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  The Global Legal Department

Author: Richard Stock - CCCA Magazine (Vol 3, No 2) Summer 2009

It is more often the case that law departments are part of companies that operate in more than one national jurisdiction. At times, manufacturing and distribution are situated outside the headquarters country. Such global legal departments are familiar names across corporate Canada: Pratt & Whitney, SAP, GE, McDonald's, John Deere, American Express, Ricoh, and Rio Tinto Alcan, to name a few. Others are headquartered in Canada and have extensive activity elsewhere, including CN, Petro-Canada, TransCanada, Bombardier Aerospace, Tesco, Agrium and Sun Life.

However, globalization of business has resulted in the consolidation of many Canadian companies for a number of industries such as mining, energy, forestry and technology. The result is that the HQ and the corporate legal department are located outside Canada. Perhaps Canada's markets are too small to sustain a successful company for very long and to insulate them from global competition.

One size does not fit all when deciding what should be the value-added contribution of a "Canadian" law department with global interests. Still, there are several irreducible characteristics of a "best in class" law department. These include:

an adjustable strategic purpose;
effective leadership and management;
powerful relationships with internal users;
motivational people processes; and
an aligned internal environment

These are rare to find in the law departments of start-up companies or in one with significant turnover and instability at the business level. In addition, there is no correlation between the size of the law department and whether it is a top-performing legal department. Smaller departments such as those of Kraft Canada, Virgin Mobile and DuPont Canada draw on a wealth of resources from the global legal department. 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 by the law department with corporate objectives. First, the top five priorities of the law department are the same as the targets of its business units. Second, at least 50% of the law department's resources are 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 whether the annual plan for the department is reduced to writing.

A September 2008 Catalyst Consulting survey of ten global legal departments showed that all but one was formally aligned with global and corporate business plans in the way the annual priorities were set out. These departments passed the first and third tests, but it is not clear whether the majority of their resources are deployed against these priorities. Law departments rarely have the working protocols and the discipline to shed operational support activity in favor of new strategic initiatives.

Reporting relationships for lawyers in multi-jurisdictional law departments are frequently dual in nature. The most senior lawyer in a country that does not house the company's global headquarters 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 COO/CEO for operational support and workflow priorities. In some instances, senior counsel will report to a CEO or VP of Corporate Services. The litmus test is whether the General Counsel has effective access to the executive team.

Chief Legal Officers say their two biggest challenges are managing the law department's workload and workflow, and reducing external legal expenses. Corporate counsel in non-HQ countries tend to rely on no more than three firms for 85% of their legal work. Most of this will be to support litigation, regulatory and labor and employment requirements. Corporate, IP and tax requirements are infrequent.

There appears to be almost no alignment in 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% of such law departments have no discount pricing in place, and that fewer than 10% regularly use detailed budgeting for matters of medium and significant complexity. Much more can be done to introduce cost-effective arrangements with external counsel.

   
 
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