolution – the likes of arbitration and mediation – are beginning to become a key part of the in-house toolkit.

‘I really think that mediation is a great way to solve disputes,’ says Sandra Gebara, Legal, Compliance, Risks and Corporate Affairs Director at Via Viejo in Brazil. I am using mediation very often in my company, in [matters such as] civil, labor or property disputes and the results are more efficient in terms of costs, time and the mood of the parties involved. It is an effective and, usually faster dispute resolution than litigation. It works better in certain jurisdictions of Latin America than in others.’

Similar sentiments were expressed in favor of arbitration.

‘Our organization firmly believes in the benefits of arbitration as a means of conflict resolution,’ shares Ana Maria Florez, general secretary and corporate legal director at the Cardiovascular Foundation in Colombia.

‘So much so that 90% of the contracts the company enters into have an arbitration clause. Its permanent use has led to the establishment of this practice as a mandatory institutional policy.    Therefore, disputes are resolved in the arbitration courts.’

However, efforts to avoid disputes were clearly just as important to in-house teams as which forum might be best suited to the resolution of conflict. This has become an especially pressing consideration given the stress on the court system and other dispute resolution venues in the wake of the COVID-19 pandemic.

‘At 3M we work a lot in preventing [a situation] getting to a conflict that would need a third party “court” or an “alternative form of dispute resolution”,’ says Ivan Loynaz, general counsel at 3M Mexico.

‘Getting to the point in which a discussion turns into a legal fight [is a bad outcome]. We work a lot in prevention, and we work a lot in partnering with the business to avoid or mitigate the risk of getting to a moment in which we have to go to court or arbitration. Of course, we cannot [always] avoid it. But we do everything in our power, and again always observing the right ways and the law, to not get there. To negotiate and to enter into an agreement over the contract and to keep our commercial process as clean as possible from all of that. Most of the time we get it: we do not have a lot litigation and we do not usually take or choose arbitration as the means to resolve a conflict. That is because we do not get into those conflicts at the end. We solve those conflicts before. There are just a few cases in which a situation would end in court. That is the way we see it. This does not mean that we do not believe other alternative ways of solving conflicts. We do believe in them, and we have participated in dispute processes around Latin America.’

Remote Access

The disputes sphere has been under particular pressure to adapt and reinvent itself over the course of 2020. With entire populations quarantined indoors for large chunks of the year, courts have had to find a way to deal with the growing backlog of hearings while balancing the risks associated with gatherings in public spaces. For example, Colombia postponed all but the most urgent of proceedings and introduced videoconferencing for judges; Chile has introduced remote hearings and prioritized cases relating to pandemic management; other countries throughout the region have introduced similar measures.

But as the normal dispute resolution infrastructure buckles under the pressure of varying levels of isolation and quarantine across the region, there may be an opportunity for in-house counsel to explore other avenues of dispute resolution: taking your place in a long queue to embark upon litigation that will be heavily disrupted by COVID-19 is not likely to be enticing for businesses and their legal teams, especially if an alternative is available.

Judiciaries across the region have implemented remote-access policies for pandemic-era dispute resolution, albeit to varying degrees. The case for this makes itself: the courts will not be able to cope if every potential party to a dispute waits for a future time where the pandemic will not be a factor. However, there have been a number high-profile incidences of video conferencing software being compromised (be it through user error, software bugs or something more sinister altogether), so how do in-house counsel view the prospect of remote dispute resolution?

When asked how comfortable they were in using remote-access courtrooms and alternative dispute resolution services (such as remote arbitration during the pandemic, for example), answers were mixed. 63% were at least somewhat comfortable with the prospect, although 39% in total were only ‘somewhat’ comfortable – the single most-common answer. 21% reported being somewhat uncomfortable with the idea, and 2% said they were very uncomfortable.

When asked what, to the extent that they are uncomfortable with the idea of remote dispute resolution, was their biggest concern, the most commonly cited reason was a lack of face-to-face time with the opposition, followed by cybersecurity concerns. Privacy, confidentiality and a lack of infrastructure were the next three most common reasons given.

‘Any dispute resolution mechanism works upon negotiation and therefore, the lack of face to face time decreases the possibility to read the opponents reaction,’ explains Melania Campos, legal director at Grupo Garnier in Costa Rica.

Choosing a Venue

Another factor comes from the fact that the region is made up of closely connected but independent economies and governments. It means that senior counsel in the region often oversee very distinct yet geographically close jurisdictions, so their opinions on the viability of alternative methods of dispute resolution will likely depend on the infrastructure available to them in their jurisdictions.

‘One of my biggest concerns is about local arbitration/dispute resolution mechanism in highly corrupted countries, where there is lack of objectivity during the process,’ says Michelle Canelo, legal director at Cargill in Honduras.

‘In that sense, for certain countries we have decided not to use arbitration. On the other hand, when we use arbitration as a dispute resolution mechanism, we may feel more confident using an international headquarters.’

For example, those counsel who were based in the United States (yet having responsibility for countries within Latin America) were almost all very comfortable with using remote access dispute resolution infrastructure, whereas those based in Colombia were most likely to have reservations about using remote dispute resolution. Similarly, when asked where their preferred seat of arbitration would be, the most common answer for GCs across Latin America was the United States, with Chile a close second.

‘On some other occasions, we may choose formal arbitration within an arbitration centre,’ explains Loynaz at 3M Mexico.

‘Generally speaking, we would only choose centres we trust and only in cities within which we have a presence. In some occasions where the issue is more global, you might be pulled into the next stage, but that is not very common. As I said, we spend a lot of time making sure we do not get to that point.’ 

Data Analysis 2: Legal Team Multitool

The responses to The Legal 500 and GC magazine’s GC Powerlist: Latin America Survey illustrate the far-reaching and continuously expanding role that in-house counsel are playing in their businesses across the region. General counsel are a multitool, able to step in and assist their company as needed. But this also means that the differences between in-house roles are becoming more distinct: the portfolio of one general counsel might look very different from another, even in the same jurisdiction.

For example, as a part of the survey, participants were asked about the role they play in their organization’s technology investment policy. When asked how involved they were, nearly as many characterized themselves as ‘very involved’ as they did ‘slightly involved/not involved at all’ (30% and 29%, respectively).

Similarly, though the majority reported being ‘very involved’ in the event that the company needs advice on debt restructuring (72%), the second-most common answer was that the legal team is never consulted in these scenarios (14%).

‘Yes, I am proud to say that my team is very responsible with their work and with the company,’ gushes Alejandro Fernandez, head of legal at Cotemar in Mexico.

‘But how they are showing commitment is amazing. They just do not comply with their daily activities, but they interact with other areas to provide support – even if there is not related to legal performance.’

The versatility of in-house counsel has come to the fore over the course of 2020, but a widely held view among the Latin American in-house counsel interviewed for this survey is that the challenges of this year have merely given the opportunity for lawyers to demonstrate a level of adaptability and utility that was always there.

‘It has just confirmed that we are committed and always business oriented, and very creative in addressing difficult times, such this one,’ says Catalina Gavivria, legal vice president at  SBS Seguros in Colombia.

‘We are always asking about business results and we know that if we deliver our work quickly, it will facilitate business.’

When asked what he’d learned about his team over the past year, Jorge Hirmas, general counsel at Orica in Chile, pointed to ‘resilience, the capacity to adapt and quickly adopt change and perform under unprecedented strenuous and stressful circumstances’. The words ‘adaptability’ and ‘resilience’ came up a lot over the course of the research conducted for this report.

‘Resilience, empowerment, independence, high accountability’, were the words offered by Pablo Urrego at Diageo.

‘Creativity is a part of our job’, says Alfonso Videche, regional legal director for Colgate-Palmolive.

In Conversation: James Stebbing, general counsel, Six Nations Rugby and the British & Irish Lions

rugby pitch

james-stebbingGC: Start by telling us a little bit about your current role and your career to this point.

James Stebbing (JS): I’m the GC to the organisation that runs the Six Nations Championship and I’m seconded on an ongoing basis to be the GC of the British and Irish Lions.

In my previous role, I was Head of Legal at the Rugby Football Union (RFU). Because there was no dedicated GC to either the Six Nations Championship or the British and Irish Lions, I’d also been ‘dragged in’, so to speak, to help out on a few things on the side of the desk. The catalyst for my current role, really, was a potential private equity deal with regard to investment in the Six Nations Championship.

Originally, I trained and qualified at Harbottle & Lewis, very much intending to go into sport. My qualification coincided with the aftermath of the global financial crisis, so jobs generally were few and far between. But I knew two things. One, that I wanted to get into sport. Those roles were rare at the best of times, let alone in a major downturn. I also knew that I was going to end up in-house rather than private practice.

I joined Vodafone – they were a client of Harbottles’ at the time – and I found myself on a major mobile payment project, which led to a role at Barclays at a time when they were investing heavily in mobile banking.

But I very much wanted to keep my ear to the ground, hoping that an appealing sports role would come up. A commercial legal job came up at the RFU, which I applied for and was fortunate enough to be appointed to and which eventually led to promotions to Senior Legal Counsel and then Head of Legal.

GC: That sounds like an interesting journey. How common is your role? Do you have a sense of how many versions of you there are out there in other sporting organisations?

JS: Sport roles are few and far between. Harbottle & Lewis is a media and entertainment firm with a fantastic roster of sport, music and film clients, and when I was joining the firm there were over 150 applications for each training role. Fast forward to the current climate – the last time I recruited for the RFU for a junior role in my team and there were a similar number of applicants, which highlights how rare these types of roles are.

I get asked a lot about how to get into sport.  It requires a good solid foundation in where you trained and qualified, but it also requires a number of boxes to be ticked –being in the right place at the right time helps, as does cultural fit.  Sport is a very specific industry. But at the same time, it’s just another business.  A good sports lawyer is a good lawyer first and foremost. You just have to be able to apply those principles to a specific industry and a specific set of circumstances.

GC: In addition to the GC roles at the Six Nations and British and Irish Lions and, you serve as company secretary and hold directorships. What impact does this have on your job?

JS: Wearing different hats allows me to develop my skillset and hopefully add value in multiple ways.   I’m doing an MBA at the moment and these non-legal experiences help when I’m sat around the executive and board table by enabling me to contribute holistically about how the business can improve performance.

There’s always a danger of being accused of straying out of my lane, but to me, any effective leader within an organisation needs to be multi skilled, multi-faceted and able to add value in a number of different ways.

GC: I imagine working for sporting organisations, there isn’t as much of a profit motive as there might be in other kinds of entities. Does that change the priorities of the GC?

JS: There’s a broad spectrum. You’ve got global powerhouses like a Manchester United, which is listed in New York and has a hugely diversified portfolio off the pitch. But you’ve also got sports governing bodies, who have to balance their role as custodian of their respective sports from top to bottom with the need to generate as much revenue as possible to invest in the sport in order to grow it.

From my perspective, whether it’s the Six Nations Rugby Championship or the Lions tour, it’s about putting on a great sporting experience and generating as much money as possible to put back into the sport. The more money that gets generated, the more that can be reinvested in the sport to grow it and try to encourage more participants and commercial partners. As the valuation grows, the level of interest from broadcasters and sponsors grows, and you’re also talking about a better product which inspires the next generation of kids to pick up the sport.

Going back to the original question, I’ve spent time working in telecommunications and financial services, and the thing that really sets sport apart is that people have a genuine and emotional connection to the subject matter. Of course, a mobile phone is the centre of most people’s lives and acts as a conduit to be able to bank and buy things, but there’s only so much passion that can be derived from a mobile phone. Equally, how much passion do people have in opening bank accounts? Whereas with sport, there’s an innate ability to inspire, to evoke emotion, to bring people together in a really human way.

There’s the old saying: sport is either the most important of the unimportant things, or the most unimportant of the important things. It’s special in that regard. That’s what you realise when you are part of the fabric of it: it has that ability to touch peoples’ lives in a way that nothing else does and the absence of live sport during the lockdown has really underscored that.

GC: You mentioned you started off in a less senior role and moved your way up. What infrastructure was there preceding you taking over your current job?

JS: For my current job, it was a completely new position.

The Lions team is unique in sport because you take four international sports teams who spend the best part of four years trying to do everything they can to beat each other.  And these four teams are absolute arch-rivals. Not just in a pure sporting sense, but you’ve got a lot of history between England and Wales and Ireland and Scotland which goes back hundreds of years.  And then every four years, those guys get together to form one team to go to the other side of the world and take on the best of the Southern hemisphere.

That just doesn’t happen in any other sport. The closest thing you’d probably get is the Ryder Cup whereby every couple of years the best in Europe will form a team and the best in America will form a team, but that’s still premised more on an individual sport rather than a team sport. It’s incredibly special.

The Lions operates like a start-up. The tour happens, the profits get distributed amongst the shareholder unions and then everything gets dismantled. The players go back to their respective countries, and the organisation gets stripped back to its bare bones. You’ll then slowly and incrementally build up to the next tour and it continues in that cyclical fashion.

In days gone by, the Lions relied exclusively on external counsel, and on the Six Nations side, it’s been the same thing. That’s worked, and there’s a great relationship with our external counsel. But both the Six Nations Championship and British and Irish Lions Tours are now huge global sporting properties and very much merit fit for purpose executive teams – which includes a GC!

GC: Is there a typical day for you?

JS: To a certain extent, yes, I’m doing what a GC should be doing – being that trusted advisor to the CEO and the rest of the executive team, playing a similar role to the board, trying to focus on the stuff that is keeping the CEO and the board up at night, and managing legal risk accordingly.

But really, it is a crazy time. A lot of it at the moment is about scenario planning. The Six Nations Championship takes place in February and March each year. The pandemic struck mid-tournament. So in the end we had to postpone four matches that we are aiming to replay in the autumn of this year. How do we get those four international Rugby matches and shoehorn them into what will be a new Rugby season, recognising that there is a number of different rights holders who are also looking to reschedule? The sporting calendar this autumn is already looking congested with things getting postponed in the first half of the year and being pushed into the second half.

The other big thing is that Rugby has traditionally been split between the northern and southern hemisphere. The two respective calendars don’t dovetail neatly, which leads to conflict, often between clubs and countries. Because of what’s gone on, because of Coronavirus creating an artificial pause for the sport across the board, this has given us the opportunity to take a step back and understand if this dreadful thing that’s happened can act as a potential catalyst for change and a realignment of the calendar on a global level to make it work a bit better for everybody, so that fans win, the players win, the commercial partners win and everyone gets a bit more out of it.

GC: On the subject of using COVID-19 as a catalyst for positive change – with so many organisations around the world being involved in the work you do, have you found other entities’ priorities aligning more in the current environment?

JS: Let’s start with the positives. I’d like to think that this has made everyone a bit more human; a bit more cognisant of the fact that we are all quite fragile. This has been a real leveller in terms of everyone realising that there’s more to life than the grind that everyone has been caught up in. In that regard, there’s been some positivity.

I think that sports have realised that it’s quite a small ecosystem and ultimately, we all rely on one thing: sport being able to be played. If it isn’t then there’s no product to monetise and enjoy.

Rightsholders, broadcasters, sponsors – everyone needs each other. But I think that everyone has spent the last few months figuring out what has been going on and what it has meant for their respective businesses, and what the recovery looks like. It feels like we are starting to get some sort of understanding about the true nature of the impact and that spirit of compromise might be starting to erode as people get firmer in their positions and are a bit more confident of a way forward.

GC: As you see other sport leagues resuming and grappling with COVID-19 challenges, how much certainty is there that next year’s tour is going to be able to go ahead?

JS: Well, football was always going to go first. It’s much bigger than rugby.  But also, in football, there are less challenges because of what’s required to play the game of rugby – the scrum, for instance – the risks are higher. Football is still a contact sport, of course, but the level of contract isn’t as extreme as it is in rugby.

In terms of the Lions tour next year, we’ve got a number of challenges but we’re working on the basis that it’s business as usual and we will focus on what we can control.

GC: I suppose if by next year, you still can’t do the tour, then other sports leagues will be in a much worse situation than you.

JS: Yes. That scenario could play out either because there’s a disruption between now and then, or there’s a resumption of normality between now and then and there’s a second wave. Both those things are plausible.

Is it played to a full stadium or behind closed doors? Is it somewhere in between? All of those scenarios will completely affect the P&Ls because of the various factors at play, so there’s currently plenty of scenario planning going on.

GC: Before we move on from the COVID talk, how have you found the experience during this time, generally speaking?

JS: It’s been a great opportunity to collaborate, because everyone is in it together. I’m still hopeful that there continue to be positives that come out of such a dreadful situation.

In a sporting sense, it’s almost a microcosm for the wider economic piece in that if you were a sound business going into the crisis, then you’ve taken a hit, but you’ll come out the other side. If you were a business that was already under stress, then this is going to take those businesses right to the edge if not over the cliff. That’s the same in sports. The big, premium sports are going to come out of this affected but still premium in terms of fan engagement, sponsor and broadcast interest. It’s the smaller sports that may struggle because from a consumer perspective, everyone defaults to what they know. If you’re a subscription broadcaster, you’re taking a hit on paying subscribers, and if you’re a free-to-air broadcaster then ad revenues have gone down. And if you’re a sponsor, there’s more constraints on marketing budgets.  Overall that means you’re going to be that much more cautious about where you’re putting your money, and you’re more likely to invest it where you know you’ll get the most likely short term return.

GC: Do you think there will be lasting changes to rugby as a sport as a result of this pandemic?

JS: I really hope so. It goes back to my earlier point that this is a really good opportunity to address some of the challenges that the sport is facing.

As Nationalist Agenda Advances, Latin American Businesses Mull Options Abroad

covid-nationalism
Michael McGuinness
Michael J. McGuinness
Mason Ferdinand
Ferdinand Mason

Recent times have been witness to the steady rise of nationalist regimes across Latin America.  With a number of unprecedented landslide victories in the past years, concern has risen among many of Latin America’s business leaders.  Latin America’s C-suites are feeling increasingly squeezed by this resurgent nationalism at home and the possibility of tightened regulations, and even indirect government expropriations, all against the backdrop of increasingly severe limitations on private businesses introduced by Latin American governments in response to the COVID-19 crisis.  The combination of these factors has intensified concerns about the strength of the corporate rule of law and the durability of the capital base in a number of Latin America’s largest economies.

Boards of Latin American companies are increasingly struggling with the changing political dynamics (often phrased as a response to the global pandemic) and their impact on the business environment.  As a general principle, these boards have a fiduciary obligation in the context of risk management to assess how best to  protect continuity of their domestic and international business.  In certain circumstances, a Board may determine that the potential risks are significant enough to the business that it consider other jurisdictions outside of Latin America with: (a) a superior venue to access capital markets, (b) a corporate legal system to attract and retain (international) equity investors, (c) bilateral investment treaty protection to address expropriation risk, (d) more attractive COVID-19 government relief programs for private industry, and/or (e) tax efficiency.

At the same time, it has never been easier or more advantageous for Latin American corporations to tap into foreign capital markets, with compatible access to favourable tax rates, and improved governance structures abroad. More Latin American companies are listing on foreign exchanges at a time when a number of the key Latin American stock exchanges are in decline. Some corporations are contemplating the relocation of headquarters from a Latin American jurisdiction to one outside of the region. This form of “corporate migration” enables companies to strengthen the continuity of their existing manufacturing or operational facilities in their domestic market while taking advantage of lower tax rates and more favourable legal and regulatory environments outside of Latin America, particularly in the United States and neutral jurisdictions in Europe, like Spain, the Netherlands, the United Kingdom and Luxembourg.

That Latin American corporations are extending their gaze beyond the continent is not unexpected.  Latin American businesses have read this script before. When a resurgent populist Argentina expropriated Repsol’s majority ownership of oil and gas producer YPF in 2012, then-President Cristina Fernández de Kirchner justified the move as a “recovery of sovereignty and control.” After years of political and legal struggle, Repsol eventually settled for $5bn in bonds – less than half of what it claimed in damages. At present, the handful of similar expropriation cases resulting from the Venezuelan crisis only further underscores for concerned parties the importance of protecting assets under such populist administrations. Continuing to create jitters – Cristina Fernández de Kirchner was recently elected as Vice President of Argentina.

Outside the region, meanwhile, opportunity knocks.  Foreign listings on US exchanges, and even dual listings, generally do not cause the compliance headaches that many corporate managers dread. There is no requirement that a holding company be incorporated and listed in the same jurisdiction. Foreign private issuers benefit from more lenient reporting requirements and governance restrictions than US and many European publicly traded companies. For example, rather than adhere to US accounting standards, such entities often need only to disclose the manner in which their own accounting methodologies differ.

The process of corporate migration is supported by a raft of trade and tax treaties and a well-developed regulatory infrastructure. With these components in place, companies’ manufacturing and production operations can remain in their home base in Latin America even as they relocate their headquarters and corporate governance functions overseas. This process is complex, requiring companies to consider questions such as whether to migrate an existing company or place a new company, incorporated in the new jurisdiction, at the top of a Latin American company’s group.

Well-developed corporate law and governance regimes abroad make business outcomes elsewhere more predictable. A broad tax treaty network, with most following the OECD model treaty, largely protects companies from double taxation issues. The European network of bilateral investment treaties (BITs) offers protection against the potential nationalisation of business and other assets and a point of leverage in negotiations with State actors. It also promises binding arbitration before an international chamber such as the United Nations Commission on International Trade Law (UNCITRAL).  All of these protections are brought further into relief by government action in Latin America as a consequence of the global pandemic.  Many of the government measures enacted are attempting to balance competing economic and public health interests, the disruption they cause proportionate to the global health risk.  However, measures that are taken for overtly protectionist reasons or that otherwise lack credible public interest justifications may constitute violations of foreign investor rights under Bilateral Investment Treaties.  General counsel and board members should bear in mind the protections that may be afforded to their companies by international treaties in the current global crisis.

Some of the most favourable jurisdictions for listings and corporate migration include the United States – with Delaware and Nevada among the most popular places to incorporate – and the United Kingdom, Netherlands, Luxembourg, and Spain.  Among the myriad factors to consider: shareholder activism, litigation risk, corporate governance regulations (such as residency requirements and board structure rules), debt-to-equity limitations, and investment protection precedents.  In this time of heightened uncertainty, the law and consulting firms and banks that advise Latin American corporations would be well-served to examine the detailed contours of each regulatory environment and to assess how best to serve a Board when it considers its fiduciary obligations to manage risks in the interest of their business and its stakeholders.

The Latin American business community remains concerned about the rise of new administrations with a predisposition towards nationalised, state-run businesses and the compounding effect of government measures taken in the context of the global pandemic. Given the ease and promise of accessing capital through foreign exchange listings, and the legal protections inherent in corporate migration, we can expect to see more of Latin America’s business leaders exploring their options for doing business beyond the continent’s grasp.


The authors are partners in the mergers & acquisition practice at the global law firm Jones Day. Mr. McGuinness is based in New York and Mr. Mason is based in London and Amsterdam.

The authors are grateful for the research and analysis for, and contributions made to, this article by associate Scott A. Nelson and former summer associate Rachel Miller.

The views and opinions set forth herein are the personal views or opinions of the authors; they do not necessarily reflect views or opinions of the law firm with which they are associated.

GC Insider: Aviation and Aerospace Supply Chains – At the Tipping Point

The industries most directly and immediately affected by COVID- 19 are aviation and aerospace, as borders were shut and lockdowns across the world ensued. Lufthansa announced that it is burning through €1 Million an hour and flying just 1 per cent of its usual passenger numbers. It has also furloughed 90,000 of its 135,000 employees. This is but one of the world’s estimated 800 commercial airlines globally; the trade body Iata predicted a 48 per cent fall in traffic this year and if it proves correct, at least seven years of airline passenger traffic growth would be wiped out in 2020, according to consultancy Cirium. Airlines are looking to cancel or postpone aircraft orders on a massive scale.

What is the effect of this on manufacturers such as Boeing, Airbus, Bae, Lockheed – to name but a few – whether we are speaking of commercial or defence products? The answer is that these companies are struggling with the uncertainty of future demand. In fact, Airbus chief executive Guillaume Faury has told the 133,000 employees of the company that Airbus has lost a third of its business in a matter of weeks. He stated: “We’re bleeding cash at an unprecedented speed, which may threaten the very existence of our company.” Meanwhile, Boeing has announced “that it plans to cut its workforce by 10 per cent, as the coronavirus pandemic slashed global demand for jets and forced the manufacturer to lower production rates for nearly its entire portfolio of commercial planes.”

The Effect on Supply Chains

If that is the situation for the aerospace manufacturers themselves, what can be said of the supply chains? As we know, supply chains are key to the ability of aerospace and defense organisations to function efficiently and effectively. These chains are incredibly complex, being made up of several tiers of different types of suppliers. Included are scores of original equipment manufacturers (OEMs), prime contractors and integrators, repair and overhaul providers (R&O), small parts suppliers, maintenance support through to the customers whether commercial or military. To make this even more complex, over the past few decades both the supplier and customer base have become global in nature. Supply chains have adopted digital technologies, are vertically integrated and operate on a just in time basis. This makes management of supply chains difficult in the best of times, but what happens when the global system of trade fractures as it has now due to COVID-19?

COVID-19 hit suddenly, without much warning. Companies, as well as Governments, were ill-prepared for its overwhelming impact on infrastructures and almost overnight, supply lines were impacted as Asia, Europe and then the Americas begun to feel the effects of the pandemic. Countries reacted by closing borders and within, people went into lockdown. Nothing functioned as it ordinarily should. Given the extent to which aviation and aerospace companies had integrated global supply chains the results are devastating. Moreover, since it is very common for companies in the aviation and aerospace supply chain to also supply the defense industry, the damage happening today in the aviation sector is highly likely to spill over into the defence industrial base through defence supply chains.

Over the past decade, there has been an emphasis on risk-sharing partnerships in supply chain contracting. The mantra was collaborative agreements based on risk and revenue sharing arrangements. This covered development, production, manufacturing and after-market activities. But this means that the pain of what is now happening due to COVID -19 has also been spread amongst a larger group of companies. Suppliers in developing countries are particularly feeling the pain and their employees have been severely affected. What is interesting is that supply chain management over the past few decades has been focused on cost reduction and outsourcing. As security of supply is becoming the focus due to COVID-19 supply shortages, is that all about to change? Will security of supply now trump cost, as the focus in supply chain management

The added challenge for the aviation and aerospace industries is that their supply chains are often specialized and require companies to be pre-qualified. This qualification process takes a period of time to achieve and can be costly. Often, customer requirements and specifications inhibit the use of certain suppliers, further narrowing the supply chain. National security requirements might also limit choice of suppliers and where offset requirements dictate the use of particular suppliers, the manufacturer is further inhibited. It is therefore not a matter of simply moving on to someone else.

So what is it that companies should now be doing to deal with their supply chain pain, recognizing that when they emerge from this, they will want their supply chain, not only to survive, but to be capable of returning to normal capacity rapidly if demand requires it.

Building Resilient Supply Chains

The first and immediate impact will be reviewing legal positions to have a view of what obligations exist. Here, legal principles such as force majeure, frustration, material change and impossibility all play a role. The governing law of the contract will be critical in formulating this analysis. To assist, Bird and Bird, an international law firm specializing in aviation and aerospace matters, has developed a handy 10 step guide reviewing key contract clauses under English, French, German, Italian and Polish law:

https://sites-twobirds.vuture.net/110/8101/uploads/coronavirus-defencesecurity-diagram-1-10steps-v02.pdf

Going forward, what can this crisis teach us about building more resilient supply chains?

A supply chain’s ability to respond to and recover from disasters such as COVID-19 is determined not only by the type of event, but also by the nature of the supply chain system put in place. Traditionally, managing risk was an exercise of identifying risks that may affect a company and its supply chain and then managing those risks in a piecemeal manner. The focus was on short-term recovery. The nature of the system did not need to be taken into account, as it was largely operating in the same manner over a long period of time, and the parts were not interdependent.

Today, given increasingly complex and interconnected supply chains, the traditional approach is no longer effective. The focus now has moved from managing a risk to managing a system. This means risk can no longer be fully understood in terms of a specific event such as an earthquake, fire or even a pandemic, but in terms of an overarching system – also called “systemic risk”. This means moving risk management from an event approach to a resilience approach. The first looks from the outside in (how the risk will impact on the system – event-centric), whereas the latter looks from the inside out (how the system will respond to the risk – system-centric). Going forward from this crisis, we need to concentrate on a system-centric supply management approach. Supply chains have to become more resilient.

Resilience looks at how a system deals with change; it is system-centric rather than event- centric. A whole-of-system approach can be understood in terms of the types of risk that might enter the system (an input view of risk) versus the types of disruptions that might occur (an outcome view of risk).

An input view of risk does not categorise risk in terms of high or low probability or magnitude, the way an outcome view of risk would. It tries to understand possible events in terms of knowledge about the risks. An updated means of categorizing risk has been described as: “completely novel (such as space weather (meteor showers, solar flares), modern (such as climate change or cybercrime), infrequent (such as pandemics), spasmodic (such as earthquakes and volcanoes) and traditional (such as business and infrastructural risks).” The knowledge about a category of risk contributes to helping businesses respond to it when it happens. It is relatively easy to build resilience into a system in order to prepare for spasmodic and traditional disruptive events which are better known, but less so for the other categories. Building resilience into a system that has little or no knowledge about novel, modern or infrequent disruptive events is difficult. The only way to build in such resilience is to work at understanding more about these types of disruptive events and build in a certain degree of redundancy based on the unique characteristics of such events. This is precisely what supply chain management now has to do respecting COVID-19 risks, which are increasingly known.

A whole-of-system approach to managing risk looks at large numbers of commonalities between the different categories of risk. For example, you can compare earthquakes to a pandemic, flood or another event. The initial responses will share certain commonalities: the need for short-term housing/hospitals; the need for hot food, water and medicine; the need for infrastructure to work, such as water systems, power and technology; the need to communicate clearly in a timely manner; the need to make alternative arrangements for transport. Resilience can relatively easily be built into a supply chain system to manage these short-term local disasters. However, as supply chains become more interconnected and complex, dependencies can lie unseen and untested, only to become apparent when a key link in the supply chain becomes broken and alternatives have not been identified. This is when supply chain resilience becomes critical.

Going forward from this crisis, we need to concentrate on a system-centric supply management approach.

COVID-19 is at the moment demonstrating this fact. It is a global pandemic – with all that this implies for workforces, manufacturing capability, supply of raw materials and parts, disruption of transport systems and closed borders. It is, however, rapidly becoming a financial crisis as well, as employees are furloughed, demand drops dramatically, revenue dissipates, banks refuse or are unable to lend and Governments begin to incur massive debts. This puts immense strain on supply chain maintenance and their ability to recover once the crisis is over.

A possible way to identify key dependencies is to follow critical flows in the system and work out how they might be disrupted and how those disruptions might best be reduced. This concept allows for identification of multiple risks and shocks. Here, the opportunity is to follow the flow of goods and services to assess the supply chain risks to the entire system. Resilience can be added in to deal with several independent or connected events such as a pandemic and a hurricane occurring simultaneously and adding in global risks such as a financial crisis.

A resilient supply chain is fundamental to delivering core products and services over long periods in times of stress. A resilient system is much more than natural disaster management or epidemic management. It requires an understanding of where the overall system is weakened by events and how it might be strengthened to cope with them.

PRACTICAL STEPS

So how in the light of COVID-19 and what we are now learning, can we make supply chains in particular for the aviation and aerospace industries, more resilient?

The World Economic Forum is a 6th April 2020 publication (www.weforum.org/agenda/2020/04/supply-chains-resilient-covid-19) looking at supply chain disruption due to COVID-19 makes several excellent recommendations for making supply chains more resilient. I have added in several additional tips from my own experience.

1. Move away from paper to digitization.

The need for a physical presence to deal with physical assets has proven to be a major issue when personnel are required to come to an office. With lockdown, many businesses have been shut throwing the supply chain into disarray. Digitizing limits the points of failure in a supply chain and allows operations to continue even when there is a lockdown.

Recording contracts on digital ledgers in blockchain helps to achieve this. Participants can verify and audit transactions securely. It replaces the need for trust, as documents are stored on a secure ledger. Records on the digital ledger cannot be altered retroactively.

2. Dealing with data privacy

Suppliers are reluctant to provide information to customers, because they fear losing commercial advantage if confidential data about operations, pricing and sourcing is shared. In a crisis situation, this is however disruptive as it does not permit flexibility and continuity of supply.

Blockchain with private or public permissions allows suppliers to audit data-sharing permissions directly on their blockchain node. This also permits data to be securely distributed to others, as needed in the blockchain network.

3. Blockchain can also provide financial flexibility and security

Blockchain can also be used to help with financing needs and institute supply chain finance programmes. Suppliers are paid sooner and can replace more costly supply chain finance arrangements, because payment occurs automatically, when required performance parameters are triggered in the system.

Payment commitments on the blockchain can replace Letters of Credit, pay suppliers automatically and insulate from supplier bankruptcy.

4. Blockchain can also be combined with collaborative dispute mechanisms

COVID-19 has shown how quickly legal obligations are impacted and the need to be flexible and restructure them through collaboration, rather than confrontation.

Allowing for structured negotiations with a neutral, or mediated settlements, rather than immediately looking to litigation to resolve disruption to legal obligations becomes a necessary tool for survival of supply chains. Most contracts don’t have to be terminated, but simply renegotiated.

5. Build greater redundancy into your supply chain

Review the weaknesses this crisis has demonstrated in your supply chain community and the reasons for it.

Take from lessons learned and build greater flexibility into your supply chain to permit for redundancies be this geographical, financial, supplier specific, alternate or substitute products.


6. Build supply chain considerations into the design phase

Supply chain management was not typically part of the design consideration for products, unless a very specialized and unique part was needed.

Sourcing was left up to the purchasing function after the design was completed. This will likely now change with sources of supply and supplier security being key to successful delivery. Closer integration in this respect will become critical.

7. Better awareness of downstream supplier activity

Supply chain management downstream has largely been outsourced by primes, who have not wanted to be burdened with this task and put that obligation on tier 1 and tier 2 suppliers.

Given the criticality of the supply chain system needing to function throughout to ensure supply security, this will be a function that requires greater oversight at the prime and tier 1 supply level.

8. Supply chain management oversight

Increasingly companies have left much of their supply chain management with the purchasing function to oversee, with little oversight from operational management.

Given that supply chain security has become critical to the overall functioning of the enterprise, operational management will need to become more integrated in the process and take on more of an oversight role. Operational management will also need to ensure that allocation of risk within the supply chain contracts is “flowed up” in the upstream contracts, or if not “flowed up” is at least is a known priced risk for the prime.

9. Discuss supply chain resilience with customers

Customers are key to the supply chain, so an in-depth discussion respecting sourcing of products and flexibility of supply is crucial.

Discussing topics such as security, cots , cost and need for specific specifications might permit a greater flexibility and range of suppliers to be used in the future.

10. Begin making changes now to ensure survival of supply chains long term

Implement changes now when there is a crisis, in particular looking at supply chain finance programmes to support suppliers in financial need. This might even take the form of acquiring an equity stake in the supplier or ensuring critical IP.

Thinking outside of the traditional box and being flexible in approach, will be critical for those companies that emerge with their supply chain relatively intact.

The World and international trade will be deeply impacted by COVID-19 and will by necessity be forced to change. Supply chains will be forced to become more resilient, in order to provide businesses with security of supply. That factor, more than cost, will now drive supply chain design, management and integration. No more so than in the Defence, Aviation and Aerospace Industries.

 

Wolf Von Kumberg
BA, LL.B, LL.M, FCIArb

Independent Arbitrator & Mediator
(London & Washington DC)

Email: wolfvonkumberg@globalresolvers.com
Mobile (UK) +44 7876027093
Mobile (US) +1 202 322 5506

Global Resolvers (Washington DC)
Tel: +1 202 836 8788
Web: www.globalresolutionservices.com
Address: Universal North, 1875 Connecticut Ave. NW,
10th Floor, Washington DC, 20009

Int Arb Arbitrators & Mediators (London)
Tel: +44 (0)203 928 7272
Web: www.int-arb.com
Address: International Arbitration Centre, 190 Fleet Street,
London, EC4A 2AG

Mediations in an emergency

Jane Player
Wolf von Kumberg

It doesn’t need to be said that the current COVID-19 pandemic will have significant, lasting impacts on businesses. Parties negotiating contracts even six months ago could never have envisioned the situation in which they would now find themselves, and the resulting tangle of part-performance and non-performance is expected to significantly overburden courts around the world, both while the crisis is ongoing and after, when the disputes that have been put on hold for the duration of the crisis begin to flood the judicial system.

These are the concerns which led Lord Neuberger and Lord Philips – both former heads of the UK Supreme Court – to publish a note via the British Institute of International and Comparative Law urging parties to commercial contracts to adopt a conciliatory approach towards disputes arising during (and as a result of) the pandemic. Such an approach would not only ease the burden on the courts in grappling with the coming wave of litigation once the crisis passes, but avoid economic damage that would be caused by a “plethora of defaults” as businesses struggle to meet their legal obligations in the face of COVID-19.

Put simply, the message is this: mediate, don’t litigate.

And while COVID-19 will give a chance for companies to use mediation to stay afloat and salvage contracts that might otherwise not have survived the pandemic, many argue that it also gives the chance for businesses and legal departments to re-orient their approach toward contracting and dispute management and realize benefits that stretch far beyond the current crisis.

Two such people are Jane Player and Wolf von Kumberg, two leading lawyers with extensive experience in dispute resolution of all kinds. They’ve been advocating for the conciliatory approach put forward by Lord Neuberger and Lord Phillips, and specifically for the use of mediation between contractual parties. Speaking with GC, they spell out the impact that COVID-19 has had on the disputes ecosystem, the role that mediation has to play both during the crisis and beyond, and the fresh opportunity for general counsel to demonstrate their commercial – as well as legal – value to the businesses they are advising.

GC: Firstly, tell me a bit about yourselves and your backgrounds.

Wolf Von Kumberg (WVK): My background is mixed. I spent about 30 years as in-house counsel for several global aerospace/defence companies. I held positions in this role around the world, the last position was in London as Assistant General Counsel – International for Northrop Grumman Corporation. In that role, and in my previous roles, we’d actually used ADR to a fairly large extent – especially arbitration, which was our go-to position in our international contracts and certainly over the last decade mediation as well. I became a Fellow of the Chartered Institute of Arbitrators in 1996, so quite early on, and I became a qualified mediator in 2001. Since then, I’ve also been active within the various ADR institutions, so I was the chair of the board of management of the Chartered Institute of Arbitrators for three years, I was the first chair of the International Mediation Institute an organisation largely formed by In-house counsel to bring about standards for mediators globally, I’m a currently director of CEDR, and a current director of the American Arbitration Association. Since 2015, I’ve been a fulltime mediator and arbitrator.

Jane Player (JP): I qualified as a solicitor in 1987, and I’ve been a partner for about 20 years in three law firms – first at DLA, where I was head of their disputes team, and then at Bird at Bird where I was head of their international disputes team, and then for the last five years of my private practice career I was a partner at King & Spalding, a US firm, working in their London office.

I qualified as a mediator back in 2000 but my first mediation as counsel was in 1992, and that’s possibly what made me catch the mediation “bug”. In fact, my first law firm housed the Centre for Effective Dispute Resolution (CEDR) when it was set up back in the 1980’s, so mediation has been in my blood since I was a baby lawyer.

I’ve been mediating alongside my private practice right up until 2017 when I retired and have mediated over 500 commercial disputes. I am now a full time mediator, working on my own as a freelance mediator but I also take appointments from CEDR, IPOS, ICC ,LCIA as well as a number of international panels in Singapore ,Japan, India, Korea and Indonesia. A lot of the work I do is cross cultural and international.

GC: Wolf, maybe we can start with you – from your position, how would you describe the current environment of disputes and how has that changed under the pandemic?

WVK: If I put my in-house counsel hat back on and look at what is happening within companies at the moment and particularly in the aviation and aerospace industries (where I come from), it’s quite frightening. Airbus last week said they’re in survival mode and are burning through cash at an enormous rate and I think right across the chain of contracts, you will find that many companies are currently stressed, so the emphasis right now for in house counsel is going to be on survival. What is it that we have to be doing right now from a legal perspective to ensure that our company can get through this?

Previously, legal disputes within companies had a very formal route of being resolved – these generally would come to the legal department, the legal department would assess them and either try to deal with them themselves or go to outside counsel. That whole traditional way of dealing with disputes is changing. What we now are seeing is that the companies are looking for more pragmatic and better ways to deal with the immediate issues facing them, and that includes trying to restructure and negotiate their legal obligations. They need a platform through which to do that and courts are not the answer, as they cannot give the relief business is looking for.

We saw the BIICL report come out last Monday in which two very senior UK judges – Lord Neuberger and Lord Phillips – said that we have to look at trying to preserve contracts right now. And that means conciliation – a form of structured negotiation or mediation – because that’s really what mediation is, at the end of the day.

I think that’s the current emphasis, and that’s the big difference from the pre-COVID situation, where you had a much more traditional legal structure for dealing with these disputes.

JP: I couldn’t agree more with Wolf. What’s been fascinating throughout my legal career, is the importance for us lawyers to recognize that we’re just one cog in the commercial wheel of a business. Businesses run on risk – they understand risk way better than lawyers do, and general counsel or external lawyers operate by giving legal risk advice. Within an organisation you’re going to have operational risk and commercial risk as well as legal risk. I noted that the board will ask for the legal risk analysis for a particular venture and the lawyers will give it, but then the business will make a decision, understanding those risks, but perhaps irrespective of the legal consequences because it might still make commercial sense to do that.

Go back to 2008 in the financial crisis, and you see that very clearly. We as lawyers – then I was in private practice – were being contacted by clients saying they wanted to abandon their contracts – that they knew they had legal obligations, but to continue was not economically viable. As good advisers , it wasn’t an option to give a black letter lawyer response and say ‘the contract can’t be legally terminated before a certain event etc ’. One had to appreciate the position the company was in and say ‘well, if you terminate, you will be in breach, but here’s the exclusions clauses or the limitation of liability clause, and you may only be paying out perhaps 1.5x of what you were paid under the contract so that may be better than running an uneconomic contract for another five years.’

‘We have to look at trying to preserve contracts right now – And that means conciliation.’

Creative and flexible lawyers who weren’t just going down the black letter law route and were looking at ways to help their clients get out of a financial crisis were the ones clients were turning to. Now here we are again, and more than ever, the law will only be one factor in a complicated risk analysis that every business will go through in survival mode. Legal rights will only be so useful.

We’ve got the ability as mediators to help lawyers create a safe environment whereby their clients can talk to their counterparts – be they suppliers, customers, partners in business – on a confidential basis, making offers outside the contractual obligations, to ensure the project/contract stays afloat and in some cases , to achieve mutual survival. Compromise, extensions of time, the moving of milestones, slightly different performance obligations – all can be discussed in a safe environment, because a mediation takes place “without prejudice” – that is within the safety of confidentiality and privilege which lawyers offer when they give advice.

Now more than ever, mediation is a perfect forum for these conversations to take place. If they happen without mediation then yes, they benefit from without prejudice privilege if you have a lawyer present, but those discussions will inevitably be positional – you’ll have lawyers fighting their clients’ cause against another set of lawyers fighting back. In a mediation environment, confidentially with each party, a third-party neutral hears the fears and the wishes of both sides and can help them find a solution that might serve both purposes and avoids further conflict.

That’s why, in my view, commercial mediation is needed more than ever in this current crisis.

GC: Could you both please spell out the benefits of mediation? How much of a departure is this more ‘conciliatory’ approach from common practice?

WVK: I think businesses generally were already becoming more pragmatic in the way they dealt with disputes. Mediation has in fact been on the uptake in most jurisdictions. Certainly, in the US and the UK and in many of the European jurisdictions now, mediation has started to become a part of the normal dispute resolution process.

As Jane said, this crisis is a real catalyst now for businesses to start to utilize mediation for the very reasons that she outlined. The advantages that a confidential platform in which to have discussions with a neutral – which again moves you from a positional type of negotiation to a more interest-based negation – really lends itself to the kind of crisis we’re going through. That’s where parties can look at what is needed right now in order to get through the crisis situation and to restructure their legal obligations around needs rather than legal obligations themselves. That’s the key and that’s the environment that mediation provides.

JP: General counsel and their businesses will not have ready money available for litigation costs at this time and companies can least afford the time and management needs of a dispute. Companies should know that they could incur what is probably a tenth of the first year’s litigation costs in a mediation, where they will have an opportunity to sit down, roll up their sleeves and sort the issues out quickly. They can say ‘we’re all in this together – let’s sort this out as if we don’t keep this relationship working and we don’t look after each other during this demanding time, then in three-five years’ time when we are out of this and our businesses are back in action , we won’t want to work together and yet we may have to” – to argue with your business partners now could be to spite your nose to save your face.

In the private environment of a mediation, solutions can be reached by the parties themselves which a judge or an arbitrator won’t have the power to impose . Open, safe conversations can take place such as ‘I can’t pay, I can’t perform, I know I should but I can’t – so what are we going to do about it? What are you going to do to be flexible to allow me to perform in part, pay in part, maybe give me a loan or agree a debt which I can pay off over a number of years or let me provide a different type of service – so that in due course, we can both of us trade out of the problem?’ Transparency of positions leads to compromises that parties can live with to allow them to trade another day.

And that’s the key – we as lawyers and mediators need to help businesses trade out of the lockdown.

WVK: That’s a great point. And the point is that a court can’t deliver that. It can’t restructure the arrangement between the parties – and that’s what’s needed right now. And that’s what I think Lord Neuberger and Lord Phillips recognized – that that is not possible through traditional litigation and that’s why they’re encouraging parties to find a different way to resolve COVID-19 disputes.

Designing an Effective Dispute Management System

Essential elements:

  • A forensic review of traditional conflict points both internal and external to the business;
  • Drafting of model dispute clauses to cover identified conflict risks;
  • Adequate training and education of employees dealing with customers, contractors and suppliers to the business;
  • Consideration of appropriate Alternative Dispute Resolution (“ADR”) tools to address conflict risks to the business and where appropriate building them into the disputes clause:
    • Structured negotiations utilising a neutral
    • Project mediation to assist with issues arising during delivery of a programme
    • Dispute Boards for infrastructure and long-term projects
    • Expert determinations, where there is the need for an expert’s review
  • Systematic review of actual conflicts facing the business through a formal conflict review procedure to assess the most appropriate means for resolution utilising ADR tools.
  • Drafting an ADR Guide for the business to use in contract negotiations and programme management outlining ADR tools to use and when to deploy them.
  • Effective use of structured negotiations and project mediations, utilising neutrals, to manage conflict and obtain an early resolution of disputes.
  • Effective use of online platforms to permit early discussion of issues and structured negotiations with a neutral to take place.

GC: It seems like the case for mediation should make itself, but to what extent have you seen companies incorporate mediation into their dispute management policies?

JP: Not enough of them yet, and it’s a real shame.

I’m not convinced that people are fully aware of just how flexible and useful the mediation process can be, particularly pre-dispute; where you aren’t really wanting to mention breach or suggest there is a dispute yet, – where you’re worrying about whether you can pay or perform in two three four months’ time, and you want to have those conversations as early as possible. That is where, I think, mediation has real value. People either think positional management conversations can achieve the same ( which sometimes they do, but not always ) or they think mediation is only useful once a dispute is under way and external lawyers have been engaged . By then, positions are often entrenched, encouraged by initial case reviews by lawyers keen to litigate! Mediation can be used much earlier to facilitate just the conversations businesses need to have now.

WVK: There is an understanding amongst sophisticated in-house lawyers that mediation does play an important role. It is, as Jane said, about getting that message across to mid-size and smaller companies – and they are the ones that benefit the most from this. It puts them, in a sense, on a more even playing field with the larger companies – which in a litigation situation won’t happen, because they will be out-maneuvered and in many cases won’t be able to afford to properly deal with the litigation.

So, mediation is a great leveller. It provides a platform for any sized company to interact. I think increasingly, mediation – because also the courts in the UK in particular -were requiring mediation to take place with cost consequences if you didn’t mediate. So, I think that there was already a greater uptake before COVID-19 and I think that will now increase even more rapidly.

GC: If there is any reluctance by companies to mediate, what would be fueling that?

JP: Wolf and I are obviously very evangelical about mediation – we think there are few cases that would not benefit from it. But the reality is, people are tactical. If you’re a big company with a large wallet, it may be a legitimate tactic to push someone to the wall and make them succumb to your demands. What it does not do though is build solid future business relationships and I do wonder, in a post Covid world, whether those unethical tactics will pay off long term.

People’s memories are long, and attitudes toward fair and reasonable behaviour now will play a role in future contracts. Companies in many specialist sectors we are working in – construction, defence, IT – recognise that there is a limited number of good partners and word travels fast. Reputation is more important than ever. Why would you irritate an important and useful partner who you’d like to work with in the future by taking pedantic points on one particular contract? Much better to look at it as a relationship management exercise as opposed to a contract management, and have those safe conversations, so that you build long-term mutually supportive relationships. This can apply to even the smallest of SMEs. It’s a small world, and it’s getting smaller all the time with international contracts being given out on a regular basis and I think past behaviours will be judged.

Mediation gives you that opportunity to turn around and say “ look, I realise this contract has turned out to be a really poor one for me economically and I need out, or at least a renegotiation , but I’ve got other contracts that I’m going to be handing out over the next five years or so or other opportunities for us to partner in , if we can have a sensible conversation over this one.”

WVK: I think much of this, particularly in smaller businesses, was still due to not having enough awareness about mediation and what benefits the process could bring to commercial dispute resolution. The legal community and larger businesses have I think done a good job in recognising that mediation does have a positive role to play. Many larger businesses now have ADR policies in place. Many Law Firms now have a specialised group within their dispute resolution practise specialising in mediation advocacy, recognising that this is a different skill set from that of litigation. So, increasing awareness and educating business as to mediation is still a priority for mediation to have greater uptake in resolving commercial disputes.

GC: How would you recommend in-house lawyers ‘sell’ mediation to the business?

JP: Before I left private practice, I went to an in-house conference and I was really interested to hear in house counsel say how rare it is for them to get onto the board and become a part of the commercial decision-making. Perhaps this is an opportunity for commercially minded general counsel to prompt the C suite, to engage with them.

I personally was very keen to be seen not as a litigation lawyer when I gave legal advice, but as a risk lawyer. General counsel, and I am sure in-house lawyers know this better than I do, don’t just sit within their legal expertise but are asked to advise about commercial risk alongside the legal obligations.

WVK: I think right now the opportunity for the in-house department is to actually engage with the businesspeople to restructure those legal obligations. As Jane says, they are not going to be looking so much at the legal position – although they might want to outline that for their business managers, as a starting point. What is more relevant at the moment is to engage with their business managers in a process whereby those legal obligations can be restructured. And this is where they can promote mediation – they can say that mediation is a confidential platform, so everything that we discuss will be kept within these four walls, it will not be able to be used against us. So even if we are telling them we can’t afford to pay for this now and we need to restructure it, and that effort fails, then they won’t be able to use it against us later.

‘Mediation is a great leveller. It provides a platform for any sized company to interact.’

The other thing to stress is speed. You can do it virtually. You don’t have to wait for the courts to reopen – you can sit down today with somebody that’s a neutral and begin discussions on a needs and requirements basis – not necessarily on a legal basis – and you can come up with much more pragmatic solutions.

All of these, you’ll be preaching to the choir here. That’s the way businesspeople negotiate, and they are then becoming much more part of the team, so really, it’s an opportunity for the legal department to shine here and demonstrate that they are value added.

JP: A really good example might be within an integrated IT project. It’s all well and good to say what your obligations are and what the contract originally envisaged but the reality is, after a few years, on the ground the actual position is often very different. However, if you have an issue arising and you’re an owner with a supplier onboard, the thought of kicking off your supplier and trying to find a third party to come in and take over mid-project is a nightmare. Likewise, if you’re the supplier the last thing you want to do is walk off, so what you’re looking for – and what the lawyers are looking for with the operational directors – are levers and incentives to motivate different behaviours. They are asking themselves what can they say or do to encourage people to do something different than their strict obligations under the contract? How can they incentivize their business partners to perform in a different way, to pay in a different way, to supply something in a different way?

Thinking positively, although it is going to be stressful and it is going to be busy, it couldn’t be a better time to be in house if you want to get more involved in the commercial decisions of the business.

GC: What does this mean for the future? Do you both expect that this will in fact be, as you both suggested earlier, a catalyst for a change in approach to disputes and mediation?

WVK: Jane put it well before. I think the whole nature of contracting is going to change. I think the idea that contracts, once concluded, are written in stone is something that will dramatically be affected by this. I think contracts will be seen – and I think parties have started to look at it in international trade in this way – as a framework. I think flexible contracting, in the sense that contracts will evolve over time as the relationship changes, is going to become much more of a norm.

What that means, however, is that you have to have a mechanism through which that can happen, and I think the whole concept then of mediation or structured negotiation will be built into contracts so that you’ll have neutrals to help the parties to actually make these types of amendments. And so, some form of a neutral being involved in the contract performance phase is probably going to become much more popular. Whether you call that neutral a project mediator, or a disputes board, whatever it is – I think there will be more of an emphasis on flexible contracting.

JP: I agree. These long-term projects, especially in an international context, but also generally, will need commercial “marriage counselling”. You’d be mad to think that you could enter into a ten, twenty-year contract and not think there will be bumps in the road. The key is to anticipate them and have a plan. I think businesses need to factor in, as a cost of the project, the need to manage these important projects, because if they don’t, and there is a dispute, litigation or arbitration is extremely expensive and is likely to ruin relationships. It’s much better to have, as Wolf says, an in-life mediator; a neutral that sits within the contract, paid for equally by the parties who is only used when there is an issue. That mediator’s task then is to bring the parties back to the table, remind them why they’re “in bed” together and the benefits of trying to compromise and make the project succeed for all rather than issue dispute notices . The parties remain in control of both the problems within the project and the viable solutions available aided by commercially minded lawyers. That is very much the future for successful long-term contracts and joint ventures everywhere.

Int Arb Arbitrators & Mediators

Int Arb Arbitrators & Mediators is a specialist set of “professionally world class” independent arbitrators and mediators with experience in substantial disputes across the globe.

Int Arb Arbitrators & Mediators offers a complete solution to your ADR needs. They deliver a tailored service and framework to clients for swift and cost-effective dispute resolution. This is supported by the International Arbitration Centre (IAC) a high-spec venue for physical and semi-virtual hearings, and IAC Online. IAC Online enables disputes to continue, virtually. An impartial, user friendly virtual hearing platform that reflects the physical movements of an in-person dispute meeting, mediation and an arbitration hearing.

For further details, please contact Sam Carter (sam.carter@int-arb.com)

All in the mind

What makes executives tick? What goes on underneath the corporate veneer? What draws people to their professions in the first place? And how can the answers to these questions be used to help those in the corporate world, like lawyers, better understand themselves, the work they do and their relationship with the rest of their businesses?

These are complex issues, but at a time when the topics of wellness and mental health are increasingly being brought into the spotlight, answers to questions of psychology are not as elusive as they might otherwise have been.

Tell me about yourself…

If asked to describe the ‘typical’ lawyer, the person on the street might have a few ideas. Popular culture is strewn with stereotypes of lawyers, some admirable, many not. But is it possible to truly make generalisations about the typical personality traits a lawyer might have?

Yes, according to psychologist (and former trial lawyer) Dr Larry Richard. After ten unhappy years in practice, Richard followed his heart into psychology. But far from leaving the law behind, he remains fascinated by it – or by one aspect, at least.

‘Having put in all that time and grown up with my colleagues in law school and practice, I said “I’m going to study us and find out what makes lawyers tick”,’ he explains.

At his Pennsylvania-based consulting firm, LawyerBrain, Richard applies neuroscience, social psychology, positive psychology, leadership science, and a variety of other social science disciplines to lawyer performance.

‘Lawyers are the most atypical occupation on the planet. We are more different from the general public than any other occupation since data has been published. We are the original outliers,’ he says.

Among 21 traits measured on a standard personality profile, Richard’s research shows that lawyers’ average scores for seven of these are dramatically atypical compared to the general public (it’s considered unusual for even one trait to be atypical in most occupations). According to his research, lawyers score highest on scepticism, as well as on need for autonomy, urgency (read impatience) and ability for abstract reasoning. So far, so predictable, perhaps. But he also found that lawyers score low on sociability, psychological resilience, and cognitive empathy.

Richard argues that scepticism is particularly encouraged at law schools, which, he says, attract candidates already predisposed to this trait and then train them to be even more so.

‘The training that we have as lawyers trains us to look for the negative. We are trained to look for problems, what could go wrong, what is wrong, what’s not ok – we ignore the 95% that’s working. Whenever anyone else makes an assertion, we’re trained to always question the underpinnings of what they’ve said: never accept, never give the benefit of the doubt, always challenge. We’re trained to be vigilant about hidden motives, what do you really mean by that, what’s your agenda – it’s that kind of hidden, almost paranoid mindset. All of these things make someone a very competent lawyer, because the better you can do these things, the more you’re going to protect your client from a host of unseen potential problems,’ he explains.

‘But there is a price to pay and here’s the built-in tension. All the other roles that we ask lawyers to play these days require just the opposite, because almost all the other roles are founded on relationships.’

In Richard’s view, supervision, mentoring, managing, leading, being collegial, innovative – all important roles for lawyers as they climb the career ladder, particularly in-house – could be made more challenging by legal training.

‘Every one of these roles requires people to bring out their positive emotions and their connections with people, and yet scepticism and negativity inhibits their effectiveness. So we are constantly in this situation where there’s a tension between our role as a lawyer and all the other roles that we often have to play simultaneously – and that creates stress,’ says Richard.

‘Today, most corporations are trying to build in collaboration and teamwork, mainly because the business of business has gotten more complex as the information explosion has accelerated. You can’t do it all alone, you need to count on a team that has lots of different expertise, so collaboration is the norm these days. But the norm today in the legal profession is that we’re lone gunslingers. The nature of business is moving us all towards collaboration, towards people who are optimistic – and the training as lawyers is moving away from those corporate goals.’

Reaching out

In today’s corporations, forming productive partnerships with colleagues in other enterprise functions is key for organisational culture and to providing effective and valued legal advice. Lawyers can – and do – succeed in the corporate world, with the general counsel role often incorporated as a valued part of the C-suite, and former GCs increasingly taking up non-legal as well as broader, non-executive roles.

But could an understanding of psychology, emotions and behaviour oil the machine, giving in-house lawyers a leg up in forming those crucial bonds, and the skills to make better decisions?

‘I think there is perhaps a growing tendency to touch on these types of things. I think it’s quite en vogue over the last few years to talk about emotional intelligence, or EI. And EI is a lot about empathising and taking the other’s perspective and I think that was certainly something which lawyers have been encouraged to do. But is it baked into our training? Not really. I think we are trained as lawyers, certainly [in the United Kingdom], to almost work on a solo basis, and reach decisions on a rationalised and logical basis. It’s not an entirely social process,’ says career general counsel Adam Moy.

As a former general counsel in the financial services sector in the UK (he led the group legal function in London during Co-Op Bank’s restructuring until 2016), Moy first became curious about psychology after his wife suffered a devastating stroke. Fortunately, she recovered, and Moy was able to follow his new interest, eventually taking time out to complete an MSc in social and cultural psychology at the London School of Economics.

‘Social and cultural psychology looks at our behaviours with each other as humans – including how we have evolved as humans in a social context. The cultural element is how psychology and behaviours can vary between cultures and are influenced by factors such as where you may live in the world, belief systems and social norms, all of which shape your psychology. We also considered evolutionary psychology, one aspect of which is how we have evolved as humans through our unique ability to cooperate with each other,’ he explains.

Moy was most recently interim head of legal for corporate functions at TSB Bank. But his studies have left him with a keen awareness of the benefits an understanding of social psychology can bring, particularly in decision-making.

‘We were taught about the triadic paradigm: as a human being there is “self”, which is a completely interdependent relationship with “other”, and also with the “object” – a discussion of the environment, the context, the issue. No one of those is more important than the other, and if you think of the world through that lens, it may assist in understanding the key components of effective decision-making, through which leadership can emerge,’ he explains.

‘It will lead you down the path of: how do we listen, how do we take perspectives of other people? One classic theory about this is “intersubjectivity”, and this is really about the mutual exchange of thoughts and feelings while we’re interacting with another person. As humans, we have an evolved ability to sense what the other person might be thinking, and they might have an inkling about what we’re thinking too. So, if you’re looking at decisions, you’re trying to take the other person’s perspective, validate their feelings, and reach a decision through that process of interaction, which will hopefully be a good decision because it reflects both parties’ intentions.’

Lawyers score low on sociability, psychological resilience, and cognitive empathy.

He adds: ‘All behaviour between humans is a form of communication. Decision-making in any field should be dialogical communication (two-way) based on that paradigm.’

Moy has been in talks with law firms who are interested in the intersection of psychology and legal performance, and he believes he can see the beginnings of a move to tap into the workforce’s fundamental behavioural processes in today’s business world.

‘A lot of emphasis is being put on effective collaboration – working alongside peers, working with other stakeholders, having a much more holistic view of the organisation. I’ve worked in financial services and banking, and risk management is at the top of the agenda for GCs and other professionals. There are a lot of people involved in that world, whether it’s the risk team, compliance function, finance colleagues, or others tasked with governance or protecting customer outcomes and reputation. You have to work with people who haven’t had the same training, and who think of risk in probably a quite different manner than how we might,’ he says.

‘A good GC will obviously build strong stakeholder relationships with everybody in these fields. But you can only do that if you’re cooperating and using some of these things that we’ve been talking about.’

Sometimes, says Moy, it’s simply a matter of stepping back and taking the time to cultivate a proper understanding of a matter before diving in with a decision.

‘There’s a celebrated psychology paper which broadly says, you say something to me, I repeat to you what I’ve understood, and then you confirm or clarify. All communication, if you want to lead to a proper and mutual understanding, cannot be done in less than three turns,’ he explains.

‘You might think: Right. I’m going to do this. This is how I’m going to approach it. I’m going to build up this brilliant project and then I’m going to execute it. But how many people have you consulted, have you listened to properly, have you really understood their perspective and validated it? Have you formed the interactions so that you have better insight into their “list” and you’re going to reflect that in your project plan?’

‘Lawyers are increasingly aware of their role in influencing and shaping an organisation’s ethical and cultural footprint, which itself determines a range of outcomes. Our social psychological processes shape that culture, and understanding some of the building blocks can help us, alongside others, in setting a clear cultural identity,’ he adds.

The power of emotion

For in-house lawyers, tapping into the wider organisation, although essential, can be a source of anxiety. On top of any dispositional reluctance to step outside the lawyerly comfort zone, there can be an inherent tension between the general counsel’s need to act as the company conscience and protect the organisation, while also working to further the company mission and avoid being seen as the department of ‘no’.

In some ways, this tension is highly analogous to the work of Rebecca Schaumberg, assistant professor of operations, information and decisions at Wharton School, University of Pennsylvania. She studies ‘social’ emotions, particularly ‘self-conscious, moral’ emotions like guilt, pride and shame – in all types of people, not just lawyers.

Dr Larry Richard’s seven lawyer personality traits

I have spent 30 years publishing data about personality traits of lawyers. The system I use measures 21 traits, seven of which are statistical outliers:

  1.  A much higher need for autonomy: we do not want to be told what to do.
  2. Very high on abstract reasoning, we love arguing and analysing.
  3. Very high on urgency – we can’t wait, we finish people’s sentences, we’re impatient, we’re always wanting to cut to the chase.
  4. Low on sociability, we’re very awkward around relationships and intimacy, we’re uncomfortable disclosing a lot about ourselves, we’re very private, and it’s hard to initiate connections with people.
  5. We’re sceptical. That’s the hallmark of practising law – we’re trained to be sceptical in law school, but law also attracts people who are sceptical by disposition. You’ve got sceptical people by nature trained to be even more sceptical in law school – and the people who are less sceptical drop out at a systematically higher rate from law school, so you concentrate the sceptics.
  6. We are very low in psychological resilience when criticised or rejected. We are very thin-skinned, we are easily wounded, we’re always imagining critics – and that has big implications for everything, including why we tend to make more risk averse decisions.
  7. We’re low in a particular type of empathy called cognitive empathy. We don’t naturally step into the shoes of others and understand the world from their perspective.

‘These emotions are interesting to me within an organisational context, because these are the emotions that link the individual to the collective – we wouldn’t feel these emotions in the absence of others. I’m interested in how the propensity to experience these emotions changes our relationships towards the collectives to which we belong,’ she explains.

Schaumberg has found that when people are highly prone to an emotion like guilt or shame, they contemplate decisions about a future course of action through a lens of emotional anticipation – conjuring up the emotional experience of their future self in the event of that action, and then moderating their behaviour to avoid that experience.

‘People who are prone to moral emotions anticipate moral or ethical decisions. They think about which actions would disappoint or harm other people. When people anticipate these feelings of guilt, they do a fairly good job in making decisions or adjusting their behaviour so they never end up in that situation that actually disappoints or harms others. The way that legal regulations operate like an external constraint, these emotions operate like internal constraints that align our behaviour to hopefully promote collective goals.’

This idea of the collective, or social environment, is key to how individuals regulate and prioritise moral decision-making when faced with competing constituencies – for example, long-term and short-term goals, or between organisational areas with opposing needs or expectations, Schaumberg has found.

‘You first have to internalise the standards of the collective. Let’s say it’s my organisation. I have to feel committed to my organisation and I have to internalise its values in order for these values to be meaningful to me. Once I’ve done that, you could say it’s about emotional management. When I act in line with these values, I feel pride. When I fail to act in line with these values, I feel guilt or shame. Over time, I learn to act in ways that produce the most desirable emotional state.’

The role of legal counsel can, in some ways, be seen as a metaphor for the internal struggle individuals go through when making decisions with moral significance.

‘These emotions are the conscience of society that makes sure that we grapple with those dilemmas. It doesn’t always mean that we make decisions that are, in the eyes of others, the most moral or the most principled – but we’re grappling with them,’ she says.

‘If the organisation were an entity, and you have a self-interest arm, well, you also need a conscience arm – and that’s the guilt and shame that we have internally. The legal counsel, in some ways, can be that – and it’s a really important check. In the same way that I think these emotions are hugely important for our individual behaviour, having people dedicated to being that check is hugely important for the success of the organisation or the collective.’

Schaumberg doesn’t yet have the data to determine whether lawyers are more prone to guilt than non-legal folk – but such data could be available soon. Her team has been following a group of US-based MBA students for nearly a decade in the hope of comparing their personality traits with their career choices and progression.

A higher propensity towards guilt might inspire behaviours that don’t look like the most ethical choices.

‘We want to ask, is there a selection mechanism where people who have these emotions are selecting into certain types of professions and selecting out of other types of professions? Or are there certain organisations or types of companies that lead people to become more moral or ethical?’

Guilt and shame are, of course, uncomfortable. But, for those especially disposed to feeling or anticipating these emotions, the experience needn’t be entirely negative, says Schaumberg.

‘The harder you’re willing to think about a moral problem, that’s associated with higher levels of moral character and integrity. We find that people who are willing to confront and grapple with moral problems also are willing to confront and grapple with other tough decisions. This depth of thought can lead to more insightful decisions.’

However, warns Schaumberg, a higher propensity towards guilt might sometimes inspire behaviours that don’t look like the most ethical choices to external observers.

‘People can feel a tension between different values or principles. For instance, people might experience a tension between being loyal (which can be a moral quality) to an organisation versus potentially harming people outside the organisation. There you have two moral principles in conflict. If I care deeply about my organisation and I care deeply about loyalty, the idea of not being loyal to my company would be painful to me. It could also induce guilt, leading to behaviours that can end up looking like they harm other people, but they are driven by this other moral quandary,’ she explains.

A company lawyer placed in any sort of moral conflict might feel stress, although hopefully such circumstances would be rare. But Richard believes that the day-to-day legal role, with its focus on anticipating problems, can accelerate the stress levels of lawyers, while at the same time ill-equipping them to cope effectively with that stress.

‘It causes us to atrophy our capacity to find the good – so we tend to be pessimistic. Research has shown that negative thinking produces negative feelings, and feelings are always associated with hormonal changes. And so negative thinking produces cortisol, adrenaline, norepinephrine, all harmful chemicals which are good in short bursts, that save us from the sabre tooth tiger, but which are not good when they’re in your system long term,’ he says.

‘Lawyers have 3.6 times the level of clinical depression compared to the general public. In a recent ABA survey, 28% of the lawyers surveyed reported depression. The survey also showed dramatically elevated levels of substance abuse, particularly during the first ten years of practice. These elevated levels of substance abuse are often hidden and very damaging – they produce higher levels of divorce, higher levels of distress, work problems, absenteeism. There’s a huge cost to all of that.’

To combat these risks, Richard recommends techniques to improve resilience, training the brain to seek out positives and identify strengths, not just deficiencies that need improving. He advocates focusing on positive social emotions such as gratitude, compassion and pride. But, he says, research strongly shows that social connection is the most powerful antidote to problems caused by negativity.

‘I mean ongoing, authentic connections with people. Where you interact with people and you reveal your true self, which might entail some risk or vulnerability, and you show a genuine interest in the other person. Listening to people’s stories, giving them your full attention – there’s actually some very compelling research on the power of presence, the power of full attention in building social connection,’ he says.

‘There is strong evidence that these shifts in mindset not only change the outlook, but they also change your biology, they change your immune system for the better, so people get sick less often, they have less frequent common colds, they can actually live longer, and they are more likely to make balanced decisions. That’s a bit of speculation on my part, but all the pieces are there for me to make that inference.’

The field of psychology is broad and covers a huge range of specialisms from which personal and organisational insight may be drawn. But perhaps a deeper understanding of psychological processes, especially social ones, can help bring success in the growing number of tasks and expectations for lawyers in the corporate world. It might also enhance that elusive quality: wellbeing. Keep that in mind.

Banking on legal

Henk Crouse was the first general counsel for HSBC in Africa, having taken the role upon the bank’s first entrance into the market. And now, nearly 20 years later, having been the most consistent presence in the South Africa office among multiple CEO arrivals and departures, Crouse is retiring.

Crouse entered the legal profession as most in-house counsel do: as a private practice lawyer. His first in-house job was as in-house counsel for Nedbank, a regional institution headquartered in South Africa. It was here that Crouse got the offer to serve as general counsel for HSBC, which, at the time, was preparing to open an office in South Africa.

‘I was at Nedbank for 12 years and was very happy, but I thought, “What a great opportunity to start a bank and see how that is done”. And the bank had a good reputation as well – the brand was beautiful – and I thought it would be good to work for a local bank, and then an international bank, and compare the two,’ says Crouse.

‘It was a special opportunity and I felt I’d be stupid not to grab it. With the bank’s reputation and the brand, it was an easy decision.’

Becoming integral to the business from the start

Any incoming general counsel will speak of an adjustment period as they grapple with the legacy processes and expectations left by their predecessor. To be the first adviser for a company entering a new market presents a different set of challenges, as Crouse discovered.

‘To a great extent, I carved the role out myself,’ explains Crouse.

‘A lot of it comes down to your relationship with the CEO and how you market yourself – how you’re seen, what image you want for the legal department. Do you portray yourself as an integral part of the business? Or do you see yourself as an independent legal firm giving advice? And I think in 2000 [the latter] was the approach. But I think things have changed quite drastically. Now, you’re part of the business, you run with the pack. You go out with the relationship managers to the client, you negotiate the contracts, and it’s absolutely essential to have a legal head.’

It has been this focus on relationships from the outset, Crouse says, that has shaped the growth and success of him and his team. This emphasis starts with team building and, as the inaugural member of the team in South Africa, the building started from the ground up, with the success or failure of the team largely relying on getting this preliminary step right.

‘My whole career, the relationship of the legal department with the rest of the business has been very important to me. So when I came to HSBC, I wanted to continue with that, to be the best legal department. So, certainly, I think the most important thing is to appoint the right people. I was in a privileged position to have my pick of the crop. And when I did my interviews, the most important thing to me was to get a cultural fit. Because if you have a cultural fit and you become a family and set the values, then everything is fine. But you may have very intellectually strong people that have different work ethics that wouldn’t work.

Cultural fit is hard to measure, but Crouse’s faith in his own selection process is well founded as it turns out: in the 19 years he’s been at HSBC, he’s had just four resignations. This is no accident and, according to Crouse, is the result of a carefully developed leadership approach that was borne of experience.

Cultural fit is hard to measure, but Crouse’s faith in his own selection process is well founded.

‘I drive to work every morning and I think: “Which of my staff members may be unhappy? What did they say yesterday? What did I pick up on?” I think it’s a manager’s job to make their staff happy. And it’s something very important at HSBC – we’ve got something called the “Healthiest Human” system, which is basically to say that staff are the assets of the business and we have to look after them. Therefore, we have to accommodate their needs as well. If you want to work from home, work from home. In HSBC, that’s become common in the last year, but it’s always been here in legal, because legal is so easy to see – for instance, if you are working on a contract from home, it’s either going to be done or not.’

He adds: ‘The most important thing for me in my relationship between me and my team is that it is a trust relationship – I think it’s essential. They trust me completely with what they tell me – they are extremely open and honest. And I am very honest with them as well. I think this is the secret of the success of what we are doing here.’

Setting the agenda

With his department’s relationship to the rest of the bank front and centre, each year for the legal team starts with a high-level strategy meeting, which stays relatively informal and takes place off-site. This, Crouse says, is as much about getting buy-in from the team as it is about the finer, practical points of the team’s plan for the year.

‘I first get their buy-in and ensure that we are all on the same page, that they are part of the decision-making. Then, we basically work out an annual plan. I look at our customers and clients: and, to me, that’s mostly internal parties. Each year, everyone on the team will have been allocated a relationship with somebody. For instance, I might be allocated global banking, someone else may be the IT person, and another will be trade. Then, you also get two dates a year in the annual plan where you have to go and see them, with a questionnaire, asking them what they’re happy with regarding the services our team provides.’

The focus on building the profile of the team within the business is the starting point, but it also influences the approach of the team throughout the year, as Crouse explains:

‘I have two golden rules in legal.

‘The first one is that there must always be somebody here. If you’re the last person that leaves, you are not allowed to leave. There must always be a physical presence here. If the phone is ringing – be it yours or somebody else’s – you must answer it.’

‘Secondly, you must be very well prepared for meetings. It’s the only window where you can show how smart you are in front of very important people. The challenge is not to simply be friendly and accommodating. You must challenge people in a friendly manner to make the whole committee think of different options. They may not be right, but the idea is to give options and not have only the chairperson saying one thing and then everybody following. To me, that’s the essence of marketing yourself and raising your profile.’

Keeping it together

With just four resignations in the nearly 20 years Crouse has run the legal function at HSBC, it doesn’t need to be said that retention is not an issue for his team. Though not entirely unique, such retention is uncommon on in-house teams, where progression isn’t guaranteed or definitively structured in the same way it is in private practice. He attributes this to a sense of pride that has been instilled in his team:

‘Retaining talent hasn’t been tough. We do the normal investment banking work and then we do derivatives and things like that, which are not that simple, but honestly, if you’ve passed an LLB then I think you can do the work. To me, it’s more about the leadership and how you can lead and infuse and inspire your staff and – most importantly – it’s about pride. What pride do they have in their work? And I think pride is, in essence, what drives my team.

‘We’ve got such a good reputation and you hold it so dear that you don’t want to let go of it. Yes, sometimes you work 14 or 15 hours a day because of pride, which is not good, when it would have been better to say “Sorry, I can only deliver that in two days” and get extra help. So there is a negative side as well – sometimes you push yourself too hard because of pride. Sometimes you have to just calm them and say, “Okay, this is going overboard – we must now send a message that we need more staff because we are consistently working too hard.”

‘I think if you ask me “What image do I want in the bank?”, I think I have that reputation in the bank and within my team that I am really trusted. People come to me with their problems. I really honour that.’

Changes

The life of the in-house counsel often changes significantly from year to year, so to have occupied the same post for nearly 20 means that Crouse has had an unusually consistent front-row seat to changes in the company, the industry and the wider profession.

For instance, having worked at HSBC for nearly two decades, Crouse has seen chief executives come and go and, as such, has been a part of multiple sea changes within the business, and has had to learn to communicate his team’s ethos and success to a variety of personalities.

‘There is a negative side as well – sometimes, you push yourself too hard because of pride.’

‘At HSBC, I’ve worked with four or five CEOs. Everybody had different styles. That is very important. My view, in interviews, as part of my questions – and something I honestly believe – is that EQ is more important than IQ. I think it is. If I negotiate, I must be able to read what that other person’s soft spots are, and how I should embrace them and make them see my point of view. So, basically, I have to take my glasses off and see him through his own glasses. That’s the same thing with the CEO. It’s very important that you can relate to them and they can relate to you. That you can form a trust relationship going forward. It’s essential for the CEO to trust you. The CEO trusts you, and you’re the right-hand man – you’re their legal adviser.’

Internally, Crouse also says that the role that external firms are playing in the market has changed over the years:

‘I think external panels are more expert and not so much general. I think your legal advisers in South Africa have become more generalist and not so much specialist, and you get your specialist advice from external legal firms.’

It should also be no surprise that technology has been a key driver of change over the course of Crouse’s career, and his team’s approach to external firms is no exception to this. Crouse uses an app to manage his relationship with his external firms, which tells him the general rate of each attorney and asks the user to give feedback on the attorney based on performance, whether he’ll use them again, whether their fee has changed since the last time they used them. All of this reduces overhead for Crouse and his team – a positive – but he still maintains a cautious approach when it comes to legal solutions promising cost-saving innovation.

‘HSBC is very particular about who we are dealing with. We only basically deal with very reputable legal firms where there is no reputational risk for us and no risk of bribery. It’s very easy for a legal firm to be involved in bribery in getting licences or preferable judgments. So we do a month’s due diligence on a legal firm before we have them on board. It’s unlikely that we will deal with a start-up company that we don’t know and that don’t have a reputation. It’s too difficult to get through all the layers. From a reputational point of view, we’re very hesitant to deal with start-ups.’

The marketing of legal

It is one thing to have a legal department that the general counsel knows is successful, but truly measuring that success and communicating it with the rest of the business is an important of the job for Crouse, and is integral in building the bridges with the rest of the business of which Crouse and his team are so proud.

‘I can honestly say that we are the poster-boy department – we are held in high regard.

‘Firstly, we are being recognised for prizes internationally, so that gets advertised within the bank and people respect you for that. Secondly, I do surveys twice a year. I will ask people questionnaires before the performance appraisal, and ask them what they think about the team, so I get feedback that I can monitor.

‘We also have a thing called “At Your Best” at HSBC, where everybody gets allocated a certain amount of points, and every point has got a monetary value. Let’s say everyone gets 100 points, and you can allocate that to staff that you think deserve it. And HSBC very often acknowledge the legal department.

The emphasis on ‘being seen’ that Crouse talked about before also plays a part here. He refers to it as the team’s ‘marketing strategy’ – asking questions of the business, both inside meetings and out; ensuring his staff are very well prepared for meetings internally; and ‘walking the floor’ among internal clients to have light conversation and give internal stakeholders the chance to ask questions and give feedback.

Retirement

Now that Crouse is approaching the end of his chapter at HSBC, this top-level strategy-setting has taken on a different character, and his attention turns to the future.

‘My approach has definitely changed. I have done some internal training for my successors, so I’m very confident and comfortable with that. I’ve already had an informal discussion around when I’ll start stepping back, what meetings I’ll no longer attend or what ones I’ll attend with my successor. There’s certainly a plan.’

Retirement means different things to different people but, for Crouse, it does not mean a total erasure of his working life. Crouse’s creative side has manifested itself already, with Crouse publishing a book alongside his time at HSBC in 2005. Titled Man Op Die Dak, the novel was shortlisted for the Eugene Marais Prize in 2006.

‘I would like to get involved in schools and start training and inspiring kids.’

‘I’ve published one book, I’m going to write another book and have been approached by a publishing house. They’re disappointed I haven’t retired already. I look forward to that – to touching the creative side. I like the arts.’

‘I want to give back to society – I would like to get involved in schools and start training and inspiring kids. I think it’s important to inspire youngsters who you can still set into the right direction. To inspire professionals – they’re already on the right track. If I were to give back, I’d rather work with kids that you can still form and change their lives. I think it’s possible to do that.’

‘I would rather train youngsters for the corporate world. I know that’s more my strong point – to enthuse people.’

Advice to younger self, leadership

Now that Crouse is looking back on a lengthy and prolific career, what does he wish he’d known from the start, and what advice would he give to others at the start of their legal and business careers?

‘Something that I wish I’d learned at a really early stage – and that is that the corporate world is not a popularity contest. Why I’m saying that is that the younger you are, the more insecure you are, and the older you are, the more comfortable you are in your skin.’

‘But when you are in your early 30s, it’s the decade that you have to work the hardest in your career, because those are the make-or-break years. When you’re 40, you realise what you will and will not achieve, and you will make peace with it. In the 30s, you don’t know where you’re going to end, you just know the harder you work, the better the chances are.

‘If you’re insecure, you want people to like you because you think that’s essential. But how senior management see it, is that if you’re popular and if there’s a meeting and X says “Let’s do Y” and you say “Yes, I think that’s the right thing to do” and you don’t challenge that, they see you as weak. So if you want popularity and it becomes evident in meetings that you say what is expected, then senior management frown upon it. You should rather be more challenging, and try to set the meeting in a different direction. They’ll have much more respect for you and you’ll be promoted much quicker than if you just become popular. I wish I’d learned that at a younger age.’