The Global Law Department
Author: Richard Stock - Lexpert (September 2014 at p. 78)
When local companies are folded into global corporations, legal leadership can face daunting challenges
THE LAW DEPARTMENT is often part of an organization that operates in more than one national jurisdiction. Manufacturing and distribution, for example, can be situated outside the country where the headquarters are located. These global companies carry the most familiar names: McDonald’s, American Express and Toyota, to name a few. Others are headquartered in Canada and have extensive activity elsewhere, including Scotiabank, Fairmont and Sun Life.
There is, however, another kind of multi-jurisdictional legal department. International consolidation has been a reality for many Canadian companies, resulting in formerly independent Canadian companies with headquarters and corporate legal departments now outside the country. These departments, while smaller, are able to draw on a wealth of resources from their global legal departments. And they are well positioned to contribute at all points in the spectrum, from operational support to strategic, cross-border initiatives.
There are three tests that predict the likelihood of a good alignment of the law department with corporate objectives. First, the top five priorities of the law department must be the same as the top priorities of the business units. Second, at least 50 per cent of the law department’s resources must be dedicated to meeting these priorities or key projects. Too often, we find that corporate counsel are mired in day-to-day support activity and cannot get free to be meaningfully involved in strategic business-unit priorities. The third test is an annual plan for the department that is reduced to writing and includes performance metrics.
Reporting relationships for lawyers in multi-jurisdictional law departments are frequently dual in nature. The most senior lawyer outside the HQ country will typically have a functional reporting relationship to the global chief legal officer for professional matters, and perhaps even for legal budgets and external counsel. At the same time, there will also be a reporting line to the country’s COO/CEO for operational support and workflow priorities. In some instances, senior counsel will report to a CEO or VP of corporate services.
Corporate counsel in non-HQ countries tend to rely on no more than three firms for 85 per cent of their legal work. Most of this will be to support litigation, regulatory and labour and employment requirements. Corporate, IP and tax requirements are infrequent. Nor is there much correlation between the choice of external counsel for the HQ country and the choices made by counsel in individual countries. Perhaps the volumes of commercial and financing work are too small. And perhaps litigation must be referred to local counsel. Nevertheless, surveys show that 40 per cent of such law departments have no discount pricing in place, and that fewer than 10 per cent regularly use detailed budgeting for matters of medium and significant complexity. Much more can be done to introduce cost-effective arrangements with external counsel.
One US-based multinational with 70 lawyers and staff had significant expertise in IP, privacy and competition law. Despite significant growth outside North America, however, there was hesitation to expand the legal department to Europe, the Middle East and Asia. The preference was to rely on external counsel.
A detailed analysis showed that, even though the department was maxed out with lawyers averaging 50 hours per week, demand for legal services was forecast to grow by 20 per cent over the next three years, and the department had very little administrative structure in place. The legal leadership team had to spend 30 per cent of its time on administrative matters.
A good business case was made to in-source 10,000 hours of work in three specialty areas, which would generate annual net savings of $2.1 million. Some of the savings could be directed to funding infrastructure and freeing up the legal leadership team. In addition, some of it could be allocated to funding new positions in response to increased demand for certain specialties and jurisdictions. Total legal spend would actually decrease and the legal department could be right-sized — but only if work could be redistributed away from law firms and within the department.
This game plan made sense on paper. But it cut across invisible borders in the department because it affected workflow patterns for 15 lawyers. It also upset relationships with a number of law firms used to receiving significant volumes of work. Ten months later, the primary barriers to implementation are people and not money. It is understandably a disruptive process to workflow and to individual practices to introduce these types of improvements with a “captive law firm” inside a company. Overcoming a “not in my backyard” mindset requires an execution strategy.