It used to be that in-house counsel for large organizations were recruited out of big Bay Street law firms or by virtue of having provided external legal advice for years to a client, they were asked to come inside to establish a corporate legal department.
Thanks to the evolution of the in-house bar that model is changing. Over the last decade or so large organizations have been building their internal departments with the goal to “grow their own.” As we learned in this year’s annual Canadian Lawyer InHouse roundtable, for example, David Allgood, currently senior vice president and general counsel for Royal Bank of Canada, fully expects that as the senior general counsel in Canada’s big five banks leave they will likely be replaced by in-house lawyers they have mentored themselves.
The face and shape of in-house departments and the responsibilities they hold has become more sophisticated as the pressures from their business units dictates what is required of them and those they hire.
The subject of law department management specific to staff and succession planning along with issues around regulatory matters were the topics discussed at the annual roundtable organized by Canadian Lawyer InHouse in co-operation with the Association of Corporate Counsel.
The eighth annual InHouse/ACC General Counsel Roundtable included legal department leaders from a variety of sectors, all with varying issues to consider within their organizations. Some are not-for-profit while others are large public companies.
This is an extended version of the article that appears in this month’s print and digital edition.
This year’s participants were Ildiko Mehes, vice president and general counsel Teva Canada; Mark Johnson, general counsel, Infusion; Harriet Lewis, university secretary and general counsel, York University; David Allgood, executive vice president and general counsel RBC and vice chairman, Association of Corporate Counsel; Tracey Durand, senior vice president corporate and legal affairs and general counsel Sodexo Canada Ltd.; and Arif Ahmad, vice president, legal affairs and general counsel, Re:Sound. InHouse editor Jennifer Brown moderated the discussion.
INHOUSE: What has been your approach to building a legal department and how have you overcome challenges along the way?
ALLGOOD: When I took over the legal department at RBC it probably consisted of about 40 lawyers. There are about 180 lawyers currently. I think one of the biggest challenges I identified was that we were viewed as the black hats. In the early days, my focus was trying to change that and develop more of a collaborative attitude with the lawyers who were there to build the function around that, and we spent quite a bit of time doing business alignment surveys. We grew it by growing our credibility with the business units and then working to add to the group in what I think are the strategic areas with a competitive advantage inside versus outside.
MEHES: When I joined Teva I was the first Canadian lawyer hired. My challenge was not dissimilar in some ways to what David explained — to set up a legal function that would have alignment and credibility with the business. I viewed my role as being a simple one: hire the best external and internal legal talent and focus on creating value and mitigate risk. I felt if I could achieve those two things then alignment and credibility would be built and those themes have been consistent in our department in the last few years.
JOHNSON: I am the first general counsel at Infusion and I started two years ago. They had two other staff, but there was dissatisfaction between the sales function and legal. Particularly they felt legal was slowing things down. One of the first things I did was walk around with the stakeholders and listen to what they wanted and then try to implement what they were saying. Then I also had to find out what was needed. It was growing so quick and didn't have a proper code of conduct let alone anti-corruption laws or contract record keeping. The other challenge was the senior leader team was very young. They had never worked with lawyers before.
LEWIS: In the 25 years since I joined the university it’s doubled in size in every way in terms of numbers of students and the square footage of the classrooms and so on.
There was a lot of legal activity on the horizon. It was very unusual in Canada at the time to have in-house counsel at the university because all of the money the university had was supposed to support the academic side, but as the world became more litigious and focused on rights it became apparent legal advice was needed by all parts of the university. The case was made that we needed help and it became recognized as adding value, then we got the resources to have additional lawyers.
AHMAD: I joined Re:Sound two-and-a half-years ago, and when I arrived the interesting thing about the structure of the legal department was how it worked with external counsel. It allows us internally to build up in-house expertise while working with external counsel. We are a group of five. We have three lawyers, paralegal, and the coordinator.
DURAND: I have been the first lawyer into an organization three times — I sometimes say I am a glutton for punishment. Most recently with Sodexo I came in and they had been receiving legal support, but I would say the legal support, because there was not someone on the ground here in Canada, was viewed somewhat as optional. Sometimes that was okay but sometimes it was optional in areas where it should not have been optional. I too had to establish the value — the value that legal could bring to driving the business, and my experience has been that it really is the thing that helps you to gain credibility; become a partner to the business, and integrate yourself into the business as an important part of whatever the business is doing and its processes.
INHOUSE: Do you have to make a business case each time you want to add a lawyer in-house?
ALLGOOD: Every time. That became part of the discipline and the context in growing the group and trying to grow in areas we felt the business partnership was important. We have it quite structured that requires the case to be made by the lawyer and a particular group or leader in that particular group, but it also requires the business partners to sign off. Unless it’s in strict legal areas such as regulatory affairs where I may make the business case, but the product lawyers and other lawyers that work actively with the business mean it is a combination of our work and the business partners as well.
JOHNSON: When you say business case David, do you have to compare salary to cost and saving in external fees?
ALLGOOD: We have various boxes that need to be filled out and one is: What is the alternative? Which is roughly how much do you think the hours would be over the particular year? So we do a cost comparison to outside counsel and tend to hire lawyers in the three-to-five-year range. We price that out accurately and compare it to what we think the outside legal fees would be. Sometimes you look at that and you might say, well, maybe we can go outside but another aspect of the business case is the view that to deliver effectively they need to be sitting beside the business.
AHMAD: I think more and more, organizations are bringing expertise in-house, rather than paying for it externally, but the expectation is there that there is a savings that comes with that. I just filled a maternity leave position for the year and it wasn’t that there was opposition but I still had to make the case for how it makes sense and how that person will be utilized.
DURAND: I’ve absolutely had to make the business case but I have been extremely lucky. I have actually had other departments make the business case either for me or with me and quite often it has been the sales department, which is interesting. I think if you can get to that environment where you have other departments supporting you, that is really helpful because it shows you are adding that value and they see the value of the function and what you’re bringing to the table.
LEWIS: I have partnered with other areas in the university in making the case — in both the research area and also human resources, in making the business case where we needed more help. They’ve been able to contribute financially. I will hire the individual and they will be in my office but they are basically delegated to that department area as a prime counsel and a portion of their salary is sent to my budget each year. That way we do partner financially in addition to just on the files themselves, and it's worked for me in two cases. I would never have been able to get people who had a certain specialty without that model to fall back on.
MEHES: I have not had a lot of trouble making a business case because we first demonstrate the added value that the legal function brings and the financial results are demonstratively better with every lawyer that we have hired for a variety of reasons. We either have mitigated significant risk or brought new product to market that we otherwise would not have been able to sell — it makes the business case relatively simple. So on the cost side I think that is one side, but it's the added value we bring too, and I am one of those believers that a legal function is not just a cost centre. We help to drive the business. In our industry in particular, we are a growth driver. So when you are in that mindset and the business sees that, you really have a much easier time making that all important business case.
INHOUSE: Do you hire and mentor with succession planning in mind — with an eye that an individual may one day take your job?
ALLGOOD: I think we have grown in the in-house bar and have become much more sophisticated. When succession happens with me I hope my successor does come from the group at RBC. I have a senior team of five vice presidents who report up to me, and I am actively mentoring all of them, and I think all of them are potential candidates for my succession. I think with all due modesty we have serious candidates in-house.
When I first went in-house in the late 1990s there was a rollover of general counsel at the five big banks over of a period of two years and they were all senior partners in senior law firms. When that rollover happens again I will be surprised if any of those positions are filled with senior partners. It will be internal or an outside person with general counsel experience from somewhere else. General counsel is becoming more of a specialty than it would have been 15 years ago. Part of my line of sight on that is through the board, and I sit around the boardroom table with associations with lots of people, 30 general counsel sitting around the ACC's boardroom table and a remarkable number of lawyers have had two or three significant Fortune 500 company-type jobs.
LEWIS: I have always looked at our legal team as a mini law firm with partners. The issue for us always is getting a deep knowledge of the institution because universities are complicated. Having that deep knowledge I think is an advantage to anyone that wants to move forward. By the same token it's also an organization where getting along with the senior team and the individuals on the team is important. I have a wonderful team and I have confidence in all of them. I have no doubt if I got hit by the Queen Street streetcar the legal function of the university would run smoothly. I don't know exactly how the future will shape out at York University, but I know that we have good people to do the work.
DURAND: Always when you’re hiring you’re hoping the person will go on to great things within the organization. I think you do look for slightly different things — I look for a genuine interest in the business. There is still that myth out there that we have a cushier lifestyle than some of our counterparts at law firms, and it is a myth. I’m always a bit leery of people making the leap for that reason. It is a different risk of tolerance on a personal level. I do some amateur testing on how comfortable people are in making decisions and with ambiguity. I have a couple of scenarios that I put out to candidates to say, if you were faced with this, how would you deal with it? That tests whether this is going to be a workable environment for them.
JOHNSON: It's a completely different job than working at an external firm.
When you’re in-house you are not only the adviser but you have to decide on the risk. In a law firm you can push off the decision to the client. Those coming in-house need to be comfortable with people coming in your office and you have to be comfortable with giving definitive advice.
MEHES: I look for judgment and communications skills more than even experience. I have hired a lot people with no prior experience in the pharmaceutical industry. I don’t think that’s a prerequisite, but judgment and great communication are necessary. I started out as a litigator but I have done M & A and other things that most litigators don’t get to do, and you become a generalist. To me the real challenge in succession planning is finding someone willing to become a generalist. I also typically hire in that three-to-five year associate range and the goal is to expose them — bring them in to shadow litigation and vice versa. We get the IP litigator helping out on a deal — I want everyone to understand the whole of the business and the whole of the legal work, and I think that that is the challenge and it takes time.
AHMED: I was a litigator in private practice and I remember when I started in-house thinking about how I could enjoy being part of the business and in a strategic perspective on that side of the table. The general counsel who hired me was a litigator, and I think that is becoming more and more common, because litigators — as you mentioned — you are going into the role where you will be in new situations, new issues all the time, and I think litigators have good training in that respect. Every time you pick up a new area, new file, you learn and immerse yourself. So you are looking for people that are really interested in the business perspective and gaining that strategic perspective and will fit with the team.
INHOUSE: When you add personnel are you asked to reduce your external legal budget or is it viewed as separate?
LEWIS: Certainly that is in everyone’s mind. We want to do that. The way I look at it, when I want to reduce I look at the sorts of things that we can do in-house that are really ancillary to our local business function, such as preparing a file for external counsel. They don't have the time or personnel to do that, but we can save money on the front end if we have people that can do that kind of prep work. So I look at it that way.
Overall, because of the great increase in activity by the university I think we have not cut down on our external budget because we have taken on initiatives and all of these things are large projects requiring expertise. So the finance side of it is important but not the driver.
ALLGOOD: I view internal and external as part of the whole in order to provide the right legal services to the organization. It's not necessarily a direct substitution, but it is management of both processes. You will always need outside counsel, but I do have views and opinions on how efficient they are. We have been involved with the ACC [Association of Corporate Counsel] and working with the law firms to try to get them to be more efficient in the way they provide legal services. Over the last five years, I think the legal spend is flat. As a growing organization, I think that is accomplishment.
MEHES: I think driving down internal legal costs is one factor, but I have an antidote which came from the global general counsel of Teva who hired me eight years ago, who is essentially running, in a sense, a law firm globally. What he said when he was making the business case for hiring me — the first lawyer in Canada — he was asked by the Canadian CEO: Does this mean I will spend less externally? His answer was no. You will spend more. The reason is we have a lot of litigation. He said “she will be getting very involved in that. She will manage the day-to-day, meeting with the lawyers. She will be asking a lot of questions.” So at the end of the day, it may in fact slightly increase your legal costs, but the outcomes will be better and in the long run you will have a more successful business.
JOHNSON: I think there is a view that you simply have to spend money on in-house counsel, and it's an investment and part of a maturing company. We have been able to reduce external legal costs and the biggest external cost was on immigration matters, but I agree that it produces better outcomes. The company should stop viewing it purely as a cost centre. The company matures and it's part of the team. Having said that, we do look for cost reductions one way or the other from external counsel.
AHMAD: We are a not-for-profit so we want to maximize every dollar and that drives everything we do, but at the same time our organization is always growing. There is an understanding that that sometimes you have to bring people on or external counsel will focus on something in particular. In particular for us because we have legal group helping to obtain the tariffs there is a recognition that there is an investment and you have to invest in those things.
DURAND: I found depending on the reason you want to add an additional
resource, you may or may not have a direct correlation. So if you outsource a lot of contract work and then bring someone in, then, yes, my boss and finance team would look for a direct correlation. If you do it because of growth or a new area that you need to look into or you have new issues to deal with then I think that is a different discussion about why you need the resource and the value that it's going to add.
INHOUSE: Do you find the external firms are working with you more to help you control costs or do you still have to push the conversation?
MEHES: I think there are a lot of different ways to look at costs. We all talk about trying to reduce cost and to manage cost. There are a lot of different factors that go into doing that, and I think it’s very different for complex “bet the company” litigation than it is for commodities kind of day-to-day business or transactions.
I still view it as gearing the conversation more towards not just controlling cost but delivering value. Sometimes when you're so focused and you're predominantly focused on controlling costs, those savings end up being translated into other costs in the business — either in terms of poor outcome or exposure that is created in areas that you would not otherwise have exposure.
It's got to be a broader view, and it's got to be a whole view of delivering to the organization and the value you are creating and then within that framework trying to keep costs flat or even reduce slightly. But I do like to, like I said, move the conversation away from only controlling costs to also delivering value as a legal function.
DURAND: Certainly the law firms I am working with are open to the dialogue. I am not sure we have advanced too far on it, and I think there is work to be done on both sides in my case. Some of it I think is compartmentalizing the work a little bit better to say, here is what I am actually looking at from a value proposition and here are the things that might be viewed in a more traditional sense because they are unpredictable event-type matters. I think I would say one of the things I need to do is be more transparent about how it works for me. That’s to say, “Here, this is the budget I get and this is what I am accountable for and this is what I am trying to manage.” I think that would be helpful for my law firm partners to have a better understanding of that rather than the sort of blanket statement like, “You need to figure out a way to reduce the legal expense.”
AHMAD: That is a great point. We have had discussions with our external counsel a while back on these types of topics, and I paused and said, "We should be having this discussion not now but back in the fall. Let's get involved on that point, and I will set out what the issues are for me.” That has also led to a recognition that it's case-by-case. There will be some areas that lend themselves to some more traditional means and others where you will have to see how it goes. One thing I think that the firms and external counsel do now recognize is that at the least you need certainty. You need to as much as you can communicate with the business where you are going and be able to deliver that, and that starts on the right track.
DURAND: If general counsel becomes transparent about the budget and what they're looking for the answer cannot be just a simple “we can give you this many hours.” This is a much more complex discussion than that, and I think that that is where the transparency would help but then flips back to the law firm to get more creative and think about how they bring value to the client.
ALLGOOD: I agree it's a value question. I think the important thing is it's a conversation. I personally would like to see more leadership from the law firms, but I think general counsel are taking on the leadership of the conversation and more are going to the firms and wanting to have the dialogue, and I think the firms are coming to the table and having the dialogue around value. The value challenge the ACC launched was quite successful and continues to have traction in Canada.
One of the most important things I see is the in-house lawyers sitting down with the firm to do the budgeting. I think we were quite guilty of just throwing files over the transom and then they came back and we said that is not what we wanted but we didn't tell them. I think the firms are listening more. My only disappointment is I would like to see more coming from them, but I think general counsel are leading.
LEWIS: We have a very, very open approach with counsel, and we use a number of them, and we tell them we cannot pay you a regular fee, and we are looking to manage this case better. But we also get a lot of value added things like internal education. They do it willingly and well. I think our wish to spend more wisely and more carefully is part of the same impetus that they have to make the most of the hours they work and to do well because the work has decreased for large firms, and they have to pay legal overhead. So we both are going in the same direction with opposite goals in mind perhaps.
JOHNSON: I wouldn't even know how to judge a fixed fee but we keep an eye on the legal fee and if they are too high then I let them know that. We also, when possible, try to use smaller law firms. There is skill and expertise and they are more economical and you don't need the massive teams but our deals are not that large.
INHOUSE: Are regulatory and compliance issues putting more pressure on your department?
MEHES: Pharma is such a heavily regulated industry. The regulations are changing all the time, and I have a regulatory affairs function reporting to me as well as the legal function, so it makes for all kinds of interesting regulatory and compliance issues. I don't see it as pressure as much as I see it as a challenge and an opportunity to add value in the organization but it's certainly a growing element. I talked earlier about value creation and risk mitigation, and this really falls into the risk mitigation. I can say eight years ago we were spending very little time on it and today I spend a significant amount of time on it. There has clearly been a shift and trend in that direction.
ALLGOOD: We are much more segmented in that sense and we have a huge compliance market. I have 180 lawyer but we have 600 compliance professionals. We have the regulatory affairs groups and these three groups all interact, but the rate of change has put a lot of pressure on our daily work because there is a continuing level of change, whether it's from Basel in Europe or the U.S. and Dodd-Frank we have continual regulatory change which we need to keep on top of. It’s one of the growth areas from a hiring perspective — compliance professionals is a growing area. There are lots of lawyers, but if you want to advise someone to develop a career who is a lawyer — becoming compliance professional — it’s a scarce commodity.
All the regulators are much more intrusive than they used to be. Not just in the regulations that they pass, which is one thing, but the number of examinations and the amount of reviews and the amount of information they request puts a lot of pressure on the existing entity. It’s demonstrably more than it was five years ago.
DURAND: I don't work in what I would call a regulated industry like pharma and financial but there are still compliance issues, particularly when your parent company is in another country, and then there are general compliance issues about internal compliance. I find I am doing a lot of work in that area just educating at this point. That is something that has fallen into the legal function.
AHMED: We fall into two groups. On one hand it's similar to Tracey. On the business side it’s not as highly regulated. I think we have seen a lot of growth in terms of the internal compliance and now as we move to external we have to be mindful of what’s new. There is a lot that goes with copyright and the steps that we have to follow, but that is something that has been core for us. I don't see it as a pressure but just something to keep in mind.
JOHNSON: We are not in a regulated industry but the one that concerns me now is the U.S. export control and the application of that.
LEWIS: Information and privacy in particular and in addition to the government legislation, copyright is an issue. We also have an internal governance system — legislation, the division of power within the university, between the academic set and the board of governors and we have student appeal procedures that have to be administered — all of that comes to our office with management or advice.
INHOUSE: How are you managing issues of ethics and risk?
MEHES: I think every general counsel has a clear duty to be thinking about reputational risk for the business, and so ethical issues are a critical part of that to me, and then secondarily the concept of integrity. I mean, as lawyers, I think integrity is so important if you want to have a long and healthy career. You have to maintain integrity, and that is in our company as well. That is one of our core values.
DURAND: I think as lawyers we are just in a better position to identify when something might be an ethics or compliance issue or, you know, may be on the line or over the line. I have the pleasure of being part of a company named one of the world's most ethical companies on a list somewhere. So it's a pleasure but a bit of a burden. You certainly don't want to be the country that changes that ranking next year because you have had a huge ethics blowout.
LEWIS: I say, speak truth to power or to know the right thing to do if it came down to it would be to call people on things and if that meant sacrificing your career that is what it means. I think that that is what it means in the profession.
AHMAD: Lawyers are in the best position to bring that perspective to the organization but I would echo that our organization is one where integrity is placed at premium from the top down.
JOHNSON: I think things have changed in the last few years as a result of various corporate scandals. I think general counsel are now viewed as the chief ethics officer and we are well placed to be that person. I think we have to be prepared to do more than just resign but we need to confront and perhaps blow the whistle on wrongdoing. I think the traditional role was we advise the CEO and the board of the risks and if they don't like the advice they can still proceed with it but we’ve done our job — we’ve memo’ed it up the chain of command, but I don’t think that holds anymore especially if the potential victim of the wrongdoing is someone out there in society. It’s incumbent on us to blow the whistle and some don't feel comfortable with that or is at odds with our duty of confidentiality but I think there’s an overriding duty to the victim and wider society.