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Evolving Role of the General Counsel: Destination Unknown

Evolving Role of the General Counsel: Destination Unknown

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The phenomenon of globalization has impacted almost every field of personal and business life of this generation – and the position of Head of Legal is no exception. In order to understand the evolution of this role compare what football or basketball looked like 30 years ago to what they look like now: Almost like different games. 

We ask ourselves how can it have been so slow, why does the forward player not participate in defence and why the defenders do not run to forward positions, and so on. 

During this past challenging decade the role of the General Counsel has moved also, and is now almost impossible to compare with what was accepted as standard before. In the past in-house legal advisers dealt only with sets of questions from the legal side only, while a combined legal–business outlook on issues is now required. In simplified terms, this means that the commercial side of the coin should be combined with regulatory and legal risk awareness. To be successful, in-house lawyers must have a high degree of legal knowledge and vast business experience to help the company define its corporate objectives and long term strategy.

Multiple factors initiated this change of role. The financial crisis and the growth of cross-border business resulted in overregulation and more complex models of business. The global economic crisis changed how businesses are operated and how decision making processes are structured. The need to minimize costs added additional pressure on spending and consequently affected the amount and kind of external legal support available. Further, managing contracts and litigation risks meant that many more corporate (i.e., not simply legal) problems reach General Counsel than they did before the crises. And finally, digital strategies and tech-related risks – now prominent in all industrial development plans – now play a much more significant role than in the past.  

As the increasing number of regulations means a correspondingly increased threat of regulatory fines, and the risks related to litigation rise, the importance of the in-house team has never been greater. Management expects in-house lawyers to be up to date with new regulations – and, ideally, to possess a sixth sense on how and where regulations are going to be changed in the future – so companies can prepare and achieve competitive advantage. Prioritizing which regulations are most significant and pose the most risk, in this overregulated environment, combined with the multi-jurisdictional nature of many businesses, becomes a great challenge for General Counsel. The General Counsel’s task is impossible without a high level of support and trust not only from senior management within the company but also with regulators, government bodies, and other market participants. 

The General Counsel’s traditional core role in dispute resolution has experienced an evolution too, as a high level of strategic planning and approach to the process is needed. Risks should be considered proactively in order to avoid the high expense and inconveniences of disputes. Here as well the company relies on the General Counsel to look over the horizon and to anticipate the unexpected. Ensuring a proper information flow to the General Counsel and his/her substantial level of business knowledge, emotional intelligence, and previous experience are keys to success. Here the change is obvious; unlike the traditional structure, where the in-house team were alerted and involved only once disputes arose, General Counsels and their teams should now be in included in discussions from the very beginning. 

Additionally, the role of General Counsel in contract management is very important considering the ability of General Counsel to highlight potential problems which may appear during the lifetime of the agreement as circumstances change. In order to be on top of this task General Counsel must be aware of not only legal issues but also of commercial concerns related to the contract. In order to meet expectations, General Counsel must have both a deep understanding of the business but also the ability to explain to colleagues who are not lawyers what legal concerns may arise from the day to day operation of the contract.  Also, a good relationship and clear communication line between General Counsel and colleagues from business helps in building the trust that is key to the early identification of problems and the ability to avoid their escalation. If we compare and track the evolution of the General Counsel role we can clearly see that additional responsiblities have been added: Proximity to the business and much greater familiarity with the company’s business and objectives. 

Doing more with less is becoming the mantra of the post-crisis business environment, and control of legal costs is no exception. The focus is very much on cost reduction, including of course external fees, and creating an in-house team that can manage an increasing volume and complexity of work is important. As previously expressed, the enlarged scope of the activities expected from the General Counsel can only be produced by a strong and efficient team. To reduce costs in-house legal teams must now deal with legal matters previously handled by outside counsels. A first-class in-house team must be staffed with experienced lawyers who have a high level of understanding of the company’s objectives and are able to recognize the appropriate routes to achieve them. If such a team exists, outside legal costs can be controlled while the quality of rendered services remains the same. To achieve this, time is of the essence, because proper planning and succession must be introduced.  

Digitalization and various tech futures are tremendously transforming business nowadays. Depending on the company’s business model and strategy new hi-tech solutions are introduced almost weekly to increase revenues, improve customer experience, and manage operational risk. In the legal area tools for contract generation, search engines that provide answers to FAQ, dispute databases, and so on, have all been introduced to improve efficiency. Still, it is very important for General Counsel to understand how technology effects business and to recognize relevant risks. This new challenge can be especially problematic considering that most General Counsels do not have technical backgrounds.

With such a broad list of tasks and obligations it is understandable that the role of General Counsel is viewed as an ever-more integral part of the senior management team, necessary for obtaining advice on business issues from a legal perspective. Being part of the highest management requires some new skills as well. Finding the proper distance from decision making to preserve the independence to ask questions and challenge decisions when necessary is beneficial for the organization and General Counsel equally. In order to achieve this balance it is important that General Counsels are permanent presences in all high-level company bodies, though whether that means the board or executive committee or as a direct advisor to the General Manager or CEO is a question of corporate governance and structural set-up. Only in this way can the prompt and timely identification of risk be guaranteed, to allow for the identification of comprehensive solutions to be found. In addition, a high position in the corporate structure is more effective in promoting independence than in endangering it. Also, the General Counsel presence makes an important contribution to the discussion that must take place at the decision making level.

The evolution of the role is not final yet. We will probably see different football or basketball in the future too. As the world changes a new shape of the General Counsel’s role will certainly be introduced as well. General Counsel is not just a technical lawyer; he must be Master Yoda taking care of ethical obligations with perfect legal knowledge and a strong business outlook and be highly familiar with new technologies, so that he or she can effectively anticipate risks and prevent problems. In order to deal with this evolving business environment, new kinds of competencies are required and expected from the legal function. This new role is demanding, but undeniably useful in helping companies to shape strategy and achieve their corporate objectives. General Counsel should be recognized as the keeper of the corporate reputation and must help to create a work environment where legal risks arising from day to day work are identified and addressed. 

This Article was originally published in Issue 4.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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