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Assessing boots on the ground

Cover Story
|Written By Jennifer Brown
Assessing boots on the ground

You may not hear it very often, mostly because it’s just not good PR for the in-house bar, but despite data that points to fairly consistent growth in corporate legal departments, not all global or U.S.-based companies are wholly behind the idea that existing legal departments in Canada should remain status quo.

During the holiday party circuit last December, it became apparent a number of in-house counsel were seeking new opportunities due to their U.S. or multi-national parents deciding to fold some aspect of their Canadian legal operations. In this uncertain economy, it’s also not always a given when an in-house counsel leaves a position it will be immediately filled. In some cases, in-house counsel say when they have left a position working for a U.S.-based operation, the company has reassessed what it would cost to have services provided externally versus re-hiring internally. “As the business goes, so does legal,” says Av Maharaj, vice president and chief counsel of Canadian and international operations with Kellogg Co. in Mississauga, Ont.

Kellogg distributes and sells products in 180 countries and Maharaj is responsible for overseeing the majority of the legal staff in those countries. He reports in to the company’s general counsel in the U.S. “There are a few places where legal is not considered part of the support functions or overhead and people are trying to squeeze every dollar out of that P&L line. So once people start looking hard at the P&L lines and overhead that’s when you have to be concerned,” he says.

Companies questioning the need for local in-house lawyers is a process Barry Fisher has observed over the years although as vice president, general counsel, and corporate secretary at SAP Canada Inc. he has never felt his own position was threatened at the German-based software company. Fisher oversees 11 people, including four lawyers, in the legal function across Canada. He reports to the global general counsel of SAP. “I work closely with American colleagues and I’ve seen this sort of thing go on. At one level you figure you’re safe because the law of the jurisdiction by definition isn’t something that is done in New York. But many of the matters that in-house counsel face are not necessarily so jurisdiction specific,” he says. “You’re providing broad advice about matters and if organizations think it is costing them more to sustain a legal department in Canada, or any other jurisdiction, as opposed to having that pure legal work sourced to outside counsel as required, and take the overall function inside.”

Adjustments to internal staffing levels have occurred in the Canadian office of DuPont. “Anytime you have a departure of any type the global organization is going to tend to take advantage of that as a potential opportunity for moving head count around,” says Ernest Tuckett, general counsel for EI DuPont Canada Co.

When the legal team at DuPont Canada lost legal counsel Clarissa Da Costa to John Deere Canada last fall, they were able to replace her, but Tuckett was not able to replace a prior departure, leaving the department at three lawyers versus four. “This is the climate in which you really have to make the case for not only increasing your head count but keeping it steady whenever you lose someone,” says Tuckett. “I would have loved to replace the first one that left but they just decided to see if we could do with three lawyers instead of four. That’s not as draconian as folding up the whole department, but others are also deciding they can do without those two or four people in Canada and they figure out a way to get it done from the U.S.”

Consolidation/outsourcing

Recently, SAP Canada’s legal department lost one of its paralegals because the company has established a shared services centre for North America to book contracts. That meant a component of what “a whole lot of people” were doing went to Brazil. “So they said we had to take the head count for doing that,” says Fisher. “That was fine because it was relieving people of the responsibilities for something they didn’t really like doing.”

He doesn’t think that kind of approach to handling certain kinds of legal services will affect in-house lawyers. “I would think it’s less a factor among lawyers. What is being outsourced are commoditized kinds of services not performed by lawyers and therefore not jurisdiction specific. I can see where a contracts administration group could well face at some point a centralized administrative function outside of Canada.”

Fisher says he doesn’t feel his own department or generally in-house teams in Canada are threatened by outsourcing to jurisdictions staffed by people who don’t have the knowledge of that particular legal system. That said, he admits there are organizations that may see “some items of a relatively routine legal nature” farmed out. “I can see where organizations that may not be on ascendancy and therefore in cost-control mode may say, ‘We’re not doing that much business in Canada, why do we have a lawyer or so many lawyers — there are other ways we can deal with these issues,’” says Fisher.

Like any other business consideration, he notes, it could happen purely on a domestic basis — every year a company looks at the value legal is adding to the organization and what it’s costing the company to have an in-house legal department. “Some may determine the cost outweighs the value and so even if they weren’t American controlled they could still say, ‘Hey, we’re not doing that much legal work there, we can get it done with my favourite law firm on an as-needed basis. I don’t need to have you on the health care benefits, pension plan, bonuses, and all the rest of it.’”

Within the technology industry Fisher operates in he says established companies are generally growing in-house departments as the level of work becomes more sophisticated and requirements more stringent. The longer and better-educated in-house lawyers become in their sectors, the better they can handle unique issues that arise without the help of outside counsel. “By the time you gear up your outside counsel, or by the time an executive gears up an outside counsel, it ends up costing more than if it was kept in-house,” he says. “People don’t realize there are legal implications if they have to dial up a lawyer, explain it all, and things get missed.”

The questioning of the cost of in-house counsel is part of a much broader issue, says Maharaj. It’s not so much about being employed by an American or multinational company but about being part of an economy in which people are doing more with less and trying to maximize efficiency with each person in their organization. “What I’ve seen is companies have gotten rid of their Canadian operations and have just a sales force in Canada and everything else operates out of the U.S. It’s what I like to refer to as an accordion economy because you have this contraction of work in Canada and then people realize they’re not optimizing the business in Canada so we need a fully functional force in Canada and then it expands and then may contract again.”

Maharaj, who has held his position at Kellogg for 10 years, has heard the questions before. In the past, senior management has come to him and asked if some aspect of the department could be farmed out to external providers. “There is a sense that in many ways as issues become more integrated between the Canadian/U.S. border that the issue of distinctiveness between the countries tends to fade as it relates to our lawyers in the U.S.,” says Maharaj. “They often forget there are fundamental differences and so it does help to have someone on the ground here identifying those differences.”

When those kinds of questions are posed, in-house lawyers need to be ready with an informed answer that doesn’t appear entirely defensive. “The answer needs to be: Here’s what we do, here’s what is farmed out, and this is what the U.S. would have to pick up or here’s what we are willing to take a risk on.

The answer back is often that it’s going to take too long or it will be too expensive and so well then, we have to keep the people.”

There are currently three lawyers, including Maharaj, in Kellogg’s Canadian legal department. His was a new position within the company when he took it on a decade ago. “Initially, it was thought external counsel could do the work,” he says.

He says the usefulness of local lawyers has to be considered based on the facts and risks in the particular market. “I don’t think people start with the premise that legal, per se, is bloated, but rather: ‘How do we function with less people?’ Secondly, you have to look at what your legal spend is in that market and then third, what is your delivery/quality of service? If you look at those things you may be able to come up with an answer as to whether you need to buy legal services or just rent them — very often the numbers just sort of jump off the page at you. We do get the question: ‘Well, should we be farming out all legal services?’ But the research out there suggests 70 per cent of legal services should be in-house.”

Generally, law departments for U.S. companies with Canadian offices are already small, says Warren Bongard, president and co-founder of ZSA Legal Recruitment. He says they carry “lean staffing” for legal this side of the border often because the issues that happen in Canada are mirrored in the U.S. “So when programs are rolling out in the U.S., they may have a couple of lawyers in Canada handling the regulatory regime that goes along with what they are doing,” he says. However ZSA recently did a placement in a large $1-billion-plus company that was looking to add a second lawyer to the Canadian in-house team. “So they aren’t reversing, they are adding head count.”

Sascha Hindmarch is with London, U.K-based law firm Hausfeld & Co. LLP and is a former general counsel in Australia who writes about global practice management issues in an in-house context. She says companies need to be realistic about the commercial realities of the cost associated with in-house legal departments, especially when it comes to operating regional hubs. “Don’t automatically assume downsizing or shutting down a regional legal team equates to a cost saving,” she says. “In fact, it can often be the opposite with an increased reliance on external legal service providers.”

Despite some of the difficulties in maintaining regional departments (e.g. cost, communication, etc.), if a business has substantial offshore operations, opting not to have a local in-house legal team “seems to be counter-intuitive to a robust risk strategy connected to the practice management of an in-house legal team.”

At the end of the day, Hindmarch says each jurisdiction — even ones considered similar — have their own particular legal nuances that are difficult to appreciate if you don’t have personnel on the ground. “Certainly, if organizations are looking to close or downsize regional legal teams then legal department heads need an appropriate counter-strategy in place to meet the challenges of doing business in foreign jurisdictions.”

Importance of face time

Increasingly complex relationships are another risk of reporting to someone outside Canada. The legal obligation may be to the people you are working with in Canada but the reporting relationship is often to a global general counsel or someone higher up the C-suite chain. “Sometimes there is the potential for those things to come into real or perceived conflict,” says Fisher. “So I can see why some [in-house] may say ‘I don’t want to get into that. I want to look my boss in the eye and say: ‘This is the advice I’m giving you and I’m not concerned about political consequences of a larger organization.’”

The reality, he says, is if you can work at the head office of a large Canadian company you may have fewer concerns about your stability. But the fact remains there are huge numbers of subsidiaries of foreign companies in Canada. “It’s the nature of the economy,” he says.

DuPont’s Tuckett moved north to the Canadian office from HQ to take on the role of general counsel here in Canada in June 2012. Prior to that he was corporate counsel at DuPont’s headquarters in Wilmington, Del., serving as commercial counsel supporting its crop protection business platform. When he was approached about the job in Toronto, he jumped at the chance. At the time, the Canadian team had six people — four lawyers and two paralegals — handling a range of legal matters from contracts to employment, IP, environmental law, as well as antitrust issues.

He believes strongly in getting regular face time with the U.S. team and making sure for reasons of both professional growth and the health of the local legal department he gets to the head office regularly. “Even though we’re close in terms of flight time, it does take a good bit of effort and planning to remain connected to your global leadership because you’re not involved in the regular meetings in the U.S.,” says Tuckett. “So if you want to keep abreast and you have to get yourself invited to those meetings whether by phone or, I schedule meetings with the leaders whenever I’m in town so I can raise any local issues with them.”

Tuckett sits on the leadership team for the company and has the most business-focused role of the legal department. In Toronto, he reports to the president of DuPont Canada, and within the legal department to the associate general counsel in the U.S. Being from Delaware, he says he thinks it has made it easier for him but the Canadian contingent take the same initiative.

In terms of supporting a satellite office, in Canada business leaders tend to report to people in the global leadership of that business and decisions are made on a broader scale, not just what’s “right for the country,” he says. “We can respond to unique opportunities here but we don’t always get to make decisions based on what’s right for Canada,” he says. “There may be a great opportunity for an acquisition but it isn’t going to happen because Canada wants it to happen, it’s going to have to be because the global business unit is going to see it as a value-add and want to spend the money.”

Feeling abandoned

Some in-house counsel say they have avoided working for U.S. or global companies because they are concerned about feeling short-staffed or not in control of their own departments. Often, there’s a general sense laws are similar in Canada and the U.S. so the Americans can handle any issues rather than adding head count. “I don’t think they are wrong about the second issue, but we have to keep in mind this is a foreign country with different laws and rules — not just in the employment arena but in subtle ways in competition law and with things like CASL (Canada’s Anti-Spam Law) — that in my mind, I think if you have a large enough revenue base in Canada you need a [legal] presence in Canada,” says Tuckett.

Cheryl Foy is general counsel at the University of Ontario Institute of Technology and was previously general counsel at Tundra Semiconductor Corp. in Ottawa. She says her preference has always been to work in a Canadian head office environment for cultural and legal reasons because she has heard from colleagues who have worked for subsidiaries of U.S. companies there is “always a discussion about whether your judgment on the law can be right given the differences in the law.”

“I’ve been in the reverse experience of being at the head office with U.S. subsidiaries where you often run into employment law issues and that’s always an interesting cultural shift,” she says. “Our benefits and termination schemes seem completely foreign. U.S. companies can get into trouble if they fail to appreciate some of those nuances.”

Being at arms-length from the head office can definitely be a challenge says Nicole Chen, legal counsel with AMEC in Vancouver. With a head office based in the U.K., she says it is sometimes difficult to implement U.K.-specific policies and procedures and vice versa. AMEC is a U.K.-based consulting engineering company with many international offices. In Canada, AMEC’s operations are split into separate divisions and business units. Chen is responsible for the Vancouver office’s power and process projects as well as working on mining and metal projects across North America and internationally. Over the last four years she has been with AMEC, the department has stayed the same size. Chen reports to the Vancouver-based vice president, who is the most senior person in Canada and there is a vice president legal in the U.S. as well. “As with most head offices, a policy, procedure, or change required by regulation is cascaded down to its subsidiaries and as the head office is based in the U.K., there sometimes may be conflicts or inconsistencies with U.S. and Canadian laws. As such, it may take a longer period of time for such wrinkles to be ironed out to ensure all the offices are consistent,” she says.

She says certain practices and procedures, for example, with how external legal services are sought and provided for in the U.K., may be different from how it may be handled in the U.S. or Canada. “As such, it may result in some difficulty in seeking certain resources from time to time.”

Tuckett has advice for those who find themselves in Canadian legal departments with dotted lines that cross borders.

• Through your network in legal internationally, you should help your business leaders in Canada keep abreast of what’s happening in the U.S. and globally.

• Be willing to go to HQ and present your Canadian story — what are the growth areas for your region?

• Help your business people gain allies and maneuver terrain at HQ.

“I’ve done that — I’ve picked up the phone and called a vice president I knew or a lawyer who I knew had the ear of that person and said, ‘We have this issue could you give me some guidance or talk to them yourself?’”

When it comes down to it, the advice given by Tuckett, Maharaj, and others who are in Canadian in-house departments serving multinationals just makes a lot of business sense: add value in ways that transcend the legal role and make sure you have the answers when the C-suite comes sniffing around your legal department . . . and make sure they know who you are.


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