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View 2013: Preparing for the regulatory road ahead

Cover Story
|Written By Jennifer Brown
View 2013: Preparing for the regulatory road ahead

In the fast-paced world of Canadian business, trying to predict what will dominate the agendas of corporate law departments in 2013 can be tough, but it’s fair to say the job of in-house counsel is becoming more complex as regulatory and compliance matters dominate the headlines.

From Canada’s anti-spam law, Bill C-28, which has passed but is not yet in force, and heightened concern around anti-corruption practices, to a morphing of their own roles into more strategic senior business leaders, we asked six top Canadian general counsel to consider what their main challenges will be this year. Often, transactional activity and international expansion dictate they must consider alternative structures for delivering legal services to their business units and many we spoke with confirm this is an issue they’re tackling in the months ahead.

Proof of this can be found in the following snapshots of discussions we held with general counsel in a vareity of industries about everything from legislative pressures and external firm relationships to the challenges of diversity.

Mirko Bibic

[strong]EVP & Chief legal and regulatory affairs officer

BCE

Ottawa[/strong]

What legislation or regulatory change do you foresee bringing additional challenges to your department this year?

Canada’s anti-spam legislation is an important issue for us. It’s going to impact any business that communicates with customers and prospective customers. Even things like how a business downloads software to end-user devices will be affected. If you think of the nature of our business, we have tens of millions of customer connections all across the country and each of those connections could lead to multiple points of contact. Each and every one of those is subject to the CASL rules and we have to be very mindful of the forms of contacts those contacts take and the nature of the consent we require. The scope of this is huge.

On the legal and regulatory affairs team I manage we’re going to continue to work with our business units that will be impacted when the rules come into play. We’re conducting audits of current commercial electronic messaging practices and software download practices and we’re working to put an efficient, effective compliance system in place that is scalable so as the rules change and activities change we can modify our systems in a way that’s practical.

We will have a scalable enterprise-wide database to track consent and track exceptions and make sure we really know who is unsubscribed all in an effort to be compliant with the rules as we think they’re going to come into place. There’s no secret sauce to this other than it’s painstaking — you have to do a complete audit of how you do things and how things have to change as a function of how you think the rules are going to change. Then you have to implement it in a practical, efficient, and cost-effective way that is minimally disruptive to your relationships with your consumers.

There are also other pieces of legislation with similar impact, whether it’s CASL or changes to PIPEDA or lawful access legislation — you have to manage all those multiple variables.

What kind of transaction activity do you expect in 2013?

We’re back at it with Astral Media and a proposal we’re confident is going to receive regulatory approval this time. This is going to go right into the spring on a transaction we announced last March. You can get a sense of the workload something like that adds. But it’s also incredibly interesting and it is the type of work that keeps people particularly motivated and expands your scope and breadth. It’s particularly challenging on something like this where it was refused and you have to come back and develop new ways to put the transaction forward.

Are you looking to drive additional value from your outside law firm next year? What approaches are you taking?

One of our strategic imperatives as a company is maintaining a competitive cost structure and that applies to the legal department as well and we expect no less of the outside counsel we use. For a number of years we’ve been purchasing most of our outside legal work under three-year arrangements. We chunk out our work based on groupings or categories and we tend to choose preferred firms for each category of work and what we’ve found is overall we’ve reduced the number of firms we’ve used and we’ve reduced the spend.

We ask law firms to be creative in terms of billing arrangements whether it’s fixed fee, weighted average rates, or matter budgeting where we sit down ahead of a matter and say, ‘you can’t go over this’ and if it’s under we figure out how to manage things. We also look at getting access to secondments.

If you promise to do the work at $300 an hour what I want to make sure is that the firm doesn’t just put articling students on the file. In the next round we may consider how we involve an aspect of diversity in that — to date we haven’t with outside counsel. Internally we’re very sensitive to diversity.

Jane Fedoretz

[strong]Vice president and general counsel

CEDA International Corp.

Calgary[/strong]

Are there areas of legislation or new regulations you believe will bring added challenges to your department in 2013?

Anti-bribery/anti-corruption compliance is a big issue for us. We have spent a tremendous amount of time developing a compliance program. We will be doing more training in this area this year. Just because we’re a Canadian company doesn’t mean we’re not going to be dealing with vendors or people who are international or U.S.-based. Next year we will probably train every single business unit on this issue.

Privacy and maintaining confidentiality for our clients is also a priority so that means training our people around what a confidentiality agreement really means.

Is your organization exploring opportunities to expand business internationally or domestically?

I envision next year being incredibly robust based on some of the things the corporation is considering. We are primarily operating in Canada and we do have some U.S operations but we are going to be really focusing on the domestic market and there’s a reason for that. Canada has an abundance of opportunities — just look at Nexen and CNOOC. There are some major opportunities in this country. I think what you’re seeing is a lot of foreign investment in oil and gas and a lot of foreign engineering companies are here now. They have come to the Calgary market in the last couple of years when the market has been turned down and they’re establishing themselves because they see the oil sands continuing to be a vibrant market. Those engineering companies are starting to build an expertise here quietly. We see there will be a large trend of foreign companies coming in and we want to capture and retain that market share.

How do you see the in-house role evolving as you take on more complex work this year?

It changes as we’ve gotten more exposure to the business units. It used to be I’d take on a lot but now we train the business units to understand they’re ultimately accountable and I’m just providing advice. What I say is if you don’t take the advice and something goes wrong I will be turning to you and saying I need to deal with this and you’re going to be paying for the legal costs incurred.

We’re going to be docketing our work next year and identifying every hour we’re spending on matters. I think it helps people understand exactly how much something costs. I think one of the things we’re trying to do more is get estimates in advance so you can provide internal clients with as much information as possible. We’re all on the same team and if I don’t get good service you’re going to hear about it. I’ve been incredibly blunt when I’m unhappy with service.

Do you use secondments from external firms to assist with additional work or have you considered it?

No. I’ve done it in a previous job and I don’t see the value of it — it’s very expensive. You may try and get a reduced rate but you’re just teaching a person how to be an expert. They learn a lot from you and they can be very helpful in a crunch time but I’ve found you spend a lot of time mentoring.

Most of our work is a situation where I need five hours of time or a month of time — our practice is so varied. Our internal clients want to know who is in the department and I’d rather give that work to my own people to do.

Daniel Marion

[strong]Vice president, general counsel, and secretary

Thales Canada Inc.

Montreal[/strong]

Are there areas of legislation or new regulations that will bring added challenges to your department in 2013?

For 2013, I foresee further enhancement and enforcement of the Corruption of Foreign Public Officials Act here, and the Foreign Corrupt Practices Act in the United States, as well as the U.K. Bribery Act. There is also one for Quebec — Bill no 1, the Integrity in Public Contracts Act — which has come about specifically due to what’s going on in Quebec with public contracts. It is new legislation where every potential bidder to government-related entities in the province would have to be assessed and approved by the securities commission. The criteria are quite stringent and can be applied even outside Canada. All of this together will have quite an impact.

As Thales is a French company partially owned by the French government we, like most European companies, have had issues in the past and we have tried to get away from that image as much as possible. We have embedded into every type of policy and process a very tight anti-corruption process. In every country the management has to be educated every year, as well as the sales force and program management force in foreign countries — our code of conduct is very strict. We have been lucky so far. We are one of the tops in the world in terms of ratings for anti-bribery.

We are also looking at the enforcement of intellectual property protection abroad. We are doing quite a bit of work in Asia and the Middle East and will be doing more, and we have to take measures with respect to IP. In 2012, we put a big emphasis on patent filing and in 2013, we will probably file foreign filings from the ones we filed in Canada and the U.S. After that we have to enforce the patents we have filed. We increased our patent filings four-fold in 2012.

As well, I expect issues on transfer pricing and withholding tax to be an issue because the tax authorities both provincially and federally are very aggressive. We are audited all the time for various periods and they really don’t leave until they find something.

Is your organization exploring opportunities to expand business internationally or domestically?

We have three main divisions in Canada: defence, aerospace, and rail signaling. We have had big wins in India and we’re looking for more business there and in Malaysia next year as well as Singapore, Hong Kong, and the Middle East. We’re really striving to increase the business and signaling will increase significantly in the next few years. About 75 per cent of our signaling business is for export now but signaling last year and this year will be focused domestically.

We are also looking to increase business with the U.S. on the aerospace side.

We will be increasing our footprint in Canada but we are really focused internationally. So we need staff that can juggle many types of legislation and bid requirements that are different from one place to another.

How will you manage the added workload from this activity?

In our industry we feel outside counsel don’t really have the expertise we have. Everybody on our team has a specialty in tax or anti-bribery, ethics, and negotiating contracts. We use outside law firms but we go to them on very specific issues and sometimes for India and Malaysia we need to have an opinion from local counsel over there.

In the defence business, essentially it’s government terms and conditions which are rarely negotiable, but we need to know how to maneuver. When we do business in China it’s different than in India and the Middle East is a completely different ball game. Singapore is really tough and by the book. We’re lucky to have hired someone born in China and trained in Canada and China who has an accounting background and an MBA. She is focused on the Chinese files but now she’s working on other files from Brazil — we had two big wins in Brazil to be finished for the World Cup and Olympics.

Is diversity of staffing on files an issue you discuss with your external counsel?

Within the company diversity is essential and in my department it’s very important especially because we do business all over the world. We have two people from Asia and the Middle East and Canada who have different backgrounds.

With respect to outside firms, if I don’t like the service I’m getting from outside counsel I’m going to go somewhere else but I don’t see it as my position to tell them, ‘Guys, you have to this and that in terms of staffing.’ In terms of service I’m very direct and they know what I want and how I want to be billed and structured. But whether they hire 10 females or people from different cultural backgrounds — I don’t think it’s my mission in life to tell them to do that, frankly.

Alaine Grand

[strong]Chief legal counsel

AstraZeneca Canada Inc.

Mississauga[/strong]

Are there regulatory issues you foresee bringing challenges to your department/organization in 2013?

There are two areas we will be watching quite closely in 2013. The first is the Canadian European Comprehensive Economic and Trade Agreement or CETA negotiations. Through these negotiations Canada has an opportunity to strengthen its intellectual property regime and close some gaps on standards currently in place with other leading industrial countries such as the U.S., Japan, and the European Union itself, so we’re looking to see what the results of those negotiations will be and certainly hope for an improved IP regime we believe will attract more international investment and also increase research and development opportunities in Canada.

The second area is the transformation of several regulatory frameworks under the Food and Drug Act. They are accomplishing this through amendments to existing regulatory frameworks over a period of time. They are coming out in a staggered approach but there are ones we have been in discussion with the government on for some time and have had an opportunity to provide feedback on. Their aim is to create a more transparent, efficient, aligned regulatory system for health products and food and we have been watching that area very closely. These two areas could have a fairly big impact on us.

Are you looking to drive additional value from your outside law firms?

We’re always looking at ways to drive value from external firms but I think we also look at value in the broadest sense. Cost is always an issue for us because our budgets usually tend to be on the downswing versus the upswing. It’s something we have to be conscious of at all times.

I’ve definitely seen a shift in external firms being more open to the discussion of alternative costing models to the traditional hourly billing format, which I think is very positive. I’ve heard mixed reviews as to whether it works or not. We go with the traditional volume discount, which tends to work for us because it depends how much volume we think we’re going to have on a year-to-year basis.

We have recently tried a capped approach where we had a firm estimate budget and once they reached the budget they were capped at a certain amount and the rates dropped significantly after they reached that cap. I’m starting to see a little more effort put in by the firms in saying we do have alternative methods.

Part of it is they’re learning too, so I think it’s difficult for both sides. The default often seems easiest but it’s about getting value for the work.

We’ve also engaged a low-cost service firm that hires only in-house counsel with in-house counsel experience that are flexible in the way they can provide service. Lawyers have to look at the service they offer and reassess the value it’s bringing to the table because they have seen themselves as bringing a unique and valuable service, but now there are alternatives and it poses the question: How much is that really worth?

How important is diversity in your department and do you make it a priority with external firms?

I think AstraZeneca as a company recognizes the importance of an inclusive and open organization that really looks at bringing people to the table that have a variety of skills and unique abilities. When we look at engaging external counsel our primary focus is looking at whether they have the knowledge and skills we need to solve a particular problem or provide a certain service. So I wouldn’t say it’s our primary focus when we’re looking at engaging external legal counsel but we strongly encourage our law firms to do what they can in this area because we think as a whole it makes an organization stronger.

Geoffrey Creighton

[strong]SVP, general counsel

IGM Financial Inc.

Toronto[/strong]

Will Canada’s anti-spam legislation (Bill C-28) affect your company? If so how has the legal department been working with the business units to manage it?

I’ve been to Ottawa several times to speak with Industry Canada together with the senior people at the Investment Funds Institute of Canada providing legal thinking for the IFIC representations and went so far as to provide draft language in our comment letters.

It is something that will affect our business. How much will depend upon the final contours of the Industry Canada regulations. From our perspective, if you think about investment funds and financial services generally, in the context of IGM the Investor’s Group side, for example, has about 4,500 consultants/independent contractors who are, in effect, the sales force for the Investor’s Group side. On the Mackenzie Financial side, the products are marketed through literally thousands of third-party advisers at brokerage and planning firms and it’s the relationship between those people and their potential clients and what they can send or not send — and particularly third-party referrals — that are a real issue in any industry that is effectively a small business that relies on word of mouth. Word of mouth has become word of electronic mouth and with the do-not-call legislation preventing reaching out by phone, e-mail has become the way people follow up on referrals.

Our greatest concern is they don’t throw the baby out with the bathwater — by attacking what everyone would concede is spam and bad actors in the market, that the collateral damage could be all the legitimate small businesses out there.

Are there other regulatory matters you’re having to consider in 2013?

The securities commissions are putting out a lot of papers and draft rules in areas that hadn’t been covered before. In the financial advice industry there are proposed new rules on performance and cost disclosure, which could have quite an effect on how financial products are structured and how the disclosure has to be done. The Canadian Securities Administrators put out a paper on a potential application of a fiduciary duty to financial advisers and brokers and I expect there will be much debate about that over the next few months.

Is your organization looking to expand its market in 2013?

Yes, there are certain areas we would be looking at in a more strategic way. We are looking internationally because investment as a general proposition is becoming international and we already have funds that are internationally marketed, primarily domestically, but Mackenzie is developing an institutional business and that means selling investment management services to pension funds, foundations — any other sort of large institution client that wants bespoke service in terms of their investment management. That may take us abroad.

In international circles, Canadian firms and particularly Canadian financial firms have a good reputational aura around them. All else being equal in a non-North American country a potential target might be more amenable to talking to a Canadian company rather than an American simply based on perception.

How do you plan for additional work in your department?

For the kinds of transactions we get involved in we largely outsource to outside counsel with a team overseen by myself, or one of the other senior lawyers here, and a junior lawyer to do things that can be done in-house.

We’re not really set up to be a transactional practice and having come from that in private practice I appreciate there is a whole infrastructure that would not make sense for us to build internally. So for that kind of thing, acquisitions in particular, at the appropriate time we would hand it off to outside counsel with direction. I spent a long time in M&A and corporate finance and can mentor internally as needed.

[strong]Anna Fung

Vice president, legal & general counsel

TimberWest Forest Corp.

Vancouver[/strong]

Is the development of an anti-corruption/anti-bribery compliance program part of your plans for next year?

One of the things we’re looking at is how to deal with anti-corruption and anti-bribery legislative compliance as a result of the high profile case recently involving the SNC Lavalin chief executive officer being charged criminally — it has the business community nervous. For any company that does business in the U.S. and internationally there is a risk that a company may not be compliant in terms of some of the activities it’s conducting abroad. Under U.S. and European legislation the law can be quite broad and liability can be huge in terms of the impact on your company if you find somebody has knowingly or unknowingly run afoul of the applicable legislation by offering a bribe or solicitation payment.

It’s an area we’re definitely keeping an eye on and doing the appropriate training to make sure our employees are aware of it as well as creating a process for compliance, particularly when we’re thinking about growing internationally as well as in the U.S.

We recently had an in-house training session for our executives and senior management team with one of the lawyers from one of our external law firms and it was very well received. It’s an eye-opener when you see and hear about the number of active RCMP investigations now going on in Canada at various companies.

Is your organization exploring opportunities to expand business internationally or domestically?

We are looking to expand internationally. Up until last year TimberWest was publicly traded but was recently bought out by two Canadian pension funds — British Columbia Investment Management Corporation and Public Sector Pension Investment Board — that are very much in support of the company’s growth agenda. They want us to look at suitable opportunities both in Canada and in the U.S. and internationally.

When I came on board last year, I was brought in because our pension fund owners were very insistent that an in-house lawyer and VP be hired. They felt a company of our size needed to have in-house counsel that would be accountable to the board of directors as well as management that they can turn to and be assured there is somebody responsible for keeping an eye on what’s happening with the company internally.

How will the proposed growth activity change your role?

I have to be more aware and more proactive about issues. Luckily I also have the ability to know about a potential transaction long before anybody else does. One of the most important things youneed to do is have the appropriate advisers giving you advice. It’s been an educational process for the company to get used to having in-house counsel that is the main point of contact for all legal matters.

Will you manage the work internally or externally?

I’m the only lawyer in this department. In 2011, we had $3 million in outside legal fees because there wasn’t a lawyer in-house at that time. We had a large transaction when we took TimberWest private. As a result we incurred a lot of legal fees. In this past year, we were in the neighbourhood of $2 million in fees and next year we anticipate we will be in the same range given we are involved in a major piece of litigation and in addition we are active in the area of trying to bring about some policy changes on a federal government level on foreign trade. We are also looking at acquisitions and therefore budgeting for about $2 million in legal fees.

Do you ever discuss diversity of staffing with the law firms you work with?

No, but if I give work to a law firm and all the lawyers who show up are male and white I do notice it. I may not necessarily comment on it but I do take note of it and may ask the question: ‘Do you not have any female lawyers or ethnically diverse lawyers in your office?’ I don’t make it a requirement but is something I do note mentally.

Are you looking to drive additional value from your outside law firms?

I hire the best lawyer I can afford for the transaction given the size and complexity and material involved. I won’t hire a $700-an-hour lawyer for a simple transaction — that to me is value when you look at the issue and mentally assess the complexity of it and assess what is the best lawyer for the job. I know a lot of people talk about discounts and discounts are great, in theory. One of our law firms has an arrangement where they give us a five-per-cent discount on everything we do but you wonder sometimes if that discount is illusory because, if you believe what some people say, the law firms just add up the hours and pump them up to mitigate the discount. I don’t know if that’s true or not but certainly there’s a perception it can have an almost nil effect at the end of the day.

When you think about a large bill five per cent isn’t necessarily going to make or break the bank. I don’t generally go for alternative fee arrangements.

The most effective relationships are the ones I know I can trust totally in terms of integrity and quality of the work and at the end of the day the fact is I have a budget I need to manage and hopefully a firm will help me achieve that to the extent they can.


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